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EX-32.03 - EXHIBIT 32.03 - Millburn Multi-Markets Fund L.P.s107976_ex32-03.htm
EX-32.02 - EXHIBIT 32.02 - Millburn Multi-Markets Fund L.P.s107976_ex32-02.htm
EX-32.01 - EXHIBIT 32.01 - Millburn Multi-Markets Fund L.P.s107976_ex32-01.htm
EX-31.03 - EXHIBIT 31.03 - Millburn Multi-Markets Fund L.P.s107976_ex31-03.htm
EX-31.02 - EXHIBIT 31.02 - Millburn Multi-Markets Fund L.P.s107976_ex31-02.htm
EX-31.01 - EXHIBIT 31.01 - Millburn Multi-Markets Fund L.P.s107976_ex31-01.htm

 

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) 

 

1

 

 

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)

 

2

 

 

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)

 

3

 

 

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)

 

4

 

 

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)

 

5

 

 

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)

 

6 

 

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)

 

7 

 

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)

 

8 

 

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

 

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The accompanying unaudited financial statements, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of 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.

 

 9

 

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.

  

 10

 

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)

  

 11

 

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)

 

 12

 

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)

 

 13

 

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)

 

14

 

 

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)

 

15

 

 

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)

 

16

 

 

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)

 

17

 

 

 

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)

 

18

 

 

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)

 

19

 

 

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)

 

20

 

 

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.

 

21 

 

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.

 

22 

 

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.

 

23 

 

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.

 

24 

 

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)

 

 

25 

 

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 
             

 

 

26 

 

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 
             
 Forward currency contracts               
 Counterparty G  $3,971,682   $(692,325)  $3,279,357 
 Counterparty H   7,596,236    (5,021,229)   2,575,007 
 Total forward contracts   11,567,918    (5,713,554)   5,854,364 
 Total liabilities  $11,567,918   $(5,713,554)  $5,854,364 

 

27 

 

       Amounts Not Offset in the Statement
of Financial Condition
     
                 
   Net amounts of             
   Assets             
   presented in the             
Counterparty  Statement of Financial   Financial   Collateral     
   Condition   Instruments   Received(1)(2)   Net Amount(3) 
                     
 Counterparty C  $967,357   $   $(967,357)  $ 
 Counterparty I   1,690,977        (1,690,977)    
 Total  $2,658,334   $   $(2,658,334)  $ 

  

       Amounts Not Offset in the Statement
of Financial Condition
     
                 
   Net amounts of             
   Liabilities             
   presented in the             
Counterparty  Statement of Financial   Financial   Collateral     
   Condition   Instruments   Pledged(1)(2)   Net Amount(4) 
                     
 Counterparty G  $3,279,357   $   $   $3,279,357 
 Counterparty H   2,575,007            2,575,007 
 Total  $5,854,364   $   $   $5,854,364 

  

(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 counterparty.
(2)Collateral disclosed is limited to an amount not to exceed 100% of the net amount of liabilities presented in the Statement of Financial Condition, for each respective counterparty.
(3)Net amount represents the amount that is subject to loss in the event of a counterparty failure as of September 30, 2017.
(4)Net amount represents the amounts owed by the Partnership to each counterparty as of September 30, 2017.

  

Offsetting of derivative assets and liabilities at December 31, 2016

 

Assets  Gross amounts of recognized assets   Gross amounts offset in the Statement of Financial Condition   Net amounts of assets presented in the Statement of Financial Condition 
             
Futures contracts               
Counterparty C  $3,612,002   $(1,405,548)  $2,206,454 
Counterparty I   2,675,437    (1,473,519)   1,201,918 
Total futures contracts   6,287,439    (2,879,067)   3,408,372 
                
Forward currency contracts               
Counterparty G  $1,707,952   $(615,087)  $1,092,865 
Counterparty H   1,827,750    (1,173,657)   654,093 
Total forward currency contracts   3,535,702    (1,788,744)   1,746,958 
                
Total assets  $9,823,141   $(4,667,811)  $5,155,330 

 

28

 

 

       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  $2,206,454   $   $(2,206,454)  $ 
 Counterparty I   1,201,918        (1,201,918)    
 Counterparty G   1,092,865           1,092,865 
 Counterparty H   654,093            654,093 
                     
 Total  $5,155,330   $   $(3,408,372)  $1,746,958 

 

(1)Collateral received includes trades made on exchanges. These trades are subject to central counterparty clearing where settlement is guaranteed by the exchange.
(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, 2016. Net amount represents the amount that is subject to loss in the event of a counterparty failure as of December 31, 2016.

 

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 through 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 $36,553,248 and $12,232,055 at September 30, 2017 and December 31, 2016, respectively.

 

5. PROFIT SHARE

 

The following table indicates the total profit share earned and accrued during the three and nine months ended September 30, 2017 and 2016. 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: 
    September 30, 2017   September 30, 2016 
 Profit share earned    $29,596   $69,846 
 Reversal of profit share (1)         (3,685,112)
 Profit share accrued     1,037,700    3,903,668 
 Total profit share    $1,067,296   $288,402 

 

    Nine months ended:   Nine months ended: 
    September 30, 2017   September 30, 2016 
 Profit share earned    $93,168   $186,438 
 Profit share accrued      1,037,700    3,903,668 
 Total profit share    $1,130,868   $4,090,106 

 

(1)Reversal of profit sharing occurs each year on July 1st

 

29

 

 

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.

