UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

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

 

For the Quarterly Period Ended: September 30, 2017

 

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 ☒  No ☐

 

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

 

Yes ☒  No ☐

 

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

 

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☐ (Do not check if a smaller reporting company)	Smaller reporting company ☒
	Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Yes ☐             No ☐

 

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

 

Yes ☐ No ☒

 

 

PART I. FINANANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

Millburn Multi-Markets Fund L.P.
Financial statements
For the three and nine months ended September 30, 2017 and 2016 (unaudited)
Statements of Financial Condition (a)		1
Statements of Operations (c)		2
Statements of Changes in Partners’ Capital (b)		4
Statements of Financial Highlights (c)		5
Notes to Financial Statements		9

 

(a) At September 30, 2017 and December 31, 2016 (unaudited)

 

(b) For the nine months ended September 30, 2017 and 2016 (unaudited)

 

(c) For the three and nine months ended September 30, 2017 and 2016 (unaudited)

 

 

Millburn Multi-Markets Fund L.P.

Statements of Financial Condition (UNAUDITED)

 

		September 30, 2017				December 31, 2016
ASSETS
Investment in Millburn Multi-Markets
Trading L.P. (the “Master Fund”)		$	179,662,569			$	172,886,333
Due from the Master Fund			2,480,864				2,876,148
Cash and cash equivalents			807,107				2,119,000
Total assets		$	182,950,540			$	177,881,481
LIABILITIES AND PARTNERS’ CAPITAL
LIABILITIES:
Capital contributions received in advance		$	807,000			$	2,119,000
Capital withdrawal payable to Limited Partners			2,480,864				2,076,148
Capital withdrawal payable to General Partner			—				800,000
Due to the Master Fund			107				—
Total liabilities			3,287,971				4,995,148
PARTNERS’ CAPITAL:
General Partner			2,897,144				2,779,224
Limited partners:
Series A (143,576.1126 and 140,590.2950 units outstanding)			163,661,026				158,782,193
Series B (6,982.9299 and 7,017.8811 units outstanding)			8,976,840				8,846,058
Series C (3,146.8994 and 1,930.6399 units outstanding)			4,127,559				2,478,858
Total limited partners			176,765,425				170,107,109
Total partners’ capital			179,662,569				172,886,333
TOTAL		$	182,950,540			$	177,881,481
NET ASSET VALUE PER UNIT OUTSTANDING:
Series A		$	1,139.89			$	1,129.40
Series B		$	1,285.54			$	1,260.50
Series C		$	1,311.63			$	1,283.96

 

 See notes to financial statements (Unaudited) 

 

 

Millburn Multi-Markets Fund L.P.

Statements of Operations (UNAUDITED)

 

		For the three months ended
		September  30, 2017				September  30, 2016
INVESTMENT INCOME:
Interest income (allocated from the Master Fund)		$	399,476			$	168,252
EXPENSES:
Management fees			912,657				796,810
Brokerage commissions (allocated from the Master Fund)			144,862				90,460
Selling commissions and platform fees			847,959				723,400
Administrative and operating expenses			159,790				203,842
Custody fees and other expenses (allocated from the Master Fund)			8,005				6,867
Total expenses			2,073,273				1,821,379
NET INVESTMENT LOSS			(1,673,797	)			(1,653,127	)
REALIZED AND UNREALIZED GAINS (LOSSES)
ALLOCATED FROM THE MASTER FUND
Net realized gains (losses) on closed positions:
Futures and forward currency contracts			(684,481	)			5,049,885
Foreign exchange translation			258,680				(23,059	)
Net change in unrealized:
Futures and forward currency contracts			7,997,669				(2,088,358	)
Foreign exchange translation			(14,722	)			81,655
Net gains (losses) from U.S. Treasury notes:
Net change in unrealized			42,731				(32,504	)
Net realized and unrealized gains allocated from the Master Fund			7,599,877				2,987,619
NET INCOME			5,926,080				1,334,492
LESS PROFIT SHARE ALLOCATION			386,837				254,063
FROM THE MASTER FUND
NET INCOME AFTER PROFIT SHARE		$	5,539,243			$	1,080,429

 

(Continued)

 

 

Millburn Multi-Markets Fund L.P.

Statements of Operations (UNAUDITED)

 

		For the nine months ended
		September  30, 2017				September  30, 2016
INVESTMENT INCOME:
Interest income (allocated from the Master Fund)		$	1,005,972			$	380,227
EXPENSES:
Management fees			2,709,419				2,114,538
Brokerage commissions (allocated from the Master Fund)			391,150				267,872
Selling commissions and platform fees			2,523,380				1,919,462
Administrative and operating expenses			490,833				541,800
Custody fees and other expenses (allocated from the Master Fund)			24,797				18,562
Total expenses			6,139,579				4,862,234
NET INVESTMENT LOSS			(5,133,607	)			(4,482,007	)
REALIZED AND UNREALIZED GAINS (LOSSES)
ALLOCATED FROM THE MASTER FUND
Net realized gains on closed positions:
Futures and forward currency contracts			12,685,017				24,569,098
Foreign exchange translation			242,374				33,396
Net change in unrealized:
Futures and forward currency contracts			(5,837,585	)			1,140,607
Foreign exchange translation			397,153				71,004
Net gains (losses) from U.S. Treasury notes:
Net change in unrealized			(73,085	)			120,649
Net realized and unrealized gains allocated from the Master Fund			7,413,874				25,934,754
NET INCOME			2,280,267				21,452,747
LESS PROFIT SHARE ALLOCATION			446,914				3,763,011
FROM THE MASTER FUND
NET INCOME AFTER PROFIT SHARE		$	1,833,353			$	17,689,736

 

See notes to financial statements (Unaudited)

(Concluded)

 

 

Millburn Multi-Markets Fund L.P. 

