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EXCEL - IDEA: XBRL DOCUMENT - Millburn Multi-Markets Fund L.P.Financial_Report.xls
EX-32.03 - EXHIBIT 32.03 - Millburn Multi-Markets Fund L.P.v326624_ex32-03.htm
EX-32.02 - EXHIBIT 32.02 - Millburn Multi-Markets Fund L.P.v326624_ex32-02.htm
EX-31.03 - EXHIBIT 31.03 - Millburn Multi-Markets Fund L.P.v326624_ex31-03.htm
EX-31.02 - EXHIBIT 31.02 - Millburn Multi-Markets Fund L.P.v326624_ex31-02.htm
EX-32.01 - EXHIBIT 32.01 - Millburn Multi-Markets Fund L.P.v326624_ex32-01.htm
EX-31.01 - EXHIBIT 31.01 - Millburn Multi-Markets Fund L.P.v326624_ex31-01.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

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

 

For the Quarterly Period Ended: September 30, 2012

 

Or

 

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

 

Commission File Number: 000-54028

 

MILLBURN MULTI-MARKETS FUND L.P.

 

  (Exact name of registrant as specified in its charter)

 

Delaware   26-4038497
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)

 

c/o MILLBURN RIDGEFIELD CORPORATION

411 West Putnam Avenue

Greenwich, Connecticut 06830 

 

(Address of principal executive offices) (Zip Code)

 

Registrant's telephone number, including area code: (203) 625-7554

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes x No ¨

 

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

 

Yes x No ¨

 

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

 

Large accelerated filer ¨ Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company x

 

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

 

Yes ¨ No x

 

 
 

 

PART I. FINANANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

Millburn Multi-Markets Fund L.P.    
Financial statements    
For the three and nine months ended September 30, 2012 and 2011 (unaudited)    
     
Statements of Financial Condition (a)   3
Statements of Operations (c)   4
Statements of Changes in Partners' Capital (b)   6
Statements of Financial Highlights (c)   7
Notes to Financial Statements   11-12

 

(a) At September 30, 2012 (unaudited) and December 31, 2011

 

(b) For the nine months ended September 30, 2012 and 2011 (unaudited)

 

(c) For the three and nine months ended September 30, 2012 and 2011 (unaudited)

 

2
 

 

Millburn Multi-Markets Fund L.P.

Statements of Financial Condition (UNAUDITED)

 

   September 30,   December 31, 
   2012   2011 
ASSETS          
Investment in Millburn Multi-Markets Trading L.P. (the "Master Fund")  $226,888,702   $236,019,823 
Due from the Master Fund   3,948,412    3,184,538 
Cash   3,163,608    6,164,454 
TOTAL  $234,000,722   $245,368,815 
           
LIABILITIES AND PARTNERS' CAPITAL          
           
LIABILITIES:          
Capital contributions received in advance  $3,161,000   $6,163,876 
Capital withdrawal payable   3,948,412    3,184,538 
Due to the Master Fund   2,608    578 
Total liabilities   7,112,020    9,348,992 
           
PARTNERS' CAPITAL:          
General Partner   3,220,049    3,463,815 
           
Limited Partners:          
Series A (176,470.6335 and 159,942.5316 units outstanding)   165,567,086    166,336,096 
Series B (21,359.2036 and 21,012.8097 units outstanding)   21,039,042    22,643,903 
Series C (37,326.5034 and 40,189.9735 units outstanding)   37,062,525    43,576,009 
Total limited partners   223,668,653    232,556,008 
Total partners' capital   226,888,702    236,019,823 
           
TOTAL  $234,000,722   $245,368,815 
           
NET ASSET VALUE PER UNIT OUTSTANDING          
Series A  $938.21   $1,039.97 
Series B  $985.01   $1,077.62 
Series C  $992.93   $1,084.25 

 

See notes to financial statements

 

3
 

 

Millburn Multi-Markets Fund L.P.

