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EX-32.04 - CERTIFICATION - Millburn Multi-Markets Fund L.P.f10q0620ex32-04_millburn.htm
EX-32.03 - CERTIFICATION - Millburn Multi-Markets Fund L.P.f10q0620ex32-03_millburn.htm
EX-32.02 - CERTIFICATION - Millburn Multi-Markets Fund L.P.f10q0620ex32-02_millburn.htm
EX-32.01 - CERTIFICATION - Millburn Multi-Markets Fund L.P.f10q0620ex32-01_millburn.htm
EX-31.04 - CERTIFICATION - Millburn Multi-Markets Fund L.P.f10q0620ex31-04_millburn.htm
EX-31.03 - CERTIFICATION - Millburn Multi-Markets Fund L.P.f10q0620ex31-03_millburn.htm
EX-31.02 - CERTIFICATION - Millburn Multi-Markets Fund L.P.f10q0620ex31-02_millburn.htm
EX-31.01 - CERTIFICATION - Millburn Multi-Markets Fund L.P.f10q0620ex31-01_millburn.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: June 30, 2020

 

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  
  55 West 46th Street, 31st Floor  
  New York, NY 10036  
  (Address of principal executive offices) (Zip Code)  

 

Registrant’s telephone number, including area code: (212) 332-7300

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
None   None   None

 

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. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

Millburn Multi-Markets Fund L.P.

Financial statements

For the three and six months ended June 30, 2020 and 2019 (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 June 30, 2020 (unaudited) and December 31, 2019

 

(b) For the six months ended June 30, 2020 and 2019 (unaudited)

 

(c) For the three and six months ended June 30, 2020 and 2019 (unaudited)

 

 

 

 

Millburn Multi-Markets Fund L.P.

Statements of Financial Condition

 

   June 30,
2020
   December 31,
2019
 
   (unaudited)     
ASSETS        
Investment in Millburn Multi-Markets        
Trading L.P. (the “Master Fund”)  $155,420,631   $191,189,357 
Due from the Master Fund   7,064,805    736,814 
Cash and cash equivalents   60,000    2,864,000 
           
Total assets  $162,545,436   $194,790,171 
           
LIABILITIES AND PARTNERS’ CAPITAL          
           
LIABILITIES:          
Capital contributions received in advance  $60,000   $2,864,000 
Capital withdrawal payable to Limited Partners   7,064,805    736,814 
           
Total liabilities   7,124,805    3,600,814 
           
PARTNERS’ CAPITAL:          
General Partner   2,597,004    3,122,595 
           
Limited partners:          
Series A (121,880.4254 and 132,149.4067  units outstanding)   125,543,465    166,972,241 
Series B (6,601.6195 and 7,006.4813 units outstanding)   8,024,677    10,343,480 
Series C (3,305.9311 and 3,207.8856 units outstanding)   4,100,103    4,831,807 
Series D (12,897.0725 and 4,132.1394 units outstanding)   15,155,382    5,919,234 
           
Total limited partners   152,823,627    188,066,762 
           
Total partners’ capital   155,420,631    191,189,357 
           
TOTAL  $162,545,436   $194,790,171 
           
NET ASSET VALUE PER UNIT OUTSTANDING:          
Series A  $1,030.05   $1,263.51 
Series B  $1,215.56   $1,476.27 
Series C  $1,240.23   $1,506.23 
Series D  $1,175.10   $1,432.49 

 

See notes to financial statements (Unaudited)

 

1

 

 

Millburn Multi-Markets Fund L.P.

Statements of Operations (UNAUDITED)

 

   For the three months ended 
   June 30,
2020
   June 30,
2019
 
         
INVESTMENT INCOME:        
Interest income  $5,929   $- 
Interest income (allocated from the Master Fund)   422,328    972,059 
           
Total investment income   428,257    972,059 
           
EXPENSES:          
Management fees (allocated from the Master Fund)   813,157    817,828 
Brokerage commissions (allocated from the Master Fund)   182,230    214,084 
Selling commissions and platform fees (allocated from the Master Fund)   700,660    739,067 
Administrative and operating expenses (allocated from the Master Fund)   161,695    148,324 
Custody fees and other expenses (allocated from the Master Fund)   7,433    6,916 
           
Total expenses   1,865,175    1,926,219 
           
NET INVESTMENT LOSS   (1,436,918)   (954,160)
           
REALIZED AND UNREALIZED GAINS (LOSSES) ALLOCATED FROM THE MASTER FUND          
Net realized gains (losses) on closed positions:          
Futures and forward currency contracts   10,392,888    1,461,937 
Foreign exchange transactions   (18,133)   (40,678)
Net change in unrealized:          
Futures and forward currency contracts   (4,993,399)   (904,767)
Foreign exchange translation   119,789    91,162 
Net gains (losses) from U.S. Treasury notes:          
Realized   57,750    - 
Net change in unrealized   (512,732)   214,716 
           
Net realized and unrealized gains allocated from the Master Fund   5,046,163    822,370 
           
NET INCOME (LOSS)   3,609,245    (131,790)
           
LESS PROFIT SHARE ALLOCATION (FROM) THE MASTER FUND   -    (31,131)
           
NET INCOME (LOSS) AFTER PROFIT SHARE  $3,609,245   $(100,659)
           
NET INCOME (LOSS) PER UNIT OUTSTANDING:          
Series A  $21.46   $(1.52)
Series B  $31.26   $3.86 
Series C  $31.90   $3.93 
Series D  $28.07   $1.51 

 

See notes to financial statements (Unaudited) (Continued)

 

2

 

 

Millburn Multi-Markets Fund L.P.

Statements of Operations (UNAUDITED)

 

   For the six months ended 
   June 30,
2020
   June 30,
2019
 
         
INVESTMENT INCOME:        
Interest income  $5,929   $- 
Interest income (allocated from the Master Fund)   1,167,786    1,890,692 
           
Total investment income   1,173,715    1,890,692 
           
EXPENSES:          
Management fees (allocated from the Master Fund)   1,694,429    1,616,182 
Brokerage commissions (allocated from the Master Fund)   421,539    390,334 
Selling commissions and platform fees (allocated from the Master Fund)   1,478,164    1,470,116 
Administrative and operating expenses (allocated from the Master Fund)   310,366    295,556 
Custody fees and other expenses (allocated from the Master Fund)   14,793    14,054 
           
Total expenses   3,919,291    3,786,242 
           
NET INVESTMENT LOSS   (2,745,576)   (1,895,550)
           
REALIZED AND UNREALIZED GAINS (LOSSES) ALLOCATED FROM THE MASTER FUND          
Net realized gains (losses) on closed positions:          
Futures and forward currency contracts   (35,152,921)   10,440,982 
Foreign exchange transactions   (230,567)   (90,619)
Net change in unrealized:          
Futures and forward currency contracts   1,377,488    (5,146,654)
Foreign exchange translation   (72,279)   47,171 
Net gains (losses) from U.S. Treasury notes:          
Realized   202,347    (926)
Net change in unrealized   106,838    340,254 
           
Net realized and unrealized gains (losses) allocated from the Master Fund   (33,769,094)   5,590,208 
           
NET INCOME (LOSS)   (36,514,670)   3,694,658 
           
LESS PROFIT SHARE ALLOCATION TO THE MASTER FUND   -    720,039 
           
NET INCOME (LOSS) AFTER PROFIT SHARE  $(36,514,670)  $2,974,619 
           
NET INCOME (LOSS) PER UNIT OUTSTANDING:          
Series A  $(233.46)  $20.44 
Series B  $(260.71)  $34.59 
Series C  $(266.00)  $35.29 
Series D  $(257.39)  $28.59 

 

See notes to financial statements (Unaudited) (Concluded)

 

3

 

 

Millburn Multi-Markets Fund L.P.

Statements of Changes in Partners’ Capital (UNAUDITED)

For the six months ended June 30, 2020 and 2019

 

   General   Limited Partners     
   Partner   Series A   Series B   Series C   Series D   Total 
   Amount   Amount   Units   Amount   Units   Amount   Units   Amount   Units   Amount 
                                         
PARTNERS’ CAPITAL — January 1, 2020  $3,122,595   $166,972,241    132,149.4067   $10,343,480    7,006.4813   $4,831,807    3,207.8856   $5,919,234    4,132.1394   $191,189,357 
                                                   
Capital contributions   -    2,241,400    1,775.4043    150,000    120.8102    150,000    106.9465    11,599,000    8,837.3909    14,140,400 
Capital withdrawals   -    (12,655,209)   (12,044.3856)   (643,386)   (525.6720)   (11,039)   (8.9010)   (84,822)   (72.4578)   (13,394,456)
Net (loss) before profit share   (525,591)   (31,014,967)   -    (1,825,417)   -    (870,665)   -    (2,278,030)   -    (36,514,670)
Profit share   -    -    -    -    -    -    -    -    -    - 
PARTNERS’ CAPITAL — June 30, 2020  $2,597,004   $125,543,465    121,880.4254   $8,024,677    6,601.6195   $4,100,103    3,305.9311   $15,155,382    12,897.0725   $155,420,631 
                                                   
Net Asset Value per Unit at June 30, 2020            $1,030.05        $1,215.56        $1,240.23        $1,175.10      

 

   General   Limited Partners     
   Partner   Series A   Series B   Series C   Series D   Total 
   Amount   Amount   Units   Amount   Units   Amount   Units   Amount   Units   Amount 
                                         
PARTNERS’ CAPITAL — January 1, 2019  $2,788,913   $144,621,713    121,399.2481   $9,305,965    6,794.4628   $2,008,278    1,437.1195   $794,737    593.8529   $159,519,606 
                                                   
Capital contributions   -    3,085,000    2,581.4299    685,000    497.9878    1,211,000    859.3544    3,405,150    2,529.4332    8,386,150 
Capital withdrawals   -    (4,958,397)   (4,132.0095)   (501,799)   (361.3438)   (162,222)   (114.9250)   -    -    (5,622,418)
Transfers between Series        -    0.0000    -    0.0000    -    0.0000    -    -    - 
Net income before profit share   117,295    3,100,414    -    304,520    -    85,930    -    86,499    -    3,694,658 
Profit share   -    (624,490)   -    (60,822)   -    (17,427)   -    (17,300)   -    (720,039)
PARTNERS’ CAPITAL —  June 30, 2019  $2,906,208   $145,224,240    119,848.6685   $9,732,864    6,931.1068   $3,125,559    2,181.5489   $4,269,086    3,123.2861   $165,257,957 
                                                   
Net Asset Value per Unit at June 30, 2019            $1,211.73        $1,404.23        $1,432.72        $1,366.86      

 

See notes to financial statements (Unaudited)

 

4

 

 

Millburn Multi-Markets Fund L.P.

