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EX-32.01 - EXHIBIT 32.01 - Millburn Multi-Markets Fund L.P.s113611_ex32-01.htm
EX-32.03 - EXHIBIT 32.03 - Millburn Multi-Markets Fund L.P.s113611_ex32-03.htm
EX-32.02 - EXHIBIT 32.02 - Millburn Multi-Markets Fund L.P.s113611_ex32-02.htm
EX-31.03 - EXHIBIT 31.03 - Millburn Multi-Markets Fund L.P.s113611_ex31-03.htm
EX-31.02 - EXHIBIT 31.02 - Millburn Multi-Markets Fund L.P.s113611_ex31-02.htm
EX-31.01 - EXHIBIT 31.01 - Millburn Multi-Markets Fund L.P.s113611_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, 2018

 

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 every Interactive Data File required to be submitted 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 such files). 

 

Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 ☐ 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, 2018 and 2017 (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, 2018 and December 31, 2017 (unaudited)

 

(b) For the nine months ended September 30, 2018 and 2017 (unaudited)

 

(c) For the three and nine months ended September 30, 2018 and 2017 (unaudited)

 

 

 

Millburn Multi-Markets Fund L.P.

Statements of Financial Condition (UNAUDITED)

 

   September 30, 2018   December 31, 2017 
ASSETS        
Investment in Millburn Multi-Markets          
Trading L.P. (the “Master Fund”)  $155,807,223   $180,404,424 
Due from the Master Fund   1,267,515    1,565,482 
Cash and cash equivalents       1,283,292 
           
Total assets  $157,074,738   $183,253,198 
           
LIABILITIES AND PARTNERS’ CAPITAL          
           
LIABILITIES:          
Capital contributions received in advance  $   $1,283,000 
Capital withdrawal payable to Limited Partners   1,267,515    1,165,481 
Capital withdrawal payable to General Partner       400,000 
Due to the Master Fund       292 
           
Total liabilities   1,267,515    2,848,773 
           
PARTNERS’ CAPITAL:          
General Partner   2,619,527    2,597,268 
           
Limited partners:          
Series A (123,785.6919  and 140,430.1803 units outstanding)   140,796,414    163,192,225 
Series B (6,871.3151 and 7,036.0325 units outstanding)   8,980,117    9,255,157 
Series C (1,988.6036 and 3,956.9329 units outstanding)   2,651,643    5,310,547 
Series D (593.8529 and 37.5601 units outstanding)   759,522    49,228 
           
Total limited partners   153,187,696    177,807,157 
           
Total partners’ capital   155,807,223    180,404,425 
           
 TOTAL  $157,074,738   $183,253,198 
           
NET ASSET VALUE PER UNIT OUTSTANDING:          
Series A  $1,137.42   $1,162.09 
Series B  $1,306.90   $1,315.39 
Series C  $1,333.42   $1,342.09 
Series D  $1,278.97   $1,310.65 

 

See notes to financial statements (Unaudited)

1

 

Millburn Multi-Markets Fund L.P. 

Statements of Operations (UNAUDITED)

         
   For the three months ended 
   September 30, 2018   September 30, 2017 
           
INVESTMENT INCOME:          
Interest income (allocated from the Master Fund)  $732,791   $399,476 
           
EXPENSES:          
Management fees   771,433    912,657 
Brokerage commissions (allocated from the Master Fund)   130,991    144,862 
Selling commissions and platform fees   707,588    847,959 
Administrative and operating expenses   156,156    159,790 
Custody fees and other expenses (allocated from the Master Fund)   6,809    8,005 
           
Total expenses   1,772,977    2,073,273 
           
NET INVESTMENT LOSS   (1,040,186)   (1,673,797)
           
REALIZED AND UNREALIZED GAINS (LOSSES) ALLOCATED FROM THE MASTER FUND          
Net realized gains (losses) on closed positions:          
Futures and forward currency contracts   5,894,444    (684,481)
Foreign exchange translation   (152,689)   258,680 
Net change in unrealized:          
Futures and forward currency contracts   (1,266,013)   7,997,669 
Foreign exchange translation   92,647    (14,722)
Net gains (losses) from U.S. Treasury notes:          
Realized   (9,669)    
Net change in unrealized   (5,172)   42,731 
           
Net realized and unrealized gains allocated from the Master Fund   4,553,548    7,599,877 
           
NET INCOME   3,513,362    5,926,080 
           
LESS PROFIT SHARE ALLOCATION TO THE MASTER FUND   4,445    386,837 
           
NET INCOME AFTER PROFIT SHARE  $3,508,917   $5,539,243 

 

(Continued)

 

2

 

Millburn Multi-Markets Fund L.P.

