Attached files
file | filename |
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EX-31.01 - EX-31.01 - BlackRock Global Horizons I L.P. | a10-12991_1ex31d01.htm |
EX-32.02 - EX-32.02 - BlackRock Global Horizons I L.P. | a10-12991_1ex32d02.htm |
EX-31.02 - EX-31.02 - BlackRock Global Horizons I L.P. | a10-12991_1ex31d02.htm |
EX-32.01 - EX-32.01 - BlackRock Global Horizons I L.P. | a10-12991_1ex32d01.htm |
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2010
OR
o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 0-23240
BLACKROCK GLOBAL HORIZONS I L.P.
(Exact Name of Registrant as
specified in its charter)
Delaware |
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13-3716393 |
(State or other jurisdiction of |
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(IRS Employer Identification No.) |
incorporation or organization) |
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c/o BlackRock Investment Management LLC
40 East 52nd Street
New York, New York 10022
(Address of principal executive offices)
(Zip Code)
609-282-6996
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act). See definition of accelerated and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one)
Large Accelerated Filer o |
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Accelerated filer o |
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Non-Accelerated filer x |
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
BLACKROCK GLOBAL HORIZONS I L.P.
QUARTERLY REPORT FOR June 30, 2010 ON FORM 10-Q
Table of Contents
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2 |
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
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29 |
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33 |
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
BLACKROCK GLOBAL HORIZONS I L.P.
(A DELAWARE LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(unaudited)
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June 30, |
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December 31, |
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2010 |
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2009 |
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ASSETS: |
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Cash and cash equivalents |
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$ |
273,188,717 |
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$ |
218,690,094 |
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Equity in commodity futures trading accounts: |
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Cash (restricted cash $19,156,622 and $21,761,607) |
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54,665,809 |
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64,904,058 |
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Net unrealized profit on open contracts |
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4,911,820 |
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886,156 |
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Accrued interest and other assets |
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40,757 |
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25,948 |
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TOTAL ASSETS |
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$ |
332,807,103 |
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$ |
284,506,256 |
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LIABILITIES AND PARTNERS CAPITAL |
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LIABILITIES: |
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Redemptions payable |
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$ |
593,806 |
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$ |
5,342,237 |
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Profit Shares payable |
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798,108 |
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498,174 |
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Distribution fees payable |
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772,652 |
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703,082 |
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Trading Advisors management fees payable |
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364,696 |
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343,841 |
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Sponsor fees payable |
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325,572 |
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295,234 |
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Administrator fees payable |
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216,704 |
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166,599 |
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Professional fees payable |
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412,063 |
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425,908 |
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Net unrealized loss on open contracts |
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906,015 |
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Other fees payable |
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118,399 |
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62,248 |
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Total liabilities |
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3,602,000 |
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8,743,338 |
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PARTNERS CAPITAL: |
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General Partner (2,488,101 and 2,203,255 Units) |
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3,078,957 |
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2,846,697 |
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Limited Partners (285,012,354 and 226,947,615 Units) |
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326,126,146 |
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272,916,221 |
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Total partners capital |
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329,205,103 |
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275,762,918 |
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TOTAL LIABILITIES AND PARTNERS CAPITAL |
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$ |
332,807,103 |
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$ |
284,506,256 |
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NET ASSET VALUE PER UNIT (Note 2) |
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See notes to consolidated financial statements.
BLACKROCK GLOBAL HORIZONS I L.P.
(A DELAWARE LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
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For the three |
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For the three |
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For the six |
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For the six |
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months ended |
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months ended |
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months ended |
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months ended |
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June 30, |
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June 30, |
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June 30, |
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June 30, |
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2010 |
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2009 |
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2010 |
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2009 |
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TRADING PROFITS (LOSSES): |
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Realized |
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$ |
1,166,294 |
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$ |
(6,487,154 |
) |
$ |
(730,333 |
) |
$ |
(7,007,613 |
) |
Change in unrealized |
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(306,156 |
) |
1,371,559 |
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4,931,679 |
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(2,421,775 |
) |
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Brokerage commissions and clearing costs |
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(682,955 |
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(418,636 |
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(1,211,582 |
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(774,086 |
) |
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Total trading profits (losses) |
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177,183 |
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(5,534,231 |
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2,989,764 |
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(10,203,474 |
) |
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INVESTMENT INCOME: |
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Interest |
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102,905 |
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259,974 |
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169,248 |
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680,087 |
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EXPENSES: |
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Distribution fees |
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2,296,120 |
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1,616,933 |
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4,413,617 |
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3,300,034 |
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Trading Advisors management fees |
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1,107,226 |
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769,822 |
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2,145,454 |
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1,560,642 |
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Sponsor fees |
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965,429 |
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676,844 |
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1,853,457 |
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1,381,228 |
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Profit Shares |
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725,296 |
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(204,485 |
) |
980,223 |
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267,020 |
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Administrator fees |
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240,000 |
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177,000 |
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466,000 |
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356,000 |
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Professional fees |
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186,258 |
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161,925 |
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382,517 |
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272,517 |
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Other |
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99,000 |
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110,600 |
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253,000 |
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180,400 |
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Total expenses |
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5,619,329 |
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3,308,639 |
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10,494,268 |
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7,317,841 |
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NET INVESTMENT LOSS |
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(5,516,424 |
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(3,048,665 |
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(10,325,020 |
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(6,637,754 |
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NET LOSS |
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$ |
(5,339,241 |
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$ |
(8,582,896 |
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$ |
(7,335,256 |
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$ |
(16,841,228 |
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NET LOSS PER UNIT: (1) |
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Weighted average number of General Partner and Limited Partner Units outstanding |
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Series A |
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248,806,927 |
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144,293,100 |
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234,054,656 |
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139,305,809 |
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Series F |
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101,826 |
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112,325 |
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103,454 |
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114,682 |
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Series G |
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28,907,866 |
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32,517,854 |
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29,551,316 |
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33,627,467 |
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Series I |
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2,263,044 |
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551,075 |
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1,770,609 |
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520,682 |
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Net loss per weighted average General Partner and Limited Partner Unit |
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Series A |
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$ |
(0.0174 |
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$ |
(0.0418 |
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$ |
(0.0250 |
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$ |
(0.0836 |
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Series F |
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$ |
(4.31 |
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$ |
(10.00 |
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$ |
(6.3778 |
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$ |
(19.83 |
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Series G |
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$ |
(0.0187 |
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$ |
(0.0434 |
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$ |
(0.0274 |
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$ |
(0.0859 |
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Series I |
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$ |
(0.0114 |
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$ |
(0.0378 |
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$ |
(0.0072 |
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$ |
(0.0674 |
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See notes to consolidated financial statements.
(1) The weighted average number of Units outstanding is computed for purposes of disclosing net loss per weighted average Unit. The weighted average number of Units outstanding for the three-month and six-month periods ended June 30, 2010 and 2009 equals the Units outstanding as of such date, adjusted proportionately for Units sold and redeemed based on the respective length of time each was outstanding during the period.
BLACKROCK GLOBAL HORIZONS I L.P.
(A DELAWARE LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS CAPITAL
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(unaudited)
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General |
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Limited |
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Units |
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Partner |
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Partners |
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Total |
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PARTNERS CAPITAL, January 1, 2009 |
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164,471,111 |
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$ |
3,098,146 |
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$ |
224,987,780 |
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$ |
228,085,926 |
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Additions |
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30,458,634 |
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34,626,843 |
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34,626,843 |
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Net loss |
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(217,076 |
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(16,624,152 |
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(16,841,228 |
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Redemptions |
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(15,360,919 |
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(19,516,915 |
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(19,516,915 |
) |
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PARTNERS CAPITAL, June 30, 2009 |
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179,568,826 |
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$ |
2,881,070 |
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$ |
223,473,556 |
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$ |
226,354,626 |
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PARTNERS CAPITAL, January 1, 2010 |
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229,150,870 |
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$ |
2,846,697 |
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$ |
272,916,221 |
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275,762,918 |
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Additions |
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78,709,661 |
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300,000 |
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83,396,057 |
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83,696,057 |
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Net loss |
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(67,740 |
) |
(7,267,516 |
) |
(7,335,256 |
) |
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Redemptions |
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(20,360,076 |
) |
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(22,918,616 |
) |
(22,918,616 |
) |
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PARTNERS CAPITAL, June 30, 2010 |
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287,500,455 |
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$ |
3,078,957 |
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$ |
326,126,146 |
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$ |
329,205,103 |
|
See notes to consolidated financial statements.
BLACKROCK GLOBAL HORIZONS I L.P.
(A DELAWARE LIMITED PARTNERSHIP)
CONSOLIDATED FINANCIAL DATA HIGHLIGHTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010
(unaudited)
The following per Unit data and ratios have been derived from information provided in the consolidated financial statements. An individual Partners results may vary from these ratios due to timing of income and expenses and capital transactions.
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Series A |
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Series F |
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Series G |
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Series I |
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Per Unit Operating Performance: |
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Net asset value, beginning of period |
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$ |
1.0775 |
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$ |
259.29 |
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$ |
1.1230 |
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$ |
1.2255 |
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Realized trading loss |
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(0.0032 |
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(0.76 |
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(0.0033 |
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(0.0036 |
) |
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Change in unrealized trading profits |
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0.0167 |
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4.00 |
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0.0173 |
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0.0191 |
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Interest |
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0.0005 |
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0.14 |
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0.0006 |
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0.0007 |
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Expenses |
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(0.0401 |
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(9.66 |
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(0.0418 |
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(0.0293 |
) |
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Net asset value, end of period |
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$ |
1.0514 |
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$ |
253.01 |
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$ |
1.0958 |
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$ |
1.2124 |
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Total Return: |
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Total return (before Profit Shares) |
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-2.12 |
% |
-2.12 |
% |
-2.12 |
% |
-0.58 |
% |
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Profit Shares |
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-0.31 |
% |
-0.31 |
% |
-0.31 |
% |
-0.50 |
% |
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Total return |
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-2.42 |
% |
-2.42 |
% |
-2.42 |
% |
-1.07 |
% |
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Ratios to Average Net Assets:(1) (2) |
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Expenses (before Profit Shares) |
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6.96 |
% |
6.96 |
% |
6.96 |
% |
3.85 |
% |
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Profit Shares |
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0.32 |
% |
0.30 |
% |
0.30 |
% |
0.56 |
% |
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Expenses |
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7.28 |
% |
7.26 |
% |
7.26 |
% |
4.41 |
% |
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Net investment loss |
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-7.17 |
% |
-7.16 |
% |
-7.16 |
% |
-4.29 |
% |
(1) Included in the ratios of expenses to average net assets are brokerage commissions and clearing costs which are presented in Trading Profits (Losses) on the Consolidated Statement of Operations.
(2) The expenses (before Profit Shares) and the interest portion of net investment loss for the net investment loss ratios have been annualized.
See notes to consolidated financial statements.