 

7. SUBSEQUENT EVENTS

 

During the period from October 1, 2017 to November 13, 2017, contributions of $56,217,900 were made to the Master Fund. The General Partner has performed its evaluation of subsequent events through November 13, 2017, the date the form 10-Q was filed. Based on such evaluation, no further events were discovered that required disclosure or adjustment to the 10-Q.

 

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.

 

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

 

The General Partner has procedures in place to control market risk, although there can be no assurance that they will, in fact, succeed in doing so. These procedures primarily focus on (1) real time monitoring of open positions; (2) diversifying positions among various markets; (3) limiting the assets committed as margin or collateral, generally within a range of 5% to 35% of an account’s net assets, though the amount may at any time be substantially higher; 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.

 

30

 

 

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, forwards, and spot currency positions and withdrawn, as necessary, to pay redemptions and expenses. Other than potential market-imposed limitations on liquidity, due, for example, to limited open interest in certain futures markets or to daily price fluctuation limits, which are inherent in the 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 September 30, 2017, 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.

 

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.

 

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.

 

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 Periods ended September 30, 2017

 

 

 

Month Ending:   Total  
Partners’
Capital of the 
Partnership
 
 September 30, 2017    $179,662,569 
 June 30, 2017     178,182,813 
 December 31, 2016     172,886,333 

 

   Three Months   Nine Months 
 Change in Partners’ Capital  $1,479,756   $6,776,236 
 Percent Change   0.83%  $3.92%

  

THREE MONTHS ENDED SEPTEMBER 30, 2017

 

The increase in the Partnership’s net assets of $1,479,756 was attributable to net income after profit share through its investment in the Master Fund of $5,539,243, and contributions of $3,631,000 which were partially offset by withdrawals of $7,690,487.

 

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, contributions and withdrawals. Management fees, through the Partnership’s investment in the Master Fund, for the three months ended September 30, 2017 increased $115,847 relative to the corresponding period in 2016. The increase was due to an increase in the average net asset value of the Partnership during the three months ended September 30, 2017, relative to the corresponding period in 2016.

 

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 September 30, 2017 increased $54,402 relative to the corresponding period in 2016. The increase was due to an increase in average net assets of the Partnership during the three months ended September 30, 2017, relative to the corresponding period in 2016.

 

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, contributions and withdrawals. Selling commissions and platform fees for the three months ended September 30, 2017 increased $124,559 relative to the corresponding period in 2016. The increase was due to an increase in the average net asset value of commission paying investors of the Partnership during the three months ended September 30, 2017, relative to the corresponding period in 2016.

 

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 September 30, 2017 decreased $44,052 relative to the corresponding period in 2016. The decrease was due mainly to the Partnership no longer paying The Millburn Corporation (“TMC”) for legal and accounting services during the three months ended September 30, 2017, relative to the corresponding period in 2016.

 

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 September 30, 2017 increased $231,224 relative to the corresponding period in 2016. This increase was due predominantly to an increase in short-term U.S. Treasury yields during the three months ended September 30, 2017 relative to the corresponding period in 2016, and partially due to an increase in average net assets over the same period.

 

For the three months ended September 30, 2017, the Partnership, through its investment in the Master Fund, experienced net realized and unrealized gains of $7,599,877 from its trading operations (including foreign exchange transactions and translations). Management fees of $912,657, brokerage commissions of $144,862, selling commissions and platform fees of $847,959, administrative and operating expenses of $159,790, custody fees and other expenses of $8,005, and profit share of $386,837 were paid or accrued. Interest income of $399,476 partially offset the Master Fund expenses allocated to the Partnership resulting in net income after profit share of $5,539,243.

 

32

 

 

An analysis of the Master Fund’s trading gain (loss) by sector is as follows:

 

   % Gain 
Sector  (Loss) 
 Currencies   (0.15)%
 Energies   (0.28)%
 Grains   0.14%
 Interest rates   (0.08)%
 Livestock   0.06%
 Metals   (0.17)%
 Softs   (0.07)%
 Stock indices   4.54%
 Trading gain   3.99%

 

NINE MONTHS ENDED SEPTEMBER 30, 2017

 

The increase in the Partnership’s net assets of $6,776,236 was attributable to contributions of $24,050,577 and net income after profit share through its investment in the Master Fund of $1,833,353 which were offset by withdrawals of $19,107,694.

 

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, contributions and withdrawals. Management fees, through the Partnership’s investment in the Master Fund, for the nine months ended September 30, 2017 increased $594,881 relative to the corresponding period in 2016. The increase was due to an increase in the average net asset value of the Partnership during the nine months ended September 30, 2017, relative to the corresponding period in 2016.

 

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 nine months ended September 30, 2017 increased $123,278 relative to the corresponding period in 2016. The increase was due an increase in average net assets of the Partnership during the nine months ended September 30, 2017, relative to the corresponding period in 2016.