Statement of Financial Highlights (UNAUDITED)

For the three months ended June 30, 2020

 

The following information presents per unit operating performance data for each series for the three months ended June 30, 2020.

 

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  $1,008.59   $1,184.30   $1,208.33   $1,147.03 
                     
INCOME (LOSS) ALLOCATED FROM THE MASTER FUND:                    
Net investment loss (1)   (9.84)   (5.52)   (5.66)   (7.96)
Total trading and investing gains (1)   31.30    36.78    37.56    36.03 
                     
Net income before profit share allocation from the Master Fund   21.46    31.26    31.90    28.07 
                     
Less: profit share allocation from the Master Fund (1) (6)   0.00    0.00    0.00    0.00 
                     
Net income from operations after profit share allocation from the Master Fund   21.46    31.26    31.90    28.07 
                     
NET ASSET VALUE PER UNIT — End of period  $1,030.05   $1,215.56   $1,240.23   $1,175.10 
                     
TOTAL RETURN BEFORE PROFIT SHARE ALLOCATION FROM THE MASTER FUND (2)   2.13%   2.64%   2.64%   2.45%
                     
LESS: PROFIT SHARE ALLOCATION FROM THE MASTER
FUND (2) (6)
   0.00    0.00    0.00    0.00 
                     
TOTAL RETURN AFTER PROFIT SHARE ALLOCATION FROM THE MASTER FUND (2)   2.13%   2.64%   2.64%   2.45%
                     
RATIOS TO AVERAGE NET ASSET VALUE:                    
Expenses (3) (4) (5)   4.86%   2.86%   2.86%   3.61%
Profit share allocation from the Master Fund (2) (6)   0.00    0.00    0.00    0.00 
                     
Total expenses   4.86%   2.86%   2.86%   3.61%
                     
Net investment loss (3) (4) (5)   (3.82)%   (1.82)%   (1.82)%   (2.57)%

 

(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 (if applicable) and expenses 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) (Continued)

 

5

 

 

Millburn Multi-Markets Fund L.P.

Statement of Financial Highlights (UNAUDITED)

For the six months ended June 30, 2020

 

The following information presents per unit operating performance data for each series for the six months ended June 30, 2020.

 

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  $1,263.51   $1,476.27   $1,506.23   $1,432.49 
                     
INCOME (LOSS) ALLOCATED FROM THE MASTER FUND:                    
Net investment loss (1)   (19.06)   (9.62)   (9.84)   (14.17)
Total trading and investing losses (1)   (214.40)   (251.09)   (256.16)   (243.22)
                     
Net loss before profit share allocation from the Master Fund   (233.46)   (260.71)   (266.00)   (257.39)
                     
Less: profit share allocation from the Master Fund (1) (6)   0.00    0.00    0.00    0.00 
                     
Net loss from operations after profit share allocation from the Master Fund   (233.46)   (260.71)   (266.00)   (257.39)
                     
NET ASSET VALUE PER UNIT — End of period  $1,030.05   $1,215.56   $1,240.23   $1,175.10 
                     
TOTAL RETURN BEFORE PROFIT SHARE ALLOCATION FROM THE MASTER FUND (2)   (18.48)%   (17.66)%   (17.66)%   (17.97)%
                     
LESS: PROFIT SHARE ALLOCATION FROM THE MASTER
FUND (2) (6)
   0.00    0.00    0.00    0.00 
                     
TOTAL RETURN AFTER PROFIT SHARE ALLOCATION FROM THE MASTER FUND (2)   (18.48)%   (17.66)%   (17.66)%   (17.97)%
                     
RATIOS TO AVERAGE NET ASSET VALUE:                    
Expenses (3) (4) (5)   4.87%   2.87%   2.87%   3.62%
Profit share allocation from the Master Fund (2) (6)   0.00    0.00    0.00    0.00 
                     
Total expenses   4.87%   2.87%   2.87%   3.62%
                     
Net investment loss (3) (4) (5)   (3.50)%   (1.50)%   (1.51)%   (2.36)%

 

(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 loss 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 (if applicable) and expenses 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 June 30, 2019

 

The following information presents per unit operating performance data for each series for the three months ended June 30, 2019.

 

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  $1,213.25   $1,400.37   $1,428.79   $1,365.35 
                     
INCOME (LOSS) ALLOCATED FROM THE MASTER FUND:                    
Net investment loss (1)   (7.73)   (1.94)   (2.03)   (4.56)
Total trading and investing gains (1)   5.86    6.55    8.27    4.87 
                     
Net income (loss) before profit share allocation from the Master Fund   (1.87)   4.61    6.24    0.31 
                     
Less: profit share allocation from the Master Fund (1) (6)   (0.35)   0.75    2.31    (1.20)
                     
Net income (loss) from operations after profit share allocation from the Master Fund   (1.52)   3.86    3.93    1.51 
                     
NET ASSET VALUE PER UNIT — End of period  $1,211.73   $1,404.23   $1,432.72   $1,366.86 
                     
TOTAL RETURN BEFORE PROFIT SHARE ALLOCATION FROM THE MASTER FUND (2)   (0.16)%   0.34%   0.48%   0.23%
                     
LESS: PROFIT SHARE ALLOCATION FROM THE MASTER
FUND (2) (6)
   (0.03)   0.06    0.20    0.12 
                     
TOTAL RETURN AFTER PROFIT SHARE ALLOCATION FROM THE MASTER FUND (2)   (0.13)%   0.28%   0.28%   0.11%
                     
RATIOS TO AVERAGE NET ASSET VALUE:                    
Expenses (3) (4) (5)   4.91%   2.91%   2.91%   3.67%
Profit share allocation from the Master Fund (2) (6)   (0.03)   0.06    0.20    0.12 
                     
Total expenses   4.88%   2.97%   3.11%   3.79%
                     
Net investment loss (3) (4) (5)   (2.56)%   (0.56)%   (0.57)%   (1.33)%

 

(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 (if applicable) and expenses 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) (Continued)

 

7

 

 

Millburn Multi-Markets Fund L.P.

Statement of Financial Highlights (UNAUDITED)

For the six months ended June 30, 2019

 

The following information presents per unit operating performance data for each series for the six months ended June 30, 2019.

 

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  $1,191.29   $1,369.64   $1,397.43   $1,338.27 
                     
INCOME (LOSS) ALLOCATED FROM THE MASTER FUND:                    
Net investment loss (1)   (15.32)   (3.84)   (3.96)   (8.88)
Total trading and investing gains (1)   40.89    47.10    49.91    46.64 
                     
Net income before profit share allocation from the Master Fund   25.57    43.26    45.95    37.76 
                     
Less: profit share allocation from the Master Fund (1) (6)   5.13    8.67    10.66    9.17 
                     
Net income from operations after profit share allocation from the Master Fund   20.44    34.59    35.29    28.59 
                     
NET ASSET VALUE PER UNIT — End of period  $1,211.73   $1,404.23   $1,432.72   $1,366.86 
                     
TOTAL RETURN BEFORE PROFIT SHARE ALLOCATION FROM THE MASTER FUND (2)   2.15%   3.16%   3.28%   2.82%
                     
LESS: PROFIT SHARE ALLOCATION FROM THE MASTER
FUND (2) (6)
   0.43    0.63    0.75    0.68 
                     
TOTAL RETURN AFTER PROFIT SHARE ALLOCATION FROM THE MASTER FUND (2)   1.72%   2.53%   2.53%   2.14%
                     
RATIOS TO AVERAGE NET ASSET VALUE:                    
Expenses (3) (4) (5)   4.87%   2.87%   2.87%   3.64%
Profit share allocation from the Master Fund (2) (6)   0.43    0.63    0.75    0.68 
                     
Total expenses   5.30%   3.50%   3.62%   4.32%
                     
Net investment loss (3) (4) (5)   (2.55)%   (0.55)%   (0.56)%   (1.31)%

 

(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 (if applicable) and expenses 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 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 June 30, 2020 (unaudited) and December 31, 2019 and the results of its operations for the three and six months ended June 30, 2020 and 2019 (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 2019 annual report included in Form 10-K filed with the Securities and Exchange Commission. The December 31, 2019 information has been derived from the audited financial statements as of December 31, 2019. 

 

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, 2016 to 2019, 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 2019.

 

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 June 30, 2020 and December 31, 2019 was 24.72% and 30.30%, 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. Administrative and 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 June 30, 2020 and December 31, 2019, 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
June 30,
   Six months ended
June 30,
 
   2020   2019   2020   2019 
Series A   130,309.971    121,178.879    131,771.314    121,811.636 
Series B   7,009.353    7,082.976    7,007.977    7,013.214 
Series C   3,314.794    1,813.897    3,279.537    1,634.484 
Series D   12,728.774    2,484.977    9,918.909    1,887.069 

 

5. SUBSEQUENT EVENTS

 

During the period from July 1, 2020 to August 13, 2020, contributions of $260,000 were made to the Partnership. The General Partner has performed its evaluation of subsequent events through August 13, 2020, the date the form 10-Q was filed. Based on such evaluation, no further events were discovered that required disclosure or adjustment to the Financial Statements.