BLACKROCK GLOBAL HORIZONS I L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Effective April 1, 2010, the General Partner has formed a number of wholly owned subsidiaries to hold Partnership assets allocated to each particular Trading Advisor. Each of these subsidiaries has, in turn, entered into an advisory agreement with each respective Trading Advisor. The purpose of these subsidiaries is to segregate the assets of the Partnership allocated to any one Trading Advisor from the other assets of the Partnership in order to seek to limit liability for trading losses by any one Trading Advisor to the assets allocated to such subsidiary.
These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (US GAAP) and include the accounts of the Partnership and its wholly owned subsidiaries.
The interim financial information at June 30, 2010 and for the periods ended June 30, 2010 and 2009 is unaudited. However, in the opinion of management, the interim financial information includes all normal recurring adjustments necessary for the fair presentation of the operating results of BlackRock Global Horizons I L.P. (the Partnership) for the interim periods presented. The operating results for the interim periods may not be indicative of the results for the full year.
Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with US GAAP have been omitted. These consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Partnerships Annual Report on Form 10-K filed with the Securities and Exchange Commission, (the SEC) for the year ended December 31, 2009.
The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
BlackRock Investment Management, LLC (the General Partner or BRIM), a wholly owned subsidiary of BlackRock, Inc. (BlackRock) is the general partner of the Partnership.
The Partnerships assets will be held at PFPC Trust Company (PFPC Trust), an affiliate of the General Partner, and at Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S), an affiliate of the General Partner, Newedge USA, LLC (NUSA), UBS AG (UBS) and any other clearing brokers or derivatives counterparty that may be utilized by the Partnership in the future (the Clearing Brokers) or allocated to one or more Portfolio Funds for which custodians and clearing brokers are selected by the independent professional advisors of such Portfolio Funds or managed accounts (the Trading Advisors).
Valuation
The Partnerships policy is to fair value its financial instruments at market value. The Partnerships commodities futures contracts traded on exchanges are valued at their close price. Foreign currency exchange contracts are valued at the mid between the bid and ask prices and are determined as of the close of business of the New York Stock Exchange. Interpolated values are derived when the settlement date of the contract is an interim date for which quotations are not available. Exchange-traded options are valued at the mean between the last bid and ask prices at the close of the options market in which the options trade. An exchange-traded option for which there is no mean price is valued at the prior days close price, unless it is determined that the prior days price no longer reflects the fair value of the option. Over-the-counter (OTC) options and swaptions are valued by single broker quotes which use mathematical model which incorporates a number of market data factors, such as the trades and prices of the underlying instruments.
Net Unrealized Profit (Loss) on Open Contracts
The Partnership, in its normal course of business, enters into various derivatives contracts with MLPF&S, NUSA, and UBS each acting as the Partnerships clearing brokers or derivatives counterparty. Pursuant to the brokerage agreements with MLPF&S and NUSA (which include netting arrangements with each broker), to the extent that such trading results in receivables from and payables to MLPF&S, and NUSA these receivables and payables are offset and reported as a net receivable or payable with each broker. Net receivables are included in the Consolidated Statements of Financial Condition under Equity in commodity futures trading accounts in net unrealized profit on open contracts; net payables are included in the Consolidated Statements of Financial Condition under Liabilities in net unrealized loss on open contracts.
Pursuant to the UBS brokerage agreement (which includes netting arrangements for the same transactions and which may be elected for multiple transactions), to the extent that such trading results in receivables from and payables to UBS, these receivables and payables are offset and reported as a net receivable or payable. Net receivables are included in the Consolidated Statements of Financial Condition under Equity in commodity futures trading accounts in net unrealized profit on open contracts; net payables are included in the Consolidated Statements of Financial Condition under Liabilities in net unrealized loss on open contracts.
Commodity futures, forwards and options contracts transactions are recorded on the trade date and the receivables and payables represent the difference between the original contract value and the market value. The change in unrealized profit (loss) on open contracts from one period to the next is reflected in Change in unrealized in the Consolidated Statements of Operations.
Income Taxes
No provision for income taxes has been made in these financial statements as each Partner is individually responsible for reporting income or loss based on such Partners respective share of the Partnerships income and expenses as reported for income tax purposes.
Distributions
The Limited Partners are entitled to receive, equally per Unit, any distributions which may be made by the Partnership. No such distributions have been declared for the six-month periods ended June 30, 2010 and 2009.
2. PARTNERS CAPITAL
At June 30, 2010 and December 31, 2009, the Net Asset Values of the different series of Units were:
June 30, 2010 |
|
Net Asset Value |
|
Number of |
|
Net Asset |
|
||
|
|
|
|
|
|
|
|
||
Series A |
|
$ |
269,794,126 |
|
256,607,245 |
|
$ |
1.0514 |
|
Series F |
|
25,398,121 |
|
100,384 |
|
$ |
253.01 |
|
|
Series G |
|
31,192,677 |
|
28,466,657 |
|
$ |
1.0958 |
|
|
Series I |
|
2,820,179 |
|
2,326,169 |
|
$ |
1.2124 |
|
|
Total partners capital |
|
$ |
329,205,103 |
|
287,500,455 |
|
|
|
December 31, 2009 |
|
Net Asset Value |
|
Number of |
|
Net Asset |
|
||
|
|
|
|
|
|
|
|
||
Series A |
|
$ |
213,153,124 |
|
197,831,350 |
|
$ |
1.0775 |
|
Series F |
|
27,465,985 |
|
105,927 |
|
$ |
259.29 |
|
|
Series G |
|
34,044,148 |
|
30,316,276 |
|
$ |
1.1230 |
|
|
Series I |
|
1,099,661 |
|
897,317 |
|
$ |
1.2255 |
|
|
Total partners capital |
|
$ |
275,762,918 |
|
229,150,870 |
|
|
|
3. FAIR VALUE DISCLOSURES
The Partnership records derivatives contracts held in commodities futures trading accounts and cash equivalents at fair value in accordance with Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures (ASC 820). ASC 820 defines fair value as the price that the Partnership would receive upon selling an investment or pay to transfer a liability in an orderly transaction to a market participant in the principal or most advantageous market for the investment. ASC 820 emphasizes that valuation techniques maximize the use of observable market inputs and minimize the use of unobservable inputs. Inputs refer broadly to the assumptions that market participants would use in pricing an asset or liability, including assumptions about risk to the extent the asset or liability is not traded on an exchange or an active market. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on market data obtained from sources independent of the Partnership. Unobservable inputs are inputs that reflect the General Partner assumptions about what information market participants would use to price an asset or liability developed based on the best information available under the circumstances.
ASC 820 establishes a hierarchy that classifies these inputs into the three broad levels listed below:
· Level 1 Price quotations (unadjusted) in active markets/exchanges for identical instruments.
· Level 2 Other than quoted prices included within Level 1 that are observable for substantially the full term of the asset or liability, either directly or indirectly. Level 2 includes quoted prices (unadjusted) for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities that are not active; and inputs other than quoted prices that are observable, such as those used in models or other valuation methodologies.
· Level 3 Primarily inputs and significant assumptions that are unobservable in the market place. Level 3 assets include investments for which there is little, if any, market activity. These inputs require significant judgment or estimation by the General Partner of the Partnership.
The following table summarizes the valuation of the Partnerships investments by the above ASC 820 fair value hierarchy levels as of June 30, 2010 and December 31, 2009.
|
|
|
|
Fair Value at Reporting Date Using |
|
|||||
Description |
|
6/30/2010 |
|
Quoted Prices in Active |
|
Significant Other |
|
|||
Cash Equivalents |
|
$ |
273,188,717 |
|
$ |
273,188,717 |
|
$ |
|
|
Futures (1) |
|
2,316,424 |
|
2,316,424 |
|
|
|
|||
Forwards (1) |
|
2,585,688 |
|
|
|
2,585,688 |
|
|||
Options (1) |
|
9,708 |
|
|
|
9,708 |
|
|||
|
|
$ |
278,100,537 |
|
$ |
275,505,141 |
|
$ |
2,595,396 |
|
Description |
|
12/31/2009 |
|
|
|
|
|
|||
Cash Equivalents |
|
$ |
218,690,094 |
|
$ |
218,690,094 |
|
$ |
|
|
Futures (1) |
|
1,800,573 |
|
1,800,573 |
|
|
|
|||
Forwards (1) |
|
(1,785,140 |
) |
|
|
(1,785,140 |
) |
|||
Options (1) |
|
(35,292 |
) |
|
|
(35,292 |
) |
|||
|
|
$ |
218,670,235 |
|
$ |
220,490,667 |
|
$ |
(1,820,432 |
) |
(1) See the consolidated condensed schedule of investments in Note 4 for the values in each commodity industry sector within this table.
4. DERIVATIVE CONTRACTS AND OFF-BALANCE SHEET RISK
The Partnership trades in the international futures and forward markets with the objective of achieving, through speculative trading, substantial capital appreciation over time. The Partnerships assets are allocated and reallocated by the General Partner to accounts managed by the Trading Advisors applying proprietary strategies in numerous markets.
The Partnership engages in the speculative trading of derivative contracts on interest rates, commodities, currencies, metals, energy, livestock and stock indices. The following were the primary trading risk exposures of such derivative contracts as of at June 30, 2010, organized by market sector:
Agricultural. The Partnerships primary exposure is to agricultural price movements, which are often directly affected by severe or unexpected weather conditions.
Currencies. Exchange rate risk is a principal market exposure of the Partnership. The Partnerships 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 Partnership trades in a large number of currencies, including cross-ratese.g., positions between two currencies other than the U.S. dollar.
Energy. The Partnerships primary energy market exposure is to gas and oil price movements, often resulting from political developments in the Middle East 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 market.
Interest rates. Interest rate movements directly affect the price of the sovereign bond futures positions held by the Partnership 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 Partnerships profitability. The Partnerships primary interest rate exposure is to interest rate fluctuations in the United States and other major industrialized, or Group of Seven countries (Canada, France, Germany, Italy, Japan, United Kingdom and United States, collectively, G-7). However, the Partnership also may take positions in futures contracts on the government debt of other nations. The General Partner anticipates that G-7 interest rates, both long-term and short-term, will remain the primary market exposure of the Partnership for the foreseeable future.
Metals. The Partnerships metals market exposure is to fluctuations in the price of aluminum, copper, gold, lead, nickel, silver, tin and zinc.
Stock Indices. The Partnerships equity exposure, through stock index futures, is to equity price risk in the G-7 countries, as well as other countries.
The Partnership, through the trading activities of the Trading Advisors, also engages in the speculative trading of forward currency contracts. Substantially all of the Partnerships off-exchange trading takes place in the highly liquid, institutional spot and forward foreign exchange markets (the FX Markets) where there are no direct execution costs. Instead, the participant banks and dealers in the FX Markets take a spread between the prices at which they are prepared to buy and sell a particular currency, and such spreads are built into the pricing of the spot or forward contracts traded with the Partnership. In its exchange of futures for physical (EFP) trading, the Partnership acquires cash currency positions through banks and dealers. The Partnership pays a spread when it exchanges these positions for futures. This spread reflects, in part, the different settlement dates of the cash and the futures contracts, as well as prevailing interest rates, but also includes a pricing spread in favor of the banks and dealers, which may include a Merrill Lynch entity.
