Attached files
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EXCEL - IDEA: XBRL DOCUMENT - Millburn Multi-Markets Fund L.P. | Financial_Report.xls |
EX-31.03 - EXHIBIT 31.03 - Millburn Multi-Markets Fund L.P. | v409839_ex31-03.htm |
EX-32.02 - EXHIBIT 32.02 - Millburn Multi-Markets Fund L.P. | v409839_ex32-02.htm |
EX-31.01 - EXHIBIT 31.01 - Millburn Multi-Markets Fund L.P. | v409839_ex31-01.htm |
EX-32.01 - EXHIBIT 32.01 - Millburn Multi-Markets Fund L.P. | v409839_ex32-01.htm |
EX-31.02 - EXHIBIT 31.02 - Millburn Multi-Markets Fund L.P. | v409839_ex31-02.htm |
EX-32.03 - EXHIBIT 32.03 - Millburn Multi-Markets Fund L.P. | v409839_ex32-03.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, 2015
Or
¨ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Commission File Number: 000-54028
MILLBURN MULTI-MARKETS FUND L.P. |
(Exact name of registrant as specified in its charter) |
Delaware | 26-4038497 | |
(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 I. FINANANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Millburn Multi-Markets Fund L.P. | ||
Financial statements | ||
For the three months ended March 31, 2015 and 2014 (unaudited) | ||
Statements of Financial Condition (a) | 1 | |
Statements of Operations (b) | 2 | |
Statements of Changes in Partners' Capital (b) | 3 | |
Statements of Financial Highlights (b) | 4 | |
Notes to Financial Statements | 6 |
(a) At March 31, 2015 and December 31, 2014 (unaudited)
(b) For the three months ended March 31, 2015 and 2014 (unaudited)
Millburn Multi-Markets Fund L.P.
Statements of Financial Condition (UNAUDITED)
March 31, 2015 | December 31, 2014 | |||||||
ASSETS | ||||||||
Investment in Millburn Multi-Markets | ||||||||
Trading L.P. (the “Master Fund”) | $ | 128,136,765 | $ | 118,612,452 | ||||
Due from the Master Fund | 1,133,722 | 838,054 | ||||||
Cash | 1,554,604 | 746,100 | ||||||
Total assets | $ | 130,825,091 | $ | 120,196,606 | ||||
LIABILITIES AND PARTNERS’ CAPITAL | ||||||||
LIABILITIES: | ||||||||
Capital contributions received in advance | $ | 1,551,920 | $ | 743,209 | ||||
Capital withdrawal payable | 1,133,722 | 838,054 | ||||||
Due to the Master Fund | 2,654 | 2,863 | ||||||
Total liabilities | 2,688,296 | 1,584,126 | ||||||
PARTNERS’ CAPITAL: | ||||||||
General Partner | 3,295,174 | 3,073,797 | ||||||
Limited partners: | ||||||||
Series A (109,509.1157 and 107,745.6394 units outstanding) | 113,373,764 | 105,099,830 | ||||||
Series B (7,403.3374 and 7,011.0183 units outstanding) | 8,349,827 | 7,468,031 | ||||||
Series C (2,725.4915 and 2,751.2975 units outstanding) | 3,118,030 | 2,970,822 | ||||||
Total limited partners | 124,841,621 | 115,538,683 | ||||||
Total partners’ capital | 128,136,795 | 118,612,480 | ||||||
TOTAL | $ | 130,825,091 | $ | 120,196,606 | ||||
NET ASSET VALUE PER UNIT OUTSTANDING: | ||||||||
Series A | $ | 1,035.29 | $ | 975.44 | ||||
Series B | $ | 1,127.85 | $ | 1,065.18 | ||||
Series C | $ | 1,144.02 | $ | 1,079.79 |
See notes to financial statements (Unaudited)
1 |
Millburn Multi-Markets Fund L.P.
Statements of Operations (UNAUDITED)
For the three months ended | ||||||||
March 31, 2015 | March 31, 2014 | |||||||
NET INVESTMENT LOSS | ||||||||
INVESTMENT INCOME — Interest income (allocated from the Master Fund) | $ | 34,201 | $ | 38,259 | ||||
EXPENSES: | ||||||||
Management fees | 607,707 | 626,564 | ||||||
Brokerage commissions (allocated from the Master Fund) | 82,077 | 140,893 | ||||||
Selling commissions and platform fees | 555,984 | 560,505 | ||||||
Administrative and operating expenses | 155,975 | 169,553 | ||||||
Custody fees (allocated from the Master Fund) | 5,444 | 6,892 | ||||||
Total expenses | 1,407,187 | 1,504,407 | ||||||
NET INVESTMENT LOSS | (1,372,986 | ) | (1,466,148 | ) | ||||
REALIZED AND UNREALIZED GAINS (LOSSES) | ||||||||
ALLOCATED FROM THE MASTER FUND | ||||||||
Net realized gains (losses) on closed positions: | ||||||||
Futures and forward currency contracts | 7,465,841 | 4,862,412 | ||||||
Foreign exchange translation | (22,360 | ) | (40,969 | ) | ||||
Net change in unrealized: | ||||||||
Futures and forward currency contracts | 1,438,562 | (1,461,409 | ) | |||||
Foreign exchange translation | (6,515 | ) | 461 | |||||
Net gains (losses) from U.S. Treasury notes: | ||||||||
Realized | - | 1,713 | ||||||
Net change in unrealized | 20,728 | (530 | ) | |||||
Net realized and unrealized gains allocated from the Master Fund | 8,896,256 | 3,361,678 | ||||||
NET INCOME | 7,523,270 | 1,895,530 | ||||||
LESS PROFIT SHARE ALLOCATION | 77,723 | - | ||||||
FROM THE MASTER FUND | ||||||||
NET INCOME AFTER PROFIT SHARE | $ | 7,445,547 | $ | 1,895,530 |
See notes to financial statements (Unaudited)
2 |
Millburn Multi-Markets Fund L.P.
Statements of Changes in Partners' Capital (UNAUDITED)
For the three months ended March 31, 2015 and 2014
General | Limited Partners | |||||||||||||||||||||||||||||||
Partner | Series A | Series B | Series C | Total | ||||||||||||||||||||||||||||
Amount | Amount | Units | Amount | Units | Amount | Units | Amount | |||||||||||||||||||||||||
PARTNERS' CAPITAL — December 31, 2014 | $ | 3,073,797 | $ | 105,099,830 | 107,745.6394 | $ | 7,468,031 | 7,011.0183 | $ | 2,970,822 | 2,751.2975 | $ | 118,612,480 | |||||||||||||||||||
Capital contributions | - | 3,386,600 | 3,435.8394 | 670,000 | 618.2131 | - | - | 4,056,600 | ||||||||||||||||||||||||
Capital withdrawals | - | (1,704,543 | ) | (1,672.3631 | ) | (245,034 | ) | (225.8940 | ) | (28,255 | ) | (25.8060 | ) | (1,977,832 | ) | |||||||||||||||||
Net income before profit share | 221,377 | 6,591,877 | - | 513,421 | - | 196,595 | - | 7,523,270 | ||||||||||||||||||||||||
Profit share | (56,591 | ) | (21,132 | ) | (77,723 | ) | ||||||||||||||||||||||||||
PARTNERS' CAPITAL — March 31, 2015 | $ | 3,295,174 | $ | 113,373,764 | 109,509.1157 | $ | 8,349,827 | 7,403.3374 | $ | 3,118,030 | 2,725.4915 | $ | 128,136,795 | |||||||||||||||||||
Net Asset Value per Unit at March 31, 2015 | $ | 1,035.29 | $ | 1,127.85 | $ | 1,144.02 | ||||||||||||||||||||||||||
General | Limited Partners | |||||||||||||||||||||||||||||||
Partner | Series A | Series B | Series C | Total | ||||||||||||||||||||||||||||
Amount | Amount | Units | Amount | Units | Amount | Units | Amount | |||||||||||||||||||||||||
PARTNERS' CAPITAL — December 31, 2013 | $ | 2,572,915 | $ | 116,781,042 | 137,419.5284 | $ | 10,758,367 | 11,797.5645 | $ | 4,112,988 | 4,460.4110 | $ | 134,225,312 | |||||||||||||||||||
Capital contributions | - | 326,900 | 382.9556 | 10,000 | 11.2465 | - | - | 336,900 | ||||||||||||||||||||||||
Capital withdrawals | - | (20,020,434 | ) | (23,365.2219 | ) | (3,388,562 | ) | (3,686.5358 | ) | (959,764 | ) | (1,028.1940 | ) | (24,368,760 | ) | |||||||||||||||||
Net income after profit share | 63,962 | 1,588,891 | - | 168,534 | - | 74,143 | - | 1,895,530 | ||||||||||||||||||||||||
PARTNERS' CAPITAL — March 31, 2014 | $ | 2,636,877 | $ | 98,676,399 | 114,437.2621 | $ | 7,548,339 | 8,122.2752 | $ | 3,227,367 | 3,432.2170 | $ | 112,088,982 | |||||||||||||||||||
Net Asset Value per Unit at March 31, 2014 | $ | 862.27 | $ | 929.34 | $ | 940.32 |
See notes to financial statements (Unaudited)
3 |
Millburn Multi-Markets Fund L.P.
Statement of Financial Highlights (UNAUDITED)
For the three months ended March 31, 2015
The following information presents per unit operating performance data for each series for the three months ended March 31, 2015.