Statements of Operations (UNAUDITED)

 

   For the three months ended 
   September 30,   September 30, 
   2012   2011 
NET INVESTMENT LOSS ALLOCATED FROM THE MASTER FUND          
INCOME — interest income  $65,889   $91,095 
           
Expenses:          
Management fees   1,140,379    1,030,684 
Brokerage commissions   191,288    133,724 
Selling commissions and platform fees   847,996    719,855 
Administrative and operating expenses   298,934    250,141 
Custody fee and other expenses   15,411    8,334 
Total expenses   2,494,008    2,142,738 
           
Operating expenses borne by General Partner   -    (1,931)
           
Net expenses   2,494,008    2,140,807 
           
Net investment loss allocated from the Master Fund   (2,428,119)   (2,049,712)
           
NET REALIZED AND UNREALIZED GAINS (LOSSES) ALLOCATED FROM THE MASTER FUND          
Net realized gains (losses) on closed positions:          
Futures and forward currency contracts   (2,754,918)   7,073,675 
Foreign exchange translation   (23,195)   (27,223)
Net change in unrealized:          
Futures and forward currency contracts   3,330,426    (119,903)
Foreign exchange translation   (14,879)   (3,125)
Net gains (losses) from U.S. Treasury notes:          
Realized   (24,347)   - 
Net change in unrealized   39,940    (66,862)
           
Total net realized and unrealized gains allocated from the Master Fund   553,027    6,856,562 
           
NET GAIN (LOSS)   (1,875,092)   4,806,850 
           
LESS PROFIT SHARE ALLOCATION FROM THE MASTER FUND   -    - 
           
NET GAIN (LOSS) AFTER PROFIT SHARE ALLOCATION FROM THE MASTER FUND  $(1,875,092)  $4,806,850 
           
          (Continued) 

 

4
 

 

Millburn Multi-Markets Fund L.P.

Statements of Operations (UNAUDITED)

 

   For the nine months ended 
   September 30,   September 30, 
   2012   2011 
NET INVESTMENT LOSS ALLOCATED FROM THE MASTER FUND          
INCOME — interest income  $225,088   $252,248 
           
Expenses:          
Management fees   3,440,530    2,507,517 
Brokerage commissions   542,447    355,843 
Selling commissions and platform fees   2,527,076    1,708,429 
Administrative and operating expenses   901,635    716,053 
Custody fee and other expenses   40,029    19,731 
Total expenses   7,451,717    5,307,573 
           
Operating expenses borne by General Partner   -    (57,517)
           
Net expenses   7,451,717    5,250,056 
           
Net investment loss allocated from the Master Fund   (7,226,629)   (4,997,808)
           
NET REALIZED AND UNREALIZED GAINS (LOSSES) ALLOCATED FROM THE MASTER FUND          
Net realized gains (losses) on closed positions:          
Futures and forward currency contracts   (9,932,866)   5,801,619 
Foreign exchange translation   (72,053)   (27,082)
Net change in unrealized:          
Futures and forward currency contracts   (5,960,973)   (7,616,618)
Foreign exchange translation   (1,397)   (14,077)
Net gains (losses) from U.S. Treasury notes:          
Realized   (28,432)   3,031 
Net change in unrealized   28,156    (18,167)
           
Total net realized and unrealized losses allocated from the Master Fund   (15,967,565)   (1,871,294)
           
NET LOSS   (23,194,194)   (6,869,102)
           
LESS PROFIT SHARE ALLOCATION FROM THE MASTER FUND   -    2,595 
           
NET LOSS AFTER PROFIT SHARE ALLOCATION FROM THE MASTER FUND  $(23,194,194)  $(6,871,697)

 

See notes to financial statements (Concluded)

 

5
 

 

Millburn Multi-Markets Fund L.P.

Statements of Changes in Partners' Capital (UNAUDITED)

For the nine months ended September 30, 2012 and 2011

 

   General   Limited Partners     
   Partner   Series A   Series B   Series C   Total 
   Amount   Amount   Units   Amount   Units   Amount   Units   Amount 
                                 
PARTNERS' CAPITAL — December 31, 2011  $3,463,815   $166,336,096    159,942.5316   $22,643,903    21,012.8097   $43,576,009    40,189.9735   $236,019,823 
                                         
Capital contributions   -    36,671,052    37,345.5113    4,270,220    4,103.9559    1,859,011    1,803.2102    42,800,283 
Capital withdrawals   -    (20,146,519)   (20,817.4094)   (3,794,722)   (3,757.5620)   (4,795,969)   (4,666.6803)   (28,737,210)
Net loss after profit share   (243,766)   (17,293,543)   -    (2,080,359)   -    (3,576,526)   -    (23,194,194)
PARTNERS' CAPITAL — September 30, 2012  $3,220,049   $165,567,086    176,470.6335   $21,039,042    21,359.2036   $37,062,525    37,326.5034   $226,888,702 
                                         