 

9

 

 

Millburn Multi-Markets Trading L.P.    
Financial statements    
For the three and six months ended June 30, 2020 and 2019 (unaudited)    
     
Statements of Financial Condition (a)   10
Condensed Schedules of Investments (a)   11
Statements of Operations (c)   15
Statements of Changes in Partners’ Capital (b)   17
Statements of Financial Highlights (c)   18
Notes to Financial Statements   20

 

(a) At June 30, 2020 (unaudited) and December 31, 2019

 

(b) For the six months ended June 30, 2020 and 2019 (unaudited)

 

(c) For the three and six months ended June 30, 2020 and 2019 (unaudited)

  

 

 

 

Millburn Multi-Markets Trading L.P.

Statements of Financial Condition

 

   June 30,   December 31, 
   2020   2019 
   (unaudited)     
ASSETS        
         
EQUITY IN TRADING ACCOUNTS:        
Investments in U.S. Treasury notes — at fair value (amortized cost $62,533,734 and $99,692,940)  $62,806,199   $99,835,520 
Net unrealized appreciation on open futures and forward currency contracts   5,146,878    5,430,488 
Due from brokers, net   22,863,301    20,430,870 
Cash denominated in foreign currencies (cost $30,351,686 and $31,152,549)   30,540,418    31,566,671 
           
Total equity in trading accounts   121,356,796    157,263,549 
           
INVESTMENTS IN U.S. TREASURY NOTES — at fair value (amortized cost $478,256,679 and $440,349,793)   478,985,622    440,688,034 
           
CASH AND CASH EQUIVALENTS   52,654,345    53,997,893 
           
ACCRUED INTEREST RECEIVABLE   2,285,236    2,333,434 
           
DUE FROM MILLBURN MULTI-MARKETS LTD.   11,063    100 
           
TOTAL  $655,293,062   $654,283,010 
           
LIABILITIES AND PARTNERS’ CAPITAL          
           
LIABILITIES:          
Net unrealized depreciation on open futures and forward currency contracts  $1,670,447   $5,818,429 
Cash overdrafts denominated in foreign currencies (cost $1,297,079 and $0)   1,411,376    - 
Subscriptions in advance   -    1,565,000 
Capital withdrawal payable to Limited Partners   12,802,989    736,814 
Capital withdrawal payable to General Partner   -    9,224,590 
Management fee payable   716,541    798,199 
Selling commissions payable   232,221    283,920 
Accrued expenses   522,077    254,637 
Due to brokers, net   9,058,653    4,479,776 
Commissions and other trading fees on open futures contracts   62,579    119,320 
Accrued profit share   32,583    - 
           
Total liabilities   26,509,466    23,280,685 
           
PARTNERS’ CAPITAL   628,783,596    631,002,325 
           
TOTAL  $655,293,062   $654,283,010 

 

See notes to financial statements (Unaudited)

 

10

 

 

Millburn Multi-Markets Trading L.P.

Condensed Schedule of Investments (UNAUDITED)

June 30, 2020

 

   Net Unrealized     
   Appreciation     
   (Depreciation)   Net Unrealized 
   as a % of   Appreciation 
FUTURES AND FORWARD CURRENCY CONTRACTS  Partners’ Capital   (Depreciation) 
         
FUTURES CONTRACTS        
Long futures contracts:          
Energies   0.05%  $330,428 
Grains   0.16    1,018,582 
Interest rates:          
2 Year U.S. Treasury Note (420 contracts, settlement date September 2020)   0.01    59,695 
5 Year U.S. Treasury Note (931 contracts, settlement date September 2020)   0.02    132,664 
10 Year U.S. Treasury Note (375 contracts, settlement date September 2020)   0.01    91,812 
30 Year U.S. Treasury Bond (152 contracts, settlement date September 2020)   0.03    167,063 
Other interest rates   0.72    4,502,219 
           
Total interest rates   0.79    4,953,453 
           
Livestock   0.00    (7,610)
Metals   0.55    3,431,770 
Softs   (0.02)   (130,805)
Stock indices   0.27    1,729,376 
           
Total long futures contracts   1.80    11,325,194 
           
Short futures contracts:          
Energies   (0.05)   (338,643)
Grains   (0.04)   (229,770)
Interest rates   0.00    6,256 
Livestock   0.00    (3,020)
Metals   (0.99)   (6,213,028)
Softs   (0.01)   (39,187)
Stock indices   0.11    639,076 
           
Total short futures contracts   (0.98)   (6,178,316)
           
TOTAL INVESTMENTS IN FUTURES CONTRACTS — Net   0.82    5,146,878 
           
FORWARD CURRENCY CONTRACTS          
Total long forward currency contracts   (1.02)   (6,425,754)
Total short forward currency contracts   0.76    4,755,307 
           
TOTAL INVESTMENTS IN FORWARD CURRENCY CONTRACTS — Net   (0.26)   (1,670,447)
           
TOTAL   0.56%  $3,476,431 

 

(Continued)

 

11

 

 

Millburn Multi-Markets Trading L.P.

Condensed Schedule of Investments (UNAUDITED)

June 30, 2020

 

U.S. TREASURY NOTES

 

Face Amount   Description  Fair Value
as a % of
Partners’
Capital
   Fair Value 
             
$166,640,000   U.S. Treasury notes, 1.500%, 08/15/2020   26.55%  $166,932,922 
 166,540,000   U.S. Treasury notes, 1.750%, 11/15/2020   26.65    167,535,337 
 57,540,000   U.S. Treasury notes, 2.250%, 02/15/2021   9.27    58,291,841 
 145,900,000   U.S. Treasury notes, 2.625%, 05/15/2021   23.70    149,031,721 
     Total investments in U.S. Treasury notes (amortized cost $540,790,413)   86.17%  $541,791,821 

 

See notes to financial statements (Unaudited) (Concluded)

 

12

 

 

Millburn Multi-Markets Trading L.P.

Condensed Schedule of Investments

December 31, 2019

 

   Net Unrealized     
   Appreciation     
   (Depreciation)   Net Unrealized 
   as a % of   Appreciation 
FUTURES AND FORWARD CURRENCY CONTRACTS  Partners’ Capital   (Depreciation) 
         
FUTURES CONTRACTS        
Long futures contracts:          
Energies   0.16%  $1,041,056 
Grains   0.02    97,048 
Interest rates:          
10 Year U.S. Treasury Note (111 contracts, settlement date March 2018)          
30 Year U.S. Treasury Bond (28 contracts, settlement date March 2019)          
Other interest rates   (0.04)   (274,802)
           
Total interest rates   (0.04)   (262,248)
Livestock   0.00    (560)
Metals   0.30    1,850,831 
Softs   0.01    78,535 
Stock indices   0.05    334,857 
           
Total long futures contracts   0.50    3,139,519 
           
Short futures contracts:          
Energies   0.07    447,160 
Grains   (0.17)   (1,053,425)
Interest rates:          
10 Year U.S. Treasury Note (773 contracts, settlement date March 2020)   0.00    15,234 
Other interest rates   0.35    2,235,084 
           
Total interest rates   0.35    2,250,318 
           
Livestock   0.00      
Metals   (0.07)   (432,195)
Softs   (0.01)   (90,206)
Stock indices   0.19    1,169,317 
           
Total short futures contracts   0.36    2,290,969 
           
TOTAL INVESTMENTS IN FUTURES CONTRACTS — Net   0.86    5,430,488 
           
FORWARD CURRENCY CONTRACTS          
Total long forward currency contracts   2.22    13,991,397 
Total short forward currency contracts   (3.14)   (19,809,826)
           
TOTAL INVESTMENTS IN FORWARD CURRENCY CONTRACTS — Net   (0.92)   (5,818,429)
           
TOTAL   (0.06)%  $(387,941)

 

(Continued)

 

13

 

 

Millburn Multi-Markets Trading L.P.

Condensed Schedule of Investments

December 31, 2019

 

U.S. TREASURY NOTES

 

Face Amount   Description  Fair Value
as a % of
Partners’
Capital
   Fair Value 
             
$178,740,000   U.S. Treasury notes, 1.375%, 02/15/2020   28.32%  $178,698,108 
 184,140,000   U.S. Treasury notes, 1.500%, 05/15/2020   29.17    184,089,649 
 177,840,000   U.S. Treasury notes, 1.500%, 08/15/2020   28.17    177,735,797 
     Total investments in U.S. Treasury notes  (amortized cost $540,042,733)   85.66%  $540,523,554 

 

See notes to financial statements (Unaudited) (Concluded)

 

14

 

 

Millburn Multi-Markets Trading L.P.

Statements of Operations (UNAUDITED)

 

   For the three months ended 
   June 30,   June 30, 
   2020   2019 
INVESTMENT INCOME — Interest income  $1,759,805   $3,391,184 
           
EXPENSES:          
Brokerage commissions   744,598    745,098 
Management fees   2,268,370    2,123,907 
Selling commissions and platform fees   707,418    741,840 
Administrative and operating expenses   323,308    304,414 
Custody fees and other expenses   31,493    24,186 
Total expenses   4,075,187    3,939,445 
           
NET INVESTMENT LOSS   (2,315,382)   (548,261)
           
REALIZED AND UNREALIZED GAINS (LOSSES):          
Net realized gains (losses) on closed positions:          
Futures and forward currency contracts   42,069,864    4,651,094 
Foreign exchange transactions   (16,419)   (170,451)
Net change in unrealized:          
Futures and forward currency contracts   (21,122,237)   (2,863,569)
Foreign exchange translation   426,000    355,266 
Net gains (losses) from U.S. Treasury notes:          
Realized   244,667    - 
Net change in unrealized   (2,124,914)   759,167 
Total net realized and unrealized gains   19,476,961    2,731,507 
           
NET INCOME   17,161,579    2,183,246 
LESS PROFIT SHARE TO GENERAL PARTNER   32,583    360,041 
NET INCOME AFTER PROFIT SHARE TO GENERAL PARTNER  $17,128,996   $1,823,205 

 

See notes to financial statements (Unaudited) (Continued)

 

15

 

 

Millburn Multi-Markets Trading L.P.