 

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, contributions and withdrawals. Selling commissions and platform fees for the nine months ended September 30, 2017 increased $603,918 relative to the corresponding period in 2016. The increase was due to an increase in the average net asset value of commission paying investors of the Partnership during the nine months ended September 30, 2017, relative to the corresponding period in 2016.

 

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 nine months ended September 30, 2017 decreased $50,967 relative to the corresponding period in 2016. The decrease was due mainly to the Partnership no longer paying TMC for legal and accounting services during the nine months ended September 30, 2017, relative to the corresponding period in 2016.

 

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 nine months ended September 30, 2017 increased $625,745 relative to the corresponding period in 2016. This increase was due predominantly to an increase in short-term U.S. Treasury yields during the nine months ended September 30, 2017 relative to the corresponding period in 2016, and partially due to an increase in average net assets over the same period.

 

For the nine months ended September 30, 2017, the Partnership, through its investment in the Master Fund, achieved net realized and unrealized gains of $7,413,874 from trading operations (including foreign exchange transactions and translations). Management fees of $2,709,419, brokerage commissions of $391,150, selling commissions and platform fees of $2,523,380, administrative and operating expenses of $490,833, custody fees and other expenses of $24,797, and profit share of $446,914 were paid or accrued. Interest income of $1,005,972 partially offset the Master Fund expenses allocated to the Partnership resulting in net income after profit share of $1,833,353.

 

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An analysis of the Master Fund’s trading gain (loss) by sector is as follows:

 

   % Gain 
Sector  (Loss) 
Currencies   (2.91)%
Energies   (2.47)%
Grains   (1.45)%
Interest rates   (1.68)%
Livestock   (0.18)%
Metals   (0.11)%
Softs   0.35%
Stock indices   12.31%
Trading gain   3.86%

 

MANAGEMENT DISCUSSION – 2017

 

Three months ended September 30, 2017

 

The Fund was profitable during the third quarter of 2017 due to gains on long stock index futures positions. On the other hand, trading of interest rate, energy, and metal futures, and currency forwards were each unprofitable. Trading of soft and agricultural commodity futures was nearly flat.

 

Expanding global growth, increasing corporate profits and continuing accommodation in monetary policy led to broad-based gains from long equity futures positions. These positive influences outweighed the negative influences of North Korea’s belligerence, the Barcelona terrorist attack, the Charlottesville white supremacist rally, and hurricanes in the U.S. and Caribbean. Long positions in European, Asian, and U.S. equity futures were profitable, as was a short VIX trade. A short position in South African stock index futures and trading of Australian equity futures were slightly unprofitable.

 

Long positions in interest rate futures were unprofitable for the quarter as gains during July and August were outweighed by losses suffered in September. Persistent indications that major central banks - the U.S. Federal Reserve (the “Fed”), European Central Bank (“ECB”), Bank of England, and Bank of Canada – would raise official rates and/or reduce balance sheets in order to lower monetary accommodation; continued expansion in global growth; rising energy prices; and incipient signs of a pickup in general inflation boosted interest rates and depressed prices of interest rate futures. On balance, long positions in Australian, Canadian, British, U.S. 2-year, and German 30-year interest rate futures were unprofitable; while long positions in Japanese, French, Italian, and German 2-, 5-, and 10-year note futures, and U.S. long bond futures remained somewhat profitable even after sustaining losses in September.

 

The persistent political dysfunction in Washington weighed heavily on the U.S. dollar, driving the Bloomberg dollar index to a nearly 33 month low on September 8, down about 11% from the highs reached early this year. Short dollar trades versus the currencies of Brazil, Canada, the euro, Singapore, Sweden, and Israel were profitable, especially during July. On the other hand, long dollar trades against the yen and Korean won were unprofitable. A short U.S. dollar/long New Zealand dollar trade was unprofitable as political uncertainty mounted ahead of the September 23 election in New Zealand. Also, a short U.S. dollar/long Swiss franc trade proved unprofitable as reduced political uncertainty in Europe reduced the need for protection provided by the “safe haven” Swiss franc. Finally, trading the euro against several other European units was fractionally unprofitable.

 

Although energy prices were volatile, especially due to the disparate impacts of Hurricane Harvey on crude oil, crude products, and natural gas, prices did move generally higher during the quarter. Energy prices were buoyed by persistent declines in U.S. oil inventories, by Organization of the Petroleum Exporting Countries (“OPEC”) efforts to strengthen the production curtailment agreement, by evidence of increasing demand and by the falling dollar. Overall, energy trading was fractionally unprofitable as losses on short positions in RBOB gasoline, natural gas, and WTI crude outweighed profits from long positions in Brent crude and London gas oil.

 

Metal trading was fractionally unprofitable as losses from a short aluminum trade, a long copper position and trading other industrial metals outpaced the profits from trading silver, platinum, palladium and gold.

 

USDA reports that drought conditions earlier this year had little impact on yields and that bumper harvests of corn and soybeans are expected, combined with news that Russia was expecting record wheat and corn harvests weighed on grain prices. Subsequently, profits on short corn and wheat positions, particularly in August, slightly outweighed the loss from trading soybeans. A short hog trade was also profitable, while a short sugar position was unprofitable.