Statements of Changes in Partners’ Capital (UNAUDITED) 

For the nine months ended September 30, 2017 and 2016

 

						Limited Partners
		General
		Partner				Series A								Series B								Series C								Total
		Amount				Amount				Units				Amount				Units				Amount				Units				Amount
PARTNERS’ CAPITAL — December 31, 2016		$	2,779,224			$	158,782,193				140,590.2950			$	8,846,058				7,017.8811			$	2,478,858				1,930.6399			$	172,886,333
Capital contributions			—				22,783,577				19,836.2183				952,000				752.2613				315,000				240.6106				24,050,577
Capital withdrawals			—				(17,672,573	)			(15,358.9212	)			(1,011,080	)			(787.2125	)			(424,041	)			(321.7214	)			(19,107,694	)
Transfers between Series							(1,663,205	)			(1,491.4795	)											1,663,205				1,297.3703				—
Net income before profit share			117,920				1,806,103				—				240,618				—				115,626				—				2,280,267
Profit share							(375,069	)							(50,756	)							(21,089	)							(446,914	)
PARTNERS’ CAPITAL — September 30, 2017		$	2,897,144			$	163,661,026				143,576.1126			$	8,976,840				6,982.9299			$	4,127,559				3,146.8994			$	179,662,569
Net Asset Value per Unit at September 30, 2017										$	1,139.89							$	1,285.54							$	1,311.63

  

						Limited Partners
		General
		Partner				Series A								Series B								Series C								Total
		Amount				Amount				Units				Amount				Units				Amount				Units				Amount
PARTNERS’ CAPITAL — December 31, 2015		$	3,041,602			$	108,146,251				106,145.4501			$	8,380,703				7,449.1566			$	2,626,676				2,297.6071			$	122,195,232
Capital contributions			—				29,227,508				25,854.3736				319,876				250.1280				—				—				29,547,384
Capital withdrawals			—				(7,576,692	)			(6,833.8174	)			(826,341	)			(650.8812	)			(408,752	)			(333.7870	)			(8,811,785	)
Net income before profit share			622,943				18,842,533				—				1,533,908				—				453,363				—				21,452,747
Profit share							(3,365,557	)							(307,481	)							(89,973	)							(3,763,011	)
PARTNERS’ CAPITAL — September 30, 2016		$	3,664,545			$	145,274,043				125,166.0063			$	9,100,665				7,048.4034			$	2,581,314				1,963.8201			$	160,620,567
Net Asset Value per Unit at September 30, 2016										$	1,160.65							$	1,291.17							$	1,314.44

 

See notes to financial statements (Unaudited)

 

 

Millburn Multi-Markets Fund L.P. 

Statement of Financial Highlights (UNAUDITED) 

For the three months ended September 30, 2017

 

The following information presents per unit operating performance data for each series for the three months ended September 30, 2017.

 

 

Per Unit Performance
(For a Unit Outstanding Throughout the Period)			Series A				Series B				Series C
NET ASSET VALUE PER UNIT — Beginning of period		$	1,106.68			$	1,246.45			$	1,271.22
INCOME (LOSS) ALLOCATED FROM MASTER FUND:
Net investment loss (1)			(10.88	)			(6.39	)			(5.98	)
Total trading and investing gains (1)			46.27				52.12				52.95
Net income before profit share allocation from Master Fund			35.39				45.73				46.97
Less: profit share allocation from Master Fund (1) (6)			2.18				6.64				6.56
Net income from operations after profit share allocation from Master Fund			33.21				39.09				40.41
NET ASSET VALUE PER UNIT — End of period		$	1,139.89			$	1,285.54			$	1,311.63
TOTAL RETURN BEFORE PROFIT SHARE ALLOCATION FROM MASTER FUND (2)			3.19	%			3.66	%			3.68	%
LESS: PROFIT SHARE ALLOCATION FROM MASTER FUND (2) (6)			0.19				0.52				0.50
TOTAL RETURN AFTER PROFIT SHARE ALLOCATION FROM MASTER FUND (2)			3.00	%			3.14	%			3.18	%
RATIOS TO AVERAGE NET ASSET VALUE:
Expenses (3) (4) (5)			4.69	%			2.86	%			2.70	%
Profit share allocation from Master Fund (2) (6)			0.19				0.52				0.50
Total expenses			4.88	%			3.38	%			3.20	%
Net investment loss (3) (4) (5)			(3.83	)%			(1.99	)%			(1.82	)%

 

(1)

The net investment loss per unit and profit share allocation from the Master Fund per unit is calculated by dividing the net investment loss and profit share allocation from the 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.

 

 (Continued)

 

 

Millburn Multi-Markets Fund L.P. 

Statement of Financial Highlights (UNAUDITED)

For the nine months ended September 30, 2017

 

The following information presents per unit operating performance data for each series for the nine months ended September 30, 2017.