Statements of Operations (UNAUDITED)

 

   For the six months ended 
   June 30,   June 30, 
   2020   2019 
INVESTMENT INCOME — Interest income  $4,826,921   $6,148,942 
           
EXPENSES:          
Brokerage fees   1,726,361    1,270,120 
Management fees   4,777,630    3,933,616 
Selling commissions and platform fees   1,488,611    1,475,611 
Administrative and operating expenses   644,692    577,878 
Custody fees and other expenses   63,395    45,255 
Total expenses   8,700,689    7,302,480 
           
NET INVESTMENT LOSS   (3,873,768)   (1,153,538)
           
REALIZED AND UNREALIZED GAINS (LOSSES):          
Net realized gains (losses) on closed positions:          
Futures and forward currency contracts   (149,392,825)   31,641,912 
Foreign exchange transactions   (908,402)   (322,096)
Net change in unrealized:          
Futures and forward currency contracts   3,864,372    (15,425,077)
Foreign exchange translation   (339,687)   221,978 
Net gains (losses) from U.S. Treasury notes:          
Realized   854,283    (2,728)
Net change in unrealized   520,587    1,135,070 
Total net realized and unrealized gains (losses)   (145,401,672)   17,249,059 
           
NET INCOME (LOSS)   (149,275,440)   16,095,521 
LESS PROFIT SHARE TO GENERAL PARTNER   32,583    2,685,610 
NET INCOME (LOSS) AFTER PROFIT SHARE TO GENERAL PARTNER  $(149,308,023)  $13,409,911 

 

See notes to financial statements (Unaudited) (Concluded)

 

16

 

 

Millburn Multi-Markets Trading L.P.

Statements of Changes in Partners’ Capital (UNAUDITED)

 

For the six months ended June 30, 2020

 

   Limited
Partners
   New Profit
Memo
Account
   General
Partner
   Total 
PARTNERS’ CAPITAL - January 1, 2020  $629,952,934   $          -   $1,049,391   $631,002,325 
Contributions   248,723,600    -    -    248,723,600 
Withdrawals   (101,634,306)   -    -    (101,634,306)
Net (loss) before profit share   (149,099,913)   -    (175,527)   (149,275,440)
General Partner’s allocation - profit share   (32,583)   -    -    (32,583)
PARTNERS’ CAPITAL - June 30, 2020  $627,909,732   $-   $873,864   $628,783,596 

 

For the six months ended June 30, 2019

 

   Limited
Partners
   New Profit
Memo
Account
   General
Partner
   Total 
PARTNERS’ CAPITAL - January 1, 2019  $473,885,200   $-   $939,174   $474,824,374 
Contributions   169,259,732    30,173    -    169,289,905 
Withdrawals   (66,941,480)   -    -    (66,941,480)
Net income before profit share   16,054,849    11    40,661    16,095,521 
General Partner’s allocation - profit share   (2,685,610)   -    -    (2,685,610)
PARTNERS’ CAPITAL - June 30, 2019  $589,572,691   $30,184   $979,835   $590,582,710 

 

See notes to financial statements (Unaudited)

 

17

 

 

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 six months ended 
   June 30,   June 30,   June 30,   June 30, 
   2020   2019   2020   2019 
                 
Total return before General Partner profit share allocation (3)   2.71%   0.40%   (17.56)%   3.28%
Less: General Partner profit share allocation (3)   -    0.08    -    0.65 
                     
Total return after General Partner profit share allocation (3)   2.71%   0.32%   (17.56)%   2.63%
                     
Ratios to average net asset value:                    
Expenses (1) (4)   2.56%   2.64%   2.66%   2.66%
General Partner profit share allocation (3)   -    0.08    -    0.65 
                     
Total expenses (1)   2.56%   2.72%   2.66%   3.31%
                     
Net investment loss (1) (2) (4)   (1.52)%   (0.28)%   (1.28)%   (0.34)%

 

Total returns and the ratios to average net asset value are calculated for a Limited Partner.

 

(1)Includes the Limited Partner’s proportionate share of expenses allocated from the Master Fund’s operations for the three and six months ended June 30, 2020 and 2019.
(2)Excludes General Partner profit share allocation and includes interest income.
(3)Not Annualized.
(4)Annualized.

 

See notes to financial statements (Unaudited)

 

18

 

 

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 six months ended 
   June 30,   June 30,   June 30,   June 30, 
   2020   2019   2020   2019 
                 
Total return before General Partner profit share allocation (3)   2.62%   0.38%   (17.60)%   3.18%
Less: General Partner profit share allocation (3)   -    0.06    -    0.51 
                     
Total return after General Partner profit share allocation (3)   2.62%   0.32%   (17.60)%   2.67%
                     
Ratios to average net asset value:                    
Expenses (1) (4)   2.40%   2.72%   2.50%   2.80%
General Partner profit share allocation (3)   -    0.06    -    0.51 
                     
Total expenses (1)   2.40%   2.78%   2.50%   3.31%
                     
Net investment loss (1) (2) (4)   (1.36)%   (0.36)%   (1.10)%   (0.46)%

 

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 Limited Partners’ proportionate share of expenses allocated from the Master Fund’s operations for the three and six months ended June 30, 2020 and 2019.
(2)Excludes General Partner profit share allocation and includes interest income.
(3)Not Annualized.
(4)Annualized.

 

See notes to financial statements (Unaudited)

 

19

 

 

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, as well as hedging using 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 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 June 30, 2020 (unaudited) and December 31, 2019 and the results of its operations for the three and six months ended June 30, 2020 and 2019 (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, 2019 included in the Partnership’s annual report on Form 10-K filed with the Securities and Exchange Commission. The December 31, 2019 information has been derived from the audited financial statements as of December 31, 2019.

 

The preparation of financial statements in conformity with U.S. GAAP in the U.S, as detailed in the FASB 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, 2016 to 2019, 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 June 30, 2020 and December 31, 2019, the respective ownership percentages of the Master Fund are detailed below. The remaining interests are held by direct investors in the Master Fund. 

 

   June 30,   December 31, 
   2020   2019 
Partnership   24.72%   30.30%
Cayman Feeder   67.68%   60.29%
           
Total   92.40%   90.59%

 

The capital withdrawals payable at June 30, 2020 and December 31, 2019 were $12,802,989 and $9,961,404, respectively, as detailed below.

 

   June 30,   December 31, 
   2020   2019 
Direct investors (1)  $673,052   $9,224,590 
Partnership   7,064,805    736,814 
Cayman Feeder   5,065,132    - 
           
Total  $12,802,989   $9,961,404 

 

(1)Includes General Partner’s profit share of $9,224,590 at December 31, 2019.

 

20

 

 

The Master Fund bears expenses, incurred at the Master Fund and Cayman Feeder level, 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”). The General Partner bears any excess over such amounts.

 

3. FAIR VALUE

 

The Fair Value Measurement 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.

 

During the three and six months ended June 30, 2020 and 2019, 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 June 30, 2020 and December 31, 2019 in valuing the Master Fund’s investments at fair value. At June 30, 2020 and December 31, 2019, the Master Fund had no assets or liabilities in Level 3.

 

21

 

 

Financial assets and liabilities at fair value as of June 30, 2020

 

   Level 1   Level 2   Total 
             
U.S. Treasury notes (1)  $541,791,821   $-   $541,791,821 
                
Short-Term Money Market Fund*   52,404,345    -    52,404,345 
Exchange-traded futures contracts               
Energies   (8,215)   -    (8,215)
Grains   788,812    -    788,812 
Interest rates   4,959,709    -    4,959,709 
Livestock   (10,630)   -    (10,630)
Metals   (2,781,258)   -    (2,781,258)
Softs   (169,992)   -    (169,992)
Stock indices   2,368,452    -    2,368,452 
                
Total exchange-traded futures contracts   5,146,878    -    5,146,878 
                
Over-the-counter forward currency contracts   -    (1,670,447)   (1,670,447)
                
Total futures and forward currency contracts (2)   5,146,878    (1,670,447)   3,476,431 
                
Total financial assets and liabilities at fair value  $599,343,044   $(1,670,447)  $597,672,597 
                
Per line item in the Statements of Financial Condition               
(1)               
Investments in U.S. Treasury notes held in equity trading accounts as collateral            $62,806,199 
Investments in U.S. Treasury notes held in custody             478,985,622 
Total investments in U.S. Treasury notes            $541,791,821 
                
(2)               
Net unrealized appreciation on open futures and forward currency contracts            $5,146,878 
Net unrealized depreciation on open futures and forward currency contracts             (1,670,447)
Total net unrealized appreciation on open futures and forward currency contracts            $3,476,431 

 

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

 

22

 

 

Financial assets and liabilities at fair value as of December 31, 2019

 

   Level 1   Level 2   Total 
             
U.S. Treasury notes (1)  $540,523,554   $-   $540,523,554 
                
Short-Term Money Market Fund*   53,739,414    -    53,739,414 
Exchange-traded futures contracts               
Energies   1,488,216    -    1,488,216 
Grains   (956,377)   -    (956,377)
Interest rates   1,988,070    -    1,988,070 
Livestock   (560)   -    (560)
Metals   1,418,636    -    1,418,636 
Softs   (11,671)   -    (11,671)
Stock indices   1,504,174    -    1,504,174 
                
Total exchange-traded futures contracts   5,430,488    -    5,430,488 
                
Over-the-counter forward currency contracts   -    (5,818,429)   (5,818,429)
                
Total futures and forward currency contracts (2)   5,430,488    (5,818,429)   (387,941)
                
Total financial assets and liabilities at fair value  $599,693,456   $(5,818,429)  $593,875,027 
                
Per line item in the Statements of Financial Condition               
(1)               
Investments in U.S. Treasury notes held in equity trading accounts as collateral            $99,835,520 
Investments in U.S. Treasury notes             440,688,034 
Total investments in U.S. Treasury notes            $540,523,554 
                
(2)               
Net unrealized appreciation on open futures and forward currency contracts            $5,430,488 
Net unrealized depreciation on open futures and forward currency contracts             (5,818,429)
Total net unrealized depreciation on open futures and forward currency contracts            $(387,941)

 

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

 

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.