As both a buyer and seller (writer) of options, the Partnership pays or receives a premium at the outset and then bears the risk of unfavorable changes in the price of the contract underlying the option. Written options expose the Partnership to potentially unlimited liability; for purchased options the risk of loss is limited to the premiums paid. Certain written put options permit cash settlement and do not require the option holder to own the reference asset. The Partnership does not consider these contracts to be guarantees as described in ASC 460 Guarantees No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees.
The Partnership may purchase and write (sell) both exchange listed and over-the-counter, options on commodities or financial instruments. An option is a contract allowing, but not requiring, its holder to buy (call) or sell (put) a specific or standard commodity or financial instrument at a specified price during a specified time period. The option premium is the total price paid or received for the option contract. When the Partnership writes an option, the premium received is recorded as a liability in the Consolidated Statements of Financial Condition and marked to market daily. When the Partnership purchases an option, the premium paid is recorded as an asset in the Consolidated Statements of Financial Condition and marked to
market daily. Realized gains (losses) and changes in unrealized gains (losses) on options contracts are included in the Consolidated Statements of Operations.
The Partnership is exposed to both market risk, the risks arising from changes in the market value of the contracts, and credit risk, the risk of failure by another party to perform according to the terms of a contract.
Market Risk
Derivative contracts involve varying degrees of off-balance sheet market risk. Changes in the level or volatility of interest rates, foreign currency exchange rates or the market values of the financial contracts or commodities underlying such derivative contracts frequently result in changes in the Partnerships net unrealized profit (loss) on such derivative contracts as reflected in the Consolidated Statements of Financial Condition. The Partnerships exposure to market risk is influenced by a number of factors, including the relationships among the derivative contracts held by the Partnership as well as the volatility and liquidity of the markets in which the derivative contracts are traded. Investments in foreign markets may also entail legal and political risks.
BRIM has procedures in place intended to control market risk exposure, although there can be no assurance that they will, in fact, succeed in doing so. These procedures focus primarily on monitoring the trading of the Trading Advisors, calculating the Net Asset Value of the Partnership as of the close of business on each day and reviewing outstanding positions, or reallocating Partnership assets among Trading Advisors (although typically only as of the end of a month) for over-concentrations. While BRIM does not itself intervene in the markets to hedge or diversify the Partnerships market exposure, BRIM may urge the Trading Advisors to reallocate positions in an attempt to avoid over-concentrations. Except in cases in which it appears that the Trading Advisors have begun to deviate from past practice or trading policies or to be trading erratically, BRIMs basic risk control procedures consist simply of the ongoing process of Trading Advisor monitoring, with the market risk controls being applied by the Trading Advisors themselves.
Credit Risk
The risks associated with exchange-traded contracts are typically perceived to be less than those associated with over-the-counter (non-exchange-traded) 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 over-the-counter transactions, on the other hand, traders must rely 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 also require margin in the over-the-counter markets.
The amount of required margin and good faith deposits with the brokers usually ranges from 5% to 30% of Net Asset Value. The market value of cash and securities held to satisfy such requirements at June 30, 2010 and December 31, 2009 was $19,156,622 and $21,761,607 respectively, which equals 5.82% and 7.89% of Net Asset Value, respectively.
The Partnership has a substantial portion of its assets on deposit with financial institutions. In the event of a financial institutions insolvency, recovery of Partnership assets on deposit may be limited to account insurance or other protection afforded such deposits.
For derivatives, risks arise from changes in the market value of the contracts. Theoretically, the Partnership is exposed to a market risk equal to the notional contract value of futures and forward currency contracts purchased and unlimited liability on such contracts sold short.
The Partnership qualifies as an investment company under the provisions of the American Institute of Certified Public Accountants Audit and Accounting Guide for Investment Companies and therefore, all investments including derivatives are stated at fair value in the Consolidated Statements of Financial Condition, and changes in fair value are included in realized and unrealized trading profits and losses in the Consolidated Statements of Operations.
Condensed Consolidated Schedule of Investments
The Partnership trades futures and forward contracts. The level of trading is affected by conditions in those markets. During the quarter and six-months ended June 30, 2010, 122,045 and 229,713 contracts were closed, respectively. The fair value of the Partnerships futures and forward contracts by type, defined as Net unrealized profit on open contracts in the Consolidated Statements of Financial Condition as of June 30, 2010 are as follows:
|
|
Long Positions |
|
Long Positions |
|
|
|
|
|
Short Positions |
|
Short Positions |
|
|
|
Net unrealized |
|
|
|
|
|
|||||||||||||||
Commodity |
|
Number |
|
Gross Unrealized |
|
Unrealized |
|
Percent of |
|
Commodity |
|
Number |
|
Gross Unrealized |
|
Unrealized |
|
Percent of |
|
profit (loss) on |
|
Percent of |
|
|
|
|||||||||||
Industry Sector |
|
of Contracts |
|
Gains |
|
Losses |
|
Profit (Loss) |
|
Net Assets |
|
Industry Sector |
|
of Contracts |
|
Gains |
|
Losses |
|
Profit (Loss) |
|
Net Assets |
|
open contracts |
|
Net Assets |
|
Maturity Dates |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Futures |
|
|
|
|
|
|
|
|
|
|
|
Futures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Agriculture |
|
647 |
|
$ |
271,450 |
|
$ |
(155,534 |
) |
$ |
115,916 |
|
0.04 |
% |
Agriculture |
|
(1,393 |
) |
$ |
346,529 |
|
$ |
(596,293 |
) |
$ |
(249,764 |
) |
-0.08 |
% |
$ |
(133,848 |
) |
-0.04 |
% |
July 2010 - March 2011 |
|
Currencies |
|
429 |
|
334,962 |
|
(112,047 |
) |
222,915 |
|
0.07 |
% |
Currencies |
|
(397 |
) |
72,314 |
|
(653,729 |
) |
(581,415 |
) |
-0.18 |
% |
(358,500 |
) |
-0.11 |
% |
September 2010 |
|
|||||||
Energy |
|
322 |
|
69,440 |
|
(281,457 |
) |
(212,017 |
) |
-0.07 |
% |
Energy |
|
(582 |
) |
361,802 |
|
(299,468 |
) |
62,334 |
|
0.02 |
% |
(149,683 |
) |
-0.05 |
% |
July 2010 - December 2010 |
|
|||||||
Interest rates |
|
3,903 |
|
3,392,294 |
|
(27,459 |
) |
3,364,835 |
|
1.02 |
% |
Interest rates |
|
(416 |
) |
29,737 |
|
(92,504 |
) |
(62,767 |
) |
-0.02 |
% |
3,302,068 |
|
1.00 |
% |
July 2010 - September 2012 |
|
|||||||
Metals |
|
822 |
|
497,178 |
|
(4,067,295 |
) |
(3,570,117 |
) |
-1.08 |
% |
Metals |
|
(819 |
) |
3,517,428 |
|
(226,227 |
) |
3,291,201 |
|
1.00 |
% |
(278,916 |
) |
-0.08 |
% |
July 2010 - April 2011 |
|
|||||||
Stock indices |
|
572 |
|
9,588 |
|
(850,889 |
) |
(841,301 |
) |
-0.26 |
% |
Stock indices |
|
(727 |
) |
778,121 |
|
(1,517 |
) |
776,604 |
|
0.24 |
% |
(64,697 |
) |
-0.02 |
% |
July 2010 - September 2010 |
|
|||||||
Subtotal |
|
6,695 |
|
4,574,912 |
|
(5,494,681 |
) |
(919,769 |
) |
-0.28 |
% |
Subtotal |
|
(4,334 |
) |
5,105,931 |
|
(1,869,738 |
) |
3,236,193 |
|
0.98 |
% |
2,316,424 |
|
0.70 |
% |
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Forwards |
|
|
|
|
|
|
|
|
|
|
|
Forwards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Currencies |
|
86 |
|
1,088,716 |
|
(2,721,079 |
) |
(1,632,363 |
) |
-0.49 |
% |
Currencies |
|
(94 |
) |
5,090,064 |
|
(872,013 |
) |
4,218,051 |
|
1.28 |
% |
2,585,688 |
|
0.79 |
% |
July 2010 - September 2010 |
|
|||||||
Subtotal |
|
86 |
|
1,088,716 |
|
(2,721,079 |
) |
(1,632,363 |
) |
-0.49 |
% |
Subtotal |
|
(94 |
) |
5,090,064 |
|
(872,013 |
) |
4,218,051 |
|
1.28 |
% |
2,585,688 |
|
0.79 |
% |
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Options |
|
|
|
|
|
|
|
|
|
|
|
Options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Currencies |
|
13 |
|
9,708 |
|
|
|
9,708 |
|
0.00 |
% |
Currencies |
|
|
|
|
|
|
|
|
|
0.00 |
% |
9,708 |
|
0.00 |
% |
July 2010 |
|
|||||||
Subtotal |
|
13 |
|
9,708 |
|
|
|
9,708 |
|
0.00 |
% |
Subtotal |
|
|
|
|
|
|
|
|
|
0.00 |
% |
9,708 |
|
0.00 |
% |
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Total |
|
6,794 |
|
$ |
5,673,336 |
|
$ |
(8,215,760 |
) |
$ |
(2,542,424 |
) |
-0.77 |
% |
Total |
|
(4,428 |
) |
$ |
10,195,995 |
|
$ |
(2,741,751 |
) |
$ |
7,454,244 |
|
2.26 |
% |
$ |
4,911,820 |
|
1.49 |
% |
|
|
No individual contracts unrealized profit or loss comprised greater than 5% of the Partnerships capital as of June 30, 2010.