Per Unit Performance | ||||||||||||
(For a Unit Outstanding Throughout the Period) | Series A | Series B | Series C | |||||||||
NET ASSET VALUE PER UNIT — Beginning of period | $ | 975.44 | $ | 1,065.18 | $ | 1,079.79 | ||||||
INCOME (LOSS) ALLOCATED FROM MASTER FUND: | ||||||||||||
Net investment loss (1) | (11.76 | ) | (8.05 | ) | (7.46 | ) | ||||||
Total trading and investing gains (1) | 71.61 | 78.60 | 79.42 | |||||||||
Net income before profit share allocation from Master Fund | 59.85 | 70.55 | 71.96 | |||||||||
Less: profit share allocation from Master Fund (1) (6) | 0.00 | 7.88 | 7.73 | |||||||||
Net income from operations after profit share allocation from Master Fund | 59.85 | 62.67 | 64.23 | |||||||||
NET ASSET VALUE PER UNIT — End of period | $ | 1,035.29 | $ | 1,127.85 | $ | 1,144.02 | ||||||
TOTAL RETURN BEFORE PROFIT SHARE ALLOCATION FROM MASTER FUND (2) | 6.14 | % | 6.60 | % | 6.64 | % | ||||||
LESS: PROFIT SHARE ALLOCATION FROM MASTER FUND (2) (6) | 0.00 | 0.72 | 0.69 | |||||||||
TOTAL RETURN AFTER PROFIT SHARE ALLOCATION FROM MASTER FUND (2) | 6.14 | % | 5.88 | % | 5.95 | % | ||||||
RATIOS TO AVERAGE NET ASSET VALUE: | ||||||||||||
Expenses (3) (4) (5) | 4.79 | % | 3.04 | % | 2.79 | % | ||||||
Profit share allocation from Master Fund (2) (6) | 0.00 | 0.72 | 0.69 | |||||||||
Total expenses | 4.79 | % | 3.76 | % | 3.48 | % | ||||||
Net investment loss (3) (4) (5) | (4.68 | )% | (2.93 | )% | (2.68 | )% |
(1) | The net investment loss per unit and profit share allocation from Master Fund per unit is calculated by dividing the net investment loss and profit share allocation from Master Fund by the average number of units outstanding during the period. Total trading and investing gains is a balancing amount necessary to reconcile the change in net asset value per unit with the other per unit information. |
(2) | Not Annualized. |
(3) | Annualized. |
(4) | Includes the Partnership’s proportionate share of income and expense allocated from the Master Fund. |
(5) | Excludes profit share allocation from the Master Fund. |
(6) | Profit share for Series B and C is calculated based on Series B and C aggregate trading profits and may be impacted by rebalancing due to monthly capital activity. |
See notes to financial statements (Unaudited)
4 |
Millburn Multi-Markets Fund L.P.
Statement of Financial Highlights (UNAUDITED)
For the three months ended March 31, 2014
The following information presents per unit operating performance data for each series for the three months ended March 31, 2014.
Per Unit Performance | ||||||||||||
(For a Unit Outstanding Throughout the Period) | Series A | Series B | Series C | |||||||||
NET ASSET VALUE PER UNIT — Beginning of period | $ | 849.81 | $ | 911.91 | $ | 922.11 | ||||||
INCOME (LOSS) ALLOCATED FROM MASTER FUND: | ||||||||||||
Net investment loss (1) | (10.39 | ) | (7.16 | ) | (6.66 | ) | ||||||
Total trading and investing gains (1) | 22.85 | 24.59 | 24.87 | |||||||||
Net income before profit share allocation from Master Fund | 12.46 | 17.43 | 18.21 | |||||||||
Profit share allocation from Master Fund (1) (6) | 0.00 | 0.00 | 0.00 | |||||||||
Net income from operations after profit share allocation from Master Fund | 12.46 | 17.43 | 18.21 | |||||||||
NET ASSET VALUE PER UNIT — End of period | $ | 862.27 | $ | 929.34 | $ | 940.32 | ||||||
TOTAL RETURN BEFORE PROFIT SHARE ALLOCATION FROM MASTER FUND (2) | 1.47 | % | 1.91 | % | 1.97 | % | ||||||
LESS: PROFIT SHARE ALLOCATION FROM MASTER FUND (2) (6) | 0.00 | 0.00 | 0.00 | |||||||||
TOTAL RETURN AFTER PROFIT SHARE ALLOCATION FROM MASTER FUND (2) | 1.47 | % | 1.91 | % | 1.97 | % | ||||||
RATIOS TO AVERAGE NET ASSET VALUE: | ||||||||||||
Expenses (3) (4) (5) | 5.00 | % | 3.25 | % | 3.00 | % | ||||||
Profit share allocation from Master Fund (2) (6) | 0.00 | 0.00 | 0.00 | |||||||||
Total expenses | 5.00 | % | 3.25 | % | 3.00 | % | ||||||
Net investment loss (3) (4) (5) | (4.88 | )% | (3.13 | )% | (2.88 | )% |
(1) | The net investment loss per unit and profit share allocation from Master Fund per unit is calculated by dividing the net investment loss and profit share allocation from Master Fund by the average number of units outstanding during the period. Total trading and investing gains is a balancing amount necessary to reconcile the change in net asset value per unit with the other per unit information. |
(2) | Not Annualized. |
(3) | Annualized. |
(4) | Includes the Partnership’s proportionate share of income and expense allocated from the Master Fund. |
(5) | Excludes profit share allocation from the Master Fund. |
(6) | Profit share for Series B and C is calculated based on Series B and C aggregate trading profits and may be impacted by rebalancing due to monthly capital activity. |
See notes to financial statements (Unaudited)
5 |
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 Millburn Multi-Markets Fund L.P.’s (the “Partnership”) financial condition at March 31, 2015 and December 31, 2014 and the results of its operations for the three months ended March 31, 2015 and 2014 (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 2014 annual report included in Form 10-K filed with the Securities and Exchange Commission. The December 31, 2014 information has been derived from the audited financial statements as of December 31, 2014.
The preparation of financial statements in conformity with accounting principles generally accepted (“U.S. GAAP”) in the United States of America (the “U.S.”), as detailed in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“Codification”), 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 with various financial institutions that contain a variety of indemnifications. The Partnership’s maximum exposure under these arrangements is unknown. However, the Partnership has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
The Income Taxes topic of 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, 2011 to 2014, Millburn Ridgefield Corporation (the “General Partner”) has determined that no reserves for uncertain tax positions were required.
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 2014.
2. INVESTMENT IN MILLBURN MULTI-MARKETS TRADING L.P.
The Partnership invests substantially all of its assets in Millburn Multi-Markets Trading L.P. (the “Master Fund”). The Partnership’s ownership percentage of the Master Fund at March 31, 2015 and December 31, 2014 was 73.36% and 73.17%, respectively, of total partners’ capital of the Master Fund. See the attached financial statements of the Master Fund.
3. RELATED PARTY TRANSACTIONS
The Partnership bears its own expenses, including, but not limited to, periodic legal, accounting and filing fees. Total operating expenses related to investors in the Partnership (including their pro-rata share of Master Fund expenses) are not expected to exceed 1/2 of 1% per annum of the Partnership’s average month-end partners’ capital.
During any time in which a third-party administrator is providing services to the Master Fund, as is currently the case, the General Partner is paid a monthly Administration Fee for administration services it provides calculated as a percentage of the month-end net asset value (prior to reduction for withdrawals or redemptions, management fees, amounts payable to selling agents and the administration fee then being calculated) of the Master Fund equal to 0.05% per annum of the Master Fund’s average net assets. The Partnership is allocated its pro-rata portion of the administration fee which is charged at the Master Fund level. As of March 31, 2015 and December 31, 2014, $64,910 and $54,226, respectively, were payable by the Master Fund to the General Partner and are included in “accrued expenses” in the Master Fund’s Statements of Financial Condition.
The General Partner has paid expenses incurred in connection with the organization of the Partnership and the initial offering of the units of limited partnership (“Units”). The total amount paid by the General Partner was $191,967. The Master Fund, on behalf of the Partnership, is reimbursing the General Partner for these costs in 60 equal monthly installments of $3,199 which began on August 1, 2009. However, to the extent that for any month the $3,199 exceeds 1/12 of 0.05% (0.05% per annum) of the Partnership’s month-end net asset value, such excess will not be reimbursed by the Partnership, but will be absorbed by the General Partner. As of March 31, 2015, pursuant to this calculation, $30,987 has been borne by the General Partner and will not be reimbursed by the Partnership. For each of the three months ended March 31, 2015 and 2014, the costs incurred by the Partnership were $0 and $9,597, respectively. The final accrual period was in July 31, 2014.
Series A Unitholders that redeem Units at or prior to the end of the first eleven months after such Units are sold shall be assessed redemption charges calculated based on their redeemed Units' net asset value as of the date of redemption. All redemption charges will be paid to the General Partner. At March 31, 2015 and December 31, 2014, there were no redemption charges owed to the General Partner.
6 |
4. FINANCIAL HIGHLIGHTS
Per Unit operating performance for Series A, Series B and Series C Units is calculated based on Unitholders’ partners’ capital for each series taken as a whole utilizing the beginning and ending net asset value per unit and weighted average number of units during the period. Weighted average number of units of each series is detailed below.
Three months ended March 31, | ||||||||
2015 | 2014 | |||||||
Series A | 109,680.987 | 130,225.284 | ||||||
Series B | 7,184.148 | 11,009.689 | ||||||
Series C | 2,734.349 | 4,299.906 |
7 |
Millburn Multi-Markets Trading L.P. | ||
Financial statements | ||
For the three months ended March 31, 2015 and 2014 (unaudited) | ||
Statements of Financial Condition (a) | 8 | |
Condensed Schedules of Investments (a) | 9 | |
Statements of Operations (b) | 13 | |
Statements of Changes in Partners' Capital (b) | 14 | |
Statements of Financial Highlights (b) | 15 | |
Notes to Financial Statements | 17 |
(a) At March 31, 2015 and December 31, 2014 (unaudited)
(b) For the three months ended March 31, 2015 and 2014 (unaudited)
Millburn Multi-Markets Trading L.P.