Net Asset Value per Unit at September 30, 2012            $938.21        $985.01        $992.93      

 

   General   Limited Partners     
   Partner   Series A   Series B   Series C   Total 
   Amount   Amount   Units   Amount   Units   Amount   Units   Amount 
                                 
PARTNERS' CAPITAL — December 31, 2010  $1,447,561   $71,988,161    64,756.6985   $6,405,290    5,662.0645   $31,486,826    27,731.8983   $111,327,838 
                                         
Capital contributions   -    85,728,603    78,379.5252    15,901,098    14,234.2708    14,398,382    12,872.2000    116,028,083 
Capital withdrawals   -    (3,622,803)   (3,351.5829)   (625,685)   (559.1060)   (415,517)   (380.6438)   (4,664,005)
Net loss after profit share   (17,910)   (5,338,423)   -    (450,508)   -    (1,064,856)   -    (6,871,697)
PARTNERS' CAPITAL — September 30, 2011  $1,429,651   $148,755,538    139,784.6408   $21,230,195    19,337.2293   $44,404,835    40,223.4545   $215,820,219 
                                         
Net Asset Value per Unit at September 30, 2011            $1,064.18        $1,097.89        $1,103.95      

 

See notes to financial statements

 

6
 

 

Millburn Multi-Markets Fund L.P.

Statement of Financial Highlights (UNAUDITED)

For the three months ended September 30, 2012

 

The following information presents per unit operating performance data for each series for the three months ended September 30, 2012.

 

Per Unit Performance            
(For a Unit Outstanding Throughout the Period)  Series A   Series B   Series C 
             
NET ASSET VALUE PER UNIT — Beginning of period  $946.43   $989.30   $996.63 
                
INCOME (LOSS) ALLOCATED FROM THE MASTER FUND:               
Net investment loss (1)   (11.48)   (7.62)   (7.03)
Total trading and investing losses (1)   3.26    3.33    3.33 
                
Net loss before profit share allocation from the Master Fund   (8.22)   (4.29)   (3.70)
                
Profit share allocation from the Master Fund (1) (6)   0.00    0.00    0.00 
                
Net loss from operations after profit share allocation from the Master Fund   (8.22)   (4.29)   (3.70)
                
NET ASSET VALUE PER UNIT — End of period  $938.21   $985.01   $992.93 
                
TOTAL RETURN BEFORE PROFIT SHARE ALLOCATION FROM THE MASTER FUND (2)   (0.87)%   (0.43)%   (0.37)%
                
LESS: PROFIT SHARE ALLOCATION FROM THE MASTER FUND (2) (6)   0.00    0.00    0.00 
                
TOTAL RETURN AFTER PROFIT SHARE ALLOCATION FROM THE MASTER FUND (2)   (0.87)%   (0.43)%   (0.37)%
                
Ratios to average net asset value:               
Expenses (3) (4) (5)   4.88%   3.13%   2.88%
Profit share allocation from the Master Fund (2) (6)   0.00    0.00    0.00 
                
Total expenses   4.88%   3.13%   2.88%
                
Net investment loss (3) (4) (5)    (4.77)%   (3.02)%   (2.77)%

 

(1)The net investment loss per unit and profit share allocation from the Master Fund per unit is calculated by dividing the net investment loss and profit share allocation from the Master Fund by the average number of units outstanding during the period. Total trading and investing losses is a balancing amount necessary to reconcile the change in net asset value per unit with the other per unit information.
(2)Not annualized.
(3)Annualized.
(4)Includes the Partnership’s proportionate share of income and expense allocated from the Master Fund.
(5)Excludes profit share allocation from the Master Fund.
(6)Profit share for Series B and C is calculated based on Series B and C aggregate trading profits and may be impacted by rebalancing due to monthly capital activity.

 

See notes to financial statements

 

7
 

 

Millburn Multi-Markets Fund L.P.

Statement of Financial Highlights (UNAUDITED)

For the three months ended September 30, 2011

 

The following information presents per unit operating performance data for each series for the three months ended September 30, 2011.