 

34

 

 

Three months ended June 30, 2017

 

The Partnership sustained a decline in returns during the second quarter of 2017 due largely to losses from trading financial and energy futures in the wake of hawkish monetary policy comments from the heads of several central banks at the ECB conference in Sintra, Portugal late in June (the “Sintra Conference”). For the quarter, losses from trading interest rate, energy and grain futures and currency forwards outweighed gains from trading equity and soft commodity futures. Trading of metal and livestock futures were each nearly flat.

 

Mario Draghi from the ECB, Mark Carney from the Bank of England and Stephen Poloz from the Bank of Canada each indicated at the Sintra Conference that with global growth broadening and strengthening, the time is approaching for 10 years of extraordinarily easy monetary policy to come to an end. Janet Yellen from the Fed had provided a similar comment after the recent Federal Open Market Committee meeting. In response, global interest rates, which had been falling or stable for most of the quarter, spiked higher and long interest rate futures positions, which had been profitable through June 26, 2017, turned unprofitable. Long positions in German and British interest rate futures were unprofitable. Long positions in French and Italian bond futures, which had benefitted from the French election results and from the Italian bank rescues, were profitable, although the gains were reduced significantly after the Sintra Conference. Long positions in U.S. note and bond futures were also profitable albeit with reductions at the end of June.

 

Foreign exchange trading remained volatile as the U.S. dollar, buffeted by conflicting influences, declined markedly in a saw-toothed pattern during the quarter. On the one hand, persistent increases in the official interest rate by the Fed were supportive of the dollar. On the other hand, the fact that growth in Europe and Asia was accelerating while growth in the U.S. remained tepid, and that politics in the U.S. was becoming increasingly more volatile while the political outlook in Europe had improved significantly, weighed on the U.S. dollar. Finally, the fact that comments from the Sintra Conference suggested a relative tightening of non-U.S. monetary policy also worked against the U.S. dollar. Consequently, long dollar positions against the currencies of Australia, the U.K., Canada, New Zealand, Europe, Switzerland, Sweden, Norway, Poland, Japan, and Singapore were unprofitable. Short dollar carry trades in the Brazilian real and Russian ruble were also unprofitable as political uncertainties in each country prompted declines that outweighed the interest rate advantages. A long Mexican peso trade was profitable as the market came to believe that the impact of the Trump Presidency on Mexico would be less than initially feared.

 

Energy prices displayed sharp swings within a broad range during the quarter. On balance, trading of crude oil, RBOB gasoline, London gas oil, heating oil, and natural gas were each unprofitable, with significant losses occurring on short energy positions late in the period as the U.S. dollar fell and energy prices rose after the Sintra Conference comments.

 

Long positions in most European and Asian equity futures were profitable against the backdrop of the IMF, the Brookings Institution, the Financial Times and central banks around the globe agreeing that the economic recovery is broadening throughout Europe and Asia; recent elections in France, the Netherlands and the U.K., producing moderate rather than extreme outcomes; a generally weakening U.S. dollar; and signs that China is addressing its debt problems. A short VIX position was also fractionally profitable. U.S. equity futures were slightly profitable as gains from long S&P and Dow Jones futures positions were partially offset by losses from trading the Nasdaq futures. Long positions in Dutch and Canadian futures were unprofitable. The sector gains were reduced markedly when interest rates rose sharply late in June.

 

Short wheat, corn and soybean trades were unprofitable late in quarter as a drought in the U.S. high plains region and reduced wheat plantings in Canada underpinned prices. In addition, long soybean and soybean meal positions were unprofitable in April and May.

 

A short sugar position was profitable and, to a lesser extent, so too were short coffee and cocoa trades.

 

The profits from a short silver trade were countered by losses from trading gold, platinum and most industrial metals.

 

Three months ended March 31, 2017

 

The Partnership registered a solid first quarter gain due to profits from long equity futures positions. Trading of currency forwards was slightly profitable, trading of commodity futures was fractionally negative and trading of interest rate futures was essentially flat.

 

According to the Brookings Institution and the Financial Times, the global economic recovery is now “broad-based and stable”. Morgan Stanley concurs, stating that a “…synchronous global recovery…is exhibiting more self-sustaining characteristics”. Against this background, long positions in U.S., European and Asian equity futures were broadly profitable. A long VIX trade was also profitable. Short positions in Indian and South African stock futures were marginally negative. Neither the fading of the positive impulses from the Trump election victory nor an increase in political and geopolitical tensions was able to blunt this equity advance.

 

The U.S. dollar, which had risen sharply during 2016’s fourth quarter, was volatile and weakened during the first three months of 2017 as the difficult reality of governing diminished the election euphoria for the Trump administration. Profits from short U.S. dollar trades versus the currencies of Australia, Brazil, India, Mexico, Russia, and Turkey were offset by the losses from long U.S. dollar positions versus the euro and the currencies of Great Britain, Canada, Japan, Korea, New Zealand, Norway, Sweden and Singapore. Meanwhile, a long euro/short Polish zloty trade and a short euro/long Turkish lira position were each slightly profitable.