 

During February 2020, the Cayman Feeder created a new GBP share class. As the Cayman Feeder determines its net asset value in U.S. dollars and the GBP share class’s functional currency is British Pound Sterling, an investment in the GBP share class involves exchange-rate risk; hedging the Cayman Feeder’s GBP share class exposure to U.S. dollars takes place at the Master Fund level. It’s the Master Fund’s general practice to enter into a one-month forward currency contract at the beginning of each month for the purpose of hedging the GBP share class’ beginning of month exposure to U.S. dollars. In the event of mid-month investor subscriptions or redemptions, the Master Fund may increase or decrease its hedge by entering into one or more additional forward currency contracts. The Master Fund may or may not adjust the hedge during a month for profits and losses.

 

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 June 30, 2020 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.

 

23

 

 

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 note, contained herein.

 

The derivatives held or sold by the Master Fund are for primarily speculative trading purposes. 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 June 30, 2020 and December 31, 2019. 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 June 30, 2020

 

                   Net 
                   Unrealized 
                   Gain (Loss) 
   Fair Value - Long Positions   Fair Value - Short Positions   on Open 
Sector  Gains   Losses   Gains   Losses   Positions 
Futures contracts:                    
Energies  $502,123   $(171,695)  $259,155   $(597,798)  $(8,215)
Grains   1,027,930    (9,348)   6,707    (236,477)   788,812 
Interest rates   5,301,864    (348,411)   7,949    (1,693)   4,959,709 
Livestock   4,850    (12,460)   -    (3,020)   (10,630)
Metals   3,557,779    (126,009)   22,404    (6,235,432)   (2,781,258)
Softs   42,626    (173,431)   -    (39,187)   (169,992)
Stock indices   1,917,163    (187,787)   779,045    (139,969)   2,368,452 
Total futures contracts   12,354,335    (1,029,141)   1,075,260    (7,253,576)   5,146,878 
                          
Forward currency contracts   4,092,130    (10,517,884)   8,155,354    (3,400,047)   (1,670,447)
                          
Total futures and forward currency contracts  $16,446,465   $(11,547,025)  $9,230,614   $(10,653,623)  $3,476,431 

 

24

 

 

Fair value of futures and forward currency contracts at December 31, 2019

 

                   Net 
                   Unrealized 
                   Gain (Loss) 
   Fair Value - Long Positions   Fair Value - Short Positions   on Open 
Sector  Gains   Losses   Gains   Losses   Positions 
Futures contracts:                         
Energies  $1,656,534   $(615,478)  $454,900   $(7,740)  $1,488,216 
Grains   108,438    (11,390)   27,625    (1,081,050)   (956,377)
Interest rates   100,513    (362,761)   2,831,719    (581,401)   1,988,070 
Livestock   220    (780)   -    -    (560)
Metals   3,111,912    (1,261,081)   1,384,686    (1,816,881)   1,418,636 
Softs   85,545    (7,010)   51,203    (141,409)   (11,671)
Stock indices   1,842,192    (1,507,335)   1,346,994    (177,677)   1,504,174 
Total futures contracts   6,905,354    (3,765,835)   6,097,127    (3,806,158)   5,430,488 
                          
Forward currency contracts   16,640,916    (2,649,519)   2,433,081    (22,242,907)   (5,818,429)
                          
Total futures and forward currency contracts  $23,546,270   $(6,415,354)  $8,530,208   $(26,049,065)  $(387,941)

 

The effect of trading futures and forward currency contracts is represented on the Master Fund’s Statements of Operations for the three and six months ended June 30, 2020 and 2019 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 six months ended June 30, 2020 and 2019

 

   Three months   Three months   Six months   Six months 
   ended:   ended:   ended:   ended: 
   June 30,   June 30,   June 30,   June 30, 
Sector  2020   2019   2020   2019 
Futures contracts:                
Energies  $(14,234,491)  $(4,742,987)  $34,866,727   $(15,249,314)
Grains   1,664,143    3,869,741    534,398    5,372,518 
Interest rates   11,337,052    4,050,500    (301,481)   27,681,034 
Livestock   (92,440)   939,390    752,630    938,460 
Metals   (2,140,234)   215,551    (9,272,454)   (907,171)
Softs   (1,584,439)   (678,899)   1,018,429    (492,834)
Stock indices   22,441,415    (247,192)   (181,904,718)   5,543,088 
Total futures contracts   17,391,006    3,406,104    (154,306,469)   22,885,781 
                     
Forward currency contracts   3,556,621    (1,618,579)   8,778,016    (6,668,946)
                     
Total futures and forward currency contracts  $20,947,627   $1,787,525   $(145,528,453)  $16,216,835 

 

25

 

 

For the three months ended June 30, 2020 and 2019, the monthly average number of future contracts bought and sold and the monthly average notional value of forward currency contracts traded are detailed below:

 

   2020   2019 
         
Average bought   89,768    84,902 
Average sold   86,896    88,601 
Average notional  $5,846,000,000   $12,228,000,000 

 

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 BofA Securities, Inc. (formerly Merrill Lynch Pierce, Fenner & Smith Inc.) as well as the FX prime brokers, Deutsche Bank AG (“DB”) and Bank of America, N.A. (“BA”), 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 FASB Accounting Standards Codification Topic 210, “Balance Sheet,” were met.

 

The following tables represent gross amounts of assets or liabilities which qualify for offset as presented in the Statements of Financial Condition as of June 30, 2020 and December 31, 2019.

 

       Gross amounts   Net amounts of 
       offset in the   assets presented in 
   Gross amounts of   Statements of   the Statements of 
Assets  recognized assets   Financial Condition   Financial Condition 
             
Futures contracts            
Counterparty C  $3,544,002   $(921,113)  $2,622,889 
Counterparty I   9,286,090    (7,000,965)   2,285,125 
Counterparty J   599,503    (360,639)   238,864 
Total assets  $13,429,595   $(8,282,717)  $5,146,878 
                
       Gross amounts   Net amounts of 
       offset in the   liabilities presented in 
   Gross amounts of   Statements of   the Statements of 
Liabilities  recognized liabilities   Financial Condition   Financial Condition 
             
Forward currency contracts            
Counterparty G  $7,098,493   $(6,434,222)  $664,271 
Counterparty K   6,819,438    (5,813,262)   1,006,176 
Total liabilities  $13,917,931   $(12,247,484)  $1,670,447 

 

26

 

 

   Net amounts of             
   Assets   Amounts Not Offset in the Statements of     
   presented in the   Financial Condition     
   Statements of Financial   Financial   Collateral     
Counterparty  Condition   Instruments   Received(1)(2)   Net Amount(3) 
                 
Counterparty C  $2,622,889   $          -   $(2,622,889)  $           - 
Counterparty I   2,285,125    -    (2,285,125)   - 
Counterparty J   238,864    -    (238,864)   - 
Total  $5,146,878   $-   $(5,146,878)  $- 
                     
   Net amounts of             
   Liabilities   Amounts Not Offset in the Statements of     
   presented in the   Financial Condition     
   Statements of Financial   Financial   Collateral     
Counterparty  Condition   Instruments   Pledged(1)(2)   Net Amount(3) 
                 
Counterparty G  $664,271   $-   $664,271   $- 
Counterparty K   1,006,176    -    1,006,176    - 
Total  $1,670,447   $-   $1,670,447   $- 

 

(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 June 30, 2020.
(4)Net amount represents the amounts owed by the Master Fund to each counterparty as of June 30, 2020.

 

Offsetting of derivative assets and liabilities at December 31, 2019

 

       Gross amounts   Net amounts of 
       offset in the   assets presented in 
   Gross amounts of   Statements of   the Statements of 
Assets  recognized assets   Financial Condition   Financial Condition 
             
Futures contracts               
Counterparty C  $3,717,018   $(1,875,962)  $1,841,056 
Counterparty I   8,233,113    (4,958,504)   3,274,609 
Counterparty J   1,052,350    (737,527)   314,823 
Total assets  $13,002,481   $(7,571,993)  $5,430,488 
                
       Gross amounts   Net amounts of 
       offset in the   liabilities presented in 
   Gross amounts of   Statements of   the Statements of 
Liabilities  recognized liabilities   Financial Condition   Financial Condition 
             
Forward currency contracts            
Counterparty G  $13,703,550   $(9,104,039)  $4,599,511 
Counterparty K   11,188,876    (9,969,958)   1,218,918 
Total liabilities  $24,892,426   $(19,073,997)  $5,818,429 

 

27

 

 

   Net amounts of             
   Assets
presented in the
   Amounts Not Offset in the Statements
of Financial Condition
     
  Statements of Financial   Financial   Collateral     
Counterparty  Condition   Instruments   Received(1)(2)   Net Amount(3) 
                 
Counterparty C  $1,841,056   $           -   $(1,841,056)  $          - 
Counterparty I   3,274,609    -    (3,274,609)   - 
Counterparty J   314,823    -    (314,823)   - 
                     
Total  $5,430,488   $-   $(5,430,488)  $- 

 

   Net amounts of             
   Liabilities
presented in the
   Amounts Not Offset in the Statements
of Financial Condition
     
  Statements of Financial   Financial   Collateral     
Counterparty  Condition   Instruments   Pledged(1)(2)   Net Amount(4) 
                 
Counterparty G  $4,599,511   $          -   $4,599,511   $          - 
Counterparty K  $1,218,918    -   $1,218,918    - 
                     
Total  $5,818,429   $-   $5,818,429   $- 

 

(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, 2019.
(4)Net amount represents the amounts owed by the Partnership to each counterparty as of December 31, 2019.