 

Per Unit Performance            
(For a Unit Outstanding Throughout the Period)  Series A   Series B   Series C 
             
NET ASSET VALUE PER UNIT — Beginning of period  $1,038.95   $1,067.19   $1,072.41 
                
INCOME (LOSS) ALLOCATED FROM THE MASTER FUND:               
Net investment loss (1)   (12.27)   (7.81)   (7.16)
Total trading and investing gains (1)   37.50    38.51    38.70 
                
Net profit before profit share allocation from the Master Fund   25.23    30.70    31.54 
                
Profit share allocation from the Master Fund (1) (7)   0.00    0.00    0.00 
                
Net profit from operations after profit share allocation from the Master Fund   25.23    30.70    31.54 
                
NET ASSET VALUE PER UNIT — End of period  $1,064.18   $1,097.89   $1,103.95 
                
TOTAL RETURN BEFORE PROFIT SHARE ALLOCATION FROM THE MASTER FUND (2)   2.43%   2.88%   2.94%
                
LESS: PROFIT SHARE ALLOCATION FROM THE MASTER FUND (2) (7)   0.00    0.00    0.00 
                
TOTAL RETURN AFTER PROFIT SHARE ALLOCATION FROM THE MASTER FUND (2)   2.43%   2.88%   2.94%
                
Ratios to average net asset value:               
Expenses (3) (4) (5) (6)   4.76%   3.01%   2.76%
Profit share allocation from the Master Fund (2) (7)   0.00    0.00    0.00 
                
Total expenses   4.76%   3.01%   2.76%
                
Net investment loss (3) (4) (5) (6)   (4.58)%   (2.83)%   (2.58)%

 

(1)The net investment loss per unit and profit share allocation from the Master Fund per unit is calculated by dividing the net investment loss and profit share allocation from the Master Fund by the average number of units outstanding during the period. Total trading and investing gains is a balancing amount necessary to reconcile the change in net asset value per unit with the other per unit information.
(2)Not annualized.
(3)Annualized.
(4)Excludes profit share allocation from the Master Fund.
(5)Ratios are computed net of voluntary waivers of operating expenses borne by the General Partner of the Partnership and General Partner of the Master Fund. For the three months ended September 30, 2011, the ratios are net of the 0.00% effect of the voluntary waivers of operating expenses (not annualized).
(6)Includes the Partnership’s proportionate share of income and expense allocated from the Master Fund.
(7)Profit share for Series B and C is calculated based on Series B and C aggregate trading profits and may be impacted by rebalancing due to monthly capital activity.

 

See notes to financial statements

 

8
 

 

Millburn Multi-Markets Fund L.P.

Statement of Financial Highlights (UNAUDITED)

For the nine months ended September 30, 2012

 

The following information presents per unit operating performance data for each series for the nine months ended September 30, 2012.

 

Per Unit Performance            
(For a Unit Outstanding Throughout the Period)  Series A   Series B   Series C 
             
NET ASSET VALUE PER UNIT — Beginning of period  $1,039.97   $1,077.62   $1,084.25 
                
LOSS ALLOCATED FROM THE MASTER FUND:               
Net investment loss (1)   (34.45)   (22.63)   (20.87)
Total trading and investing losses (1)   (67.31)   (69.98)   (70.45)
                
Net loss before profit share allocation from the Master Fund   (101.76)   (92.61)   (91.32)
                
Profit share allocation from the Master Fund (1) (6)   0.00    0.00    0.00 
                
Net loss from operations after profit share allocation from the Master Fund   (101.76)   (92.61)   (91.32)
                
NET ASSET VALUE PER UNIT — End of period  $938.21   $985.01   $992.93 
                
TOTAL RETURN BEFORE PROFIT SHARE ALLOCATION FROM THE MASTER FUND (2)   (9.78)%   (8.59)%   (8.42)%
                
LESS: PROFIT SHARE ALLOCATION FROM THE MASTER FUND (2) (6)   0.00    0.00    0.00 
                
TOTAL RETURN AFTER PROFIT SHARE ALLOCATION FROM THE MASTER FUND (2)   (9.78)%   (8.59)%   (8.42)%
                
Ratios to average net asset value:               
Expenses (3) (4) (5)    4.86%   3.11%   2.85%
Profit share allocation from the Master Fund (2) (6)   0.00    0.00    0.00 
                