Statements of Operations (UNAUDITED)

 

   For the nine months ended 
   September 30, 2018   September 30, 2017 
         
INVESTMENT INCOME:          
Interest income (allocated from the Master Fund)  $1,906,901   $1,005,972 
           
EXPENSES:          
Management fees   2,434,628    2,709,419 
Brokerage commissions (allocated from the Master Fund)   409,766    391,150 
Selling commissions and platform fees   2,217,258    2,523,380 
Administrative and operating expenses   470,241    490,833 
Custody fees and other expenses (allocated from the Master Fund)   21,388    24,797 
           
Total expenses   5,553,281    6,139,579 
           
NET INVESTMENT LOSS   (3,646,380)   (5,133,607)
           
REALIZED AND UNREALIZED GAINS (LOSSES) ALLOCATED FROM THE MASTER FUND          
Net realized gains (losses) on closed positions:          
Futures and forward currency contracts   (7,889,003)   12,685,017 
Foreign exchange translation   157,869    242,374 
Net change in unrealized:          
Futures and forward currency contracts   7,160,858    (5,837,585)
Foreign exchange translation   (200,285)   397,153 
Net gains (losses) from U.S. Treasury notes:          
Realized   (22,315)    
Net change in unrealized   66,827    (73,085)
           
Net realized and unrealized gains (losses) allocated from the Master Fund   (726,049)   7,413,874 
           
NET INCOME (LOSS)   (4,372,429)   2,280,267 
           
LESS PROFIT SHARE ALLOCATION TO THE MASTER FUND   7,499    446,914 
           
NET INCOME (LOSS) AFTER PROFIT SHARE  $(4,379,928)  $1,833,353 

 

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, 2018 and 2017

 

       Limited Partners     
   General                                     
   Partner   Series A   Series B   Series C   Series D   Total 
   Amount   Amount   Units   Amount   Units   Amount   Units   Amount   Units   Amount 
                                         
PARTNERS’ CAPITAL — December 31, 2017  $2,597,268   $163,192,225    140,430.1803   $9,255,157    7,036.0325   $5,310,547    3,956.9329   $49,228    37.5601   $180,404,425 
                                                   
Capital contributions       4,251,000    3,819.6186    903,657    698.0107    999,000    771.0009    679,526    556.2928    6,833,183 
Capital withdrawals       (22,193,628)   (20,215.3839)   (1,129,021)   (906.6850)   (3,727,808)   (2,909.7759)           (27,050,457)
Transfers between Series        (277,846)   (248.7231)   54,207    43.9569    223,639    170.4457             
Net income (loss) before profit share   22,259    (4,175,337)       (103,883)       (153,735)       38,267        (4,372,429)
Profit share                                   (7,499)        (7,499)
PARTNERS’ CAPITAL — September 30, 2018  $2,619,527   $140,796,414    123,785.6919   $8,980,117    6,871.3151   $2,651,643    1,988.6036   $759,522    593.8529   $155,807,223 
                                                   
Net Asset Value per Unit at September 30, 2018            $1,137.42        $1,306.90        $1,333.42        $1,278.97      
                                                         
         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                      

 

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, 2018

 

The following information presents per unit operating performance data for each series for the three months ended September 30, 2018.

 

Per Unit Performance                
 (For a Unit Outstanding Throughout the Period)  Series A    Series B    Series C    Series D  
                     
NET ASSET VALUE PER UNIT — Beginning of period  $1,111.99   $1,271.31   $1,297.11   $1,252.88 
                     
INCOME (LOSS) ALLOCATED FROM MASTER FUND:                    
Net investment loss (1)   (8.08)   (2.87)   (3.37)   (4.60)
Total trading and investing gains (1)   33.51    38.46    39.68    40.17 
                     
Net income before profit share allocation from Master Fund   25.43    35.59    36.31    35.57 
                     
Less: profit share allocation from Master Fund (1) (6)   0.00    0.00    0.00    9.48 
                     
Net income from operations after profit share allocation from Master Fund   25.43    35.59    36.31    26.09 
                     
NET ASSET VALUE PER UNIT — End of period  $1,137.42   $1,306.90   $1,333.42   $1,278.97 
                     
TOTAL RETURN BEFORE PROFIT SHARE ALLOCATION FROM MASTER FUND (2)   2.29%   2.80%   2.80%   2.74%
                     
LESS: PROFIT SHARE ALLOCATION FROM MASTER FUND (2) (6)   0.00    0.00    0.00    0.66 
                     
TOTAL RETURN AFTER PROFIT SHARE ALLOCATION FROM MASTER FUND (2)   2.29%   2.80%   2.80%   2.08%
                     
RATIOS TO AVERAGE NET ASSET VALUE:                    
Expenses (3) (4) (5)   4.76%   2.75%   2.75%   3.53%
Profit share allocation from Master Fund (2) (6)   0.00    0.00    0.00    0.66 
                     
Total expenses   4.76%   2.75%   2.75%   4.19%
                     
Net investment loss (3) (4) (5)   (2.88)%   (0.88)%   (0.88)%   (1.64)%

 

(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, 2018

 

The following information presents per unit operating performance data for each series for the nine months ended September 30, 2018.