Statements of Financial Condition (UNAUDITED)
March 31 | December 31 | |||||||
2015 | 2014 | |||||||
ASSETS | ||||||||
EQUITY IN TRADING ACCOUNTS: | ||||||||
Investments in U.S. Treasury notes — at fair value (amortized cost $27,889,343 and $19,091,112) | $ | 27,892,885 | $ | 19,093,847 | ||||
Net unrealized appreciation on open futures and forward currency contracts | 4,530,416 | 2,196,537 | ||||||
Due from brokers | 8,233,692 | 4,026,058 | ||||||
Cash denominated in foreign currencies (cost $546,587 and $1,775,062) | 508,385 | 1,616,642 | ||||||
Total equity in trading accounts | 41,165,378 | 26,933,084 | ||||||
INVESTMENTS IN U.S. TREASURY NOTES — at fair value (amortized cost $121,019,298 and $119,856,983) | 121,046,635 | 119,858,882 | ||||||
CASH AND CASH EQUIVALENTS | 15,271,159 | 18,207,276 | ||||||
ACCRUED INTEREST RECEIVABLE | 119,934 | 121,954 | ||||||
DUE FROM MILLBURN MULTI-MARKETS LTD. | 1,771 | 1,846 | ||||||
DUE FROM MILLBURN MULTI-MARKETS FUND L.P. | 2,654 | 2,863 | ||||||
TOTAL | $ | 177,607,531 | $ | 165,125,905 | ||||
LIABILITIES AND PARTNERS’ CAPITAL | ||||||||
LIABILITIES: | ||||||||
Net unrealized depreciation on open futures and forward currency contracts | $ | 942,956 | $ | 560,581 | ||||
Cash denominated in foreign currencies (cost $104,505 and $81,699) | 100,196 | 86,428 | ||||||
Capital withdrawal payable | 1,133,722 | 1,739,879 | ||||||
Management fee payable | 231,690 | 214,360 | ||||||
Selling commissions payable | 193,884 | 179,026 | ||||||
Accrued expenses | 182,971 | 220,060 | ||||||
Commissions and other trading fees on open futures contracts | 13,704 | 14,490 | ||||||
Other liabilities | 149,160 | - | ||||||
Total liabilities | 2,948,283 | 3,014,824 | ||||||
PARTNERS’ CAPITAL | 174,659,248 | 162,111,081 | ||||||
TOTAL | $ | 177,607,531 | $ | 165,125,905 |
See notes to financial statements (Unaudited)
8 |
Millburn Multi-Markets Trading L.P.
Condensed Schedule of Investments (UNAUDITED)
March 31, 2015
Net Unrealized | ||||||||
Appreciation | ||||||||
(Depreciation) | Net Unrealized | |||||||
as a % of | Appreciation | |||||||
FUTURES AND FORWARD CURRENCY CONTRACTS | Partners’ Capital | (Depreciation) | ||||||
FUTURES CONTRACTS | ||||||||
Long futures contracts: | ||||||||
Grains | (0.00 | )% | $ | (990 | ) | |||
Interest rates: | ||||||||
2 Year U.S. Treasury Note (485 contracts, settlement date June 2015) | 0.15 | 261,047 | ||||||
5 Year U.S. Treasury Note (232 contracts, settlement date June 2015) | 0.18 | 319,086 | ||||||
10 Year U.S. Treasury Note (180 contracts, settlement date June 2015) | 0.14 | 251,078 | ||||||
30 Year U.S. Treasury Bond (49 contracts, settlement date June 2015) | 0.10 | 174,844 | ||||||
Other interest rates | 0.62 | 1,068,250 | ||||||
Total interest rates | 1.19 | 2,074,305 | ||||||
Metals | (0.08 | ) | (148,106 | ) | ||||
Softs | (0.00 | ) | (3,530 | ) | ||||
Stock indices | 0.32 | 581,802 | ||||||
Total long futures contracts | 1.43 | 2,503,481 | ||||||
Short futures contracts: | ||||||||
Energies | 0.39 | 675,814 | ||||||
Grains | 0.01 | 12,985 | ||||||
Interest rates | (0.03 | ) | (52,679 | ) | ||||
Livestock | (0.03 | ) | (54,790 | ) | ||||
Metals | 0.36 | 635,778 | ||||||
Softs | 0.42 | 726,692 | ||||||
Stock indices | 0.04 | 83,135 | ||||||
Total short futures contracts | 1.16 | 2,026,935 | ||||||
TOTAL INVESTMENTS IN FUTURES CONTRACTS — Net | 2.59 | 4,530,416 | ||||||
FORWARD CURRENCY CONTRACTS | ||||||||
Total long forward currency contracts | (0.04 | ) | (77,232 | ) | ||||
Total short forward currency contracts | (0.50 | ) | (865,724 | ) | ||||
TOTAL INVESTMENTS IN FORWARD CURRENCY CONTRACTS — Net | (0.54 | ) | (942,956 | ) | ||||
TOTAL | 2.05 | % | $ | 3,587,460 |
(Continued)
9 |
Millburn Multi-Markets Trading L.P.
Condensed Schedule of Investments (UNAUDITED)
March 31, 2015
U.S. TREASURY NOTES
Face Amount | Description | Fair Value as a % of Partners' Capital | Fair Value | |||||||||
$ | 32,240,000 | U.S. Treasury notes, 0.250%, 05/15/2015 | 18.46 | % | $ | 32,247,556 | ||||||
43,140,000 | U.S. Treasury notes, 0.250%, 07/15/2015 | 24.71 | 43,163,593 | |||||||||
31,730,000 | U.S. Treasury notes, 0.250%, 09/15/2015 | 18.18 | 31,749,831 | |||||||||
41,750,000 | U.S. Treasury notes, 0.375%, 04/30/2016 | 23.92 | 41,778,540 | |||||||||
Total investments in U.S. Treasury notes | ||||||||||||
(amortized cost $148,908,641) | 85.27 | % | $ | 148,939,520 |
See notes to financial statements (Unaudited) | (Concluded) |
10 |
Millburn Multi-Markets Trading L.P.
Condensed Schedule of Investments
December 31, 2014
Net Unrealized | ||||||||
Appreciation | ||||||||
(Depreciation) | Net Unrealized | |||||||
as a % of | Appreciation | |||||||
FUTURES AND FORWARD CURRENCY CONTRACTS | Partners’ Capital | (Depreciation) | ||||||
FUTURES CONTRACTS | ||||||||
Long futures contracts: | ||||||||
Grains | (0.10 | )% | $ | (161,378 | ) | |||
Interest rates: | ||||||||
5 Year U.S. Treasury Note (504 contracts, settlement date March 2015) | 0.01 | 12,359 | ||||||
30 Year U.S. Treasury Bond (40 contracts, settlement date March 2015) | 0.03 | 51,094 | ||||||
Other interest rates | 0.46 | 742,377 | ||||||
Total interest rates | 0.50 | 805,830 | ||||||
Livestock | (0.01 | ) | (14,690 | ) | ||||
Metals | (0.70 | ) | (1,129,554 | ) | ||||
Softs | 0.02 | 32,956 | ||||||
Stock indices | 0.41 | 656,236 | ||||||
Total long futures contracts | 0.12 | 189,400 | ||||||
Short futures contracts: | ||||||||
Energies | 0.31 | 500,398 | ||||||
Grains | 0.00 | 678 | ||||||
Interest rates | (0.10 | ) | (160,599 | ) | ||||
Livestock | 0.10 | 167,720 | ||||||
Metals | 0.49 | 796,529 | ||||||
Softs | 0.29 | 460,177 | ||||||
Stock indices | 0.06 | 101,126 | ||||||
Total short futures contracts | 1.15 | 1,866,029 | ||||||
TOTAL INVESTMENTS IN FUTURES CONTRACTS — Net | 1.27 | 2,055,429 | ||||||
FORWARD CURRENCY CONTRACTS | ||||||||
Total long forward currency contracts | (0.69 | ) | (1,117,993 | ) | ||||
Total short forward currency contracts | 0.43 | 698,520 | ||||||
TOTAL INVESTMENTS IN FORWARD CURRENCY CONTRACTS — Net | (0.26 | ) | (419,473 | ) | ||||
TOTAL | 1.01 | % | $ | 1,635,956 |
(Continued)
11 |
Millburn Multi-Markets Trading L.P.
Condensed Schedule of Investments
December 31, 2014
U.S. TREASURY NOTES
Face Amount | Description | Fair Value as a % of Partners' Capital | Fair Value | |||||||||
$ | 41,750,000 | U.S. Treasury notes, 0.375%, 03/15/2015 | 25.77 | % | $ | 41,780,171 | ||||||
27,240,000 | U.S. Treasury notes, 0.250%, 05/15/2015 | 16.81 | 27,260,217 | |||||||||
43,140,000 | U.S. Treasury notes, 0.250%, 07/15/2015 | 26.63 | 43,170,333 | |||||||||
26,730,000 | U.S. Treasury notes, 0.250%, 09/15/2015 | 16.50 | 26,742,008 | |||||||||
Total investments in U.S. Treasury notes | ||||||||||||
(amortized cost $138,948,095) | 85.71 | % | $ | 138,952,729 |
See notes to financial statements (Unaudited) | (Concluded) |
12 |
Millburn Multi-Markets Trading L.P.