 

35

 

 

Interest rates rose early in the period in response to the improving economic outlook and to evidence that central banks worldwide were pulling back from the long era of ultralow interest rates and quantitative easing. Indeed the Fed did raise its official rate again by 0.25% during the quarter. Moreover, Mario Draghi, the President of ECB, indicated that “there is no longer the sense of urgency in taking further actions.” The People’s Bank of China (the “PBOC”) edged toward a tighter policy during the quarter, as well. Finally, the Bank of England and the Bank of Japan issued improved outlooks for their economies. Later on, however, political tensions in the U.S., Great Britain, the Netherlands, France, Turkey and South Africa and geopolitical tensions and terrorism involving North Korea, South Korea, the U.K., Canada and Syria produced a flight to safety and declining rates. On balance, the sector was flat for the quarter and at month-end the Partnership’s interest rate futures positions remained generally long.

 

Energy prices were volatile and range-bound in the quarter. Production cut efforts by the Organization of the Petroleum Exporting Countries buoyed prices at times, while increasing U.S. shale production weighed on prices at other times. A long RBOB gasoline position was unprofitable as was trading of crude oil and other products.

 

Trading of metal futures was marginally profitable as small profits from long aluminum, zinc and palladium positions were larger than small losses from short gold and silver positions.

 

Trading of soft and agricultural commodities was marginally unprofitable. Grain trading was unprofitable due to losses from a short corn trade early in the period and from long soybean and soybean meal positions. A short wheat position was profitable in March. A short sugar position was also profitable in March. Trading of livestock was slightly negative.

 

 

 

Periods ended September 30, 2016

 

 

 

Month Ending:   Total Partners’ Capital of the Partnership 
 September 30, 2016    $160,620,567 
 June 30, 2016     142,296,481 
 December 31, 2015     122,195,232 

 

   Three Months   Nine Months 
 Change in Partners’ Capital  $18,324,086   $38,425,335 
 Percent Change   12.88%   31.45%

 

THREE MONTHS ENDED SEPTEMBER 30, 2016

 

The increase in the Partnership’s net assets of $18,324,086 was attributable to net income after profit share of $1,080,429, and contributions of $19,747,384 which were partially offset by withdrawals of $2,503,727.

 

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, contributions and redemptions. Management fees, through the Partnership’s investment in the Master Fund, for the three months ended September 30, 2016 increased $195,576 relative to the corresponding period in 2015. The increase was due to an increase in the average net asset value of the Partnership during the three months ended September 30, 2016, relative to the corresponding period in 2015.

 

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 September 30, 2016 increased $19,210 relative to the corresponding period in 2015. The increase was due to an increase in the Partnership’s average net assets during the three months ended September 30, 2016, relative to the corresponding period in 2015.

 

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, contributions and redemptions. Selling commissions and platform fees for the three months ended September 30, 2016 increased $175,779 relative to the corresponding period in 2015. The increase was due to an increase in the average net asset value of commission paying investors of the Partnership during the three months ended September 30, 2016, relative to the corresponding period in 2015.

 

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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 September 30, 2016 increased $49,449 relative to the corresponding period in 2015. The increase was due mainly to an increase in the Partnership’s average net asset value during the three months ended September 30, 2016, relative to the corresponding period in 2015.

 

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 September 30, 2016 increased $94,580 relative to the corresponding period in 2015. This increase was due predominantly to an increase in short-term U.S. Treasury yields during the three months ended September 30, 2016 relative to the corresponding period in 2015, and partially due to an increase in average net assets over the same period.

 

For the three months ended September 30, 2016, the Partnership, through its investment in the Master Fund, experienced net realized and unrealized gains of $2,987,619 from trading operations (including foreign exchange transactions and translations). Management fees of $796,810, brokerage commissions of $90,460, selling commissions and platform fees of $723,400, administrative and operating expenses of $203,842, custody fees and other expenses of $6,867, and profit share of $254,063 were paid or accrued. Interest income of $168,252 partially offset the Master Fund expenses allocated to the Partnership resulting in net income after profit share of $1,080,429.

 

An analysis of the Master Fund’s trading gain (loss) by sector is as follows:

 

Sector  % Gain
(Loss)
 
 Currencies   0.22%
 Energies   (1.71)%
 Grains   0.24%
 Interest rates   1.10%
 Livestock   0.31%
 Metals   (0.14)%
 Softs   (0.11)%
 Stock indices   1.98%
 Trading gain   1.89%

 

NINE MONTHS ENDED SEPTEMBER 30, 2016

 

The increase in the Partnership’s net assets of $38,425,335 was attributable to net income after profit share through its investment in the Master Fund of $17,689,736 and contributions of $29,547,384 which were partially offset by withdrawals of $8,811,785.

 

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, contributions and redemptions. Management fees, through the Partnership’s investment in the Master Fund, for the nine months ended September 30, 2016 increased $305,048 relative to the corresponding period in 2015. The increase was due to an increase in the average net asset value of the Partnership during the nine months ended September 30, 2016, relative to the corresponding period in 2015.

 

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 nine months ended September 30, 2016 increased $44,649 relative to the corresponding period in 2015. The increase was due an increase in average net assets of the Partnership during the nine months ended September 30, 2016, relative to the corresponding period in 2015.