Total expenses   4.86%   3.11%   2.85%
                
Net investment loss (3) (4) (5)   (4.73)%   (2.98)%   (2.73)%

 

(1)The net investment loss per unit and profit share allocation from the Master Fund per unit is calculated by dividing the net investment loss and profit share allocation from the Master Fund by the average number of units outstanding during the period. Total trading and investing losses is a balancing amount necessary to reconcile the change in net asset value per unit with the other per unit information.
(2)Not annualized.
(3)Annualized.
(4)Includes the Partnership’s proportionate share of income and expense allocated from the Master Fund.
(5)Excludes profit share allocation from the Master Fund.
(6)Profit share for Series B and C is calculated based on Series B and C aggregate trading profits and may be impacted by rebalancing due to monthly capital activity.

 

See notes to financial statements

 

9
 

 

Millburn Multi-Markets Fund L.P.

Statement of Financial Highlights (UNAUDITED)

For the nine months ended September 30, 2011

 

The following information presents per unit operating performance data for each series for the nine months ended September 30, 2011.

 

Per Unit Performance            
(For a Unit Outstanding Throughout the Period)  Series A   Series B   Series C 
             
NET ASSET VALUE PER UNIT — Beginning of period  $1,111.67   $1,131.26   $1,135.40 
                
INCOME (LOSS) ALLOCATED FROM THE MASTER FUND:               
Net investment loss (1)   (37.67)   (23.89)   (22.14)
Total trading and investing losses (1)   (9.80)   (10.86)   (8.83)
                
Net loss before profit share allocation from the Master Fund   (47.47)   (34.75)   (30.97)
                
Profit share allocation from the Master Fund (1) (7)   (0.02)   1.38    (0.48)
                
Net loss from operations after profit share allocation from the Master Fund   (47.49)   (33.37)   (31.45)
                
NET ASSET VALUE PER UNIT — End of period  $1,064.18   $1,097.89   $1,103.95 
                
TOTAL RETURN BEFORE PROFIT SHARE ALLOCATION FROM THE MASTER FUND (2)   (4.27)%   (3.07)%   (2.73)%
                
LESS: PROFIT SHARE ALLOCATION FROM THE MASTER FUND (2) (7)   0.00    (0.12)   0.04 
                
TOTAL RETURN AFTER PROFIT SHARE ALLOCATION FROM THE MASTER FUND (2)   (4.27)%   (2.95)%   (2.77)%
                
Ratios to average net asset value:               
Expenses (3) (4) (5) (6)   4.83%   3.07%   2.83%
Profit share allocation from the Master Fund (2) (7)   0.00    (0.12)   0.04 
                
Total expenses   4.83%   2.95%   2.87%
                
Net investment loss (3) (4) (5) (6)   (4.63)%   (2.89)%   (2.63)%

 

(1)The net investment loss per unit and profit share allocation from the Master Fund per unit is calculated by dividing the net investment loss and profit share allocation from the Master Fund by the average number of units outstanding during the period. Total trading and investing loss is a balancing amount necessary to reconcile the change in net asset value per unit with the other per unit information.
(2)Not annualized.
(3)Annualized.
(4)Excludes profit share allocation from the Master Fund.
(5)Ratios are computed net of voluntary waivers of operating expenses borne by the General Partner of the Partnership and General Partner of the Master Fund. For the nine months ended September 30, 2011, the ratios are net of the 0.04% effect of the voluntary waivers of operating expenses (not annualized).
(6)Includes the Partnership's proportionate share of income and expense allocated from the Master Fund.
(7)Profit share for Series B and C is calculated based on Series B and C aggregate trading profits and may be impacted by rebalancing due to monthly capital activity.

 

See notes to financial statements

 

10
 

 

NOTES TO FINANCIAL STATEMENTS

 

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The accompanying unaudited financial statements, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of Millburn Multi-Markets Fund L.P.’s (the “Partnership”) financial condition at September 30, 2012 and December 31, 2011 and the results of its operations for the three and nine months ended September 30, 2012 and 2011 (unaudited).