  

Per Unit Performance                
 (For a Unit Outstanding Throughout the Period)  Series A    Series B    Series C    Series D  
                     
NET ASSET VALUE PER UNIT — Beginning of period  $1,162.09   $1,315.39   $1,342.09   $1,310.65 
                     
INCOME (LOSS) ALLOCATED FROM MASTER FUND:                    
Net investment loss (1)   (26.31)   (11.16)   (11.87)   (16.78)
Total trading and investing gains (1)   1.64    2.67    3.20    7.05 
                     
Net loss before profit share allocation from Master Fund   (24.67)   (8.49)   (8.67)   (9.73)
                     
Less: profit share allocation from Master Fund (1) (6)   0.00    0.00    0.00    21.95 
                     
Net loss from operations after profit share allocation from Master Fund   (24.67)   (8.49)   (8.67)   (31.68)
                     
NET ASSET VALUE PER UNIT — End of period  $1,137.42   $1,306.90   $1,333.42   $1,278.97 
                     
TOTAL RETURN BEFORE PROFIT SHARE ALLOCATION FROM MASTER FUND (2)   (2.12)%   (0.65)%   (0.65)%   (0.65)%
                     
LESS: PROFIT SHARE ALLOCATION FROM MASTER FUND (2) (6)   0.00    0.00    0.00    1.77 
                     
TOTAL RETURN AFTER PROFIT SHARE ALLOCATION FROM MASTER FUND (2)   (2.12)%   (0.65)%   (0.65)%   (2.42)%
                     
RATIOS TO AVERAGE NET ASSET VALUE:                    
Expenses (3) (4) (5)   4.74%   2.73%   2.73%   3.51%
Profit share allocation from Master Fund (2) (6)   0.00    0.00    0.00    1.77 
                     
Total expenses   4.74%   2.73%   2.73%   5.28%
                     
Net investment loss (3) (4) (5)   (3.19)%   (1.19)%   (1.24)%   (1.80)%

 

(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, 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)

 

7

 

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) 

8

 

 

 NOTES TO FINANCIAL STATEMENTS

 

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, 2018 (unaudited) and December 31, 2017 and the results of its operations for the three and nine months ended September 30, 2018 and 2017 (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 2017 annual report included in Form 10-K filed with the Securities and Exchange Commission. The December 31, 2017 information has been derived from the audited financial statements as of December 31, 2017. 

 

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 Partnership offers multiple series of Units, which differ in terms of fees charged at the Master Fund level. Initially, the Partnership offered Series A, Series B and Series C Units. On November 1, 2017 the Partnership offered Series D (collectively, the “Series”) and may offer additional series in the future.

 

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, 2015 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 2017.

 

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, 2018 and December 31, 2017 was 28.97% and 35.47%, 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.

 

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, 2018 and December 31, 2017, there were no redemption charges owed to the General Partner.

 

4. FINANCIAL HIGHLIGHTS

 

Per Unit operating performance for Series A, Series B, Series C and Series D 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, 
   2018   2017   2018   2017 
 Series A   127,214.867    148,282.529    134,329.212    146,547.251 
 Series B   6,914.548    7,014.374    7,207.979    7,010.924 
 Series C   2,349.102    2,814.813    3,550.886    2,251.568 
 Series D   531.918        341.624     

 

9

 

5. SUBSEQUENT EVENTS

 

The General Partner has performed its evaluation of subsequent events from October 1, 2018 to November 13, 2018, 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, 2018 and 2017 (unaudited)     

 

Statements of Financial Condition (a) 12
Condensed Schedules of Investments (a) 13
Statements of Operations (c) 17
Statements of Changes in Partners’ Capital (b) 19
Statements of Financial Highlights (c) 20
Notes to Financial Statements 22

 

(a) At September 30, 2018 and December 31, 2017 (unaudited)

 

(b) For the nine months ended September 30, 2018 and 2017 (unaudited)

 

(c) For the three and nine months ended September 30, 2018 and 2017 (unaudited)

 

11

 

Millburn Multi-Markets Trading L.P. 

Statements of Financial Condition (UNAUDITED)

 

   September 30, 2018   December 31, 2017 
ASSETS        
         
EQUITY IN TRADING ACCOUNTS:          
Investments in U.S. Treasury notes — at fair value (amortized cost $93,599,191 and $128,131,904)  $93,491,981   $127,971,156 
Net unrealized appreciation on open futures and forward currency contracts   18,656,168    2,145,457 
Due from brokers   24,711,561    289,111 
Cash denominated in foreign currencies (cost $13,395,198 and $27,839,061)   13,352,509    28,534,515 
           
Total equity in trading accounts   150,212,219    158,940,239 
           
INVESTMENTS IN U.S. TREASURY NOTES — at fair value (amortized cost $360,829,838 and $358,764,241)   360,474,992    358,229,399 
           
CASH AND CASH EQUIVALENTS   42,660,386    75,905,244 
           
ACCRUED INTEREST RECEIVABLE   1,222,634    1,364,398 
           
DUE FROM MILLBURN MULTI-MARKETS LTD.   300,697    2,750 
           
DUE FROM MILLBURN MULTI-MARKETS FUND L.P.       292 
           
 TOTAL  $554,870,928   $594,442,322 
           
LIABILITIES AND PARTNERS’ CAPITAL          
           
LIABILITIES:          
Net unrealized depreciation on open futures and forward currency contracts  $2,905,940   $11,713,535 
Subscriptions in advance       2,430,000 
Capital withdrawal payable to Limited Partners   7,005,059    64,127,936 
Capital withdrawal payable to General Partner       3,734,700 
Management fee payable   671,144    708,614 
Selling commissions payable   238,162    275,139 
Accrued expenses   471,683    222,956 
Due to brokers   5,445,134    2,519,264 
Commissions and other trading fees on open futures contracts   42,550    82,629 
Accrued profit share   299,224     
           