 

Per Unit Performance
(For a Unit Outstanding Throughout the Period)			Series A				Series B				Series C
NET ASSET VALUE PER UNIT — Beginning of period		$	1,129.40			$	1,260.50			$	1,283.96
INCOME (LOSS) ALLOCATED FROM MASTER FUND:
Net investment loss (1)			(33.77	)			(20.83	)			(19.08	)
Total trading and investing gains (1)			47.07				52.83				54.61
Net income before profit share allocation from Master Fund			13.30				32.00				35.53
Less: profit share allocation from Master Fund (1) (6)			2.81				6.96				7.86
Net income from operations after profit share allocation from Master Fund			10.49				25.04				27.67
NET ASSET VALUE PER UNIT — End of period		$	1,139.89			$	1,285.54			$	1,311.63
TOTAL RETURN BEFORE PROFIT SHARE ALLOCATION FROM MASTER FUND (2)			1.15	%			2.55	%			2.88	%
LESS: PROFIT SHARE ALLOCATION FROM MASTER FUND (2) (6)			0.22				0.56				0.72
TOTAL RETURN AFTER PROFIT SHARE ALLOCATION FROM MASTER FUND (2)			0.93	%			1.99	%			2.16	%
RATIOS TO AVERAGE NET ASSET VALUE:
Expenses (3) (4) (5)			4.68	%			2.90	%			2.68	%
Profit share allocation from Master Fund (2) (6)			0.22				0.56				0.72
Total expenses			4.90	%			3.46	%			3.40	%
Net investment loss (3) (4) (5)			(3.94	)%			(2.17	)%			(1.93	)%

 

(1)	The net investment loss per unit and profit share allocation from the Master Fund per unit is calculated by dividing the net investment loss and profit share allocation from the 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)

(Concluded)

 

 

Millburn Multi-Markets Fund L.P.

Statement of Financial Highlights (UNAUDITED)

For the three months ended September 30, 2016

 

The following information presents per unit operating performance data for each series for the three months ended September 30, 2016.

 

Per Unit Performance
(For a Unit Outstanding Throughout the Period)			Series A				Series B				Series C
NET ASSET VALUE PER UNIT — Beginning of period		$	1,153.29			$	1,278.43			$	1,300.62
INCOME (LOSS) ALLOCATED FROM MASTER FUND:
Net investment loss (1)			(12.73	)			(8.53	)			(7.85	)
Total trading and investing gains (1)			20.66				24.81				26.11
Net income before profit share allocation from Master Fund			7.93				16.28				18.26
Less: profit share allocation from Master Fund (1) (6)			0.57				3.54				4.44
Net income from operations after profit share allocation from Master Fund			7.36				12.74				13.82
NET ASSET VALUE PER UNIT — End of period		$	1,160.65			$	1,291.17			$	1,314.44
TOTAL RETURN BEFORE PROFIT SHARE ALLOCATION FROM MASTER FUND (2)			0.80	%			1.25	%			1.31	%
LESS: PROFIT SHARE ALLOCATION FROM MASTER FUND (2) (6)			0.16				0.25				0.25
TOTAL RETURN AFTER PROFIT SHARE ALLOCATION FROM MASTER FUND (2)			0.64	%			1.00	%			1.06	%
RATIOS TO AVERAGE NET ASSET VALUE:
Expenses (3) (4) (5)			4.81	%			3.08	%			2.83	%
Profit share allocation from Master Fund (2) (6)			0.16				0.25				0.25
Total expenses			4.97	%			3.33	%			3.08	%
Net investment loss (3) (4) (5)			(4.39	)%			(2.65	)%			(2.40	)%

 

(1)	The net investment loss per unit and profit share allocation from the Master Fund per unit is calculated by dividing the net investment loss and profit share allocation from the 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.

 

(Continued)

 

 

Millburn Multi-Markets Fund L.P. 

Statement of Financial Highlights (UNAUDITED) 

For the nine months ended September 30, 2016

 

The following information presents per unit operating performance data for each series for the nine months ended September 30, 2016.

 

Per Unit Performance
(For a Unit Outstanding Throughout the Period)			Series A				Series B				Series C
NET ASSET VALUE PER UNIT — Beginning of period		$	1,018.85			$	1,125.05			$	1,143.22
INCOME (LOSS) ALLOCATED FROM MASTER FUND:
Net investment loss (1)			(37.48	)			(25.28	)			(23.34	)
Total trading and investing gains (1)			209.06				233.21				236.78
Net income before profit share allocation from Master Fund			171.58				207.93				213.44
Less: profit share allocation from Master Fund (1) (6)			29.78				41.81				42.22
Net income from operations after profit share allocation from Master Fund			141.80				166.12				171.22
NET ASSET VALUE PER UNIT — End of period		$	1,160.65			$	1,291.17			$	1,314.44
TOTAL RETURN BEFORE PROFIT SHARE ALLOCATION FROM MASTER FUND (2)			16.58	%			18.14	%			18.36	%
LESS: PROFIT SHARE ALLOCATION FROM MASTER FUND (2) (6)			2.66				3.38				3.38
TOTAL RETURN AFTER PROFIT SHARE ALLOCATION FROM MASTER FUND (2)			13.92	%			14.76	%			14.98	%
RATIOS TO AVERAGE NET ASSET VALUE:
Expenses (3) (4) (5)			4.83	%			3.08	%			2.83	%
Profit share allocation from Master Fund (2) (6)			2.66				3.38				3.38
Total expenses			7.49	%			6.46	%			6.21	%
Net investment loss (3) (4) (5)			(4.47	)%			(2.73	)%			(2.48	)%