 

These financial statements present the results of interim periods and do not include all disclosures normally provided in annual financial statements. It is suggested that these financial statements be read in conjunction with the audited financial statements and notes included in the Partnership’s 2011 annual report included in Form 10-K filed with the Securities and Exchange Commission. The December 31, 2011 information has been derived from the audited financial statements as of December 31, 2011.

 

The preparation of financial statements in conformity with accounting principles generally accepted (“U.S. GAAP”) in the United States of America (the “U.S.”) requires management to make estimates and assumptions that affect the amounts and disclosures reported in the financial statements. Actual results could differ from these estimates.

 

The Partnership enters into contracts with various financial institutions that contain a variety of indemnifications. The Partnership’s maximum exposure under these arrangements is unknown. However, the Partnership has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.

 

The Income Taxes topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (the “Codification”) clarifies the accounting for uncertainty in tax positions. This requires that the Partnership recognize in its financial statements the impact of any uncertain tax positions. Based on a review of the Partnership’s open tax years, 2009 through 2011, for the U.S. Federal jurisdiction, the New York, Connecticut and Delaware state jurisdictions, and the New York City jurisdiction, there are no uncertain tax positions. The Partnership is treated as a limited partnership for federal and state income tax reporting purposes.

 

There have been no material changes with respect to the Partnership’s critical accounting policies, off-balance sheet arrangements or disclosure of contractual obligations as reported in the Partnership's Annual Report on Form 10-K for the fiscal year 2011.

 

2. INVESTMENT IN MILLBURN MULTI-MARKETS TRADING L.P.

 

The Partnership invests substantially all of its assets in Millburn Multi-Markets Trading L.P. (the “Master Fund”). The Partnership’s ownership percentage of the Master Fund at September 30, 2012 and December 31, 2011 was 81.23% and 57.64%, respectively, of total partners’ capital of the Master Fund. See the attached financial statements of the Master Fund.

 

3. RELATED PARTY TRANSACTIONS

 

The Partnership bears its own expenses, including, but not limited to, periodic legal, accounting and filing fees. Total operating expenses related to investors in the Partnership (including their pro-rata share of Master Fund expenses) are not expected to exceed 1/2 of 1% per annum of the Partnership’s average month-end partners’ capital. For the three and nine months ended September 30, 2012 and 2011, Millburn Ridgefield Corporation (the “General Partner”) chose to directly bear operating expenses in excess of 1/2 of 1% of average net assets of the Partnership’s average month-end partners’ capital as applicable.

 

During any time in which a third-party administrator is providing services to the Master Fund, as is currently the case, the General Partner is paid a monthly Administration Fee for administration services it provides calculated as a percentage of the month-end net asset value (prior to reduction for withdrawals or redemptions, management fees, amounts payable to selling agents and the administration fee then being calculated) of the Master Fund equal to 0.05% per annum of the Master Fund’s average net assets. The Partnership is allocated its pro rata portion of the administration fee which is charged at the Master Fund level. As of September 30, 2012 and December 31, 2011, $35,874 and $81,148, respectively, was payable by the Master Fund to the General Partner and is included in “accrued expenses” in the Master Fund’s Statements of Financial Condition.

 

The General Partner has paid expenses incurred in connection with the organization of the Partnership and the initial offering of the units of limited partnership (“Units”). The total amount paid by the General Partner was $191,967. The Master Fund, on behalf of the Partnership, is reimbursing the General Partner for these costs in 60 equal monthly installments of $3,199 which began on August 1, 2009. However, to the extent that for any month the $3,199 exceeds 1/12 of 0.05% (0.05% per annum) of the Partnership’s month-end net asset value, such excess will not be reimbursed by the Partnership but will be absorbed by the General Partner. As of September 30, 2012, pursuant to this calculation, $30,987 has been borne by the General Partner and will not be reimbursed by the Partnership. For the three and nine months ended September 30, 2012 and 2011, the costs incurred by the Partnership were $9,597 and $28,791, respectively. Organization and initial offering costs are included in “administrative and operating expenses” in the Master Fund’s Statements of Operations. Accordingly, as of September 30, 2012 and December 31, 2011, $9,597, was payable by the Master Fund to the General Partner as reimbursement for such costs and are included in “accrued expenses” in the Master Fund’s Statement of Financial Condition.