Total liabilities   17,078,896    85,814,773 
           
PARTNERS’ CAPITAL   537,792,032    508,627,549 
           
TOTAL  $554,870,928   $594,442,322 

 

See notes to financial statements (Unaudited)

 

12

 

Millburn Multi-Markets Trading L.P. 

Condensed Schedule of Investments (UNAUDITED) 

September 30, 2018 

 

FUTURES AND FORWARD CURRENCY CONTRACTS   

Net Unrealized Appreciation 

 (Depreciation) 

as a % of  

 Partners’ Capital 

    

 Net Unrealized  

Appreciation

  (Depreciation) 

 
           
FUTURES CONTRACTS          
Long futures contracts:          
Energies   1.17%  $6,304,889 
Interest rates   (0.12)   (667,275)
Livestock   0.00    20,910 
Metals   0.06    333,141 
Softs   (0.04)   (230,705)
Stock indices   1.54    8,281,182 
           
Total long futures contracts   2.61    14,042,142 
           
Short futures contracts:          
Energies   (0.02)   (131,636)
Grains   0.32    1,694,673 
Interest rates:          
2 Year U.S. Treasury Note (1,999 contracts, settlement date December 2018)   0.09    465,468 
10 Year U.S. Treasury Note (1,296 contracts, settlement date December 2018)   0.03    142,641 
Other interest rates   0.37    2,027,919 
          
Total interest rates   0.49    2,636,028 
           
Livestock   0.00    (480)
Metals   (0.13)   (680,544)
Softs   0.03    156,323 
Stock indices   0.07    398,820 
           
Total short futures contracts   0.76    4,073,184 
           
TOTAL INVESTMENTS IN FUTURES CONTRACTS — Net   3.37    18,115,326 
           
FORWARD CURRENCY CONTRACTS          
Total long forward currency contracts   0.33    1,762,051 
Total short forward currency contracts   (0.77)   (4,127,149)
           
TOTAL INVESTMENTS IN FORWARD CURRENCY CONTRACTS — Net   (0.44)   (2,365,098)
           
TOTAL   2.93%  $15,750,228 

 

(Continued)

 

13

 

Millburn Multi-Markets Trading L.P. 

Condensed Schedule of Investments (UNAUDITED) 

September 30, 2018

 

U.S. TREASURY NOTES

 

Face Amount   Description 

Fair Value
as a % of  
Partners’ Capital

   Fair Value 
             
$ 115,340,000    U.S. Treasury notes, 1.250%, 11/15/2018   21.42%  $115,218,352 
 114,140,000    U.S. Treasury notes, 0.750%, 02/15/2019   21.10    113,477,899 
 115,340,000    U.S. Treasury notes, 0.875%, 05/15/2019   21.24    114,215,886 
 112,840,000    U.S. Treasury notes, 0.750%, 08/15/2019   20.65    111,054,836 
     Total investments in U.S. Treasury notes 
(amortized cost $454,429,029)
   84.41%  $453,966,973 

 

See notes to financial statements (Unaudited) (Concluded)

 

14

 

Millburn Multi-Markets Trading L.P. 

Condensed Schedule of Investments 

December 31, 2017 

 

FUTURES AND FORWARD CURRENCY CONTRACTS 

 Net Unrealized  Appreciation 

 (Depreciation)  as a % of   Partners’ Capital 

  

 Net Unrealized  Appreciation 

 (Depreciation) 

 
         
FUTURES CONTRACTS        
Long futures contracts:        
Energies   1.39%  $7,066,650 
Grains   (0.00)   (20,390)
Interest rates:          
10 Year U.S. Treasury Note (111 contracts, settlement date March 2018)   0.01    43,344 
30 Year U.S. Treasury Bond (209 contracts, settlement date March 2018)   0.06    291,406 
Other interest rates   (1.31)   (6,661,826)
           
Total interest rates   (1.24)   (6,327,076)
           
Metals   1.66    8,491,751 
Softs   0.07    350,420 
Stock indices   0.32    1,647,379 
           
Total long futures contracts   2.20    11,208,734 
           
Short futures contracts:          
Energies   (0.17)   (896,980)
Grains   0.02    104,011 
Interest rates   0.15    764,885 
Livestock   (0.01)   (66,920)
Metals   (1.73)   (8,777,976)
Softs   0.08    404,426 
Stock indices   (0.12)   (594,723)
           
Total short futures contracts   (1.78)   (9,063,277)
           
TOTAL INVESTMENTS IN FUTURES CONTRACTS — Net   0.42    2,145,457 
           
FORWARD CURRENCY CONTRACTS          
Total long forward currency contracts   0.32    1,616,927 
Total short forward currency contracts   (2.62)   (13,330,462)
           
TOTAL INVESTMENTS IN FORWARD CURRENCY CONTRACTS — Net   (2.30)   (11,713,535)
           
TOTAL   (1.88)%  $(9,568,078)

  

(Continued) 

 

15

 

Millburn Multi-Markets Trading L.P. 