The Partnership trades futures and forward contracts. The level of trading is affected by conditions in those markets. During the year ended December 31, 2009, 391,944(1) contracts were closed. The fair value of the Partnerships futures and forward contracts by type, defined as Net unrealized profit (loss) on open contracts in the Consolidated Statements of Financial Condition as of December 31, 2009 are as follows:
|
|
Long Positions |
|
Long Positions |
|
|
|
|
|
Short Positions |
|
Short Positions |
|
|
|
Net unrealized |
|
|
|
|
|
|||||||||||||||
Commodity |
|
Number |
|
Gross Unrealized |
|
Unrealized |
|
Percent of |
|
Commodity |
|
Number |
|
Gross Unrealized |
|
Unrealized |
|
Percent of |
|
profit (loss) on |
|
Percent of |
|
|
|
|||||||||||
Industry Sector |
|
of Contracts |
|
Gains |
|
Losses |
|
Profit (Loss) |
|
Net Assets |
|
Industry Sector |
|
of Contracts |
|
Gains |
|
Losses |
|
Profit (Loss) |
|
Net Assets |
|
open contracts |
|
Net Assets |
|
Maturity Dates |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Futures |
|
|
|
|
|
|
|
|
|
|
|
Futures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Agriculture |
|
1,023 |
|
$ |
982,535 |
|
$ |
(158,124 |
) |
$ |
824,411 |
|
0.30 |
% |
Agriculture |
|
(568 |
) |
$ |
159,142 |
|
$ |
(223,420 |
) |
$ |
(64,278 |
) |
-0.02 |
% |
$ |
760,133 |
|
0.28 |
% |
January 10 - May 10 |
|
Currencies |
|
569 |
|
240,052 |
|
(449,588 |
) |
(209,536 |
) |
-0.08 |
% |
Currencies |
|
(463 |
) |
313,343 |
|
(90,432 |
) |
222,911 |
|
0.08 |
% |
13,375 |
|
0.00 |
% |
January 10 - December 10 |
|
|||||||
Energy |
|
225 |
|
480,824 |
|
(109,534 |
) |
371,290 |
|
0.13 |
% |
Energy |
|
(158 |
) |
33,782 |
|
(474,913 |
) |
(441,131 |
) |
-0.16 |
% |
(69,841 |
) |
-0.03 |
% |
January 10 - July 10 |
|
|||||||
Interest rates |
|
2,265 |
|
250,907 |
|
(1,254,976 |
) |
(1,004,069 |
) |
-0.36 |
% |
Interest rates |
|
(1,094 |
) |
595,914 |
|
(77,877 |
) |
518,037 |
|
0.19 |
% |
(486,032 |
) |
-0.17 |
% |
March 10 - December 10 |
|
|||||||
Metals (1) |
|
1,262 |
|
5,843,920 |
|
(387,661 |
) |
5,456,259 |
|
1.98 |
% |
Metals (1) |
|
(903 |
) |
159,323 |
|
(4,729,827 |
) |
(4,570,504 |
) |
-1.66 |
% |
885,755 |
|
0.32 |
% |
January 10 - December 10 |
|
|||||||
Stock indices |
|
1,636 |
|
1,005,269 |
|
(215,061 |
) |
790,208 |
|
0.29 |
% |
Stock indices |
|
(114 |
) |
28,861 |
|
(121,886 |
) |
(93,025 |
) |
-0.03 |
% |
697,183 |
|
0.26 |
% |
January 10 - March 10 |
|
|||||||
Subtotal (1) |
|
6,980 |
|
8,803,507 |
|
(2,574,944 |
) |
6,228,563 |
|
2.26 |
% |
Subtotal (1) |
|
(3,300 |
) |
1,290,365 |
|
(5,718,355 |
) |
(4,427,990 |
) |
-1.60 |
% |
1,800,573 |
|
0.66 |
% |
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Forwards |
|
|
|
|
|
|
|
|
|
|
|
Forwards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Currencies |
|
442 |
|
759,515 |
|
(1,991,882 |
) |
(1,232,367 |
) |
-0.45 |
% |
Currencies |
|
(481 |
) |
1,527,996 |
|
(2,080,769 |
) |
(552,773 |
) |
-0.20 |
% |
(1,785,140 |
) |
-0.65 |
% |
January 10 - July 10 |
|
|||||||
Subtotal |
|
442 |
|
759,515 |
|
(1,991,882 |
) |
(1,232,367 |
) |
-0.45 |
% |
Subtotal |
|
(481 |
) |
1,527,996 |
|
(2,080,769 |
) |
(552,773 |
) |
-0.20 |
% |
(1,785,140 |
) |
-0.65 |
% |
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Options |
|
|
|
|
|
|
|
|
|
|
|
Options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Agriculture |
|
|
|
|
|
|
|
|
|
0.00 |
% |
Agriculture |
|
(44 |
) |
|
|
(18,925 |
) |
(18,925 |
) |
-0.01 |
% |
(18,925 |
) |
-0.01 |
% |
January 10 - May 10 |
|
|||||||
Currencies |
|
1 |
|
|
|
(7,377 |
) |
(7,377 |
) |
0.00 |
% |
Currencies |
|
|
|
|
|
|
|
|
|
0.00 |
% |
(7,377 |
) |
0.00 |
% |
January 10 - July 10 |
|
|||||||
Energy |
|
31 |
|
|
|
(8,990 |
) |
(8,990 |
) |
0.00 |
% |
Energy |
|
|
|
|
|
|
|
|
|
0.00 |
% |
(8,990 |
) |
0.00 |
% |
January 10 - December 10 |
|
|||||||
Subtotal |
|
32 |
|
|
|
(16,367 |
) |
(16,367 |
) |
0.00 |
% |
Subtotal |
|
(44 |
) |
|
|
(18,925 |
) |
(18,925 |
) |
-0.01 |
% |
(35,292 |
) |
-0.01 |
% |
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Total (1) |
|
7,454 |
|
$ |
9,563,022 |
|
$ |
(4,583,193 |
) |
$ |
4,979,829 |
|
1.81 |
% |
Total (1) |
|
(3,825 |
) |
$ |
2,818,361 |
|
$ |
(7,818,049 |
) |
$ |
(4,999,688 |
) |
-1.81 |
% |
$ |
(19,859 |
) |
0.00 |
% |
|
|
No individual contracts unrealized profit or loss comprised greater than 5% of the Partnerships capital as of December 31, 2009.
(1) The numbers of long and short contracts and contracts closed have been revised from amounts previously reported to correct for an error in the aggregation of certain metals contracts. The correction of the error had no impact on any other amounts previously reported in the consolidated financial statements or consolidated financial data highlights.
The trading profits (losses) of the Partnerships derivatives by instrument type, as well as the location of those gains and losses on the Consolidated Statement of Operations for the three month period ended June 30, 2010 and 2009 are as follows:
2010
Commodity |
|
Realized Profits |
|
Change in Net |
|
Net Trading |
|
|||
|
|
|
|
|
|
|
|
|||
Futures |
|
|
|
|
|
|
|
|||
Agriculture |
|
$ |
(2,118,906 |
) |
$ |
(978,682 |
) |
$ |
(3,097,588 |
) |
Currencies |
|
312,304 |
|
(829,447 |
) |
(517,143 |
) |
|||
Energy |
|
(1,143,538 |
) |
(1,022,293 |
) |
(2,165,831 |
) |
|||
Interest rates |
|
8,610,735 |
|
2,869,208 |
|
11,479,943 |
|
|||
Metals |
|
(83,951 |
) |
(250,959 |
) |
(334,910 |
) |
|||
Stock indices |
|
(5,056,498 |
) |
(1,059,487 |
) |
(6,115,985 |
) |
|||
Subtotal |
|
520,146 |
|
(1,271,660 |
) |
(751,514 |
) |
|||
|
|
|
|
|
|
|
|
|||
Forwards |
|
|
|
|
|
|
|
|||
Currencies |
|
649,940 |
|
1,004,846 |
|
1,654,786 |
|
|||
Subtotal |
|
649,940 |
|
1,004,846 |
|
1,654,786 |
|
|||
|
|
|
|
|
|
|
|
|||
Options |
|
|
|
|
|
|
|
|||
Agriculture |
|
49,489 |
|
(49,489 |
) |
|
|
|||
Currencies |
|
(96,539 |
) |
4,754 |
|
(91,785 |
) |
|||
Energy |
|
(1,000 |
) |
1,000 |
|
|
|
|||
Metals |
|
44,258 |
|
4,393 |
|
48,651 |
|
|||
Subtotal |
|
(3,792 |
) |
(39,342 |
) |
(43,134 |
) |
|||
|
|
|
|
|
|
|
|
|||
Total |
|
$ |
1,166,294 |
|
$ |
(306,156 |
) |
$ |
860,138 |
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity |
|
Realized Profits |
|
Change in Net |
|
Net Trading |
|
|||
|
|
|
|
|
|
|
|
|||
Futures |
|
|
|
|
|
|
|
|||
Agriculture |
|
$ |
(889,919 |
) |
$ |
970,781 |
|
$ |
80,862 |
|
Currencies |
|
166,462 |
|
689,130 |
|
855,592 |
|
|||
Energy |
|
(1,948,701 |
) |
(283,547 |
) |
(2,232,248 |
) |
|||
Interest rates |
|
(1,232,023 |
) |
(1,297,986 |
) |
(2,530,009 |
) |
|||
Metals |
|
(626,278 |
) |
(89,205 |
) |
(715,483 |
) |
|||
Stock indices |
|
(843,636 |
) |
328,198 |
|
(515,438 |
) |
|||
Subtotal |
|
(5,374,095 |
) |
317,371 |
|
(5,056,724 |
) |
|||
|
|
|
|
|
|
|
|
|||
Forwards |
|
|
|
|
|
|
|
|||
Currencies |
|
(1,113,059 |
) |
1,054,188 |
|
(58,871 |
) |
|||
Subtotal |
|
(1,113,059 |
) |
1,054,188 |
|
(58,871 |
) |
|||
|
|
|
|
|
|
|
|
|||
Total |
|
$ |
(6,487,154 |
) |
$ |
1,371,559 |
|
$ |
(5,115,595 |
) |
The trading profits (losses) of the Partnerships derivatives by instrument type, as well as the location of those gains and losses on the Consolidated Statement of Operations for the six month period ended June 30, 2010 and 2009 are as follows:
2010
Commodity
|
|
Realized Profits |
|
Change in Net |
|
Net Trading |
|
|||
|
|
|
|
|
|
|
|
|||
Futures |
|
|
|
|
|
|
|
|||
Agriculture |
|
$ |
(3,339,828 |
) |
$ |
(893,981 |
) |
$ |
(4,233,809 |
) |
Currencies |
|
311,780 |
|
(371,875 |
) |
(60,095 |
) |
|||
Energy |
|
(3,374,857 |
) |
(79,842 |
) |
(3,454,699 |
) |
|||
Interest rates |
|
9,394,750 |
|
3,788,100 |
|
13,182,850 |
|
|||
Metals |
|
792,392 |
|
(1,164,671 |
) |
(372,279 |
) |
|||
Stock indices |
|
(3,722,100 |
) |
(761,880 |
) |
(4,483,980 |
) |
|||
Subtotal |
|
62,137 |
|
515,851 |
|
577,988 |
|
|||
|
|
|
|
|
|
|
|
|||
Forwards |
|
|
|
|
|
|
|
|||
Currencies |
|
(683,380 |
) |
4,370,828 |
|
3,687,448 |
|
|||
Subtotal |
|
(683,380 |
) |
4,370,828 |
|
3,687,448 |
|
|||
|
|
|
|
|
|
|
|
|||
Options |
|
|
|
|
|
|
|
|||
Agriculture |
|
(18,925 |
) |
18,925 |
|
|
|
|||
Currencies |
|
(131,018 |
) |
17,085 |
|
(113,933 |
) |
|||
Energy |
|
(8,990 |
) |
8,990 |
|
|
|
|||
Metals |
|
49,843 |
|
|
|
49,843 |
|
|||
Subtotal |
|
(109,090 |
) |
45,000 |
|
(64,090 |
) |
|||
|
|
|
|
|
|
|
|
|||
Total |
|
$ |
(730,333 |
) |
$ |
4,931,679 |
|
$ |
4,201,346 |
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity
|
|
Realized Profits |
|
Change in Net |
|
Net Trading |
|
|||
|
|
|
|
|
|
|
|
|||
Futures |
|
|
|
|
|
|
|
|||
Agriculture |
|
$ |
(2,011,418 |
) |
$ |
926,056 |
|
$ |
(1,085,362 |
) |
Currencies |
|
(768,925 |
) |
592,125 |
|
(176,800 |
) |
|||
Energy |
|
(2,733,499 |
) |
20,066 |
|
(2,713,433 |
) |
|||
Interest rates |
|
(2,597,191 |
) |
(2,832,016 |
) |
(5,429,207 |
) |
|||
Metals |
|
(672,384 |
) |
(933,461 |
) |
(1,605,845 |
) |
|||
Stock indices |
|
2,807,999 |
|
67,579 |
|
2,875,578 |
|
|||
Subtotal |
|
(5,975,418 |
) |
(2,159,651 |
) |
(8,135,069 |
) |
|||
|
|
|
|
|
|
|
|
|||
Forwards |
|
|
|
|
|
|
|
|||
Currencies |
|
(1,032,195 |
) |
(262,124 |
) |
(1,294,319 |
) |
|||
Subtotal |
|
(1,032,195 |
) |
(262,124 |
) |
(1,294,319 |
) |
|||
|
|
|
|
|
|
|
|
|||
Total |
|
$ |
(7,007,613 |
) |
$ |
(2,421,775 |
) |
$ |
(9,429,388 |
) |
5. RELATED PARTY TRANSACTIONS
Some of the Partnerships U.S. dollar assets are maintained at MLPF&S. MLPF&S is a wholly owned subsidiary of Merrill Lynch, which in turn maintains a significant ownership interest in BlackRock, Inc., the parent company of the General Partner. On assets held in U.S. dollars, Merrill Lynch credits the Partnership with interest at the prevailing 91-day U.S. Treasury bill rate. The Partnership is credited with interest on any of its net gains actually held by MLPF&S in non-U.S. dollar currencies at a prevailing local rate received by Merrill Lynch. Merrill Lynch may derive certain economic benefit, in excess of the interest which Merrill Lynch pays to the Partnership, from possession of such assets. Additionally some of the Partnerships U.S. dollar assets are maintained at PFPC Trust Company (PFPC Trust), an affiliate of the General Partner. PNC Global Investment Servicing (U.S.), Inc. (PNCGIS), an affiliate of the General Partner, serves as the Partnerships transfer agent. The transfer agency fees paid to PNCGIS are included in Administrator fees on the Consolidated Statements of Operations. Effective July 1, 2010, PNCGIS was sold to The Bank of New York Mellon Corporation (BNY Mellon) and is no longer considered an affiliate of the General Partner. At the close of the sale, PNCGIS changed its name to BNY Mellon Investment Servicing (US), Inc.