 

CONCENTRATION OF CREDIT RISK

 

Credit risk is the possibility that a loss may occur due to the failure of a counterparty to perform according to the terms of a contract. Credit risk is normally reduced to the extent that an exchange or clearing organization acts as a counterparty to futures transactions since typically the collective credit of the members of the exchange is pledged to support the financial integrity of the exchange.

 

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

 

The Master Fund’s forward currency trading activities are cleared by DB and BA. The Master Fund’s concentration of credit risk associated with DB, or BA 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 BA. The amount of such credit risk was $43,036,326 and $55,480,494 at June 30, 2020 and December 31, 2019, respectively.

 

28

 

 

5. PROFIT SHARE

 

The following table indicates the total profit share earned and accrued during the three and six months ended June 30, 2020 and 2019. 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:
 
   June 30,
2020
   June 30,
2019
 
Profit share earned  $              -   $30,173 
Reversal of profit share (1)   -    (2,325,569)
Profit share accrued   32,583    2,655,437 
Total profit share  $32,583   $360,041 

 

   Six months
ended:
   Six months
ended:
 
   June 30,
2020
   June 30,
2019
 
Profit share earned  $              -   $30,173 
Profit share accrued   32,583    2,655,437 
Total profit share  $32,583   $2,685,610 

 

(1)Reversal of profit share occurs on April 1st

 

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 July 1, 2020 to August 13, 2020, contributions of $20,260,000 were made to the Master Fund. The General Partner has performed its evaluation of subsequent events through August 13, 2020, the date this form 10-Q was filed. Based on such evaluation, no further events were discovered that required disclosure or adjustment to the 10-Q.

 

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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.

 

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.

 

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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 June 30, 2020, 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.

 

 

  

Periods ended June 30, 2020

 

 

  

       Total 
       Partners’ 
       Capital of the 
Month Ended:      Partnership 
June 30, 2020       $155,420,631 
March 31, 2020        161,206,850 
December 31, 2019        191,189,357 
           
   Three Months   Six Months 
Change in Partners’ Capital  $(5,786,219)  $(35,768,726)
Percent Change   (3.59)%   (18.71)%

 

31

 

 

THREE MONTHS ENDED JUNE 30, 2020

 

The decrease in the Partnership’s net assets of $5,786,219 was attributable to withdrawals of $11,325,464 which were partially offset by net income after profit share through its investment in the Master Fund of $3,609,245 and contributions of $1,930,000.

 

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 June 30, 2020 decreased $4,671 relative to the corresponding period in 2019. The decrease was due to a decrease in the average net asset value of the Partnership during the three months ended June 30, 2020, relative to the corresponding period in 2019.

 

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 June 30, 2020 decreased $31,854 relative to the corresponding period in 2019. The decrease was due to a decrease in the trading volume during the three months ended June 30, 2020, relative to the corresponding period in 2019.

 

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 June 30, 2020 decreased $38,407 relative to the corresponding period in 2019. The decrease was due to a decrease in the average net assets of Series A during the three months ended June 30, 2020, relative to the corresponding period in 2019.

 

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 June 30, 2020 increased $13,371 relative to the corresponding period in 2019. The increase was due to an increase in expenses related to consulting fees during the three months ended June 30, 2020, relative to the corresponding period in 2019.

 

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 June 30, 2020 decreased $549,731 relative to the corresponding period in 2019. The decrease was due predominantly to a decrease in short-term U.S. Treasury yields during the three months ended June 30, 2020, relative to the corresponding period in 2019.

 

32

 

 

For the three months ended June 30, 2020, the Partnership, through its investment in the Master Fund, achieved net realized and unrealized gains of $5,046,163 from trading operations (including foreign exchange transactions and translations). Management fees of $813,157, brokerage commissions of $182,230, selling commissions and platform fees of $700,660, administrative and operating expenses of $161,695, custody fees and other expenses of $7,433. Interest income of $428,257 partially offset the Master Fund expenses allocated to the Partnership resulting in net income after profit share of $3,609,245.

 

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

 

   % Gain 
Sector  (Loss) 
Currencies   0.61%
Energies   (2.05)%
Grains   0.26%
Interest rates   1.75%
Livestock   (0.03)%
Metals   (0.34)%
Softs   (0.24)%
Stock indices   3.34%
Trading gain*   3.30%

 

*Percentage of the Partnership Capital

 

SIX MONTHS ENDED JUNE 30, 2020

 

The decrease in the Partnership’s net assets of $35,768,726 was attributable to net loss after profit share through its investment in the Master Fund of $36,514,670 and withdrawals of $13,394,456 which were partially offset by contributions of $14,140,400.

 

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 six months ended June 30, 2020 increased $78,247 relative to the corresponding period in 2019. The increase was due to an increase in the average net asset value of the Partnership during the six months ended June 30, 2020, relative to the corresponding period in 2019.

 

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 six months ended June 30, 2020 increased $31,205 relative to the corresponding period in 2019. The increase was due predominantly to an increase in the average net asset value of the Partnership during the six months ended June 30, 2020, relative to the corresponding period in 2019.

 

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 six months ended June 30, 2020 increased $8,048 relative to the corresponding period in 2019. The increase was due to an increase in the average net asset value of commission paying investors of the Master Fund during the six months ended June 30, 2020, relative to the corresponding period in 2019.

 

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 six months ended June 30, 2020 increased $14,810 relative to the corresponding period in 2019. The increase was due to an increase in the average net asset value of the Master Fund during the six months ended June 30, 2020, relative to the corresponding period in 2019.

 

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 six months ended June 30, 2020 decreased $722,906 relative to the corresponding period in 2019. This decrease was due predominantly to a decrease in short-term U.S. Treasury yields and partially offset by an increase in average net asset value of the Partnership during the six months ended June 30, 2020 relative to the corresponding period in 2019.

 

33

 

 

For the six months ended June 30, 2020, the Partnership, through its investment in the Master Fund, experienced net realized and unrealized losses of $33,769,094 from trading operations (including foreign exchange transactions and translations). Management fees of $1,694,429, brokerage commissions of $421,539, selling commissions and platform fees of $1,478,164, administrative and operating expenses of $310,366, custody fees and other expenses of $14,793. Interest income of $1,173,175 partially offset the Master Fund expenses allocated to the Partnership resulting in net loss after profit share of $36,514,670.

 

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

 

   % Gain 
Sector  (Loss) 
Currencies   1.29%
Energies   4.12%
Grains   0.09%
Interest rates   0.26%
Livestock   0.08%
Metals   (1.31)%
Softs   0.13%
Stock indices   (21.69)%
Trading loss*   (17.03)%

 

*Percentage of the Partnership Capital

  

MANAGEMENT DISCUSSION – 2020

 

Three months ended June 30, 2020

 

The Partnership was profitable in the second quarter as gains from long equity and interest rate futures positions and from trading currency forwards and grain futures outdistanced losses from trading energy, metal and soft commodity futures.

 

The sentiment of equity market participants improved continuously throughout the quarter in response to a steady stream of aggressive monetary and fiscal policy actions from global authorities—especially in the U.S.; surprising improvements in economic activity as economies cautiously reopened; and sporadic encouraging news concerning COVID-19 therapies and vaccines. But this overall attitude improvement was muted periodically-- and especially during the second half of June—by: evidence of new COVID-19 hotspots such as Beijing, Germany, Australia, EM and several U.S. states; the statistical reports on growth and unemployment; and the expanding tensions between the U.S. (and other many western countries) and China. Long positions in U.S. equity futures were particularly profitable, although long positions in German, French, Dutch, Chinese, Taiwanese and Korean stock futures added to the gains. A short U.K. FTSE position and trading of the Canadian equity future were also profitable, as was a short VIX trade in May. On the other hand, short positions in Japanese, Australian, Italian and Spanish equity futures and trading of the EAFE and emerging market index futures posted partially offsetting losses.

 

Long interest rate futures positions were profitable during the quarter. Strongly accommodative monetary policies, a plunge in global growth, and disinflationary impulses worldwide restrained interest rates across yield curves. Safe haven buying of government securities also placed downward pressure on rates. Not even the extraordinary fiscal policy efforts leading to unprecedentedly large deficits and debt/GDP levels across the globe were able to boost borrowing cost more than temporarily. Long positions in U.S., Canadian, German, French, Italian and British interest rate futures were profitable, while a long Japanese government bond future position was unprofitable.

 

The U.S. dollar traded in a narrow range from the start of April until mid-May, fell about 5% into early June and edged up a bit into the end of the quarter and long euro and Swiss franc positions versus the U.S. dollar were profitable. Long positions in high yielding Polish and South African currencies relative to the U.S. dollar also produced gains. A long New Zealand dollar trade was profitable against a supportive domestic backdrop that has seen the New Zealand government announce a complete end to COVID-19 restrictions due to the virtual eradication of the virus in the country. Trading the U.S. currency against the Brazilian real, Singapore dollar and Turkish lira was also profitable during the quarter. On the other hand, the Aussie dollar, which had fallen sharply during the first quarter of 2020, rebounded in April and a short position was unprofitable. Long U.S. dollar trades versus the currencies of Norway, Chile and Colombia were also unprofitable.

 

34

 

 

Ample grain supplies globally continue to weigh on prices and short wheat positions and trading of corn were profitable in June. A reduction in demand for corn to make ethanol pushed stockpiles higher. Meanwhile, trading of the soybean complex was slightly unprofitable.