Statements of Operations (UNAUDITED)
For the three months ended | ||||||||
March 31 | March 31 | |||||||
2015 | 2014 | |||||||
INVESTMENT INCOME — Interest income | $ | 46,557 | $ | 66,117 | ||||
EXPENSES: | ||||||||
Brokerage fees | 110,919 | 243,362 | ||||||
Management fees | 668,512 | 836,962 | ||||||
Selling commissions and platform fees | 559,636 | 564,683 | ||||||
Administrative and operating expenses | 185,299 | 247,177 | ||||||
Custody fees | 7,146 | 11,645 | ||||||
Total expenses | 1,531,512 | 1,903,829 | ||||||
NET INVESTMENT LOSS | (1,484,955 | ) | (1,837,712 | ) | ||||
REALIZED AND UNREALIZED GAINS (LOSSES): | ||||||||
Net realized gains (losses) on closed positions: | ||||||||
Futures and forward currency contracts | 10,165,122 | 8,556,073 | ||||||
Foreign exchange translation | (168,631 | ) | (68,302 | ) | ||||
Net change in unrealized: | ||||||||
Futures and forward currency contracts | 1,951,504 | (2,584,502 | ) | |||||
Foreign exchange translation | 129,256 | 736 | ||||||
Net gains (losses) from U.S. Treasury notes | ||||||||
Realized | - | 2,783 | ||||||
Net change in unrealized | 26,245 | (295 | ) | |||||
Total net realized and unrealized gains | 12,103,496 | 5,906,493 | ||||||
NET INCOME | 10,618,541 | 4,068,781 | ||||||
LESS PROFIT SHARE TO GENERAL PARTNER | 149,160 | 13,832 | ||||||
NET INCOME AFTER PROFIT SHARE TO GENERAL PARTNER | $ | 10,469,381 | $ | 4,054,949 |
See notes to financial statements (Unaudited)
13 |
Millburn Multi-Markets Trading L.P.
Statements of Changes in Partners' Capital (UNAUDITED)
For the three months ended March 31, 2015:
Limited Partners | New Profit Memo Account | General Partner | Total | |||||||||||||
PARTNERS' CAPITAL - January 1, 2015 | $ | 161,250,243 | $ | - | $ | 860,838 | $ | 162,111,081 | ||||||||
Contributions | 4,056,600 | - | - | 4,056,600 | ||||||||||||
Withdrawals | (1,977,814 | ) | - | - | (1,977,814 | ) | ||||||||||
Net income before profit share | 10,555,965 | - | 62,576 | 10,618,541 | ||||||||||||
General Partner's allocation - profit share | (149,160 | ) | - | - | (149,160 | ) | ||||||||||
PARTNERS' CAPITAL- March 31, 2015 | $ | 173,735,834 | $ | - | $ | 923,414 | $ | 174,659,248 |
For the three months ended March 31, 2014:
Limited Partners | New Profit Memo Account | General Partner | Total | |||||||||||||
PARTNERS' CAPITAL - January 1, 2014 | $ | 223,671,126 | $ | - | $ | 1,404,989 | $ | 225,076,115 | ||||||||
Contributions | 3,396,900 | - | - | 3,396,900 | ||||||||||||
Withdrawals | (25,293,217 | ) | - | - | (25,293,217 | ) | ||||||||||
Net income before profit share | 4,032,845 | - | 35,936 | 4,068,781 | ||||||||||||
General Partner's allocation - profit share | (13,832 | ) | - | - | (13,832 | ) | ||||||||||
PARTNERS' CAPITAL- March 31, 2014 | $ | 205,793,822 | $ | - | $ | 1,440,925 | $ | 207,234,747 |
See notes to financial statements (Unaudited)
14 |
Millburn Multi-Markets Trading L.P.
Statements of Financial Highlights (UNAUDITED)
The following information presents financial highlights of a Limited Partner that is charged a monthly management fee of 1/12 of 2.00% (2.00% per annum) and an annual profit share of 20% of Trading Profits (as defined in the Limited Partnership Agreement).
For the three months ended | ||||||||
March 31 | March 31 | |||||||
2015 | 2014 | |||||||
Total return before General Partner profit share allocation (3) | 6.72 | % | 2.05 | % | ||||
Less: General Partner profit share allocation (3) | 0.54 | 0.00 | ||||||
Total return after General Partner profit share allocation (3) | 6.18 | % | 2.05 | % | ||||
Ratios to average net asset value: | ||||||||
Expenses (1) (4) | 2.48 | % | 2.72 | % | ||||
General Partner profit share allocation (3) | 0.54 | 0.00 | ||||||
Total expenses (1) | 3.02 | % | 2.72 | % | ||||
Net investment loss (1) (2) (4) | (2.36 | )% | (2.60 | )% |
Total returns and the ratios to average net asset value are calculated for a Limited Partner. An individual Limited Partner’s total returns and ratios may vary from the above total returns and ratios based on different management fee and General Partner profit share allocation agreements and the timing of contributions and withdrawals.
(1) | Includes the Partnership's proportionate share of expenses allocated from the Partnership's operations. |
(2) | Excludes General Partner profit share allocation and includes interest income. |
(3) | Not Annualized. |
(4) | Annualized. |
See notes to financial statements (Unaudited)
15 |
Millburn Multi-Markets Trading L.P.
Statements of Financial Highlights (UNAUDITED)
The following information presents financial highlights for Limited Partners as a whole.
For the three months ended | ||||||||
March 31 | March 31 | |||||||
2015 | 2014 | |||||||
Total return before General Partner profit share allocation (3) | 6.44 | % | 1.86 | % | ||||
Less: General Partner profit share allocation (3) | 0.09 | 0.01 | ||||||
Total return after General Partner profit share allocation (3) | 6.35 | % | 1.85 | % | ||||
Ratios to average net asset value: | ||||||||
Expenses (1) (4) | 3.60 | % | 3.48 | % | ||||
General Partner profit share allocation (3) | 0.09 | 0.01 | ||||||
Total expenses (1) | 3.69 | % | 3.49 | % | ||||
Net investment loss (1) (2) (4) | (3.48 | )% | (3.36 | )% |
Total returns and the ratios to average net asset value are calculated for a Limited Partner. An individual Limited Partner’s total returns and ratios may vary from the above total returns and ratios based on different management fee and General Partner profit share allocation agreements and the timing of contributions and withdrawals.
(1) | Includes the proportionate share of expenses of the U.S. Feeder and the Cayman Feeder for the period ending March 31, 2015 and the U.S. Feeder, the Cayman Feeder and the Cayman SPC Feeder (as defined in footnote 1) for the period ending March 31, 2014. |
(2) | Excludes General Partner profit share allocation and includes interest income. |
(3) | Not Annualized. |
(4) | Annualized. |
See notes to financial statements (Unaudited)
16 |
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Master Fund engages in the speculative trading of futures and forward currency contracts and also acts as a master fund for the Partnership, Millburn Multi-Markets Ltd., a Cayman Islands exempted company (the “Cayman Feeder”) and previously for Millburn Multi-Markets Low Vol. SPC, a Cayman Islands Segregated Portfolio Company (the “Cayman SPC Feeder”). The Cayman SPC Feeder redeemed 100% of its partnership interest in the Master Fund on September 30, 2014.
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 the Master Fund’s financial condition at March 31, 2015 (unaudited) and December 31, 2014 and the results of its operations for the three months ended March 31, 2015 and 2014 (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 Master Fund’s annual report for the year ended December 31, 2014 included in the Partnership’s annual report on Form 10-K filed with the Securities and Exchange Commission. The December 31, 2014 information has been derived from the audited financial statements as of December 31, 2014.
The preparation of financial statements in conformity with accounting principles generally accepted (“U.S. GAAP”) in the United States of America (the “U.S.”), as detailed in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“Codification”), 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 Master Fund enters into contracts with various financial institutions that contain a variety of indemnifications. The Master Fund's maximum exposure under these arrangements is unknown. However, the Master Fund has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
The Income Taxes topic of 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, 2011 to 2014, the General Partner has determined that no reserves for uncertain tax positions were required.
2. INVESTORS IN MILLBURN MULTI-MARKETS TRADING L.P.
The Partnership and the Cayman Feeder invest substantially all of their assets in the Master Fund. At March 31, 2015 and December 31, 2014, the respective ownership percentages of the Master Fund are detailed below. The remaining interests are held by direct investors in the Master Fund.
March 31, | December 31, | |||||||
2015 | 2014 | |||||||
Partnership | 73.36 | % | 73.17 | % | ||||
Cayman Feeder | 5.42 | % | 5.51 | % | ||||
Total | 78.78 | % | 78.68 | % |
The capital withdrawals payable at March 31, 2015 and December 31, 2014 were $1,133,722 and $1,739,879, respectively, as detailed below.
March 31, | December 31, | |||||||
2015 | 2014 | |||||||
Direct investors (1) | $ | - | $ | 800,925 | ||||
Partnership | 1,133,722 | 838,054 | ||||||
Cayman Feeder | - | 100,900 | ||||||
Total | $ | 1,133,722 | $ | 1,739,879 |
(1) Includes General Partner redemptions of $300,000 and profit share of $500,925, totaling $800,925 at December 31, 2014.
17 |
The Master Fund bears expenses, including, but not limited to, periodic legal, accounting and filing fees, up to an amount equal to 1/4 of 1% per annum of average net assets of the Master Fund (the “Expense Cap”). Amounts subject to the Expense Cap include expenses incurred at the Master Fund and Cayman Feeder level and the Administration Fee due to the General Partner, as general partner of the Master Fund. The General Partner bears any excess over such amounts.
3. 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; and
Level 3: Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
In determining fair value, the Master Fund separates its investments into two categories: cash instruments and derivative contracts.
Cash Instruments. The Master Fund’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. The General Partner does not adjust the quoted price for such instruments, even in situations where the Master Fund 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 Master Fund 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.