As of June 30, 2010 and December 31, 2009, $10,522,248 and $10,617,906, respectively, was held in trading accounts at MLPF&S. For the three-month periods ended June 30, 2010 and 2009, the Partnership incurred $96,545 and $90,650, respectively, for brokerage commissions payable to MLPF&S. For the six-month periods ended June 30, 2010 and 2009, the Partnership incurred $173,887 and $137,343, respectively, for brokerage commissions payable to MLPF&S.
PFPC Trust provides custody services for the Partnership. As of June 30, 2010 and December 31, 2009, $273,188,717 and $218,690,094, respectively, was held in custody at PFPC Trust and invested in an affiliated BlackRock money market fund.
For the three-month periods ended June 30, 2010 and 2009, the Partnership incurred $178,000 and $132,600, respectively, for administrative, custodian, transfer agency and other services fees payable to PNCGIS and its affiliates. For the six-month periods ended June 30, 2010 and 2009, the Partnership incurred $342,000 and $263,400, respectively, for administrative, custodian, transfer agency and other services fees payable to PNCGIS and its affiliates.
Merrill Lynch charges the Partnership Merrill Lynchs cost of financing realized and unrealized losses on the Partnerships non-U.S. dollar denominated positions. Such amounts are netted against interest income due to the insignificance of such amounts.
6. RECENT ACCOUNTING PRONOUNCEMENT
In January 2010, the Financial Accounting Standards Board issued amended guidance to improve disclosures about fair value measurements which will require additional disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances and settlements in the reconciliation for fair value measurements using significant unobservable inputs (Level 3). It also clarifies existing disclosure requirements relating to the levels of disaggregation for fair value measurement and inputs and valuation techniques used to measure fair value. The amended guidance is effective for financial statements for
fiscal years and interim periods beginning after December 15, 2009, except for disclosures about purchases, sales, issuances and settlements in the rollforward of activity in Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The adoption on January 1, 2010 of the applicable additional disclosure requirements did not materially impact the Partnerships consolidated financial statements.
7. SUBSEQUENT EVENTS
Management has evaluated the impact of all subsequent events on the Partnership through the date the consolidated financial statements were issued, and has determined that there were no subsequent events requiring adjustment or additional disclosure in the consolidated financial statements, other than as described below.
Effective July 1, 2010, PNCGIS and PFPC Trust were acquired by subsidiaries of BNY Mellon and will no longer be considered related parties of the Partnership as of and after that date.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Operational Review
Set forth below is a chart which provides the Partnerships current Trading Advisors, the portion of the Partnerships assets that each controlled as of June 1, 2010, the general trading focus of each such Trading Advisor, an indication as to whether each Trading Advisors program is discretionary or systematic, as well as the commodity pool operator and investment adviser registration status of each Trading Advisor (with the Commodity Futures Trading Commission (the CFTC) and Securities and Exchange Commission (the SEC), respectively).
Trading Advisors |
|
Systematic / |
|
General Trading Focus |
|
Allocation |
|
CPO Registration |
|
Investment Adviser |
Abraham Capital Management |
|
Systematic |
|
Long-term trend-following |
|
8.75 |
% |
Not Registered |
|
Not Registered |
|
|
|
|
|
|
|
|
|
|
|
Boronia Capital PTY Ltd |
|
Systematic |
|
Short-term trend-following |
|
9.90 |
% |
Registered |
|
Not Registered |
|
|
|
|
|
|
|
|
|
|
|
Blackwater Capital Management LLC |
|
Systematic |
|
Medium-term trend-following |
|
8.40 |
% |
Registered |
|
Not Registered |
|
|
|
|
|
|
|
|
|
|
|
Cantab Capital Partners LLP |
|
Systematic |
|
Medium-term trend-following and mean reversion |
|
8.90 |
% |
Exempt CPO |
|
Not Registered |
|
|
|
|
|
|
|
|
|
|
|
Crabel Capital Management LLC |
|
Systematic |
|
Short-term trend-following |
|
8.90 |
% |
Registered |
|
Not Registered |
|
|
|
|
|
|
|
|
|
|
|
Mapleridge Capital Corporation |
|
Systematic |
|
Short-term trend-following and mean reversion |
|
9.85 |
% |
Registered |
|
Not Registered |
|
|
|
|
|
|
|
|
|
|
|
Nuwave Investment Management LLC |
|
Systematic |
|
Medium-term pattern recognition |
|
7.00 |
% |
Registered |
|
Registered |
|
|
|
|
|
|
|
|
|
|
|
Ortus Capital Management Ltd |
|
Systematic |
|
Medium-term econometric |
|
9.90 |
% |
Not Registered |
|
Not Registered |
|
|
|
|
|
|
|
|
|
|
|
Quantitative Investment Management - Global Program |
|
Systematic |
|
Short-term pattern recognition |
|
7.90 |
% |
Registered |
|
Not Registered |
|
|
|
|
|
|
|
|
|
|
|
Winton Capital Management Limited |
|
Systematic |
|
Medium-term trend-following |
|
14.50 |
% |
Registered |
|
Not Registered |
BRIM may, from time to time, direct certain individual Trading Advisors to manage their respective Partnership accounts as if they were managing more equity than the actual capital allocated to them.
One of the objectives of the Partnership is to provide diversification for a limited portion of the risk segment of the Limited Partners portfolios. Commodity pool performance has historically demonstrated a low degree of performance correlation with traditional stock and bond holdings. Since it began trading, the Partnerships returns have been significantly non-correlated with the United States stock and bond markets.
The advisory agreements between the Partnership, the General Partner and each Trading Advisor govern the relationships with the Trading Advisors. The principal terms of the form of advisory agreement include the management fees (the Management Fees), profit shares (the Profit Shares), indemnification provisions and the term of the advisory agreement. Set forth below are descriptions of each of these terms. Other than the differences in fees, as described in the ranges provided below, the only other key term that differs among the agreements with the Trading Advisors is the minimum account maintenance level. The minimum account maintenance level for each Trading Advisor is described below.
Management Fees. Generally, Management Fees approximate between 0% and 2.5% (annualized) of the net asset value of the Partnerships account managed by a Trading Advisor.
Profit Shares. Profit Shares generally are between 15% and 30% of the net capital appreciation in the Partnerships account managed by a Trading Advisor for the applicable period, generally quarterly or annually, and are calculated on a cumulative high water mark basis, including realized and unrealized gains and losses from futures trading. Each Trading Advisor must earn back any losses causing cumulative quarter-end or year-end trading profits experienced by the Partnerships account managed by the Trading Advisor to fall below the previous cumulative high water mark for such account before generating additional new trading profits on which Profit Shares are paid. However, Profit Shares once paid are not subject to being repaid to the Partnership as a result of subsequent realized or unrealized losses.
Indemnification. The advisory agreements generally provide that the Partnership will indemnify each Trading Advisor and its officers, employees and controlling persons for conduct undertaken as a trading advisor or otherwise relating to any action or omission of such persons (or alleged action or omission) in connection with the advisory agreements; provided that such action or omission (or alleged action or omission) does not constitute negligence (or gross negligence in some cases), misconduct or breach of the advisory agreements and was done in good faith and in a manner reasonably believed to be in, or not opposed to, the best interests of the Partnership. The advisory agreements further provide that this indemnity provision will not increase the liability of any Limited Partner to the Partnership beyond the amount of his or her capital and profits (exclusive of distributions or other returns of capital, including redemptions), if any, in the Partnership. The advisory agreements generally provide that the foregoing indemnified parties shall not be liable to the Partnership for actions or omissions within the scope of the standards set forth in the foregoing indemnities.
Term. The advisory agreements may be renewed at the option of the General Partner and the Partnership for successive one year terms. Each Trading Advisor may terminate the advisory agreement if the equity in the Partnerships account drops below a specified minimum amount as of the close of business on any day, among other reasons. The Partnership may terminate the advisory agreements as of any month-end.