 

Energy markets were buffeted by conflicting forces during the second quarter. On the one hand, the massive COVID-19 demand shock saw a collapse of WTI prices from near $61/barrel at the start of 2020 to only $12/barrel near the end of April—having actually fallen briefly below zero in mid-April. On the other hand, supply reductions from the Organization of the Petroleum Exporting Countries (“OPEC”) via agreements and from non-OPEC producers in response to plunging market prices helped prices to recover sharply in May and June to around $40/barrel, as market participants were encouraged by signs of economic reopening. Overall, losses from trading WTI crude, Brent crude, RBOB gasoline and heating oil outpaced a small profit from a short natural gas trade.

 

Copper prices, which had fallen sharply earlier this year, rebounded during the quarter among a weaker dollar and encouraging signs of economic reopening, particularly from Asia, and the Partnership’s short copper positions were unprofitable. Short positions in other industrial metals—aluminum, nickel, zinc, and platinum—also registered losses and were reduced or reversed. The Partnership saw a gain on a long gold position in April. Trading of silver was also fractionally profitable.

 

Finally, trading of sugar and cotton futures were each slightly unprofitable.

 

Three months ended March 31, 2020

 

The Partnership posted a sizable loss in the first quarter as the COVID-19 pandemic and its economic impacts spread across the globe, roiling financial and commodity markets. The onset of the oil price war between Saudi Arabia and Russia in early March added significantly to the market turmoil. Losses from long equity futures positions and, to a much lesser extent, from trading interest rate and metal futures far outpaced the profits from trading energy futures, currency forwards and soft and agricultural commodity futures.

 

Equity futures, which had been underpinned early in January by the U.S.-China trade deal, accommodative global monetary policy and the conservative election victory in Great Britain, collapsed as COVID-19 spread from China to the Middle East to Europe to the U.S.A. and became a global pandemic. As the potential scope and duration of the damage to global demand became evident, the selling of equities and other financial investments cascaded violently. In response, strong, coordinated and unprecedented monetary and fiscal measures were implemented by countries across the globe. For example in the U.S., the Federal Reserve (the “Fed”), at two emergency meetings, cut interest rates by 1.5% to near zero; the Fed also expanded the magnitude and scope of its quantitative easing (“QE”), swap lines and other lending facilities well beyond that seen during the Global Financial Crisis; and a fiscal stimulus package measured at about 10% of GDP was assembled in about a week and was added to two smaller packages announced early in March. While these policy efforts did give a fillip to financial markets and help to stabilize them, the damage to equity prices and markets remained large. Broad-based losses were sustained on a short vix trade and on long positions in U.S., Canadian, European, British, Japanese, non-Japan Asian and emerging markets equity index futures, especially in the second half of the quarter.

 

Interest rates on government debt were buffeted by a variety of cross currents during the quarter including: the actual and anticipated negative impact of the pandemic on global growth; a flight to safety that boosted demand for government debt; a rush for liquidity and U.S. dollars that at times led to a forced liquidation of government debt; 27 central banks cutting official rates 68 times during March, according to centralbankrates.com; and central banks creating numerous massive liquidity provision and QE programs in order to stabilize struggling financial markets globally. Overall, short positions in U.S., German and Canadian note and bond futures posted losses and were reversed to long positions. Trading of British Gilts, long positions in French and Australian bond futures and a long position in the short-term euribor future were also unprofitable, particularly in mid-March, when market participants sought liquidity. Long positions in short-term eurodollar, British, Italian and Australian interest rate futures and in Japanese government bond futures produced partially offsetting profits. A long position in the 5-year U.S. note in January was also profitable.

 

Trading of metal futures was fractionally unprofitable. Industrial metal prices were pummeled in response to the actual and expected growth-reducing impacts of COVID-19. The price of silver, which had been supported for a time as a safe haven precious metal, succumbed to profit-taking and to a dramatic weakening in industrial demand and a long position was unprofitable. A long platinum position was also unprofitable. On the other hand, short copper, aluminum, nickel and zinc positions were profitable and a long gold trade benefitted from safe haven demand and also posted a gain.

 

Oil prices fell to their lowest levels in 17 years as demand collapsed due to shelter-in-place orders, travel bans and other efforts to mitigate the pandemic, and as supply surged due to the unrelenting price war between Saudi Arabia and Russia. The price of WTI crude oil, which had eased down from $61/barrel at the end of 2019 to about $54/barrel on February 20, plunged precipitously thereafter, falling to under $20/barrel on March 30. Short positions in Brent crude, WTI crude, RBOB gasoline, London gas oil, heating oil and natural gas were highly profitable, particularly in March.

 

35

 

 

Foreign exchange rates were buffeted by a variety of cross currents from interest rate, liquidity, safe haven and energy price influences during the quarter. Performance in these instruments was mixed but slightly profitable. Long U.S. dollar trades against the Brazilian real, Russian ruble, Aussie dollar and a few other emerging market currencies were profitable. A long euro/short Norway trade was also profitable in the wake of the oil price collapse. On the other hand, long U.S. dollar trades versus the euro, yen, Singapore dollar, and Swedish krona were unprofitable, as was trading versus the British, Canadian, Indian, South African, Norwegian, Polish and New Zealand currencies.

 

Trading of soft and agricultural commodity futures was fractionally profitable.

 

 

 

Periods ended June 30, 2019

 

 

 

       Total 
       Partners’ 
       Capital of the 
Month Ended:      Partnership 
June 30, 2019       $165,257,957 
March 31, 2019        164,573,043 
December 31, 2018        159,519,606 
           
   Three Months   Six Months 
Change in Partners’ Capital  $684,914   $5,738,351 
Percent Change   0.42%   3.60%

 

THREE MONTHS ENDED JUNE 30, 2019

 

The increase in the Partnership’s net assets of $684,914 was attributable to contributions of $4,044,650 which were partially offset by withdrawals of $3,259,077 and net loss after profit share of $100,659.

 

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 June 30, 2019 decreased $195 relative to the corresponding period in 2018. The decrease was due to a decrease in the average net asset value of the Partnership during the three months ended June 30, 2019, relative to the corresponding period in 2018.

 

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 June 30, 2019 increased $79,169 relative to the corresponding period in 2018. The increase was due to an increase in trading activity during the three months ended June 30, 2019, relative to the corresponding period in 2018.

 

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 June 30, 2019 decreased $4,692 relative to the corresponding period in 2018. The decrease was due to a decrease in the average net asset value of commission paying investors of the Partnership during the three months ended June 30, 2019, relative to the corresponding period in 2018.

 

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 June 30, 2019 decreased $10,596 relative to the corresponding period in 2018. The decrease was due to a decrease in the average net asset value of the Partnership during the three months ended June 30, 2019, relative to the corresponding period in 2018.

 

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 June 30, 2019 increased $339,167 relative to the corresponding period in 2018. This increase was due predominantly to an increase in short-term U.S. Treasury yields during the three months ended June 30, 2019 relative to the corresponding period in 2018.

 

For the three months ended June 30, 2019, the Partnership, through its investment in the Master Fund, achieved net realized and unrealized gains of $822,370 from trading operations (including foreign exchange transactions and translations). Management fees of $817,828, brokerage commissions of $214,084, selling commissions and platform fees of $739,067, administrative and operating expenses of $148,324, custody fees and other expenses of $6,916 were incurred. Interest income of $972,059 and the reversal of accrued profit share to the General Partner of $31,131 partially offset the Master Fund expenses allocated to the Partnership resulting in net loss after profit share of $100,659.

 

36

 

 

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

 

   % Gain 
Sector  (Loss) 
Currencies   (0.30)%
Energies   (0.79)%
Grains   0.66%
Interest rates   0.71%
Livestock   0.16%
Metals   0.03%
Softs   (0.11)%
Stock indices   (0.06)%
Trading gain*   0.30%

 

*Percentage of the Partnership Capital

 

SIX MONTHS ENDED JUNE 30, 2019

 

The increase in the Partnership’s net assets of $5,738,351was attributable to net income after profit share through its investment in the Master Fund of $2,974,619 and contributions of $8,386,150 which were partially offset by withdrawals of $5,622,418.

 

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 six months ended June 30, 2019 decreased $47,013 relative to the corresponding period in 2018. The decrease was due to a decrease in the average net asset value of the Partnership during the six months ended June 30, 2019, relative to the corresponding period in 2018.

 

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 six months ended June 30, 2019 increased $111,559 relative to the corresponding period in 2018. The increase was due to an increase in trading activity during the six months ended June 30, 2019, relative to the corresponding period in 2018.

 

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 six months ended June 30, 2019 decreased $39,554 relative to the corresponding period in 2018. The decrease was due to a decrease in the average net asset value of commission paying investors of the Partnership during the six months ended June 30, 2019, relative to the corresponding period in 2018.

 

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 six months ended June 30, 2019 decreased $18,529 relative to the corresponding period in 2018. The decrease was due to a decrease in the average net asset value of the Partnership during the six months ended June 30, 2019, relative to the corresponding period in 2018.

 

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 six months ended June 30, 2019 increased $716,582 relative to the corresponding period in 2018. This increase was due predominantly to an increase in short-term U.S. Treasury yields during the six months ended June 30, 2019 relative to the corresponding period in 2018.

 

For the six months ended June 30, 2019, the Partnership, through its investment in the Master Fund, achieved net realized and unrealized gains of $5,590,208 from trading operations (including foreign exchange transactions and translations). Management fees of $1,616,182, brokerage commissions of $390,334, selling commissions and platform fees of $1,470,116, administrative and operating expenses of $295,556, custody fees and other expenses of $14,054, and profit share of $720,039 were paid or accrued. Interest income of $1,890,692 partially offset the Master Fund expenses allocated to the Partnership resulting in net income after profit share of $2,974,619.

 

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

 

   % Gain 
Sector  (Loss) 
Currencies   (1.39)%
Energies   (2.99)%
Grains   0.97%
Interest rates   5.70%
Livestock   0.14%
Metals   (0.24)%
Softs   (0.10)%
Stock indices   1.11%
Trading gain*   3.20%

 

*Percentage of the Partnership Capital

 

MANAGEMENT DISCUSSION – 2019

 

Three months ended June 30, 2019

 

The Partnership was nearly flat for the quarter as profits from trading interest rate, grain and livestock futures only slightly outpaced losses from trading energy and soft commodity futures and currency forwards. Trading of stock index and metal futures were essentially flat.