 

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, contributions and redemptions. Selling commissions and platform fees for the nine months ended September 30, 2016 increased $267,615 relative to the corresponding period in 2015. The increase was due to an increase in the average net asset value of commission paying investors of the Partnership during the nine months ended September 30, 2016, relative to the corresponding period in 2015.

 

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 nine months ended September 30, 2016 increased $77,314 relative to the corresponding period in 2015. The increase was due mainly to an increase in the Partnership’s average net asset value during the nine months ended September 30, 2016, relative to the corresponding period in 2015.

 

37

 

 

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 nine months ended September 30, 2016 increased $218,000 relative to the corresponding period in 2015. This increase was due predominantly to an increase in short-term U.S. Treasury yields during the nine months ended September 30, 2016 relative to the corresponding period in 2015, and partially due to an increase in average net assets over the same period.

 

For the nine months ended September 30, 2016, the Partnership, through its investment in the Master Fund, achieved net realized and unrealized gains of $25,934,754 from trading operations (including foreign exchange transactions and translations). Management fees of $2,114,538, brokerage commissions of $267,872, selling commissions and platform fees of $1,919,462, administrative and operating expenses of $541,800, custody fees and other expenses of $18,562, and profit share of $3,763,011 were paid or accrued. Interest income of $380,227 partially offset the Master Fund expenses allocated to the Partnership resulting in net income after profit share of $17,689,736.

 

An analysis of the Master Fund’s trading gain (loss) by sector is as follows:

 

Sector  % Gain
(Loss)
 
 Currencies   1.73%
 Energies   (1.65)%
 Grains   2.14%
 Interest rates   15.19%
 Livestock   0.39%
 Metals   (0.94)%
 Softs   (0.52)%
 Stock indices   4.44%
 Trading gain   20.78%

 

MANAGEMENT DISCUSSION – 2016

 

Three months ended September 30, 2016

 

The Partnership was profitable during the third quarter largely due to gains from long equity and long interest futures positions. Trading of currency forwards and grain and livestock futures were each profitable. On the other hand, trading of energy, metal and soft commodity futures were unprofitable.

 

Markets were unsettled throughout the period by a number of factors including: the repercussions of the U.K. voters’ decision to have the U.K. leave the European Union, the continued market schizophrenia about an interest rate increase by the Fed, the persistent discussions within OPEC about a potential production cut, and concerns about the upcoming U.S. elections. Moreover, as interest rates, the U.S. dollar, and energy prices reacted to these influences, there were secondary repercussions of those prices in other markets.

 

Long positions in German, French, Italian, British, Japanese and Canadian note and bond futures were profitable as sluggish growth and inflation kept the ECB, Bank of England and Bank of Japan on accommodative policy paths. Meanwhile, the Federal Reserve continued to waffle on if and when it will raise interest rates, even though U.S. growth and inflation data showed improvement in the third quarter. As a result, long positions in U.S. note, bond and short-term interest rate futures posted losses, especially in August and early September when U.S. interest rates rose in anticipation of a near term Fed rate hike. After the Fed failed to deliver that increase at its September meeting, those U.S. losses were reduced somewhat.

 

Though the path was uneven, improving U.S. economic data, continued developed-world accommodative monetary policy, and higher energy prices that underpinned commodity producers led to profits on long positions in U.S., Canadian and Australian equity futures. A weaker pound sterling and policy accommodation from the Bank of England produced a gain for a long U.K. stock futures trade. Long Hong Kong and Taiwanese futures positions were profitable, as well. Meanwhile, short Japanese equity futures positions were unprofitable.

 

Foreign exchange trading was volatile and results were mixed. A short Mexican peso trade was profitable as U.S. political problems and somewhat slower growth combined with the trade and immigration concerns raised by the U.S. Presidential campaign of Donald Trump to undermine the peso. Rising energy and commodity prices and the lack of a Fed rate hike led to profits on long positions in high yield and commodity currencies including the: New Zealand and Australian dollars, Russian ruble, South African rand, Indian rupee, and Israeli shekel, especially in September. A short sterling trade was also profitable, as were short euro trades versus the Norwegian and Polish currencies. Short dollar trades against the euro, yen, Canadian dollar, and several other units produced largely offsetting losses.

 

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With corn inventories at 30-year highs and with worldwide grain production expected to increase 10% this year, short corn and wheat positions were profitable, particularly in July and August. Trading the soybean complex—beans, meal and oil—generated a partially offsetting loss. Short cattle and hog positions were profitable. Long cotton and sugar positions, and trading of crude palm oil were marginally unprofitable.

 

Energy prices were volatile with Brent and WTI crude vacillating in the $40-$50 range. Record levels of production, high inventories, a glut of refined products in July, and bouts of dollar strength periodically depressed prices. On the other hand, persistent talk of production control agreements within OPEC and between OPEC and non-OPEC producers, and periods of dollar weakness underpinned prices at times. As a result, long energy trades were unprofitable in July and September, and short energy trades were unprofitable, especially in August.

 

Metal prices also experienced volatility during the July-September period. Losses from a short copper position and from trading gold, platinum, lead and nickel were marginally larger than the gains from trading silver and from a long zinc position.