 

(1)	The net investment loss per unit and profit share allocation from the Master Fund per unit is calculated by dividing the net investment loss and profit share allocation from the 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)

 (Concluded)

 

 

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

 

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The accompanying unaudited financial statements, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of Millburn Multi-Markets Fund L.P.’s (the “Partnership”) financial condition at September 30, 2017 (unaudited) and December 31, 2016 and the results of its operations for the three and nine months ended September 30, 2017 and 2016 (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 2016 annual report included in Form 10-K filed with the Securities and Exchange Commission. The December 31, 2016 information has been derived from the audited financial statements as of December 31, 2016.

 

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 indemnification provisions. 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, 2014 to 2017, 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 2016.

 

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 September 30, 2017 and December 31, 2016 was 36.51% and 74.91%, 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.

 

Prior to January 1, 2017, the General Partner was 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. As of January 1, 2017, the Administration Fee was no longer being charged. The Partnership was allocated its pro-rata portion of the administration fee which was charged at the Master Fund level. As of December 31, 2016, $9,903 was payable by the Master Fund to the General Partner and was included in “accrued expenses” in the Master Fund’s Statements of Financial Condition.

 

Series A Limited Partners 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 September 30, 2017 and December 31, 2016, there were no redemption charges owed to the General Partner.

 

Effective August 24, 2017, the Partnership began offering a new Series D which, like Series A, will be offered to accredited investors acquiring units through certain selling agents. The only difference between Series D and the other Partnership interests are its fees. No Series D Units have been issued as of November 13, 2017.

 

 

4. FINANCIAL HIGHLIGHTS

 

Per Unit operating performance for Series A, Series B and Series C Units is calculated based on Limited Partners’ Partnership 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 September 30,								Nine months ended September 30,
			2017				2016				2017				2016

Series A			148,282.529				123,785.440				146,547.251				113,006.923
Series B			7,014.374				7,188.676				7,010.924				7,354.335
Series C			2,814.813				2,012.683				2,251.568				2,131.661

 

 

5. SUBSEQUENT EVENTS

 

The General Partner has performed its evaluation of subsequent events from October 1, 2017 to November 13, 2017, the date this form 10-Q was filed. Based on such evaluation, no events were discovered that required disclosure or adjustment to the financial statements.

  

 

Millburn Multi-Markets Trading L.P.
Financial statements
For the three and nine months ended September 30, 2017 and 2016 (unaudited)
Statements of Financial Condition (a)		11
Condensed Schedules of Investments (a)		12
Statements of Operations (c)		16
Statements of Changes in Partners’ Capital (b)		18
Statements of Financial Highlights (c)		19
Notes to Financial Statements		21

 

(a) At September 30, 2017 and December 31, 2016 (unaudited)

 

(b) For the nine months ended September 30, 2017 and 2016 (unaudited)

 

(c) For the three and nine months ended September 30, 2017 and 2016 (unaudited)

 

 

 

Millburn Multi-Markets Trading L.P.

Statements of Financial Condition (UNAUDITED)

 

		September 30,				December 31,
		2017				2016
ASSETS
EQUITY IN TRADING ACCOUNTS:
Investments in U.S. Treasury notes — at fair value (amortized cost $105,728,604 and $27,441,546)		$	105,651,347			$	27,428,997
Net unrealized appreciation on open futures and forward currency contracts			2,658,334				5,155,330
Due from brokers			211,627				547,898
Cash denominated in foreign currencies (cost $23,708,420 and $6,590,374)			24,152,999				6,335,327
Total equity in trading accounts			132,674,307				39,467,552
INVESTMENTS IN U.S. TREASURY NOTES — at fair value
(amortized cost $356,699,373 and $179,527,858)			356,505,453				179,440,654
CASH AND CASH EQUIVALENTS			24,156,217				19,892,072
ACCRUED INTEREST RECEIVABLE			1,072,127				414,884
DUE FROM MILLBURN MULTI-MARKETS LTD.			4,638				100
DUE FROM MILLBURN MULTI-MARKETS FUND L.P.			107				—
TOTAL		$	514,412,849			$	239,215,262
LIABILITIES AND PARTNERS’ CAPITAL
LIABILITIES:
Net unrealized depreciation on open futures and forward currency contracts		$	5,854,364			$	—
Capital withdrawal payable to Limited Partners			2,580,068				2,929,148
Capital withdrawal payable to General Partner			—				3,294,748
Management fee payable			606,037				320,223
Selling commissions payable			277,610				271,795
Accrued expenses			168,825				184,565
Due to brokers			11,705,760				1,390,404
Commissions and other trading fees on open futures contracts			78,029				24,334
Accrued profit share			1,037,700				—
Total liabilities			22,308,393				8,415,217
PARTNERS’ CAPITAL			492,104,456				230,800,045
TOTAL		$	514,412,849			$	239,215,262

 

See notes to financial statements (Unaudited)

  

 

Millburn Multi-Markets Trading L.P. 