Minimum Investment Maintenance Levels. The minimum maintenance levels with each Trading Advisor are as follows: Abraham Capital Management: $1,000,000; Boronia Capital Pty Ltd.: $1,000,000; Blackwater Capital Management LLC: $1,000,000; Cantab Capital Partners LLP:
$15,000,000; Crabel Capital Management LLC: $1,000,000; Mapleridge Capital Corporation: $1,000,000; NuWave Investment Management, LLC: $1,000,000; Ortus Capital Management Ltd.: $20,000,000; Quantitative Investment Management: none; Winton Capital Management Limited: $1,000,000. A failure to maintain the minimum investment level does not result in an automatic termination of the agreement with the Trading Advisor, rather it permits the Trading Advisor to terminate the advisory agreement.
The relationship with PIA Capital Management L.P. was terminated on May 28, 2010.
Performance Summary and Net Asset Value Per Unit
MONTH-END NET ASSET VALUE PER SERIES F UNIT
|
|
Jan. |
|
Feb. |
|
Mar. |
|
Apr. |
|
May |
|
Jun. |
|
||||||
2009 |
|
$ |
284.04 |
|
$ |
283.02 |
|
$ |
272.56 |
|
$ |
264.70 |
|
$ |
268.52 |
|
$ |
262.57 |
|
2010 |
|
$ |
252.82 |
|
$ |
253.45 |
|
$ |
257.28 |
|
$ |
255.55 |
|
$ |
251.68 |
|
$ |
253.01 |
|
Set forth below is a list of the year-to-date net trading profit (loss) from each of the different Trading Advisors as measured at June 30, 2010.
Trading Advisors |
|
Realized |
|
Change in |
|
Brokerage |
|
Total Trading Profit |
|
||||
Abraham Capital Management |
|
$ |
(1,554,938 |
) |
$ |
(138,798 |
) |
$ |
(163,041 |
) |
$ |
(1,856,777 |
) |
Boronia Capital PTY Ltd |
|
1,044,965 |
|
(71,544 |
) |
(191,510 |
) |
781,911 |
|
||||
Blackwater Capital Management LLC |
|
(486,967 |
) |
25,141 |
|
(33,233 |
) |
(495,059 |
) |
||||
Cantab Capital Partners LLP |
|
(3,176,143 |
) |
1,173,506 |
|
(78,186 |
) |
(2,080,823 |
) |
||||
Crabel Capital Management LLC |
|
1,727,734 |
|
813,445 |
|
(159,018 |
) |
2,382,161 |
|
||||
Mapleridge Capital Corporation |
|
(620,847 |
) |
(412,359 |
) |
(484,778 |
) |
(1,517,984 |
) |
||||
Nuwave Investment Corp |
|
1,037,260 |
|
302,308 |
|
(10,846 |
) |
1,328,722 |
|
||||
Ortus Capital Management Ltd |
|
64,064 |
|
3,555,971 |
|
|
|
3,620,035 |
|
||||
PIA Capital Management LP |
|
(57,487 |
) |
(139,936 |
) |
(18,737 |
) |
(216,160 |
) |
||||
Quantitative Investment Management - Global Program |
|
(1,398,473 |
) |
(610,630 |
) |
(44,205 |
) |
(2,053,308 |
) |
||||
Winton Capital Management Limited |
|
2,690,499 |
|
434,575 |
|
(28,028 |
) |
3,097,046 |
|
||||
Total |
|
$ |
(730,333 |
) |
$ |
4,931,679 |
|
$ |
(1,211,582 |
) |
$ |
2,989,764 |
|
The weighted average Management Fee rate of the Trading Advisors based on allocations as of June 30, 2010 was 1.39% and the weighted average incentive fee rate was 21%. The range of Management Fees as of June 30, 2010 was 0% to 2.5% (annualized) and the range of Profit Shares was 15% to 30%.
Performance Summary - Results of Trading
January 1, 2010 to June 30, 2010
January 1, 2010 to March 31, 2010
The Partnership posted a net loss for the quarter as broadly mixed performance across underlying managers reflected a period with numerous news shocks that proved to be difficult for many systematic models to capture. Overall, foreign exchange led the quarters contributing sectors, with equities, fixed income and energy also producing positive results. Meanwhile, commodities trading generally struggled during the quarter, as agriculture and metals detracted.
Leading foreign exchange activity, underlying long US dollar exposures versus a troubled euro and a sympathetic British pound were largely additive during the quarter. In particular, continued concerns around Greeces sovereign debt crisis, and the Eurozone in general, influenced a general sell-off of the euro resulting in seven-month lows against the US dollar. The British pound also experienced weakness over local debt concerns and political uncertainty. Additional performance gains were generally the result of underlying long exposures to the currencies of commodity-dominant Australia and Canada. Meanwhile, underlying long Japanese yen holdings largely suffered during the quarter as the yen experienced its largest monthly decline versus the euro since early 2009 despite the euros troubles, and fell to three-month lows versus the US dollar.
Equities struggled early in the quarter as European fiscal concerns drove investors to sell risky assets. Following these long-side losses, including notable declines in the Dow Jones Eurostoxx and Hang Seng indices, many underlying managers ultimately reduced net long exposure through stop-loss levels and a reduction in signal strength. This led to further negative underlying manager results when markets strongly rebounded mid-quarter as investors looked favorably on indications that the EU would support Greece. Additionally, economic data releases late in the quarter also appeared to support investor optimism that the economy was on a recovery path, benefiting underlying long US and Japanese exposures particularly. Underlying managers were generally able to successfully navigate the continued upswing in March, accruing enough gains to overcome a large part of earlier losses.
The shift away from risky assets was a predominant theme for bond markets in January and early February. In particular, underlying long exposures to Euribor and German bunds profited, perceived as a safer alternative to the more heavily-indebted economies in the Eurozone, chiefly Greece. Gilts also appreciated mid-quarter after the Bank of England signaled concerns late in the month of a shrinking economy. However, range-bound global rates and a lack of clear market direction created a difficult trading environment later in the period. German bunds reversed from their previous upswing and Japanese government bond prices declined in anticipation of improved economic reports. Meanwhile, US Treasury trading was mixed throughout the quarter as rising longer-term yields reflected increased issuance and perceived improvements in the economy, while record-low short-term rates reflected the apparent intention of policy makers to remain accommodative.
Energy trading struggled early, but generally was able to recover lost ground in March. A commodity sell-off in crude oil and low volatility in natural gas prices created a difficult start to the year, leading many to short the sector. However, sharp reversals in crude oil prices frustrated a number of underlying managers. Following these losses, several underlying managers built up long exposures, setting up notable gains throughout the second half of the period as oil prices reached 18-month highs, bolstered by a growing appeal of commodities relative to corporate securities, as well as the US dollars decline. Furthermore, natural gas stockpiles reached above-average levels, profitably affecting underlying short natural gas exposures and pushing the overall sector into positive territory for the month.
First quarter metals sector declines were driven by gold and copper exposures. Most notably, underlying short gold positions generally lost ground as historically low central bank sales and a rebounding market in India and China supported prices. Meanwhile, underlying long nickel exposures helped to partially mitigate losses as the industrial metals prices reached 22-month highs in March, bolstered by the improving economic outlook. Platinum also contributed as anticipated demand from a global auto recovery augmented the metals performance over the quarter.
Agriculture-based commodity trading has experienced a very challenging environment year-to-date. Soybeans led losses within a rangebound trading environment for the crop, and wheat hit a five-month low in March due to light demand and higher-than-expected global supply. Furthermore, underlying long
exposures to sugar experienced initial gains due to poor recent crops in India and Brazil, but the commodity aggressively reversed after hitting a 25-year high, ultimately suffering a 15% price collapse on news of increasing output in the two regions.
April 1, 2010 to June 30, 2010
The Partnership posted a net loss for the quarter on broadly mixed performance across underlying managers. The period reflected increasing uncertainty over the health of the global recovery, affected in part by weak economic data from the developed world and the unknown impact of various financial and fiscal reforms. Overall, select long sovereign fixed income exposures led the quarters contributors as investors favored safe havens, and metals and foreign exchange activity experienced flat returns. Meanwhile, energy, agricultures and equities all detracted during the quarter.
Increasingly risk-averse investor attitudes during the second quarter contributed to significant gains for underlying managers in the fixed income sector, as investors continued to seek low-risk assets. Underlying long exposures to German bunds, US Treasurys and Japanese government bonds were generally profitable throughout the period as bond yields in many developed countries declined, particularly on poor economic news in China and the US. Specifically, US 10-year yields reached a 13-month low during the period. However, bond prices in peripheral Europe fell as disappointing macroeconomic data reignited worries about sovereign debt in the region, despite the European Unions and IMFs announced 75 billion bail-out of Greece.
The metals sector was largely flat during the quarter as trades hedging a flight-to-quality mitigated losses from weaker industrial metal pricing. Gold was a notable winner for the sector as investors increasingly favored it as a safe haven, with prices rising throughout the quarter. Copper shorts also contributed as the metal sold off, falling as much as 12% in June before partially recovering in the last two weeks of the quarter. Meanwhile, nickel prices peaked in late April, declining in May on factors including rising global inventories and increased production of low-cost alternatives in China.
Foreign exchange activity was mixed during the quarter. Gains from select major currencies trades offset losses in emerging market and minor currency trading. In particular, concerns in Europe continued to drive the decreasing value of the euro to a four-year low against the US dollar, ultimately aiding managers short the euro versus the rallying US dollar. Meanwhile, the Swiss franc experienced a volatile quarter, as the Swiss National Bank sought to prevent significant currency appreciation against the euro, causing a decline in the currency in May, but later improving in June after further intervention was abandoned on improving economic data. The Australian and Canadian dollars also struggled in May as commodity-related currencies generally sold-off, only to reverse in June. In addition, the British pound and Japanese yen experienced mixed results during the quarter.
Despite gains in April, energy trading experienced significant losses in May, ultimately driving negative quarterly performance for the sector. Oil prices and investor sentiment were on the rise in April, but a sharp reversal occurred in May upon concerns of curbed demand and growing stockpiles in the eurozone and China, the worlds second largest consumer of oil. Crude oil rallied in June as the US dollar weakened, and natural gas prices gained ground on positive inventory data, however managers added to energy shorts following Mays declines, hurting overall performance.
The agriculture sector continued to experience a challenging environment, garnering losses in cotton, soybeans, corn, coffee and lumber trading. Corn and wheat exposures proved difficult for short-biased managers when prices rose early in the quarter on speculation of adverse weather during the growing season. After reports of expanded planting and inventory relaxed prices somewhat, the grains finished
the quarter on an uptick, again generating losses. In the meantime, cotton performance was negatively affected by a strengthening US dollar and weakening equity prices, while coffee improved when NYMEX futures notably increased due to global supply uncertainties, creating short-side losses.