Condensed Schedule of Investments 

December 31, 2017

 

U.S. TREASURY NOTES  

             
Face Amount   Description  Fair Value as a % of  
Partners’ Capital
   Fair Value 
             
$116,040,000    U.S. Treasury notes, 1.000%, 02/15/2018   22.81%  $115,994,672 
 115,440,000    U.S. Treasury notes, 1.000%, 05/15/2018   22.67    115,293,445 
 140,540,000    U.S. Treasury notes, 1.000%, 08/15/2018   27.52    139,991,016 
 115,440,000    U.S. Treasury notes, 1.250%, 11/15/2018   22.59    114,921,422 
               
      Total investments in U.S. Treasury notes (amortized cost $486,896,145)   95.59%  $486,200,555 

 

 

See notes to financial statements (Unaudited) (Concluded)

 

16

Millburn Multi-Markets Trading L.P. 

Statements of Operations (UNAUDITED)

 

   For the three months ended 
   September 30,   September 30, 
   2018   2017 
 INVESTMENT INCOME — Interest income  $2,553,472   $1,075,657 
           
EXPENSES:          
Brokerage fees   456,391    386,487 
Management fees   2,006,526    1,815,461 
Selling commissions and platform fees   711,695    854,342 
Administrative and operating expenses   293,583    264,296 
Custody fees and other expenses   24,229    21,184 
Total expenses   3,492,424    3,341,770 
           
NET INVESTMENT LOSS   (938,952)   (2,266,113)
           
REALIZED AND UNREALIZED GAINS (LOSSES):          
Net realized gains (losses) on closed positions:          
Futures and forward currency contracts   20,071,499    (1,747,412)
Foreign exchange translation   (529,596)   694,984 
Net change in unrealized:          
Futures and forward currency contracts   (3,162,136)   20,864,904 
Foreign exchange translation   315,283    (54,959)
Net gains (losses) from U.S. Treasury notes          
Realized   (33,130)    
Net change in unrealized   (16,199)   110,333 
Total net realized and unrealized gains   16,645,721    19,867,850 
           
NET INCOME   15,706,769    17,601,737 
LESS PROFIT SHARE TO GENERAL PARTNER   310,420    1,067,296 
NET INCOME AFTER PROFIT SHARE TO GENERAL PARTNER  $15,396,349   $16,534,441 

 

(Continued)

 

17

 

Millburn Multi-Markets Trading L.P.

Statements of Operations (UNAUDITED) 

 

   For the nine months ended 
   September 30,   September 30, 
   2018   2017 
INVESTMENT INCOME — Interest income  $6,476,398   $2,275,095 
           
EXPENSES:          
Brokerage fees   1,384,921    871,023 
Management fees   6,138,281    4,478,516 
Selling commissions and platform fees   2,231,061    2,539,008 
Administrative and operating expenses   867,162    728,341 
Custody fees and other expenses   73,010    50,520 
Total expenses   10,694,435    8,667,408 
           
NET INVESTMENT LOSS   (4,218,037)   (6,392,313)
           
REALIZED AND UNREALIZED GAINS (LOSSES):          
Net realized gains (losses) on closed positions:          
Futures and forward currency contracts   (24,655,924)   21,107,114 
Foreign exchange translation   546,932    657,370 
Net change in unrealized:          
Futures and forward currency contracts   25,318,306    (8,351,360)
Foreign exchange translation   (738,143)   699,626 
Net gains (losses) from U.S. Treasury notes          
Realized   (75,279)    
Net change in unrealized   233,534    (171,424)
Total net realized and unrealized gains   629,426    13,941,326 
           
NET INCOME (LOSS)   (3,588,611)   7,549,013 
LESS PROFIT SHARE TO GENERAL PARTNER   377,265    1,130,868 
NET INCOME (LOSS) AFTER PROFIT SHARE TO GENERAL PARTNER  $(3,965,876)  $6,418,145 

 

(Concluded)

See notes to financial statements (Unaudited)

 

18

 

Millburn Multi-Markets Trading L.P. 