Condensed Schedule of Investments (UNAUDITED)

September 30, 2017

 

		Net Unrealized
		Appreciation
		(Depreciation)				Net Unrealized
		as a % of				Appreciation
FUTURES AND FORWARD CURRENCY CONTRACTS		Partners’ Capital				(Depreciation)
FUTURES CONTRACTS
Long futures contracts:
Energies			0.18	%		$	878,300
Interest rates			(1.17	)			(5,745,739	)
Metals			(0.24	)			(1,166,120	)
Softs			(0.01	)			(31,163	)
Stock indices			1.47				7,219,201
Total long futures contracts			0.23				1,154,479
Short futures contracts:
Energies			(0.19	)			(941,765	)
Grains			0.48				2,360,148
Interest rates			0.02				104,691
Livestock			(0.04	)			(221,420	)
Metals			(0.11	)			(540,828	)
Softs			0.05				245,113
Stock indices			0.10				497,916
Total short futures contracts			0.31				1,503,855
TOTAL INVESTMENTS IN FUTURES CONTRACTS — Net			0.54				2,658,334
FORWARD CURRENCY CONTRACTS
Total long forward currency contracts			(1.66	)			(8,188,369	)
Total short forward currency contracts			0.47				2,334,005
TOTAL INVESTMENTS IN FORWARD CURRENCY CONTRACTS — Net			(1.19	)			(5,854,364	)
TOTAL			(0.65	)%		$	(3,196,030	)

 

(Continued)

 

 

Millburn Multi-Markets Trading L.P. 

Condensed Schedule of Investments (UNAUDITED)

September 30, 2017

 

U.S. TREASURY NOTES

Face Amount				Description		Fair Value as a % of   Partners' Capital				Fair Value
$	104,940,000			U.S. Treasury notes, 0.875%, 11/15/2017			21.32	%		$	104,931,802
	116,040,000			U.S. Treasury notes, 1.000%, 02/15/2018			23.57				115,992,405
	101,240,000			U.S. Treasury notes, 1.000%, 05/15/2018			20.54				101,101,586
	140,540,000			U.S. Treasury notes, 1.000%, 08/15/2018			28.48				140,131,007
				Total investments in U.S. Treasury notes
				(amortized cost $462,427,977)			93.91	%		$	462,156,800

 

See notes to financial statements (Unaudited)

(Concluded)

 

 

Millburn Multi-Markets Trading L.P.

Condensed Schedule of Investments

December 31, 2016

 

FUTURES AND FORWARD CURRENCY CONTRACTS		Net Unrealized Appreciation (Depreciation) as a % of Partners’ Capital				Net Unrealized Appreciation (Depreciation)
FUTURES CONTRACTS
Long futures contracts:
Energies			0.05	%		$	115,591
Grains			(0.00	)			(2,980	)
Interest rates
10 Year U.S. Treasury Note (4 contracts, settlement date March 2017)			0.00				3,188
Other interest rates			0.96				2,222,359
Total interest rates			0.96				2,225,547
Livestock			0.00				2,280
Metals			(0.01	)			(22,535	)
Softs			(0.04	)			(87,444	)
Stock indices			0.53				1,211,342
Total long futures contracts			1.49				3,441,801
Short futures contracts:
Energies			(0.03	)			(75,226	)
Grains			0.02				51,885
Interest rates			(0.01	)			(31,802	)
Metals			0.12				288,271
Softs			0.02				52,670
Stock indices			(0.14	)			(319,227	)
Total short futures contracts			(0.02	)			(33,429	)
TOTAL INVESTMENTS IN FUTURES CONTRACTS — Net			1.47				3,408,372
FORWARD CURRENCY CONTRACTS
Total long forward currency contracts			(0.34	)			(784,446	)
Total short forward currency contracts			1.10				2,531,404
TOTAL INVESTMENTS IN FORWARD CURRENCY CONTRACTS — Net			0.76				1,746,958
TOTAL			2.23	%		$	5,155,330

 

(Continued)

 

 

Millburn Multi-Markets Trading L.P.

Condensed Schedule of Investments

December 31, 2016

 

U.S. TREASURY NOTES

 

Face Amount				Description		Fair Value as a % of   Partners’ Capital				Fair Value
$	51,750,000			U.S. Treasury notes, 0.625%, 02/15/2017			22.43	%		$	51,755,054
	51,140,000			U.S. Treasury notes, 0.875%, 05/15/2017			22.18				51,192,938
	53,140,000			U.S. Treasury notes, 0.875%, 08/15/2017			23.04				53,186,705
	50,730,000			U.S. Treasury notes, 0.875%, 11/15/2017			21.98				50,734,954
				Total investments in U.S. Treasury notes
				(amortized cost $206,969,404)			89.63	%		$	206,869,651

 

See notes to financial statements (Unaudited)

(Concluded)

 

 

Millburn Multi-Markets Trading L.P.