 

Three months ended June 30, 2016

 

The Partnership was profitable during the second quarter with gains from long interest rate futures positions again leading the way. Trading of equity futures and foreign exchange forwards added fractionally to the gain. Meanwhile, trading of commodity futures was also slightly profitable as the gain from trading grain futures outdistanced the losses from the energy and metals sectors.

 

Long positions in U.S., German, French, British, Canadian and Australian interest rate futures were profitable, particularly after the U.K. voters’ surprise vote to have the U.K. leave the European Union (the “EU”) produced a flight to safety and an expectation that easier monetary policy would be forthcoming rather broadly going forward. The weak June employment report in the U.S. that prompted another delay in the Fed rate rise program had underpinned the prices of note, bond and short term interest rate futures earlier. The fact that growth and inflation have failed to accelerate convincingly, and that the World Bank, International Monetary Fund and Organization for Economic Co-operation and Development among others have lowered their global growth projections also supported fixed income prices.

 

Currency trading was particularly volatile as the dollar was buffeted to and fro during the quarter. The U.S. currency would strengthen whenever Fed Governors hinted that a rate increase was possible, such as in late April-early May and in late May-early June, but fall when those expectations faded. For example, after an extraordinarily weak U.S. June jobs report, such hopes were put on hold and the dollar weakened. Then, when Fed Chair Janet Yellen cited real concerns that the “temporary headwinds” that had blunted the Fed’s rate rise program might actually reflect Lawrence Summers’ “secular stagnation” rather than just passing concerns, the U.S. dollar softened further. However, following the surprise decision of the British electorate to leave the EU, a flight to safety and quality prompted an upward U-turn for the dollar. Overall, long U.S. dollar trades against the pound sterling and Swiss franc, and short dollar trades relative to the Brazilian real, New Zealand dollar and South African rand were profitable. On the other hand, short U.S. dollar trades versus the Australian, Israeli, Mexican, Polish and Swedish currencies produced losses. Trading the euro against the dollar, Polish zloty and Turkish lira was also unprofitable.

 

Trading of equity futures was fractionally profitable after a volatile quarter. Following a strong rebound from the February lows, equity trading was unsettled periodically by currency turmoil, the uncertainty surrounding Bank of Japan, the Fed, the European Central Bank and the Bank of England, worries about future growth and inflation outlooks, and actualized weakness in corporate profits. Still, gains on long positions in non-tech U.S., Canadian and British stock futures and from a short VIX trade outpaced the losses from trading of a number of European and Asian indices.

 

Long positions in soybeans and soybean meal were profitable as bad weather in Brazil and Argentina underpinned prices for most of the period. A long sugar position posted a gain when prices rose as production in Thailand, India and Brazil was hurt by El Niño weather influences.

 

A short natural gas trade registered a loss as warmer than normal weather boosted prices, especially in June. Trading of London gas oil, heating oil, RBOB gasoline and WTI crude were also unprofitable, while a long position in Brent crude produced a partially offsetting gain.

 

Short positions in gold, silver, platinum, palladium, copper, aluminum, lead and nickel were each slightly unprofitable. On the other hand, a long zinc trade was profitable near the end of the quarter.

 

Three months ended March 31, 2016

 

During a quarter of extreme market volatility, the Partnership registered a strong performance led by gains on long interest rate futures positions. Trading of equity futures and foreign exchange forwards were also profitable. Meanwhile, commodity futures were marginally negative as a gain from trading energy futures was outweighed by fractional losses from trading metal and agricultural futures.

 

Concerns about global growth that International Monetary Fund Managing Director Christine Lagarde described as ‘…too low, too fragile and facing increased risks to its durability…”, combined with doubts about policy makers’ competence and capabilities, generated strong demand for government securities for most of the quarter. The demand for this debt was underpinned when: the Bank of Japan moved official interest rates into negative territory at the end of January; the Bank of England delayed any potential rate increase; the ECB and PBOC eased monetary policy in March; and a speech by Fed Chair Janet Yellen squashed expectations for a near term Fed rate increase. Consequently, long positions in U.S., German, French, Italian, British, Japanese, Australian and Canadian notes and bonds were profitable. Long positions in short-term dollar and sterling interest rate futures were also profitable.

 

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Equity markets were particularly volatile during the first quarter of 2016, tracing out a classic V-shaped path. The tumultuous first half of the period saw many equity indices experiencing multiyear lows before rebounding impressively over the second half of the quarter. Early on, weak economic data out of China and concerns about official policy decisions generated a renewed rout in Chinese equities and the yuan. These events, combined with a further collapse in energy prices; worries that Fed interest rate increases and a stronger dollar might impede global growth; and a halt in corporate profit growth, produced a broad, sharp equity selloff. Later, equity prices recovered as energy prices rebounded, the ECB, PBOC and Fed displayed easier policy tendencies, the U.S. dollar eased and growth concerns moderated. On balance, short positions in Chinese, Hong Kong, Japanese, Singaporean, Indian, and Spanish futures were profitable. Trading of U.S. and Canadian stock index futures also posted gains. On the other hand, short positions in Dutch and South African futures, a long U.K stock futures position, and trading of the European stoxx future resulted in somewhat offsetting losses.