Effective January 1, 2014, the Partnership adopted ASU 2013-08, “Financial Services – Investment Companies (Topic 946): Amendments to the Scope, Measurement and Disclosure Requirements.” ASU 2013-08 changes the approach to the investment company assessment, requires non-controlling ownership interests in other investment companies to be measured at fair value, and requires additional disclosures about the investment company’s status as an investment company. ASU 2013-08 is effective for interim and annual reporting periods beginning after December 15, 2013. The adoption of this ASU did not have a material impact on the Partnership’s financial statements. Based on management’s assessment, the Partnership has been deemed to be an investment company since inception. It has all of the fundamental characteristics of an investment company. Although the Partnership does not possess all of the typical characteristics of an investment company, its activities are consistent with those of an investment company.
During the three months ended March 31, 2015 and 2014, there were no transfers of assets or liabilities between Level 1 and Level 2. The following tables represent the Master Fund’s investments by hierarchical level as of March 31, 2015 and December 31, 2014 in valuing the Master Fund’s investments at fair value. At March 31, 2015 and December 31, 2014, the Master Fund had no assets or liabilities in Level 3.
18 |
Financial assets and liabilities at fair value as of March 31, 2015
Level 1 | Level 2 | Total | ||||||||||
U.S. Treasury notes (1) | $ | 148,939,520 | $ | - | $ | 148,939,520 | ||||||
Exchange-traded futures contracts | ||||||||||||
Energies | 675,814 | - | 675,814 | |||||||||
Grains | 11,995 | - | 11,995 | |||||||||
Interest rates | 2,021,626 | - | 2,021,626 | |||||||||
Livestock | (54,790 | ) | - | (54,790 | ) | |||||||
Metals | 487,672 | - | 487,672 | |||||||||
Softs | 723,162 | - | 723,162 | |||||||||
Stock indices | 664,937 | - | 664,937 | |||||||||
Total exchange-traded futures contracts | 4,530,416 | - | 4,530,416 | |||||||||
Over-the-counter forward currency contracts | - | (942,956 | ) | (942,956 | ) | |||||||
Total futures and forward currency contracts (2) | 4,530,416 | (942,956 | ) | 3,587,460 | ||||||||
Total financial assets and liabilities at fair value | $ | 153,469,936 | $ | (942,956 | ) | $ | 152,526,980 | |||||
Per line item in Statements of Financial Condition | ||||||||||||
(1) | ||||||||||||
Investments in U.S. Treasury notes held in brokers' trading accounts as collateral | $ | 27,892,885 | ||||||||||
Investments in U.S. Treasury notes held in custody | 121,046,635 | |||||||||||
Total investments in U.S. Treasury notes | $ | 148,939,520 | ||||||||||
(2) | ||||||||||||
Net unrealized appreciation on open futures and forward currency contracts | $ | 4,530,416 | ||||||||||
Net unrealized depreciation on open futures and forward currency contracts | (942,956 | ) | ||||||||||
Total unrealized appreciation on open futures and forward currency contracts | $ | 3,587,460 |
Financial assets and liabilities at fair value as of December 31, 2014
Level 1 | Level 2 | Total | ||||||||||
U.S. Treasury notes (1) | $ | 138,952,729 | $ | - | $ | 138,952,729 | ||||||
Exchange-traded futures contracts | ||||||||||||
Energies | 500,398 | - | 500,398 | |||||||||
Grains | (160,700 | ) | - | (160,700 | ) | |||||||
Interest rates | 645,231 | - | 645,231 | |||||||||
Livestock | 153,030 | - | 153,030 | |||||||||
Metals | (333,025 | ) | - | (333,025 | ) | |||||||
Softs | 493,133 | - | 493,133 | |||||||||
Stock indices | 757,362 | - | 757,362 | |||||||||
Total exchange-traded futures contracts | 2,055,429 | - | 2,055,429 | |||||||||
Over-the-counter forward currency contracts | - | (419,473 | ) | (419,473 | ) | |||||||
Total futures and forward currency contracts (2) | 2,055,429 | (419,473 | ) | 1,635,956 | ||||||||
Total financial assets and liabilities at fair value | $ | 141,008,158 | $ | (419,473 | ) | $ | 140,588,685 | |||||
Per line item in Statements of Financial Condition | ||||||||||||
(1) | ||||||||||||
Investments in U.S. Treasury notes held in brokers' trading accounts as collateral | $ | 19,093,847 | ||||||||||
Investments in U.S. Treasury notes held in custody | 119,858,882 | |||||||||||
Total investments in U.S. Treasury notes | $ | 138,952,729 | ||||||||||
(2) | ||||||||||||
Net unrealized appreciation on open futures and forward currency contracts | $ | 2,196,537 | ||||||||||
Net unrealized depreciation on open futures and forward currency contracts | (560,581 | ) | ||||||||||
Total unrealized appreciation on open futures and forward currency contracts | $ | 1,635,956 |
19 |
4. 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.
The Master Fund’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 Master Fund’s open positions and the liquidity of the markets in which it trades.
The Master Fund engages in the speculative trading of futures and forward contracts on interest rates, grains, softs, currencies, metals, energies, livestock and stock indices. The following were the primary trading risk exposures of the Master Fund at March 31, 2015 by market sector:
Agricultural (grains, livestock and softs) – The Master Fund’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 Master Fund. The Master Fund’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 Master Fund trades in a large number of currencies, including cross-rates—e.g., positions between two currencies other than the U.S. dollar.
Energies – The Master Fund’s primary energy market exposure is to gas and oil price movements often resulting from political developments in the oil producing countries 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 sector.
Interest rates – Interest rate movements directly affect the price of the sovereign bond futures positions held by the Master Fund 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 Master Fund’s profitability. The Master Fund’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 Master Fund 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 Master Fund for the foreseeable future.
Metals – The Master Fund’s metals market exposure is to fluctuations in the price of aluminum, copper, gold, lead, nickel, platinum, silver, tin and zinc.
Stock indices – The Master Fund’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 Master Fund’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 Master Fund 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 Master Fund’s trading gains and losses in the Statements of Operations.
The following tables present the fair value of open futures and forward currency contracts, held long or sold short, at March 31, 2015 and December 31, 2014. 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 Master Fund’s Statements of Financial Condition.
20 |
Fair value of futures and forward currency contracts at March 31, 2015
Net Unrealized Gain (Loss) |
||||||||||||||||||||
Fair Value - Long Positions | Fair Value - Short Positions | on Open | ||||||||||||||||||
Sector | Gains | Losses | Gains | Losses | Positions | |||||||||||||||
Futures contracts: | ||||||||||||||||||||
Energies | $ | - | $ | - | $ | 716,229 | $ | (40,415 | ) | $ | 675,814 | |||||||||
Grains | 1,090 | (2,080 | ) | 85,156 | (72,171 | ) | 11,995 | |||||||||||||
Interest rates | 2,084,223 | (9,918 | ) | 24,547 | (77,226 | ) | 2,021,626 | |||||||||||||
Livestock | - | - | 170 | (54,960 | ) | (54,790 | ) | |||||||||||||
Metals | 190,863 | (338,969 | ) | 1,053,683 | (417,905 | ) | 487,672 | |||||||||||||
Softs | - | (3,530 | ) | 731,043 | (4,351 | ) | 723,162 | |||||||||||||
Stock indices | 1,072,525 | (490,723 | ) | 86,110 | (2,975 | ) | 664,937 | |||||||||||||
Total futures contracts | 3,348,701 | (845,220 | ) | 2,696,938 | (670,003 | ) | 4,530,416 | |||||||||||||
Forward currency contracts | 928,560 | (1,005,792 | ) | 908,329 | (1,774,053 | ) | (942,956 | ) | ||||||||||||
Total futures and forward currency contracts | $ | 4,277,261 | $ | (1,851,012 | ) | $ | 3,605,267 | $ | (2,444,056 | ) | $ | 3,587,460 |
Fair value of futures and forward currency contracts at December 31, 2014
Net Unrealized Gain (Loss) |
||||||||||||||||||||
Fair Value - Long Positions | Fair Value - Short Positions | on Open | ||||||||||||||||||
Sector | Gains | Losses | Gains | Losses | Positions | |||||||||||||||
Futures contracts: | ||||||||||||||||||||
Energies | $ | - | $ | - | $ | 524,710 | $ | (24,312 | ) | $ | 500,398 | |||||||||
Grains | 11,552 | (172,930 | ) | 852 | (174 | ) | (160,700 | ) | ||||||||||||
Interest rates | 1,373,183 | (567,353 | ) | - | (160,599 | ) | 645,231 | |||||||||||||
Livestock | 2,670 | (17,360 | ) | 167,720 | - | 153,030 | ||||||||||||||
Metals | 11,216 | (1,140,770 | ) | 820,318 | (23,789 | ) | (333,025 | ) | ||||||||||||
Softs | 43,201 | (10,245 | ) | 475,037 | (14,860 | ) | 493,133 | |||||||||||||
Stock indices | 970,972 | (314,736 | ) | 143,204 | (42,078 | ) | 757,362 | |||||||||||||
Total futures contracts | 2,412,794 | (2,223,394 | ) | 2,131,841 | (265,812 | ) | 2,055,429 | |||||||||||||
Forward currency contracts | 424,804 | (1,542,797 | ) | 1,670,536 | (972,016 | ) | (419,473 | ) | ||||||||||||
Total futures and forward currency contracts | $ | 2,837,598 | $ | (3,766,191 | ) | $ | 3,802,377 | $ | (1,237,828 | ) | $ | 1,635,956 |
The effect of trading futures and forward currency contracts is represented on the Master Fund’s Statements of Operations for the three months ended March 31, 2015 and 2014 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.