Equities suffered throughout the quarter, experiencing wide and volatile trading ranges. In general, continued concerns over the European sovereign debt crisis and Chinese policy tightening overshadowed positive developments in corporate profitability and rising economic growth forecasts. Furthermore, the May 6th flash crash sell-off, and the May 10th recovery spike resulting from the announcement of the European Unions and IMFs planned 75 billion bail-out of Greece contributed to a more than 20-point surge in the VIX during the month. While the S&P 500 was able to maintain positive performance in April, both domestic and international indices, including the CAC 40, DAX, FTSE, S&P 500, NASDAQ and Nikkei 225 indices, contributed to the sectors overall losses during the quarter.
January 1, 2009 to June 30, 2009
January 1, 2009 to March 31, 2009
The Partnership posted a net loss for the quarter, with early gains offset by losses late in the quarter. The stock indices sector was the only profitable sector for the quarter, with the largest losses occurring in the interest rate sector.
Stock indices trading contributed to gains early in the quarter through short exposures to global markets. Broad-based equity declines impacted global markets in January and February on negative economic news and poor earnings. However, investors experienced a sharp reversal and rally in March as they began to perceive stabilization in the global financial system after several months of uncertainty. Within this environment, short global equity exposures to the US, Germany, Hong Kong and Japan, proved to be beneficial as markets substantially declined early in the period. However, many of these short equity exposures detracted late in the quarter as the markets rallied on positive corporate earnings and government stimulus efforts.
Trading in energies was relatively flat over the first three months of the year, with slight profits early in the quarter roughly balanced by later losses. Oil prices hit cyclical lows in February, falling below $40/barrel for the first time since 2004 before rebounding to nearly $50/barrel by the end of March on signs that economic deterioration appears to be slowing. Demand for energy continued to slump, weighed by a decrease in economic activity driven by the global recession. Natural gas prices were negatively impacted by falling demand from power producers and their industrial clientele.
Short exposures in the metals sector detracted slightly from performance for the quarter, with gains early in the quarter outweighed by March losses. Prices for industrial metals such as copper, lead and zinc, rallied in March from their earlier lows on hopes that government stimulus efforts would spark industrial production and reduce existing basic materials inventory levels. Precious metals prices also rose during the quarter, continuing to benefit from higher levels of market volatility and economic uncertainty, as well as latent fears over growing inflation after the economy recovers.
Trading in agricultural commodities detracted from performance despite a profitable month of February. In particular, short positions in corn and soybeans profited in February on speculation that demand for biofuels and animal feed would decline in the midst of the recession, and demand for cotton process fell based on a reduced demand for raw materials. However, prices broadly recovered in March as investors perceived better economic times ahead. Coffee prices improved substantially over the course of the quarter, as investors anticipated a reduced supply from Central and South America.
Currency trading also detracted from performance for the quarter. Long exposures to Japanese yen and short exposures to the Euro contributed early in the quarter; however it was not enough to offset losses in the latter half of the quarter. The foreign exchange markets were range-bound during February with declining volatility, resulting in a challenging environment for underlying managers with shorter holding periods. While demand for the U.S. dollar was strong early in the period due to high market uncertainty, late in the quarter, long U.S. dollar trades struggled following quantitative easing initiatives launched by the U.S. Federal Reserve.
The interest rate sector was the worst performing strategy for the quarter. Long U.S. treasury, Gilt, and German Bund exposures led losses, selling off despite a backdrop of stock market volatility, worsening economic conditions and regulatory uncertainty. March proved to be particularly challenging, with several government and central bank stimulus initiatives, including those by the U.S. Federal Reserve, the Bank of England, the Swiss National Bank and the Bank of Japan, creating a challenging environment for systematic managers.
April 1, 2009 to June 30, 2009
The Partnership posted a net loss for the quarter as mid-quarter gains were offset by losses early and late in the quarter. In general, Trading Advisors faced challenges as reduced volatility and shifting trends resulted in an environment with limited momentum to exploit. Overall, foreign exchange activity was the only positive contributor to gains in the currencies sector, with agriculture-based trades posting essentially flat returns. Amongst sectors producing losses for the quarter, the worst performer was interest rates, followed by energy, metals and stock indices.
While the currency sector was profitable overall, it was a complex trading environment. Many Trading Advisors started the period short select currencies, such as the Canadian dollar and the British pound. However, hopes for economic recovery and an accelerating slide in the U.S. dollar in April generated losses in these short positions early. Trade positioning quickly adjusted, and many Trading Advisors enjoyed substantial long-side gains in the Australian dollar and the Euro as the U.S. dollar experienced its sharpest monthly decline in years. However, the quarter ended with the U.S. dollar trading somewhat range-bound, creating a difficult backdrop for momentum-based strategies to profit, and leading Trading Advisors to sustain modest losses in June.
Trading in agricultural commodities also proved to be demanding, as Trading Advisors fought back from early losses to end the quarter nearly flat. April losses in long exposure to sugar were offset by later gains from a broad commodity price rally brought on by signs of improving global demand and a weakening U.S. dollar. On the short side, exposures to corn and wheat made back earlier losses as prices substantially declined on reports of increasing supplies and speculation that warm, wet weather would accelerate plant development. Meanwhile, short exposures to hogs contributed throughout the period as hog positions sold off over concerns about the H1N1 virus.
Trading in the interest rate sector struggled during the quarter, in large part due to improved market sentiment and the resulting flow of investor capital away from sovereign bonds and toward riskier assets. In particular, long exposures to Japanese government bonds, German Bunds and Gilts all declined during the period. Meanwhile, long exposure to short-term interest rates, especially in the Eurodollar, Euribor and Sterling, also detracted, adversely responding to the European Central Bank holding rates at a record low and higher-than-expected U.S. unemployment numbers. However, several underlying funds mitigated a portion of losses through trading long-term U.S. interest rates, which provided opportunities through both long and short exposures during the period.
Trading in energies also contributed to losses. Short exposures to crude oil and heating oil in April and May drove energy trading losses, as upbeat economic news and declining inventory levels positively influenced underlying energy prices. Nonetheless, select funds profited from shorter-term tactical trades in natural gas, benefiting from short exposures in April as natural gas sold off to a 6-year low, followed by successfully trading the market through both short and long exposures as volatility increased later in the quarter.
Trading in metals also contributed to losses. Metals saw mixed results during the quarter as long exposures to gold detracted in April and June but profited in May as investors sought inflation hedges given the sharply declining U.S. dollar. Conversely, industrial metals such as aluminum and nickel trades were profitable in April, rallying on improved economic recovery prospects. As market rallies extended throughout the quarter, Trading Advisors increased select short positions. Aluminum short exposures were among those that took a substantial hit as the commodity experienced its largest weekly gain in 21 years during June, contributing to an overall loss for the sector.
Trading in stock indices contributed the most to losses in the quarter. Initial short exposures lost ground early, given broad market rallies across the globe. However, Trading Advisors reduced these positions quickly; increasing long exposures to the U.S. and holding more neutral exposures in select other markets. While long holdings in the NASDAQ and Russell indices added overall gains as global indices continued to improve throughout the quarter on strengthening sentiment, short hedges to the Dow Jones Eurostoxx, Hang Seng and FTSE indices outweighed gains, driving an overall decline for the strategy during the quarter.
Performance Summary Factors Affecting Interest Income and Expenses
Cash held in accounts at the Clearing Brokers and PFPC Trust earns interest on all such assets which are not used for trading. The low level of interest rates in 2010 in the United States negatively impacted interest income revenues when compared to 2009. The Partnership estimates that approximately 95% of its assets are earning interest. For the six and three months ended June 30, 2010 the Partnership earned $169,248 and $102,905, respectively, in interest income, or approximately 0.05% and 0.03%, respectively, of the Partnerships average month-end net assets. For the six and three months ended June 30, 2009, the Partnership earned $680,087 and $259,974, respectively, in interest income, or approximately 0.29% and 0.11%, respectively, of the Partnerships average month-end net assets. The average interest rates for the three and six month periods ended June 30, 2010 were 0.15% and 0.13%, respectively. The average interest rates for the three and six month periods ended June 30, 2009 were 0.54% and 0.99%, respectively.
The overall expenses of the Partnership (excluding Profit Shares) generally vary with changes in net assets. As such, expenses that vary with net assets are higher as of June 30, 2010 when compared to the same period ending June, 30 2009 due to the overall increase in the Partnerships net assets. For the six and three month periods ended June 30, 2010, Distribution, Trading Advisors management fees and Sponsor fees increased approximately 35% and 43%, respectively when compared to the six and three month periods ended June 30, 2009. This is due mostly to a 41% and 33% increase in average net assets in the six and three month periods ended June 30, 2010 when compared to six and three months ended June 30, 2009, partially offset by the variation of the level of traded assets during the respective periods. Profit Shares increased for the period ending June 30, 2010, when compared to the period ending June 30, 2009 primarily due to a few profitable Trading Advisors.
The distribution fee is paid to the General Partner, who will then pay the distribution fee to the third-party selling agents, if any. Such selling agents in turn may use cash funds to compensate financial advisors and/or to cover the costs of supporting client accounts within the third party organization. If there are no payments to third-party selling agents with respect to a particular investor, the distribution fee will be returned by the General Partner or paid to an affiliate. Management Fees are paid to the Trading Advisors. Sponsor fees are paid to the General Partner.
Liquidity; Capital Resources
The Partnership borrows only to a limited extent and only on a strictly short-term basis in order to finance losses on non-U.S. dollar denominated trading positions pending the conversion of the Partnerships U.S. dollar deposits. These borrowings are at a prevailing short-term rate in the relevant currency. They have been immaterial to the Partnerships operation to date and are expected to continue to be so.
Substantially all of the Partnerships assets are currently held in cash except for the net unrealized profit on open positions. The Net Asset Value of the Partnerships cash is not affected by inflation. However, changes in interest rates could cause periods of strong up or down price trends, during which the Partnerships profit potential generally increases. Inflation in commodity prices could also generate price movements, which the Trading Advisors strategies might successfully follow.
With respect to assets allocated to accounts managed by the Trading Advisors rather than Portfolio Funds, except in very unusual circumstances, the Partnership should be able to close out any or all of its open trading positions and liquidate any or all of its securities holdings quickly and at market prices. This should permit a Trading Advisor to seek to limit losses as well as reduce market exposure on short notice should its strategies indicate doing so. In addition, because there generally is a readily available market value for the Partnerships positions and assets not allocated to Portfolio Funds, the Partnerships monthly Net Asset Value calculations typically are precise, and investors generally need only wait ten business days to receive the full redemption proceeds of their Units, although there can be no assurance as to the timing of such payments.
Although the Partnership has not done so to date, the Partnership may allocate assets to Portfolio Funds which typically are subject to redemption restrictions which may include advance written notice for redemptions, monthly or quarterly redemptions and such Portfolio Funds ability to limit or suspend redemptions.