Statements of Operations (UNAUDITED)

 

		For the three months ended
		September 30,				September 30,
		2017				2016
INVESTMENT INCOME — Interest income		$	1,075,657			$	223,115
EXPENSES:
Brokerage fees			386,487				119,909
Management fees			1,815,461				854,090
Selling commissions and platform fees			854,342				727,086
Administrative and operating expenses			264,296				237,029
Custody fees and other expenses			21,184				9,048
Total expenses			3,341,770				1,947,162
NET INVESTMENT LOSS			(2,266,113	)			(1,724,047	)
REALIZED AND UNREALIZED GAINS (LOSSES):
Net realized gains (losses) on closed positions:
Futures and forward currency contracts			(1,747,412	)			6,638,522
Foreign exchange translation			694,984				(30,834	)
Net change in unrealized:
Futures and forward currency contracts			20,864,904				(2,673,356	)
Foreign exchange translation			(54,959	)			108,847
Net gains (losses) from U.S. Treasury notes
Net change in unrealized			110,333				(41,816	)
Total net realized and unrealized gains			19,867,850				4,001,363
NET INCOME			17,601,737				2,277,316
LESS PROFIT SHARE TO GENERAL PARTNER			1,067,296				288,402
NET INCOME AFTER PROFIT SHARE TO GENERAL PARTNER		$	16,534,441			$	1,988,914

 

(Continued)

 

 

Millburn Multi-Markets Trading L.P.

Statements of Operations (UNAUDITED)

 

		For the nine months ended
		September 30,				September 30,
		2017				2016
INVESTMENT INCOME — Interest income		$	2,275,095			$	513,124
EXPENSES:
Brokerage fees			871,023				362,716
Management fees			4,478,516				2,294,452
Selling commissions and platform fees			2,539,008				1,930,026
Administrative and operating expenses			728,341				637,347
Custody fees and other expenses			50,520				24,926
Total expenses			8,667,408				5,249,467
NET INVESTMENT LOSS			(6,392,313	)			(4,736,343	)
REALIZED AND UNREALIZED GAINS (LOSSES):
Net realized gains on closed positions:
Futures and forward currency contracts			21,107,114				33,271,030
Foreign exchange translation			657,370				44,857
Net change in unrealized:
Futures and forward currency contracts			(8,351,360	)			1,591,820
Foreign exchange translation			699,626				96,757
Net gains (losses) from U.S. Treasury notes
Net change in unrealized			(171,424	)			164,877
Total net realized and unrealized gains			13,941,326				35,169,341
NET INCOME			7,549,013				30,432,998
LESS PROFIT SHARE TO GENERAL PARTNER			1,130,868				4,090,106
NET INCOME AFTER PROFIT SHARE TO GENERAL PARTNER		$	6,418,145			$	26,342,892

 

(Concluded)

 See notes to financial statements (Unaudited)

 

 

 

Millburn Multi-Markets Trading L.P.

Statements of Changes in Partners’ Capital (UNAUDITED)

 

For the nine months ended September 30, 2017:

 

		Limited Partners				New Profit Memo Account				General Partner				Total
PARTNERS’ CAPITAL - January 1, 2017		$	229,993,162			$	—			$	806,883			$	230,800,045
Contributions			276,213,975				93,168				—				276,307,143
Withdrawals			(21,420,877	)			—				—				(21,420,877	)
Net income (loss) before profit share			7,514,367				(1,017	)			35,663				7,549,013
General Partner’s allocation - profit share			(1,130,868	)			—				—				(1,130,868	)
PARTNERS’ CAPITAL- September 30, 2017		$	491,169,759			$	92,151			$	842,546			$	492,104,456

 

For the nine months ended September 30, 2016:

 

		Limited Partners				New Profit Memo Account				General Partner				Total
PARTNERS’ CAPITAL - January 1, 2016		$	167,109,009			$	—			$	938,206			$	168,047,215
Contributions			35,397,382				186,437				—				35,583,819
Withdrawals			(12,824,862	)			—				—				(12,824,862	)
Net income before profit share			30,225,381				13,344				194,273				30,432,998
General Partner’s allocation - profit share			(4,090,106	)			—				—				(4,090,106	)
PARTNERS’ CAPITAL- September 30, 2016		$	215,816,804			$	199,781			$	1,132,479			$	217,149,064

 

See notes to financial statements (Unaudited)

 

 

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								For the nine months ended
		September 30,				September 30,				September 30,				September 30,
		2017				2016				2017				2016
Total return before General Partner profit share allocation (3)			3.74	%			1.38	%			2.86	%			18.57	%
Less: General Partner profit share allocation (3)			0.56				0.28				0.56				3.44
Total return after General Partner profit share allocation (3)			3.18	%			1.10	%			2.30	%			15.13	%
Ratios to average net asset value:
Expenses (1) (4)			2.44	%			2.52	%			2.44	%			2.54	%
General Partner profit share allocation (3)			0.56				0.28				0.56				3.44
Total expenses (1)			3.00	%			2.80	%			3.00	%			5.98	%
Net investment loss (1) (2) (4)			(1.56	)%			(2.08	)%			(1.71	)%			(2.18	)%

 

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)

 

 

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								For the nine months ended
		September 30,				September 30,				September 30,				September 30,
		2017				2016				2017				2016
Total return before General Partner profit share allocation (3)			3.69	%			1.07	%			2.31	%			17.66	%
Less: General Partner profit share allocation (3)			0.22				0.14				0.29				2.13
Total return after General Partner profit share allocation (3)			3.47	%			0.93	%			2.02	%			15.53	%
Ratios to average net asset value:
Expenses (1) (4)			2.68	%			3.68	%			2.91	%			3.64	%
General Partner profit share allocation (3)			0.22				0.14				0.29				2.13
Total expenses (1)			2.90	%			3.82	%			3.20	%			5.77	%
Net investment loss (1) (2) (4)			(1.80	)%			(3.24	)%			(2.14	)%			(3.28	)%

 

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 Partnership and the Cayman Feeder for the period ending September 30, 2017 and September 30, 2016.