Statements of Changes in Partners’ Capital (UNAUDITED) 

 

For the nine months ended September 30, 2018:

 

   Limited Partners   New Profit
Memo
Account
   General
Partner
   Total 
PARTNERS’ CAPITAL - January 1, 2018  $507,755,056   $   $872,493   $508,627,549 
Contributions   118,663,012    78,041        118,741,053 
Withdrawals   (85,610,694)           (85,610,694)
Net income (loss) before profit share   (3,599,512)   1,597    9,304    (3,588,611)
General Partner’s allocation - profit share   (377,265)           (377,265)
PARTNERS’ CAPITAL- September 30, 2018  $536,830,597   $79,638   $881,797   $537,792,032 

 

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 

 

See notes to financial statements (Unaudited)

 

19

 

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, 
   2018   2017   2018   2017 
                 
Total return before General Partner profit share allocation (3)   2.87%   3.74%   (0.44)%   2.86%
Less: General Partner profit share allocation (3)       0.56        0.56 
                     
Total return after General Partner profit share allocation (3)   2.87%   3.18%   (0.44)%   2.30%
                     
Ratios to average net asset value:                    
Expenses (1) (4)   2.44%   2.44%   2.46%   2.44%
General Partner profit share allocation (3)       0.56        0.56 
                     
Total expenses (1)   2.44%   3.00%   2.46%   3.00%
                     
Net investment loss (1) (2) (4)   (0.60)%   (1.56)%   (0.91)%   (1.71)%

 

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)

 

20

 

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, 
   2018   2017   2018   2017 
                 
Total return before General Partner profit share allocation (3)   2.82%   3.69%   (0.54)%   2.31%
Less: General Partner profit share allocation (3)   0.06    0.22    0.07    0.29 
                     
Total return after General Partner profit share allocation (3)   2.76%   3.47%   (0.61)%   2.02%
                     
Ratios to average net asset value:                    
Expenses (1) (4)   2.56%   2.68%   2.58%   2.91%
General Partner profit share allocation (3)   0.06    0.22    0.07    0.29 
                     
Total expenses (1)   2.62%   2.90%   2.65%   3.20%
                     
Net investment loss (1) (2) (4)   (0.72)%   (1.80)%   (1.03)%   (2.14)%

 

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, 2018 and September 30, 2017.
(2)Excludes General Partner profit share allocation and includes interest income.
(3)Not Annualized.
(4)Annualized.

 

See notes to financial statements (Unaudited)

 

21

 

 

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, 2018 (unaudited) and December 31, 2017 and the results of its operations for the three and nine months ended September 30, 2018 and 2017 (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, 2017 included in the Partnership’s annual report on Form 10-K filed with the Securities and Exchange Commission. The December 31, 2017 information has been derived from the audited financial statements as of December 31, 2017.

 

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 indemnification provisions. 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, 2015 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, 2018 and December 31, 2017, 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,
2018
   December 31,
2017
 
Partnership   28.97%   35.47%
Cayman Feeder   61.97%   55.14%
           
Total   90.94%   90.61%

 

The capital withdrawals payable at September 30, 2018 and December 31, 2017 were $7,005,059 and $67,862,636, respectively, as detailed below.

 

   September 30,
2018
   December 31,
2017
 
Direct investors (1)  $   $3,934,700 
Partnership   1,267,515    1,565,482 
Cayman Feeder   5,737,544    62,362,454 
           
Total  $7,005,059   $67,862,636 

 

(1) Includes General Partner’s profit share of $3,734,700 at December 31, 2017.

 

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. The General Partner bears any excess over such amounts.

 

22

 

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.

 

The Partnership is for U.S. GAAP purposes an investment company in accordance with FASB Codification 946 Financial Services – Investment Companies. 

 

During the three and nine months ended September 30, 2018 and 2017, 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, 2018 and December 31, 2017 in valuing the Master Fund’s investments at fair value. At September 30, 2018 and December 31, 2017, the Master Fund had no assets or liabilities in Level 3.

 

23

 

Financial assets and liabilities at fair value as of September 30, 2018

 

   Level 1   Level 2   Total 
             
U.S. Treasury notes (1)  $453,966,973   $   $453,966,973 
                
Short-Term Money Market Fund*   42,410,386        42,410,386 
Exchange-traded futures contracts               
Energies   6,173,253        6,173,253 
Grains   1,694,673        1,694,673 
Interest rates   1,968,753        1,968,753 
Livestock   20,430        20,430 
Metals   (347,403)       (347,403)
Softs   (74,382)       (74,382)
Stock indices   8,680,002        8,680,002 
                
Total exchange-traded futures contracts   18,115,326        18,115,326 
                
Over-the-counter forward currency contracts       (2,365,098)   (2,365,098)
                
Total futures and forward currency contracts (2)   18,115,326    (2,365,098)   15,750,228 
                
Total financial assets and liabilities at fair value  $514,492,685   $(2,365,098)  $512,127,587 
                
Per line item in Statements of Financial Condition               
(1)               
Investments in U.S. Treasury notes held in equity trading accounts as collateral            $93,491,981 
Investments in U.S. Treasury notes held in custody             360,474,992 
Total investments in U.S. Treasury notes            $453,966,973 
                
(2)               
Net unrealized appreciation on open futures and forward currency contracts            $18,656,168 
Net unrealized depreciation on open futures and forward currency contracts             (2,905,940)
Total net unrealized appreciation on open futures and forward currency contracts            $15,750,228 

 

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

 

Financial assets and liabilities at fair value as of December 31, 2017

 