 

Foreign exchange trading was also volatile. At the beginning of the year, given the search for safety, declining oil prices and the Fed “relatively hawkish” policy position, the U.S. dollar strengthened. Thus, during January and February, long dollar trades versus the pound sterling, Canadian dollar, Korean won, Russian Ruble and Mexican peso were profitable. The pound fell precipitously when the possibility of Britain’s exit from the EU became more likely and Boris Johnson, the mayor of London, endorsed the move. As the quarter unfolded, however, the PBOC aggressively implemented measures to support the yuan; the G-20 Shanghai Communique in late February signaled a strong stance against currency competition that took some steam out of the dollar; and the likelihood of a near term increase in interest rates by the Fed diminished, prompting a U.S. dollar decline, especially against emerging market currencies where interest rates tend to be higher. A stabilization of commodity prices also helped the commodity producing countries. A series of events abroad further encouraged the U.S. dollar slippage: Mexico’s surprise February 50 basis point hike in official interest rates; the increasing likelihood of an ouster of President Dilma Rousseff in Brazil; an increase in official rates in South Africa; and rising oil prices and high interest rates supporting the Russian ruble. Consequently, short dollar positions against the currencies of Australia, Brazil, Canada, Columbia, India, Israel, Mexico, New Zealand, Russia, South Africa, and Turkey were profitable. On the other hand, long dollar trades versus the euro, yen, Swiss franc, Swedish krona, Norwegian kroner, Czech koruna, Polish zloty and Chilean peso were unprofitable.

 

With the International Energy Agency suggesting that the “…world could drown in [oil] oversupply…”; with crude oil production at or near recent record levels in many countries—e.g., Saudi Arabia, Russia, the U.S., and Iraq; with Iranian exports ramping up; and with global demand still sluggish, crude prices slumped below $30 per barrel in January. Short positions in Brent crude, WTI crude, RBOB gasoline, London gas oil, heating oil and natural gas were profitable. Subsequently, reports that Saudi Arabia, Russia and a number of other producers were discussing plans for a production freeze and would meet in Doha in April sparked an oil price rebound. Indeed, oil prices reached a three month high above $40 per barrel on March 18. Consequently, losses were suffered on these same short crude oil, crude products and natural gas trades, and positions were reduced and/or reversed. Overall, energy trading was fractionally profitable for the quarter due to gains from WTI crude, natural gas, London gas oil and spread trading of crude.

 

Industrial metal prices vacillated during the quarter but did move up somewhat in synchrony with energy prices, and short positions in industrial metals were unprofitable. Safe haven demand pushed up gold prices, especially in February, and a small long trade was fractionally profitable, providing a partial offset.

 

Trading of sugar was unprofitable, as was a long cocoa trade in January, and a short Arabica coffee position in March. The profits from short corn and wheat trades fractionally outdistanced the losses from trading soybeans and soybean meal.

 

OFF-BALANCE SHEET ARRANGEMENTS

 

Neither the Partnership nor the Master Fund engages in off-balance sheet arrangements with other entities.

 

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

 

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 September 30, 2017 that have materially affected, or are reasonably likely to materially affect, the General Partner’s internal controls over financial reporting with respect to the Partnership.

 

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PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

None.

 

ITEM 1A. RISK FACTORS

Not required.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

(a) Pursuant to the Partnership’s Agreement of Limited Partnership, the Partnership may sell Units at the beginning of each calendar month. On September 1, 2017 the Partnership sold Units to new and existing limited partners of $520,000. There were no underwriting discounts or commissions in connection with the sales of the Units 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 Third Amended and Restated Limited 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 September 30, 2017.

 

    Series A   Series B   Series C 
Date of   Units   NAV   Units   NAV   Units   NAV 
Withdrawal   Redeemed   per Unit   Redeemed   per Unit   Redeemed   per Unit 
 July 31, 2017     (622.4371)  $1,113.55    (8.8860)  $1,256.02       $1,281.24 
 August 31, 2017     (3,801.2032)   1,160.92    (70.6696)   1,308.16        1,334.70 
 September 30, 2017     (2,107.8768)   1,139.89    (60.7650)   1,285.54        1,311.63 
                                
 Total     (6,531.5171)        (140.3206)              

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not Applicable.

 

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

 

ITEM 5. OTHER INFORMATION

None.

 

ITEM 6. EXHIBITS

 

The following exhibits are included herewith:

 

31.01 Rule 13(a)-14(a)/15(d)-14(a) Certification of Co-Chief Executive Officer

31.02 Rule 13(a)-14(a)/15(d)-14(a) Certification of Co-Chief Executive Officer

31.03 Rule 13(a)-14(a)/15(d)-14(a) Certification of Chief Financial Officer

32.01 Section 1350 Certification of Co-Chief Executive Officer

32.02 Section 1350 Certification of Co-Chief Executive Officer

32.03 Section 1350 Certification of Chief Financial Officer

 

101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

 

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SIGNATURES

 

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

 

By: Millburn Ridgefield Corporation,  
  General Partner  

 

Date: November 13, 2017  
   
  /s/ Michael W. Carter
  Michael W. Carter
  Vice-President
  (Principal Accounting Officer)

 

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