Most United States exchanges (but generally not foreign exchanges, or banks or broker-dealer firms in the case of foreign currency forward contracts) limit by regulation the amount of fluctuation limits. The daily limits establish the maximum amount the price of a futures contract may vary either up or down from the previous days settlement price at the end of the trading session. Once the daily limit has been reached in a particular commodity, no trades may be made at a price beyond the limit. Positions in the commodity can then be taken or liquidated only if traders are willing to effect trades at or within the limit during the period for trading on such day. Because the daily limit rule only governs price movement for a particular trading day, it does not limit losses. The rule may, in fact, substantially increase losses because it may prevent the liquidation of unfavorable positions. Futures prices have occasionally moved the daily limit for several consecutive trading days, and thereby prevented prompt liquidation of futures positions on one side of the market, subjecting those futures traders involved to substantial losses.
Liquidity will be of concern to the Partnership primarily in that the futures markets in which the Trading Advisors take positions may have periods in which illiquidity makes it impossible or economically
undesirable to execute trades which its respective trading strategy would otherwise suggest. Other than in respect of the functioning of the markets in which it trades, we believe liquidity should be of little relevance.
The Partnership has not made any investments in Portfolio Funds to date so it has not had to raise funds from Portfolio Funds. Instead, the Partnership pays its redemptions with the cash held in its various operating accounts. Due to the nature of its futures trading, the Partnership has significant amounts of cash available to it. When it needs to fund redemptions, the General Partner will adjust the net assets allocated to the Partnerships various Trading Advisors as appropriate based upon its asset allocation process. The individual Trading Advisors decide which trading positions to liquidate in the accounts they manage, when necessary. The Partnership has been able to satisfy all of its redemption requests in a timely manner.
There were no material commitments for capital expenditures as of June 30, 2010, the end of the most recent reporting period.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Quantifying the Partnerships Trading Value at Risk
Quantitative Forward-Looking Statements
The following quantitative disclosures regarding the Partnerships market risk exposures contain forward-looking statements within the meaning of the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act and Section 21E of the Exchange Act). All quantitative disclosures in this section are deemed to be forward-looking statements for purposes of the safe harbor, except for statements of historical fact.
The Partnerships risk exposure in the various market sectors traded by the Trading Advisors is quantified below in terms of Value at Risk. Due to the Partnerships mark-to-market accounting, any loss in the fair value of the Partnerships open positions is directly reflected in the Partnerships earnings (realized or unrealized) and cash flows (at least in the case of exchange-traded contracts in which profits and losses on open positions are settled daily through variation margin).
Exchange maintenance margin requirements have been used by the Partnership as the measure of its Value at Risk. Maintenance margin requirements are set by exchanges to equal or exceed the maximum loss in the fair value of any given contract incurred in 95% - 99% of the one-day time periods included in the historical sample (generally approximately one year) researched for purposes of establishing margin levels. Maintenance margin levels are established by dealers and exchanges using historical price studies, as well as an assessment of current market volatility and economic fundamentals, to provide a probabilistic estimate of the maximum expected near-term one-day price fluctuation.
In the case of market sensitive instruments which are not exchange-traded (almost exclusively currencies in the case of the Partnership), the margin requirements for the equivalent futures positions have been used as Value at Risk. In those rare cases in which a futures-equivalent margin is not available, dealers margins have been used.
The fair value of the Partnerships futures and forward positions does not have any optionality component. However, certain of the Trading Advisors trade commodity options. The Value at Risk associated with options is reflected in the following table as the margin requirement attributable to the instrument underlying each option.
In quantifying the Partnerships Value at Risk, 100% positive correlation in the different positions held in each market risk category has been assumed. Consequently, the margin requirements applicable to the open contracts have been aggregated to determine each trading categorys aggregate Value at Risk. The diversification effects resulting from the fact that the Partnerships positions are rarely, if ever, 100% positively correlated, have not been reflected.
The Partnerships Trading Value at Risk in Different Market Sectors
The measurement of the Partnerships Trading Value at Risk is based upon the margin requirements imposed upon the Partnership for the positions it maintains across the various market sectors it invests in, which are calculated for each of its clearing accounts. The Partnerships margin requirements are then allocated across the various market sectors disclosed in the table based upon the relative size of the positions held in each sector. The Partnerships disclosure does not attempt to reduce this exposure based upon any assumptions on the correlation of positions held across the different clearing accounts to each other. The following table indicates the average, highest and lowest trading Value at Risk associated with the Partnerships open positions by market category for the quarterly period ended June 30, 2010. During this period, the Partnerships average capitalization was $324,036,976.
|
|
Average |
|
% of Average |
|
Highest Value |
|
Lowest Value |
|
|||
Market Sector |
|
Value at Risk |
|
Capitalization |
|
At Risk |
|
At Risk |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Agriculture |
|
$ |
295,202 |
|
0.09 |
% |
$ |
315,729 |
|
$ |
265,852 |
|
Currencies |
|
5,847,270 |
|
1.80 |
% |
7,942,593 |
|
4,453,878 |
|
|||
Energy |
|
530,647 |
|
0.16 |
% |
751,168 |
|
318,196 |
|
|||
Interest Rates |
|
11,798,530 |
|
3.64 |
% |
13,792,217 |
|
8,482,334 |
|
|||
Metals |
|
395,882 |
|
0.12 |
% |
761,760 |
|
113,891 |
|
|||
Stock Indices |
|
420,091 |
|
0.13 |
% |
1,030,291 |
|
17,393 |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
TOTAL |
|
$ |
19,287,622 |
|
5.94 |
% |
$ |
24,593,758 |
|
$ |
13,651,544 |
|
Average, Highest and Lowest Value at Risk amounts relate to the average, highest and lowest month-end amounts for each month-end during the period. The Percentage of Average Capitalization is the average of the Partnerships capitalization at the end of each calendar month during the period.
Item 4. Controls and Procedures
BRIM, the General Partner of the Partnership, with the participation of the Partnerships president as Principal Executive Officer of the Partnership (President) and the Chief 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 of this quarterly report and, based on this evaluation, has concluded that these disclosure controls and procedures are effective.
Changes in Internal Control over Financial Reporting
There were no significant changes in the Partnerships internal controls or in other factors that could significantly affect those controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
SERIES A
|
|
Subscription |
|
|
|
|
|
||
|
|
Amount |
|
Units |
|
NAV |
|
||
Apr-10 |
|
$ |
17,048,836 |
|
15,945,413 |
|
$ |
1.0692 |
|
May-10 |
|
11,640,883 |
|
10,961,283 |
|
1.0620 |
|
||
Jun-10 |
|
13,590,921 |
|
12,994,475 |
|
1.0459 |
|
||
SERIES I
|
|
Subscription |
|
|
|
|
|
||
|
|
Amount |
|
Units |
|
NAV |
|
||
Apr-10 |
|
$ |
536,792 |
|
438,484 |
|
$ |
1.2242 |
|
May-10 |
|
69,998 |
|
57,432 |
|
1.2188 |
|
||
Jun-10 |
|
99,000 |
|
82,260 |
|
1.2035 |
|
||
(b) None.
(c) Limited Partners may redeem their Units at the end of each calendar month at the then current month-end Net Asset Value per Unit. 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 Limited Partners during the second calendar quarter of 2010:
Series F
|
|
|
|
Redemption Date |
|
Redemption |
|
||
Month |
|
Units Redeemed |
|
NAV Per Unit |
|
Amount |
|
||
April 30, 2010 |
|
424 |
|
$ |
255.55 |
|
$ |
108,353 |
|
May 31, 2010 |
|
1,323 |
|
251.68 |
|
332,973 |
|
||
June 30, 2010 |
|
419 |
|
253.01 |
|
106,011 |
|
||
|
|
|
|
|
|
|
|
||
Total |
|
2,166 |
|
|
|
$ |
547,337 |
|
|
Series A
|
|
|
|
Redemption Date |
|
Redemption |
|
||
Month |
|
Units Redeemed |
|
NAV Per Unit |
|
Amount |
|
||
April 30, 2010 |
|
1,135,253 |
|
$ |
1.0620 |
|
$ |
1,205,639 |
|
May 31, 2010 |
|
5,632,639 |
|
1.0459 |
|
5,891,177 |
|
||
June 30, 2010 |
|
382,916 |
|
1.0514 |
|
402,598 |
|
||
|
|
|
|
|
|
|
|
||
Total |
|
7,150,808 |
|
|
|
$ |
7,499,414 |
|
|
Series G
|
|
|
|
Redemption Date |
|
Redemption |
|
||
Month |
|
Units Redeemed |
|
NAV Per Unit |
|
Amount |
|
||
April 30, 2010 |
|
147,530 |
|
$ |
1.1068 |
|
$ |
163,286 |
|
May 31, 2010 |
|
461,783 |
|
1.0900 |
|
503,344 |
|
||
June 30, 2010 |
|
84,177 |
|
1.0958 |
|
92,241 |
|
||
|
|
|
|
|
|
|
|
||
Total |
|
693,490 |
|
|
|
$ |
758,871 |
|
|
Series I
|
|
|
|
Redemption Date |
|
Redemption |
|
||
Month |
|
Units Redeemed |
|
NAV Per Unit |
|
Amount |
|
||
April 30, 2010 |
|
|
|
$ |
1.2188 |
|
$ |
|
|
May 31, 2010 |
|
16,288 |
|
1.2035 |
|
19,603 |
|
||
June 30, 2010 |
|
|
|
1.2124 |
|
|
|
||
|
|
|
|
|
|
|
|
||
Total |
|
16,288 |
|
|
|
$ |
19,603 |
|
|
Item 3. |
|
|
|
|
None. |
|
|
Item 4. |
|
|
|
Item 5. |
|
|
|
|
None. |
|
|
Item 6. |
(a) Exhibits |
|
|
|
The following exhibits are incorporated by reference or are filed herewith to this Quarterly Report on Form 10-Q: |
|
31.01 and |
|
31.02 |
Rule 13a-14(a)/15d-14(a) Certifications |
|
|
Exhibit 31.01 |
|
and 31.02: |
Are filed herewith. |
|
|
32.01 and |
|
32.02 |
Section 1350 Certifications |
|
|
Exhibit 32.01 |
|
and 32.02 |
Are filed herewith. |
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.
|
BLACKROCK GLOBAL HORIZONS I L.P. |
|
|
|
|
|
|
|
|
By: BLACKROCK INVESTMENT MANAGEMENT, LLC |
|
|
(General Partner) |
|
|
|
|
|
|
|
Date: August 13, 2010 |
By |
/s/ EDWARD RZESZOWSKI |
|
|
Edward Rzeszowski |
|
|
President |
|
|
(Principal Executive Officer) |
|
|
|
|
|
|
Date: August 13, 2010 |
By |
/s/ MICHAEL L. PUNGELLO |
|
|
Michael L. Pungello |
|
|
Chief Financial Officer |
|
|
(Chief Financial Officer) |