   Level 1   Level 2   Total 
             
U.S. Treasury notes (1)  $486,200,555   $   $486,200,555 
                
Short-Term Money Market Fund*   75,655,244        75,655,244 
Exchange-traded futures contracts               
Energies   6,169,670        6,169,670 
Grains   83,621        83,621 
Interest rates   (5,562,191)       (5,562,191)
Livestock   (66,920)       (66,920)
Metals   (286,225)       (286,225)
Softs   754,846        754,846 
Stock indices   1,052,656        1,052,656 
                
Total exchange-traded futures contracts   2,145,457        2,145,457 
                
Over-the-counter forward currency contracts       (11,713,535)   (11,713,535)
                
Total futures and forward currency contracts (2)   2,145,457    (11,713,535)   (9,568,078)
                
Total financial assets and liabilities at fair value  $564,001,256   $(11,713,535)  $552,287,721 
                
Per line item in Statements of Financial Condition               
(1)               
Investments in U.S. Treasury notes held in equity trading accounts as collateral            $127,971,156 
Investments in U.S. Treasury notes held in custody             358,229,399 
Total investments in U.S. Treasury notes            $486,200,555 
                
(2)               
Net unrealized appreciation on open futures and forward currency contracts            $2,145,457 
Net unrealized depreciation on open futures and forward currency contracts             (11,713,535)
Total unrealized depreciation on open futures and forward currency contracts            $(9,568,078)

 

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

 

24

 

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, 2018 by market sector:

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

The following tables present the fair value of open futures and forward currency contracts, held long or sold short, at September 30, 2018 and December 31, 2017. 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.

 

25

 

Fair value of futures and forward currency contracts at September 30, 2018  

 

                   Net 
                  Unrealized 
                  Gain (Loss) 
   Fair Value - Long Positions   Fair Value - Short Positions   on Open  
Sector  Gains   Losses   Gains   Losses   Positions  
Futures contracts:                         
Energies  $6,342,999   $(38,110)  $3,320   $(134,956)  $6,173,253 
Grains           1,737,033    (42,360)   1,694,673 
Interest rates   1,180,967    (1,848,242)   3,330,273    (694,245)   1,968,753 
Livestock   24,780    (3,870)       (480)   20,430 
Metals   1,912,311    (1,579,170)   1,364,778    (2,045,322)   (347,403)
Softs       (230,705)   274,460    (118,137)   (74,382)
Stock indices   8,687,396    (406,214)   587,862    (189,042)   8,680,002 
Total futures contracts   18,148,453    (4,106,311)   7,297,726    (3,224,542)   18,115,326 
                          
Forward currency contracts   5,284,785    (3,522,734)   6,917,297    (11,044,446)   (2,365,098)
                          
Total futures and forward currency contracts  $23,433,238   $(7,629,045)  $14,215,023   $(14,268,988)  $15,750,228 

 

Fair value of futures and forward currency contracts at December 31, 2017

 

                   Net 
                  Unrealized 
                  Gain (Loss) 
   Fair Value - Long Positions   Fair Value - Short Positions   on Open 
 Sector  Gains   Losses   Gains   Losses   Positions  
Futures contracts:                         
Energies  $7,084,104   $(17,454)  $115,340   $(1,012,320)  $6,169,670 
Grains   100    (20,490)   274,100    (170,089)   83,621 
Interest rates   1,344,904    (7,671,980)   829,470    (64,585)   (5,562,191)
Livestock           6,260    (73,180)   (66,920)
Metals   8,558,331    (66,580)   22,964    (8,800,940)   (286,225)
Softs   357,125    (6,705)   679,252    (274,826)   754,846 
Stock indices   4,844,811    (3,197,432)   858,712    (1,453,435)   1,052,656 
Total futures contracts   22,189,375    (10,980,641)   2,786,098    (11,849,375)   2,145,457 
                          
Forward currency contracts   5,225,346    (3,608,419)   2,226,484    (15,556,946)   (11,713,535)
                          
Total futures and forward currency contracts  $27,414,721   $(14,589,060)  $5,012,582   $(27,406,321)  $(9,568,078)

 

26

 

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, 2018 and 2017 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, 2018 and 2017

 

Sector  Three months
ended:
September 30,
2018
   Three months
ended:
September 30,
2017
   Nine months
ended:
September 30,
2018
   Nine months
ended:
September 30,
2017
 
Futures contracts:                    
Energies  $5,935,334   $(1,344,515)  $26,988,138   $(10,087,547)
Grains   1,247,401    581,715    4,481,005    (4,689,545)
Interest rates   (14,060,689)   (610,263)   (4,422,982)   (8,238,107)
Livestock   256,550    259,720    77,530    (273,000)
Metals   (110,525)   (788,041)   (5,726,421)   (516,224)
Softs   644,689    (325,826)   1,546,268    2,093,443 
Stock indices   18,874,584    22,123,955    (24,356,955)   46,818,237 
Total futures contracts   12,787,344    19,896,745    (1,413,417)   25,107,257 
                     
Forward currency contracts   4,122,019    (779,253)   2,075,799    (12,351,503)
                     
Total futures and forward currency contracts  $16,909,363   $19,117,492   $662,382   $12,755,754 

  

For the three months ended September 30, 2018 and 2017, the monthly average number of future contracts bought and sold and the monthly average notional value of forward currency contracts traded are detailed below:

 

    2018   2017 
          
Average bought     47,551    39,823 
Average sold     56,884    40,637 
Average notional    $4,891,000,000   $4,043,000,000 

 

The customer agreements between the Master Fund, the futures clearing brokers including, Deutsche Bank Securities Inc. (a wholly owned subsidiary of Deutsche Bank AG), SG Americas Securities, LLC, and Merrill Lynch Pierce, Fenner & Smith Inc. as well as the FX prime brokers, Deutsche Bank AG and Bank of America, N.A., 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 forward 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.