 

11
 

 

Series A Unitholders that redeem Units at or prior to the end of the first eleven months after such Units are sold shall be assessed redemption charges calculated based on their redeemed Units' net asset value as of the date of redemption. All redemption charges will be paid to the General Partner. At September 30, 2012 and December 31, 2011, $2,781 and $25,211 were owed to the General Partner, respectively.

 

4. FINANCIAL HIGHLIGHTS

 

Per Unit operating performance for Series A, Series B and Series C Units is calculated based on Unitholders’ partners’ capital for each series taken as a whole utilizing the beginning and ending net asset value per unit and weighted average number of units during the quarter. Weighted average number of units of each series is detailed below.

 

   Three months ending September 30,   Nine months ending September 30, 
   2012   2011   2012   2011 
Series A   173,181.708    132,002.964    170,566.934    103,211.896 
Series B   22,308.759    18,151.473    22,686.483    12,478.476 
Series C   37,455.583    39,743.001    39,280.486    36,085.151 

 

12
 

 

Millburn Multi-Markets Trading L.P.    
Financial statements    
For the three and nine months ended September 30, 2012 and 2011 (unaudited)    
     
Statements of Financial Condition (a)   14
Condensed Schedules of Investments (a)   15
Statements of Operations (c)   19
Statements of Changes in Partners' Capital (b)   21
Statements of Financial Highlights (c)   22
Notes to Financial Statements   24

  

(a) At September 30, 2012 (unaudited) and December 31, 2011

 

(b) For the nine months ended September 30, 2012 and 2011 (unaudited)

 

(c) For the three and nine months ended September 30, 2012 and 2011 (unaudited)

 

13
 

 

Millburn Multi-Markets Trading L.P.

Statements of Financial Condition (UNAUDITED)

 

   September 30   December 31 
   2012   2011 
Assets          
EQUITY IN TRADING ACCOUNTS:          
Investments in U.S. Treasury notes-at fair value (amortized cost $43,786,491 and $41,272,197)  $43,791,258   $41,274,794 
Net unrealized appreciation on open futures and forward currency contracts   1,693,514    8,775,049 
Due from brokers   5,082,594    3,971,338 
Cash denominated in foreign currencies (cost $2,702,920 and $606,954)   2,700,446    604,841 
Total equity in trading accounts   53,267,812    54,626,022 
           
INVESTMENTS IN U.S. TREASURY NOTES-at fair value (amortized cost $216,712,848 and $344,350,425)   216,739,114    344,352,511 
CASH AND CASH EQUIVALENTS   20,906,782    18,112,495 
ACCRUED INTEREST RECEIVABLE   532,143    1,894,957 
DUE FROM MILLBURN MULTI-MARKETS LTD.   398    61 
DUE FROM MILLBURN MULTI-MARKETS FUND L.P.   2,608    578 
TOTAL  $291,448,857   $418,986,624 
           
LIABILITIES AND PARTNERS' CAPITAL          
           
LIABILITIES:          
Net unrealized depreciation on open futures and forward currency contracts  $5,063,790   $397,253 
Cash denominated in foreign currencies (cost $0 and -$1,614,489)   -    1,619,538 
Capital contributions received in advance   18,070    18,930 
Capital withdrawals payable   5,685,590    5,902,350 
Management fee payable   398,834    601,992 
Selling commissions payable   290,013    286,819 
Accrued expenses   628,702    483,424 
Due to broker   -    86,753 
Commissions and other trading fees on open futures contracts   52,704    62,997 
Due to General Partner   2,781    25,211 
Total liabilities   12,140,484    9,485,267 
           
PARTNERS' CAPITAL   279,308,373    409,501,357 
           
TOTAL  $291,448,857   $418,986,624 

 

See notes to financial statements

 

14
 

 

Millburn Multi-Markets Trading L.P.