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Trading gains (losses) of futures and forward currency contracts for the three months ended March 31, 2015 and 2014
Three months | Three months | |||||||
ended: | ended: | |||||||
March 31, | March 31, | |||||||
Sector | 2015 | 2014 | ||||||
Futures contracts: | ||||||||
Energies | $ | 46,732 | $ | 678,149 | ||||
Grains | (632,827 | ) | 1,595,764 | |||||
Interest rates | 5,316,663 | 5,262,928 | ||||||
Livestock | 307,790 | 801,590 | ||||||
Metals | 170,813 | (2,772,925 | ) | |||||
Softs | 348,617 | 908,983 | ||||||
Stock indices | 4,573,088 | (715,470 | ) | |||||
Total futures contracts | 10,130,876 | 5,759,019 | ||||||
Forward currency contracts | 1,985,750 | 212,552 | ||||||
Total futures and forward currency contracts | $ | 12,116,626 | $ | 5,971,571 |
For the three months ended March 31, 2015, the monthly average number of futures contracts bought and sold was 10,280 and 10,129, respectively, and the monthly average notional value of forward currency contracts traded was approximately $1,194,000,000. Over the same period in 2014, the monthly average of futures contracts bought and sold was 25,490 and 24,498, respectively, and the monthly average notional value of forward currency contracts traded was approximately $531,000,000.
In December 2011, FASB issued Accounting Standard Update (“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 agreement similar to a master netting agreement. The following tables present gross amounts of assets or liabilities which qualify for offset as presented in the Statements of Financial Condition at March 31, 2015 and December 31, 2014.
The customer agreements between the Master Fund, the futures clearing brokers including Deutsche Bank Securities Inc. (a wholly owned subsidiary of Deutsche Bank AG), and J.P. Morgan Securities LLC., as well as the FX prime brokers including Deutsche Bank AG and Morgan Stanley & Co., LLC, gives the Master Fund the legal right to net unrealized gains and losses on open futures and foreign currency contracts. The Master Fund netted, for financial reporting purposes, the unrealized gains and losses on open futures and forward currency contracts on the Statements of Financial Condition as the criteria under ASC 210-20, “Balance Sheet,” were met. The Master Fund ceased clearing trades through Barclays Capital Inc. and Barclays Bank PLC during June 2014 and October 2014, respectively.
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Offsetting of derivative assets and liabilities at March 31, 2015
Gross amounts | Net amounts of | |||||||||||
offset in the | assets presented in | |||||||||||
Gross amounts of | Statement of | the Statement of | ||||||||||
Assets | recognized assets | Financial Condition | Financial Condition | |||||||||
Futures contracts | ||||||||||||
Counterparty C | $ | 2,695,312 | $ | (324,314 | ) | $ | 2,370,998 | |||||
Counterparty D | 3,350,327 | (1,190,909 | ) | 2,159,418 | ||||||||
Total assets | $ | 6,045,639 | $ | (1,515,223 | ) | $ | 4,530,416 |
Gross amounts | Net amounts of | |||||||||||
offset in the | liabilities presented in | |||||||||||
Gross amounts of | Statement of | the Statement of | ||||||||||
Liabilities | recognized liabilities | Financial Condition | Financial Condition | |||||||||
Forward currency contracts | ||||||||||||
Counterparty G | $ | 1,969,877 | $ | (1,161,866 | ) | $ | 808,011 | |||||
Counterparty H | 809,968 | (675,023 | ) | 134,945 | ||||||||
Total liabilities | $ | 2,779,845 | $ | (1,836,889 | ) | $ | 942,956 |
Amounts Not Offset in the Statement
of Financial Condition
Net amounts of | ||||||||||||||||
Assets | ||||||||||||||||
presented in the | ||||||||||||||||
Statement of Financial | Financial | Collateral | ||||||||||||||
Counterparty | Condition | Instruments | Received(1)(2) | Net Amount(3) | ||||||||||||
Counterparty C | $ | 2,370,998 | $ | - | $ | (2,370,998 | ) | $ | - | |||||||
Counterparty D | 2,159,418 | - | (2,159,418 | ) | - | |||||||||||
Total | $ | 4,530,416 | $ | - | $ | (4,530,416 | ) | $ | - |
Amounts Not Offset in the Statement
of Financial Condition
Net amounts of | ||||||||||||||||
Liabilities | ||||||||||||||||
presented in the | ||||||||||||||||
Statement of Financial | Financial | Collateral | ||||||||||||||
Counterparty | Condition | Instruments | Pledged(1)(2) | Net Amount(4) | ||||||||||||
Counterparty G | $ | 808,011 | $ | - | $ | (808,011 | ) | $ | - | |||||||
Counterparty H | 134,945 | - | (134,945 | ) | - | |||||||||||
Total | $ | 942,956 | $ | - | $ | (942,956 | ) | $ | - |
(1) Collateral received includes trades made on exchanges. These trades are subject to central counterparty clearing where settlement is guaranteed by the exchange. Collateral pledged includes both cash and U.S. Treasury notes held at each respective broker.
(2) Collateral disclosed is limited to an amount not to exceed 100% of the net amount of assets presented in the Statement of Financial Condition, for each respective counterparty.
(3)Net amount represents the amounts owed to the Partnership by each counterparty as of March 31, 2015. Net amount represents the amount that is subject to loss in the event of a counterparty March 31, 2015.
(4) Net amount represents the amounts owed by the Partnership to each counterparty as of March 31, 2015.
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Offsetting of derivative assets and liabilities at December 31, 2014
Gross amounts | Net amounts of | |||||||||||
offset in the | assets presented in | |||||||||||
Gross amounts of | Statement of | the Statement of | ||||||||||
Assets | recognized assets | Financial Condition | Financial Condition | |||||||||
Futures contracts | ||||||||||||
Counterparty C | $ | 1,796,920 | $ | (684,174 | ) | $ | 1,112,746 | |||||
Counterparty D | 2,747,715 | (1,805,032 | ) | 942,683 | ||||||||
Total futures contracts | 4,544,635 | (2,489,206 | ) | 2,055,429 | ||||||||
Forward currency contracts | ||||||||||||
Counterparty G | 798,097 | (656,989 | ) | 141,108 | ||||||||
Total assets | 5,342,732 | (3,146,195 | ) | 2,196,537 |
Gross amounts | Net amounts of | |||||||||||
offset in the | liabilities presented in | |||||||||||
Gross amounts of | Statement of | the Statement of | ||||||||||
Liabilities | recognized liabilities | Financial Condition | Financial Condition | |||||||||
Forward currency contracts | ||||||||||||
Counterparty H | $ | 1,857,824 | $ | (1,297,243 | ) | $ | 560,581 | |||||
Total liabilities | $ | 1,857,824 | $ | (1,297,243 | ) | $ | 560,581 |
Amounts Not Offset in the Statement
of Financial Condition
Net amounts of | ||||||||||||||||
Assets | ||||||||||||||||
presented in the | ||||||||||||||||
Statement of Financial | Financial | Collateral | ||||||||||||||
Counterparty | Condition | Instruments | Received(1)(2) | Net Amount(3) | ||||||||||||
Counterparty C | 1,112,746 | - | (1,112,746 | ) | ||||||||||||
Counterparty D | 942,683 | - | (942,683 | ) | ||||||||||||
Counterparty G | 141,108 | - | (141,108 | ) | - | |||||||||||
Total | $ | 2,196,537 | $ | - | $ | (2,196,537 | ) | $ | - |
Amounts Not Offset in the Statement
of Financial Condition
Net amounts of | ||||||||||||||||
Liabilities | ||||||||||||||||
presented in the | ||||||||||||||||
Statement of Financial | Financial | Collateral | ||||||||||||||
Counterparty | Condition | Instruments | Pledged(1)(2) | Net Amount(4) | ||||||||||||
Counterparty H | $ | 560,581 | $ | - | $ | (560,581 | ) | $ | - | |||||||
Total | $ | 560,581 | $ | - | $ | (560,581 | ) | $ | - |
(1) Collateral received includes trades made on exchanges. These trades are subject to central counterparty clearing where settlement is guaranteed by the exchange. Collateral pledged includes both cash and U.S. Treasury notes held at each respective broker.
(2) Collateral disclosed is limited to an amount not to exceed 100% of the net amount of assets presented in the Statement of Financial Condition, for each respective counterparty.
(3) Net amount represents the amounts owed to the Partnership by each counterparty as of December 31, 2014. Net amount represents the amount that is subject to loss in the event of a counterparty December 31, 2014.
(4) Net amount represents the amounts owed by the Partnership to each counterparty as of December 31, 2014.
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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 Master Fund’s assets at financial institutions and trading counterparties which the General Partner believes to be creditworthy. In addition, for OTC forward currency contracts, the Master Fund 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 Master Fund’s forward currency trading activities are cleared by Deutsche Bank AG (“DB”) and Morgan Stanley & Co. LLC (“MS”). The Master Fund’s concentration of credit risk associated with 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 DB, and MS. The amount of such credit risk was $13,430,383 and $9,145,400 at March 31, 2015 and December 31, 2014, respectively.
5. PROFIT SHARE
The following table indicates the total profit share earned and accrued during the three months ended March 31, 2015 and 2014. Profit share earned (from Limited Partners’ redemptions) is credited to the New Profit Memo account as defined in the Master Fund’s Agreement of Limited Partnership.
Three months ended: | Three months ended: | |||||||
March 31, 2015 | March 31, 2014 | |||||||
Profit share earned | $ | - | $ | - | ||||
Profit share accrued | 149,160 | (1) | 13,832 | (1) | ||||
Total profit share | $ | 149,160 | $ | 13,832 |
(1) | Included in “Other liabilities” in the Statements of Financial Condition. |
6. FINANCIAL HIGHLIGHTS
Ratios to average capital are calculated based on 1) a Limited Partner that is charged a monthly management fee of 1/12 of 2.00% (2.00% per annum) and 20% of Trading Profits and 2) Limited Partners’ capital taken as a whole. The computation of such ratios based on the amount of expenses and profit share allocation assessed to an individual partner’s capital account may vary from these ratios based on the timing of capital transactions and differences in individual partners’ management fee, selling commission, platform fee and profit share allocation arrangements. Returns are calculated based on 1) a Limited Partner that is charged a monthly management fee of 1/12 of 2.00% (2.00% per annum) and 20% of Trading Profits and 2) Limited Partners’ capital taken as a whole. An individual partner’s returns may vary from these returns based on the timing of capital transactions and differences in individual partners’ management fee, selling commission, platform fee and profit share allocation arrangements.