 

27

 

The following tables represent gross amounts of assets or liabilities which qualify for offset as presented in the Statements of Financial Condition as of September 30, 2018 and December 31, 2017.

 

Offsetting of derivative assets and liabilities at September 30, 2018 

 

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  $7,172,498   $(1,591,464)  $5,581,034 
Counterparty I   15,965,107    (5,562,215)   10,402,892 
Counterparty J   2,308,574    (177,174)   2,131,400 
Total futures contracts   25,446,179    (7,330,853)   18,115,326 
                
Forward currency contracts               
Counterparty K   6,831,705    (6,290,863)   540,842 
Total forward currency contracts   6,831,705    (6,290,863)   540,842 
                
Total assets  $32,277,884   $(13,621,716)  $18,656,168 

 

Liabilities  Gross amounts of
recognized liabilities
   Gross amounts
offset in the
Statement of
Financial Condition
   Net amounts of
liabilities presented in
the Statement of
Financial Condition
 
             
Forward currency contracts               
Counterparty G   5,951,193    (3,524,677)   2,426,516 
Counterparty H   2,325,124    (1,845,700)   479,424 
Total forward currency contracts   8,276,317    (5,370,377)   2,905,940 
                
Total liabilities  $8,276,317   $(5,370,377)  $2,905,940 

 

Amounts Not Offset in the Statement
of Financial Condition

 

Counterparty  Net amounts of
Assets
presented in the
Statement of Financial
Condition
   Financial
Instruments
   Collateral
Received(1)(2)
   Net Amount(3) 
                 
Counterparty C  $5,581,034   $   $(5,581,034)  $ 
Counterparty I   10,402,892        (10,402,892)    
Counterparty J   2,131,400        (2,131,400)    
Counterparty K   540,842            540,842 
Total  $18,656,168   $   $(18,115,326)  $540,842 
                     

 

Amounts Not Offset in the Statement
of Financial Condition

 

Counterparty  Net amounts of
Liabilities
presented in the
Statement of Financial
Condition
   Financial
Instruments
   Collateral
Pledged(1)(2)
   Net Amount(4) 
                 
Counterparty G  $2,426,516   $   $(2,426,516)  $ 
Counterparty H   479,424        (479,424)    
Total  $2,905,940   $   $(2,905,940)  $ 

 

(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 assets and 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, 2018.

 

(4)Net amount represents the amounts owed by the Partnership to each counterparty as of September 30, 2018.

 

28

 

Offsetting of derivative assets and liabilities at December 31, 2017

 

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  $8,020,778   $(7,204,167)  $816,611 
Counterparty I   16,954,695    (15,625,849)   1,328,846 
Total futures contracts   24,975,473    (22,830,016)   2,145,457 
                
Total assets  $24,975,473   $(22,830,016)  $2,145,457 
                

 

Liabilities  Gross amounts of
recognized liabilities
  

Gross amounts
offset in the
Statement of
Financial Condition

   Net amounts of
liabilities presented in
the Statement of
Financial Condition
 
             
Forward currency contracts               
Counterparty G  $7,086,206   $(2,515,193)  $4,571,013 
Counterparty H   12,079,159    (4,936,637)   7,142,522 
Total forward currency contracts   19,165,365    (7,451,830)   11,713,535 
                
Total liabilities  $19,165,365   $(7,451,830)  $11,713,535 

 

Amounts Not Offset in the Statement
of Financial Condition

 

Counterparty 

Net amounts of
Assets
presented in the
Statement of Financial
Condition

   Financial
Instruments
   Collateral
Received(1)(2)
   Net Amount(3) 
                 
Counterparty C  $816,611   $   $(816,611)  $ 
Counterparty I   1,328,846        (1,328,846)    
                    
Total  $2,145,457   $   $(2,145,457)  $ 

 

Amounts Not Offset in the Statement
of Financial Condition

 

Counterparty  Net amounts of
Liabilities
presented in the
Statement of Financial
Condition
   Financial
Instruments
   Collateral
Pledged(1)(2)
   Net Amount(4) 
                 
Counterparty G  $4,571,013   $   $4,571,013   $ 
Counterparty H   7,142,522        7,142,522     
                     
Total  $11,713,535   $   $11,713,535   $ 

 

(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 December 31, 2017.

 

(4)Net amount represents the amounts owed by the Partnership to each counterparty as of December 31, 2017.

 

29

 

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.