 

The economic outlook, which had improved significantly in April, deteriorated quickly and sharply beginning in early May after Presidents Trump and Xi Jinping unexpectedly dashed hopes that a trade deal was close to being signed and instead ramped up the trade confrontation to the level of a trade war. This development, continuing Brexit uncertainty, and disappointing economic data during May and June out of the U.S., China, Europe, and several large emerging economies pushed organizations such as the International Monetary Fund, World Bank and Organization for Economic Co-operation and Development to cut their 2019 global growth forecasts. The escalating U.S.-Iran conflict, including tanker attacks in the Strait of Hormuz and the shooting down of an American drone, further clouded the economic outlook. In response, the Federal Reserve (the “Fed”), the European Central Bank, and the Bank of Japan suggested that they were prepared to loosen their monetary policy positions if circumstances warranted. Indeed, a number of other central banks, including the People’s Bank of China, did cut official interest rates, reduced reserve requirements and/or took other actions to support flagging growth. Also, market participants seemed to expect at least a ceasefire on the trade front emerging from the Osaka G-20 meeting between Presidents Trump and Xi Jinping at the end of June.

 

Against this background it is not surprising that equity prices vacillated widely and that trading of equity futures finished the quarter nearly flat after being profitable in April, quite unprofitable in May and profitable again in June. Overall, long positions in Dutch, French, British, Australian, Canadian, Thai and Singaporean equity futures were profitable. A short position in Korean futures and trading of South African futures were also profitable. Short volatility index trades registered gains too. On the other hand, long positions in U.S., Chinese, Hong Kong, Taiwanese, German and Swedish equity futures were unprofitable, especially in May. Trading of EAFE, EURO STOXX 50, and Japanese equity futures were unprofitable as well.

 

The combination of trade uncertainties, chaotic Brexit discussions, slowing growth, dormant inflation and actual and prospective central bank policy easing led to increased demand for government notes and bonds. For example, yields on Italian 10-year bonds, which had been supported in the run-up to European elections by the wrangling between Italy’s coalition government and the European Commission over mounting debt levels, dropped markedly from near 2.7% at the end of May to about 2.15% at the end of June. Consequently, long positions in Italian interest rate futures were quite profitable. Long positions in French and U.K. bond futures and in Eurodollar futures added to the gains. A short Japanese government bond futures position and trading of U.S. long bond and 2-year note futures were also profitable. Conversely, short positions in German, Australian and Canadian note and bond futures, a short position in U.S. 10-year note futures, and long positions in short-term euribor and sterling rate futures produced partially offsetting losses.

 

Although trade disputes and the African swine fever depressed grain prices for most of 2019, extreme weather in the U.S. during May and June, which delayed planting of and may hinder the development and/or harvesting of corn and soybean crops, pushed grain prices up sharply during the second half of the quarter. Consequently, long corn and soybean trades were profitable later in the period. Trading of livestock futures was profitable as well.

 

Energy prices were quite volatile during the quarter. For the first four months of 2019 energy prices were underpinned by news that the U.S. would end waivers on Iranian crude oil exports, by the continued Organization of the Petroleum Exporting Countries effort to curtail production, and by the impact of the Libyan crisis on production. However, as the economic outlook deteriorated and as U.S. shale production pushed U.S. crude inventories to 2 year highs, crude oil prices fell over 20% from the 2019 highs reached in late April to 5 month lows in mid-June. Thereafter, the heightened U.S.-Iran tensions pushed prices sharply higher once again. A long Brent crude oil position was unprofitable, especially in May. Trading of WTI crude oil and of London gas oil was also unprofitable. A long RBOB gasoline trade was profitable, especially after a U.S. east coast refinery fire in June reduced supplies for the immediate future. A short natural gas trade was also profitable as gas supplies remained ample.

 

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Currency trading was also volatile and unprofitable during the quarter. Early on the U.S. dollar was supported by solid growth, safe haven demand and high relative interest rates. Political uncertainties in Europe, the U.K., Sweden, India, and Australia also underpinned the U.S. currency. Later in the period, however, worries that growth was slowing caused U.S. market interest rates to decline and prompted the Fed to indicate that it would ease policy if necessary, and depressing the U.S. currency. The resolution of the aforementioned political doubts in a favorable way also led to some U.S. dollar sales. Long U.S. dollar trades versus the Australian and New Zealand dollars, the euro and Japanese yen, and short dollar positions against the pound sterling and Brazilian real posted losses. On the other hand, short dollar trades against the Canadian dollar, Indian rupee, Russian ruble and Turkish lira, and long dollar positions versus the Swiss, Swedish and Korean currencies produced partially offsetting profits.

 

Finally, trading of cotton futures was marginally unprofitable and trading of metal futures was marginally profitable.

 

Three months ended March 31, 2019

 

After a quarter of significant economic and political uncertainty that tended to mute position sizes, the Partnership was profitable in the first quarter of 2019 as gains from trading interest rate and, to a lesser extent, equity futures outpaced losses from trading energy futures and currency forwards. Trading of non-energy commodities was nearly flat.

 

An unexpectedly dovish pivot by global central banks—especially the Federal Reserve (the “Fed”) and European Central Bank, indications of slowing growth globally, slackening inflation pressures in Europe, China and the U.S. and persistent uncertainties around Brexit and U.S.-China trade negotiations supported demand for government fixed income investments. Against this backdrop, long positions in German, French, Italian, British, and Australian interest rate futures were profitable. A long position in U.S. bond futures added to the sector gains. On the other hand, short positions in U.S. 2-, 5-, and 10-year note futures, short-term Eurodollar futures, and Canadian futures resulted in partially offsetting losses.

 

Equity markets were buffeted by opposing forces during the quarter. On the one hand, there were positive influences from a more accommodative global monetary policy environment and from supportive fiscal policy initiatives in China. On the other hand, there were negative influences from global growth worries, trade tensions and Brexit uncertainty. Despite these opposing conditions, global equity markets rebounded from the sharp selloff that occurred during the fourth quarter of 2018. While there were broad losses from short equity futures positions in January, the Partnership’s trading strategy did subsequently swing to widespread long stock index futures positions as the quarter progressed, and the sector registered a fractional profit overall for the quarter. Long positions in U.S., Chinese, Hong Kong, emerging market, and EAFE index futures were profitable. A short VIX trade also posted a gain. On the other hand, short positions in German, French, Spanish, British, Japanese, Australian, Singaporean, South African and the EURO STOXX index futures registered partially offsetting losses.

 

Energy prices, which had plunged during the fourth quarter of 2018, continued a rebound that began after Christmas and short energy futures positions were unprofitable, particularly in January. Energy prices were supported by the production cuts that were previously announced by the Organization of the Petroleum Exporting Countries (“OPEC”) and were running above target in early 2019 and by tightening sanctions on Venezuelan and Iranian exports. While long energy futures positions did produce profits later in the quarter, the sector was still unprofitable overall. Trading of Brent crude, WTI crude, heating oil and London gas oil were each unprofitable, while trading of RBOB gasoline and natural gas were nearly flat.

 

The U.S. dollar traded in a volatile manner within a narrow 2% range during the quarter. Trading results were mixed and unprofitable. Short positions in the euro, Swiss franc, British pound, Aussie dollar and Canadian dollar versus the U.S. dollar were unprofitable. Long Korean won, Brazilian real, Colombian peso, Turkish lira and Russian ruble trades against the dollar and trading of the yen and Chilean peso were also unprofitable. Meanwhile, long Indian rupee and Mexican peso positions, and a short Swedish krona trade against the U.S. unit produced partially offsetting gains, as did trading of the euro against other European currencies.

 

Ample supplies weighed on grain prices and the profits from short corn and wheat trades outweighed the slight losses from trading soybeans and soy meal. The profit from a short coffee position marginally outdistanced the loss from a short sugar trade.

 

Small losses from short gold, copper and nickel positions were fractionally greater than the gain from a short silver trade.

 

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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 June 30, 2020 and December 31, 2019.

 

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 June 30, 2020 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.

 

40

 

 

PART II. OTHER INFORMATION

 

ITEM 1. Legal Proceedings

 

None.

 

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

 

(a) Pursuant to the Partnership’s Third Amended and Restated Limited Partnership Agreement (the “Partnership Agreement”), the Partnership may sell Units at the beginning of each calendar month. On April 1, 2020, May 1, 2020, and June 1, 2020, the Partnership sold Units to new and existing limited partners of $1,500,000, $100,000 and $330,000 respectively. 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.

 

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

 

The following table summarizes the redemptions by Series A, Series B, Series C and Series D limited partners during the three months ended June 30, 2020.

 

   Series A   Series B   Series C   Series D 
   Units   NAV   Units   NAV   Units   NAV   Units   NAV 
Date of  Withdrawal  Redeemed   per Unit   Redeemed   per Unit   Redeemed   per Unit   Redeemed   per Unit 
April 30, 2020   (1,900.6304)  $1,039.44    -   $1,222.56    -   $1,247.37    -   $1,183.35 
May 31, 2020   (1,849.2572)   1,027.21    (248.4480)   1,210.19    -    1,234.74    (72.4578)   1,170.64 
June 30, 2020   (6,563.3334)   1,030.05    (241.1850)   1,215.56    (8.9010)   1,240.23    -    1,175.10 
Total   (10,313.2210)        (489.6330)        (8.9010)        (72.4578)     

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

Not Applicable.

 

41

 

 

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 President and Chief Operating Officer
31.04 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 President and Chief Operating Officer
32.04 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

 

42

 

 

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: August 13, 2020  
   
  /s/ Michael W. Carter
  Michael W. Carter
  Vice-President
  (Principal Accounting Officer)

 

 

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