(2)

Excludes General Partner profit share allocation and includes interest income.

(3)

Not Annualized.

(4)

Annualized.

 

See notes to financial statements (Unaudited)

 

 

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

 

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 and Millburn Multi-Markets Ltd., a Cayman Islands exempted company (the “Cayman Feeder”).

 

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 September 30, 2017 (unaudited) and December 31, 2016 and the results of its operations for the three and nine months ended September 30, 2017 and 2016 (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, 2016 included in the Partnership’s annual report on Form 10-K filed with the Securities and Exchange Commission. The December 31, 2016 information has been derived from the audited financial statements as of December 31, 2016.

 

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, 2014 to 2017, 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 September 30, 2017 and December 31, 2016, the respective ownership percentages of the Master Fund are detailed below. The remaining interests are held by direct investors in the Master Fund.

 

		September 30,				December 31,
		2017				2016
Partnership			36.51	%			74.91	%
Cayman Feeder			54.17	%			6.68	%
Total			90.68	%			81.59	%

 

The capital withdrawals payable at September 30, 2017 and December 31, 2016 were $2,580,067 and $6,223,896, respectively, as detailed below.

 

		September 30,				December 31,
		2017				2016
Direct investors (1)		$	—			$	3,294,748
Partnerships			2,480,864				2,876,148
Cayman Feeder			99,204				53,000
Total		$	2,580,068			$	6,223,896

 

(1) Includes General Partner’s profit share of $2,994,748 at December 31, 2016.

 

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, prior to January 1, 2017. 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.

 

Investment Company Status: The Partnership adopted Accounting Standard Update (“ASU”) 2013-08, “Financial Services — Investment Companies (Topic 946): Amendments to the Scope, Measurement and Disclosure Requirements” and based on the General Partner’s assessment, the Partnership has been deemed to be an investment company since inception. Accordingly, the Partnership follows the investment company accounting and reporting guidance of Topic 946 and reflects its investments at fair value with unrealized gains and losses resulting from changes in fair value reflected in the Statements of Income and Expenses and Changes in Partners’ Capital.

 

During the three and nine months ended September 30, 2017 and 2016, 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 September 30, 2017 and December 31, 2016 in valuing the Master Fund’s investments at fair value. At September 30, 2017 and December 31, 2016, the Master Fund had no assets or liabilities in Level 3.

 

 

Financial assets and liabilities at fair value as of September 30, 2017 

 

		Level 1				Level 2				Total
U.S. Treasury notes (1)		$	462,156,800			$	—			$	462,156,800
Short-Term Money Market Fund*			23,906,217				—				23,906,217
Exchange-traded futures contracts
Energies			(63,465	)			—				(63,465	)
Grains			2,360,148				—				2,360,148
Interest rates			(5,641,048	)			—				(5,641,048	)
Livestock			(221,420	)			—				(221,420	)
Metals			(1,706,948	)			—				(1,706,948	)
Softs			213,950				—				213,950
Stock indices			7,717,117				—				7,717,117
Total exchange-traded futures contracts			2,658,334				—				2,658,334
Over-the-counter forward currency contracts			—				(5,854,364	)			(5,854,364	)
Total futures and forward currency contracts (2)			2,658,334				(5,854,364	)			(3,196,030	)
Total financial assets and liabilities at fair value		$	488,721,351			$	(5,854,364	)		$	482,866,987
Per line item in Statements of Financial Condition
(1)
Investments in U.S. Treasury notes held in equity trading accounts as collateral										$	105,651,347
Investments in U.S. Treasury notes held in custody											356,505,453
Total investments in U.S. Treasury notes										$	462,156,800
(2)
Net unrealized appreciation on open futures and forward currency contracts										$	2,658,334
Net unrealized depreciation on open futures and forward currency contracts											(5,854,364	)
Total net unrealized appreciation on open futures and forward currency contracts										$	(3,196,030	)

 

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

 

 

Financial assets and liabilities at fair value as of December 31, 2016

 

		Level 1				Level 2				Total
U.S. Treasury notes (1)		$	206,869,651			$	—			$	206,869,651
Exchange-traded futures contracts
Energies			40,365				—				40,365
Grains			48,905				—				48,905
Interest rates			2,193,745				—				2,193,745
Livestock			2,280				—				2,280
Metals			265,736				—				265,736
Softs			(34,774	)			—				(34,774	)
Stock indices			892,115				—				892,115
Total exchange-traded futures contracts			3,408,372				—				3,408,372
Over-the-counter forward currency contracts			—				1,746,958				1,746,958
Total futures and forward currency contracts (2)			3,408,372				1,746,958				5,155,330
Total financial assets and liabilities at fair value		$	210,278,023			$	1,746,958			$	212,024,981
Per line item in Statements of Financial Condition
(1)
Investments in U.S. Treasury notes held in equity trading accounts as collateral										$	27,428,997
Investments in U.S. Treasury notes held in custody											179,440,654
Total investments in U.S. Treasury notes										$	206,869,651
(2)
Net unrealized appreciation on open futures and forward currency contracts										$	5,155,330
Net unrealized depreciation on open futures and forward currency contracts											—
Total unrealized appreciation on open futures and forward currency contracts										$	5,155,330

 

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 September 30, 2017 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 September 30, 2017 and December 31, 2016. 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.