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
The Partnership invests substantially all of its assets in the Master Fund. Due to the nature of the Master Fund'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 Master Fund'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 Master Fund, 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 Master Fund has a better likelihood of being profitable than in others.
LIQUIDITY AND CAPITAL RESOURCES
Units may be offered for sale as of the beginning, and may be redeemed as of the end, of each month.
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The amount of capital raised for the Partnership should not have a significant impact on its operations, as the Partnership and the Master Fund have 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 Master Fund (in which the Partnership participates).
The Partnership raises additional capital only through the sale of Units and capital is increased through trading profits (if any). Neither the Partnership nor the Master Fund engages in borrowing.
The Master Fund trades futures and forward contracts, and may trade swap, spot and options contracts, on interest rates, commodities, currencies, metals, energy and stock indices. 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 at exchange, though the amount may at any time be substantially higher; and (4) prohibiting pyramiding (that is, using unrealized profits in a particular market as margin for additional positions in the same market). 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.
The financial instruments traded by the Master Fund contain varying degrees of off-balance sheet risk whereby changes in the market values of the futures, forward and spot contracts or the Master Fund’s satisfaction of the obligations may exceed the amount recognized in the Statements of Financial Condition of the Master Fund.
Due to the nature of the Master Fund’s business, substantially all its assets are represented by cash, cash equivalents and U.S. government obligations, while the Master Fund maintains its market exposure through open futures, forward and spot contract positions.
The Master Fund’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 Master Fund’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 Master Fund is assigned a position in the underlying future which is then settled by offset. The Master Fund’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 Master Fund’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 Master Fund’s debt securities to decline, but only to a limited extent. More importantly, changes in interest rates could cause periods of strong up or down market price trends, during which the Master Fund’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 Master Fund is likely to suffer losses.
The Master Fund’s assets are generally held as cash or cash equivalents, including U.S. government securities or securities issued by federal agencies, other Commodity Futures Trading Commission-authorized investments or bank held or certain other money market instruments (e.g., bankers acceptances and Eurodollar or other time deposits), which are used to margin the Master Fund’s futures, forward 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 Master Fund’s futures, forward and spot trading, the Master Fund’s assets are highly liquid and are expected to remain so. During its operations through March 31, 2015, the Partnership, through its investment in the Master Fund, experienced no meaningful periods of illiquidity in any of the numerous markets traded by the General Partner.
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CRITICAL ACCOUNTING ESTIMATES
The Master Fund records its transactions in futures, forward 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 Master Fund on the day with respect to which net assets are being determined. 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 Master Fund 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.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions, such as accrual of expenses, that affect the amounts and disclosures reported in the financial statements. Based on the nature of the business and operations of the Partnership, the General Partner believes that the estimates utilized in preparing the Partnership’s financial statements are appropriate and reasonable, however actual results could differ from these estimates. The estimates used do not provide a range of possible results that would require the exercise of subjective judgment. The General Partner further believes that, based on the nature of the business and operations of the Partnership, no other reasonable assumptions relating to the application of the Partnership’s critical accounting estimates other than those currently used would likely result in materially different amounts from those reported.
The General Partner has paid expenses incurred in connection with the organization of the Partnership and the initial offering of the Units. The Master Fund, on behalf of the Partnership, is reimbursing the General Partner for these costs in 60 equal monthly installments of $3,199 which began on August 1, 2009. However, to the extent that for any month the $3,199 exceeds 1/12 of 0.05% (0.05% per annum) of the Partnership’s month-end net asset value, such excess will not be reimbursed by the Partnership but will be absorbed by the General Partner. As of March 31, 2015, pursuant to this calculation $30,987 has been borne by the General Partner and will not be reimbursed by the Partnership. The final accrual period was July 31, 2014.
RESULTS OF OPERATIONS
Due to the nature of the Partnership’s trading, through its investment in the Master Fund, 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, 2015
Total | ||||
Partners' | ||||
Capital of the | ||||
Month Ending: | Partnership | |||
March 31, 2015 | $ | 128,136,795 | ||
December 31, 2014 | 118,612,480 |
Three Months | ||||
Change in Partners' Capital | $ | 9,524,315 | ||
Percent Change | 8.03 | % |
THREE MONTHS ENDED MARCH 31, 2015
The increase in the Partnership’s net assets of $9,524,315 was attributable to net income after profit share through its investment in the Master Fund of $7,445,547 and contributions of $4,056,600 which were partially offset by withdrawals of $1,977,832.
Management fees, through the Partnership’s investment in the Master Fund, are calculated on the net asset value on the last day of each month and are affected by trading performance, subscriptions and redemptions. Management fees, through the Partnership’s investment in the Master Fund, for the three months ended March 31, 2015 decreased $18,857 relative to the corresponding period in 2014. The decrease was due to a decrease in the average net asset value of the Partnership during the three months ended March 31, 2015, relative to the corresponding period in 2014.
The Partnership, through its investment in the Master Fund, bears all trade-related commission and clearing charges due to third-party brokers. Brokerage commissions, through the Partnership’s investment in the Master Fund, for the three months ended March 31, 2015 decreased $58,816 relative to the corresponding period in 2014. The decrease was due mainly to a decrease in trading volume at the Master Fund, relative to the corresponding period in 2014.
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Selling commissions and platform fees are calculated on the net asset value on the last day of each month and are affected by trading performance, subscriptions and redemptions. Selling commissions and platform fees for the three months ended March 31, 2015 decreased $4,521 relative to the corresponding period in 2014. The decrease was due to a decrease in the average net asset value of commission paying investors of the Partnership during the three months ended March 31, 2015, relative to the corresponding period in 2014.
The Partnership, through its investment in the Master Fund, pays administrative expenses for legal, audit and accounting services. Administrative expenses, net of amounts borne by the General Partner, through the Partnership’s investment in the Master Fund, for the three months ended March 31, 2015 decreased $13,578 relative to the corresponding period in 2014. The decrease was due mainly to a decrease in the Partnership’s average net asset value during the three months ended March 31, 2015, relative to the corresponding period in 2014.
Interest income, through the Partnership’s investment in the Master Fund, is derived from cash and U.S. Treasury instruments held at the Master Fund’s brokers and custodian. Interest income, through the Partnership’s investment in the Master Fund, for the three months ended March 31, 2015 decreased $4,058 relative to the corresponding period in 2014. This decrease was due primarily to a decrease in the Partnership’s average net asset value during the three months ended March 31, 2015 relative to the corresponding period in 2014.
For the three months ended March 31, 2015, the Partnership, through its investment in the Master Fund, achieved net realized and unrealized gains of $8,896,256 from trading operations (including foreign exchange transactions and translations). Management fees of $607,707, brokerage commissions of $82,077, selling commissions and platform fees of $555,984, administrative and operating expenses of $155,975, custody fees and other expenses of $5,444, and profit share of $77,723 were paid or accrued. Interest income of $34,201 partially offset the Master Fund expenses allocated to the Partnership resulting in net income after profit share of $7,445,547.
An analysis of the Master Fund’s trading gain (loss) by sector is as follows:
% Gain | ||||
Sector | (Loss) | |||
Currencies | 1.22 | % | ||
Energies | 0.01 | % | ||
Grains | (0.37 | )% | ||
Interest rates | 3.28 | % | ||
Livestock | 0.20 | % | ||
Metals | 0.12 | % | ||
Softs | 0.22 | % | ||
Stock indices | 2.72 | % | ||
Trading gain | 7.40 | % |
MANAGEMENT DISCUSSION – 2015
Three months ended March 31, 2015
Solid first quarter performance was led by gains from trading of financial markets—interest rate and equity futures, and currency forwards. Commodity futures trading was nearly flat as losses from trading grain futures were countered by gains from trading soft, metal and livestock futures.
The European Central Bank’s historic Quantitative easing announcement, several easing moves by the People’s Bank of China and more than 20 other official interest rate reductions led to sharp gains on long positions in U.S. interest rate futures across the yield curve. Long positions in German, Italian, French, Canadian and Australian notes and bonds also registered profits. A long position in short-term sterling rates was profitable as events suggested that any tightening of U.K. monetary policy would be delayed.
The more accommodative monetary policy environment and some improvement in growth indicators for Europe led to gains on long positions in Continental European, Chinese, Hong Kong, Japanese and Australian equity futures. On the other hand, a short Korean kospi futures trade was unprofitable. Meanwhile, U.S. equity futures, after reaching record levels, stagnated in the wake of the stronger dollar, disappointing earnings reports, and a first quarter growth slowdown.
Currency markets were volatile during the quarter, although a solid U.S. economic outlook, generally higher relative interest rates, and some safe haven cachet underpinned the U.S. dollar. Still, a tentative Russia/ Ukraine ceasefire and temporary bouts of sanity around the Greek crisis periodically took some steam out of the dollar. Overall, long dollar positions versus the euro, Czech koruna, Swedish krona, Turkish lira, Brazilian real and Canadian dollar were profitable. On the other hand, a long dollar/short Swiss franc trade sustained a large loss when, on January 15, the Swiss National Bank unexpectedly ended the franc’s peg to the euro and the franc soared 15%. Long dollar trades against the South African, Norwegian and New Zealand currencies produced small losses.
Grain prices recovered a bit after the USDA projected a reduction in planting acreage for the current crop year. Consequently, short wheat positions, and to a lesser extent trading of corn, soybeans, soybean meal and bean oil produced minor losses. Coffee and sugar prices continued to fall and short positions in both were profitable. Meanwhile, trading of cocoa, a short cotton position, and a long crude palm oil trade were unprofitable. A short hog trade was marginally positive.
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Energy trading was flat as the gains from short WTI crude and U.S. natural gas positions offset the losses from short Brent crude, heating oil and London gas oil trades. Metal trading was marginally profitable with gains from short aluminum, silver and nickel positions and trading of gold outpacing the losses from short copper, zinc and platinum positions and trading of palladium.
Period ended March 31, 2014
Total | ||||
Partners' | ||||
Capital of the | ||||
Month Ending: | Partnership | |||
March 31, 2014 | $ | 112,088,982 | ||
December 31, 2013 | 134,225,312 |
Three Months | ||||
Change in Partners' Capital | $ | (22,136,330 | ) | |
Percent Change | (16.49 | )% |
THREE MONTHS ENDED MARCH 31, 2014
The decrease in the Partnership’s net assets of $22,136,330 was attributable to withdrawals of $24,368,760 which was partially offset by contributions of $336,900 and net income through its investment in the Master Fund of $1,895,530.
Management fees, through the Partnership’s investment in the Master Fund, are calculated on the net asset value on the last day of each month and are affected by trading performance, subscriptions and redemptions. Management fees, through the Partnership’s investment in the Master Fund, for the three months ended March 31, 2014 decreased $421,464 relative to the corresponding period in 2013. The decrease was due to a decrease in the average net asset value of the Partnership during the three months ended March 31, 2014, relative to the corresponding period in 2013.
The Partnership, through its investment in the Master Fund, bears all trade-related commission and clearing charges due to third-party brokers. Brokerage commissions, through the Partnership’s investment in the Master Fund, for the three months ended March 31, 2014 decreased $122,156 relative to the corresponding period in 2013. The decrease was due mainly to a decrease in trading volume at the Master Fund, relative to the corresponding period in 2013.
Selling commissions and platform fees are calculated on the net asset value on the last day of each month and are affected by trading performance, subscriptions and redemptions. Selling commissions and platform fees for the three months ended March 31, 2014 decreased $314,460 relative to the corresponding period in 2013. The decrease was due to a decrease in the average net asset value of commission paying investors of the Partnership during the three months ended March 31, 2014, relative to the corresponding period in 2013.
The Partnership, through its investment in the Master Fund, pays administrative expenses for legal, audit and accounting services. Administrative expenses, net of amounts borne by the General Partner, through the Partnership’s investment in the Master Fund, for the three months ended March 31, 2014 decreased $106,280 relative to the corresponding period in 2013. The decrease was due mainly to a decrease in the Partnership’s net asset value during the three months ended March 31, 2014, relative to the corresponding period in 2013.
Interest income, through the Partnership’s investment in the Master Fund, is derived from cash and U.S. Treasury instruments held at the Master Fund’s brokers and custodian. Interest income, through the Partnership’s investment in the Master Fund, for the three months ended March 31, 2014 decreased $52,674 relative to the corresponding period in 2013. This decrease was due primarily to a decrease in the effective interest rate of U.S. Treasury Notes held by the Partnership through its investment in the Master Fund which was partially offset by a decrease in the Partnership’s net asset value during the three months ended March 31, 2014 relative to the corresponding period in 2013.
For the three months ended March 31, 2014, the Partnership, through its investment in the Master Fund, achieved net realized and unrealized gains of $3,361,678 from trading operations (including foreign exchange transactions and translations). Management fees of $626,564, brokerage commissions of $140,893, selling commissions and platform fees of $560,505, administrative and operating expenses of $169,553 and custody fees and other expenses of $6,892 were paid or accrued. Interest income of $38,254 partially offset the Master Fund expenses allocated to the Partnership resulting in net income of $1,895,530.
29 |
An analysis of the Master Fund’s trading gain (loss) by sector is as follows:
% Gain | ||||
Sector | (Loss) | |||
Currencies | 0.15 | % | ||
Energies | 0.32 | % | ||
Grains | 0.72 | % | ||
Interest rates | 2.34 | % | ||
Livestock | 0.37 | % | ||
Metals | (1.23 | )% | ||
Softs | 0.41 | % | ||
Stock indices | (0.28 | )% | ||
Trading gain | 2.80 | % |
MANAGEMENT DISCUSSION – 2014
Three months ended March 31, 2014
After a quarter of significant market volatility, the Partnership, through its investment in the Master Fund, produced a profit, predominantly due to gains from long interest rate futures positions. There were also profits from trading agricultural commodities, energy and currencies, but these were largely offset by the losses from trading metals.
Shifting perceptions about U.S. and Chinese growth prospects, about the future course of Federal Reserve monetary policy, about political and economic turmoil in several emerging economies—including Turkey, India, Indonesia, and Thailand, and about the impact of the Russia/Ukraine-Crimea situation kept markets off balance during the quarter.
Given persistent concerns about worldwide growth, and social and political unrest in numerous emerging markets and a lack of inflationary impulses in the developed world, it should come as no surprise that a flight to safety and quality would push up note and bond prices. Consequently, long positions in German, French, Italian, Japanese, Canadian and U.S. note and bond futures were profitable. Long positions in U.S. and German short term interest rate futures also registered gains. On the other hand, trading Australian and British note and bond futures was unprofitable.
Equity prices were particularly volatile during the quarter as the markets digested weather related growth problems in the U.S., slowing Chinese growth, the outlook for U.S. Quantitative easing, and Chinese policy efforts to wring excess debt and capacity out of the economy without threatening too many corporate defaults or bankruptcies. Losses from trading of and long positions in Chinese, Hong Kong, Korean, Japanese, Singaporean and Australian equity futures that slightly outweighed the gains from long U.S., German, Spanish and Canadian equity futures positions.
Foreign exchange markets were rattled by the political and economic turmoil in many emerging markets, by monetary policy developments in China and the U.S., as well as by growth concerns. Short U.S. dollar positions against sterling, the Indian rupee, the New Zealand dollar, and the Swiss franc were profitable, as were long dollar trades against Chile and Russia and a long New Zealand/short Canada trade. These gains were partially offset by losses on: short dollar trades against the euro, Czech koruna, Polish zloty and Korean won; a long U.S./short Singapore dollar position; long euro trades versus Australia, Turkey and Hungary; a short euro trade versus the Polish zloty; and trading the Australian dollar relative to the yen and pound sterling.
Turning to agricultural commodities, long positions in soybeans, soybean meal, corn, coffee, cocoa, cotton and livestock, and a short wheat trade were profitable. Meanwhile, short sugar and soybean oil trades produced small losses.
Metal trading was unprofitable due to losses from long copper, lead, gold and silver trades and from a short aluminum position. A long nickel trade produced a partially offsetting profit.
Energy trading was marginally profitable as gains from a long WTI crude position and trading of natural gas outweighed the losses from long Brent crude and London gas oil positions.
OFF-BALANCE SHEET ARRANGEMENTS
Neither the Partnership nor the Master Fund engages in off-balance sheet arrangements with other entities.
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CONTRACTUAL OBLIGATIONS
Neither the Partnership nor the Master Fund enters 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, through its investment in the Master Fund, is trading futures, forward currency, spot and swap contracts, both long (contracts to buy) and short (contacts to sell). The Partnership, through its investment in the Master Fund, 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 Master Fund for less than four months before being offset or rolled over into new contracts with similar maturities. The financial statements of the Master Fund present a condensed schedule of investments setting forth open futures, forward and other contracts at March 31, 2015 and December 31, 2014.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required.
ITEM 4. CONTROLS AND PROCEDURES
The General Partner, with the participation of the 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 its evaluation, has 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, 2015 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.
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
(a) Pursuant to the Partnership's Third Amended and Restated Limited Partnership Agreement (the “Partnership Agreement”), the Partnership may sell Interests at the beginning of each calendar month. On January 1, 2015, February 1, 2015, and March 1, 2015, the Partnership sold Interests to new and existing limited partners of $743,267, $1,915,000 and $1,398,333 respectively. There were no underwriting discounts or commissions in connection with the sales of the Interests described above.
Each of the foregoing Interests were offered and sold only to “accredited investors” as defined in Rule 501(a) under the Securities Act of 1933 as amended (the “1933 Act”), in reliance on the exemption from registration provided by Rule 506(b) under the 1933 Act.
(c) Pursuant to the Partnership’s Partnership Agreement, investors may redeem their Units at the end of each calendar month at the then current month-end net asset value. The redemption of Units has no impact on the value of Units that remain outstanding, and Units are not reissued once redeemed.
The following table summarizes the redemptions by Series A, Series B and Series C limited partners during the three months ended March 31, 2015.
Series A | Series B | Series C | ||||||||||||||||||||||
Date of | Units | NAV | Units | NAV | Units | NAV | ||||||||||||||||||
Withdrawal | Redeemed | per Unit | Redeemed | per Unit | Redeemed | per Unit | ||||||||||||||||||
January 31, 2015 | (340.7840 | ) | $ | 987.46 | (13.4080 | ) | $ | 1,079.88 | (25.8060 | ) | $ | 1,094.91 | ||||||||||||
February 28, 2015 | (236.5032 | ) | 990.73 | (212.4860 | ) | 1,085.04 | - | 1,100.37 | ||||||||||||||||
March 31, 2015 | (1,095.0759 | ) | 1,035.29 | - | 1,127.85 | - | 1,144.02 | |||||||||||||||||
Total | (1,672.3631 | ) | (225.8940 | ) | (25.8060 | ) |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
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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 |
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, | |
General Partner |
Date: May 14, 2015 | |
/s/ Michael W. Carter | |
Michael W. Carter | |
Vice-President | |
(Principal Accounting Officer) |
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