 

Fair value of futures and forward currency contracts at September 30, 2017

 

														Net
														Unrealized
														Gain (Loss)
		Fair Value - Long Positions						Fair Value - Short Positions						on Open
Sector		Gains			Losses			Gains			Losses			Positions
Futures contracts:
Energies		$	1,191,542		$	(313,242)		$	67,239		$	(1,009,004)		$	(63,465)
Grains			—			—			2,945,967			(585,819)			2,360,148
Interest rates			456,685			(6,202,424)			135,891			(31,200)			(5,641,048)
Livestock			—			—			1,080			(222,500)			(221,420)
Metals			1,116,254			(2,282,374)			1,569,907			(2,110,735)			(1,706,948)
Softs			—			(31,163)			385,812			(140,699)			213,950
Stock indices			7,482,968			(263,767)			566,663			(68,747)			7,717,117
Total futures contracts			10,247,449			(9,092,970)			5,672,559			(4,168,704)			2,658,334
Forward currency contracts			1,674,150			(9,862,519)			4,039,404			(1,705,399)			(5,854,364)
Total futures and forward currency contracts		$	11,921,599		$	(18,955,489)		$	9,711,963		$	(5,874,103)		$	(3,196,030)

 

 

 

Fair value of futures and forward currency contracts at December 31, 2016

 

 

																		Net   Unrealized    Gain (Loss)
		Fair Value - Long Positions								Fair Value - Short Positions									on Open
Sector			Gains				Losses				Gains				Losses				Positions
Futures contracts:
Energies		$	125,805			$	(10,214	)		$	23,840			$	(99,066	)		$	40,365
Grains			—				(2,980	)			122,923				(71,038	)			48,905
Interest rates			2,658,089				(432,542	)			104				(31,906	)			2,193,745
Livestock			5,130				(2,850	)			—				—				2,280
Metals			750,102				(772,637	)			545,558				(257,287	)			265,736
Softs			547				(87,991	)			156,789				(104,119	)			(34,774	)
Stock indices			1,876,503				(665,161	)			22,049				(341,276	)			892,115
Total futures contracts			5,416,176				(1,974,375	)			871,263				(904,692	)			3,408,372
Forward currency contracts			476,460				(1,260,906	)			3,059,242				(527,838	)			1,746,958
Total futures and forward currency contracts		$	5,892,636			$	(3,235,281	)		$	3,930,505			$	(1,432,530	)		$	5,155,330

  

The effect of trading futures and forward currency contracts is represented on the Master Fund’s Statements of Operations for the three and nine months ended September 30, 2017 and 2016 as “Net realized gains (losses) on closed positions: Futures and forward currency contracts” and “Net change in unrealized: Futures and forward currency contracts.” These trading gains and losses are detailed below.

 

Trading gains (losses) of futures and forward currency contracts for the three and nine months ended September 30, 2017 and 2016

 

		Three months				Three months				Nine months				Nine months
		ended:				ended:				ended:				ended:
		September 30,				September 30,				September 30,				September 30,
Sector		2017				2016				2017				2016
Futures contracts:
Energies		$	(1,344,515	)		$	(3,614,218	)		$	(10,087,547	)		$	(3,798,915	)
Grains			581,715				467,090				(4,689,545	)			3,731,258
Interest rates			(610,263	)			2,303,538				(8,238,107	)			25,650,395
Livestock			259,720				664,530				(273,000	)			672,790
Metals			(788,041	)			(283,569	)			(516,224	)			(1,852,189	)
Softs			(325,826	)			(227,230	)			2,093,443				(1,071,043	)
Stock indices			22,123,955				4,159,234				46,818,237				8,424,324
Total futures contracts			19,896,745				3,469,375				25,107,257				31,756,620
Forward currency contracts			(779,253	)			495,791				(12,351,503	)			3,106,230
Total futures and forward currency contracts		$	19,117,492			$	3,965,166			$	12,755,754			$	34,862,850

 

For the three months ended September 30, 2017 and 2016, the monthly average number of future contracts bought and sold and the monthly average notional value of forward currency contracts traded are detailed below:

 

				2017				2016
Average bought					39,823				12,159
Average sold					40,637				11,463
Average notional				$	4,043,000,000			$	1,223,000,000

 

 

 

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 SG Americas Securities, LLC, as well as the FX prime broker, Deutsche Bank AG, and the swap dealer, Morgan Stanley & Co., LLC, give 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 following table represents gross amounts of assets or liabilities which qualify for offset as presented per the Statement of Financial Condition as of September 30, 2017 and December 31, 2016.

 

Offsetting of derivative assets and liabilities at September 30, 2017
						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		$	6,085,416			$	(5,118,059	)		$	967,357
Counterparty I			9,834,592				(8,143,615	)			1,690,977
Total futures contracts			15,920,008				(13,261,674	)			2,658,334
Total assets		$	15,920,008			$	(13,261,674	)		$	2,658,334

 

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