Condensed Schedule of Investments (UNAUDITED)

September 30, 2012

 

FUTURES AND FORWARD CURRENCY CONTRACTS  Net Unrealized
Appreciation/
(Depreciation)
as a % of
Partners' Capital
   Net Unrealized
Appreciation/
(Depreciation)
 
         
FUTURES CONTRACTS          
Long futures contracts:          
Energies   (0.49)%  $(1,369,901)
Grains   0.28    765,995 
Interest rates:          
2 Year U.S. Treasury Note (1,490 contracts, settlement date December 2012)   0.05    142,892 
5 Year U.S. Treasury Note (722 contracts, settlement date December 2012)   0.09    248,930 
10 Year U.S. Treasury Note (235 contracts, settlement date December 2012)   0.05    146,876 
30 Year U.S. Treasury Bond (73 contracts, settlement date December 2012)   0.03    81,250 
Other interest rates   0.74    2,068,962 
Total interest rates   0.96    2,688,910 
           
Livestock   (0.05)   (132,500)
Metals   0.76    2,132,880 
Softs   (0.00)   (6,134)
Stock indices   (0.81)   (2,259,349)
Total long futures contracts   0.65    1,819,901 
           
Short futures contracts:          
Energies   0.52    1,456,062 
Grains   0.06    158,313 
Interest rates   (0.02)   (48,838)
Livestock   (0.02)   (50,300)
Metals   (1.86)   (5,212,615)
Softs   0.13    369,779 
Stock indices   0.06    178,018 
Total short futures contracts   (1.13)   (3,149,581)
TOTAL INVESTMENTS IN FUTURES CONTRACTS - Net   (0.48)   (1,329,680)
           
FORWARD CURRENCY CONTRACTS:          
Total long forward currency contracts   0.74    2,062,934 
Total short forward currency contracts   (1.47)   (4,103,530)
TOTAL INVESTMENTS IN FORWARD CURRENCY CONTRACTS - Net   (0.73)   (2,040,596)
           
TOTAL   (1.21)%  $(3,370,276)

 

(Continued)

 

15
 

 

Millburn Multi-Markets Trading L.P.

Condensed Schedule of Investments (UNAUDITED)

September 30, 2012

 

U.S. Treasury Notes

 

Face Amount   Description  Fair Value
as a % of
Partners' Capital
   Fair Value 
             
$27,240,000   U.S. Treasury notes, 0.500%, 11/30/2012   9.76%  $27,258,089 
 67,740,000   U.S. Treasury notes, 0.625%, 02/28/2013   24.30    67,878,920 
 79,160,000   U.S. Treasury notes, 3.375%, 07/31/2013   29.10    81,262,687 
 84,180,000   U.S. Treasury notes, 0.125%, 09/30/2013   30.12    84,130,676 
     Total investments in U.S. Treasury notes          
     (amortized cost $260,499,339)   93.28%  $260,530,372 

 

See notes to financial statements (Concluded)

 

16
 

 

Millburn Multi-Markets Trading L.P.

Condensed Schedule of Investments

December 31, 2011

 

FUTURES AND FORWARD CURRENCY CONTRACTS  Net Unrealized
Appreciation/
(Depreciation)
as a % of
Partners' Capital
   Net Unrealized
Appreciation/
(Depreciation)
 
         
FUTURES CONTRACTS          
Long futures contracts:          
Energies   0.06%  $238,613 
Grains   0.21    864,700 
Interest rates:          
2 Year U.S. Treasury Note (1,300 contracts, settlement date March 2012)   0.05    196,204 
5 Year U.S. Treasury Note (1,202 contracts, settlement date March 2012)   0.10    406,950 
10 Year U.S. Treasury Note (568 contracts, settlement date March 2012)   0.09    383,375 
30 Year U.S. Treasury Bond (141 contracts, settlement date March 2012)   0.02    98,188 
Other interest rates   0.73    2,968,903 
Total interest rates   0.99    4,053,620 
           
Metals   (0.14)   (574,718)
Softs   0.03    100,093 
Stock indices   (0.01)   (36,933)
Total long futures contracts   1.14    4,645,375 
           
Short futures contracts:          
Energies   0.10    394,145 
Grains   (0.75)   (3,070,466)
Interest rates   (0.00)   (12,800)
Livestock   0.01    56,550 
Metals   0.20    829,705 
Softs   0.59    2,427,715 
Stock indices   (0.10)   (424,691)
Total short futures contracts   0.05    200,158 
           
TOTAL INVESTMENTS IN FUTURES CONTRACTS - Net   1.19    4,845,533 
           
FORWARD CURRENCY CONTRACTS:          
Total long forward currency contracts   (0.03)   (124,989)
Total short forward currency contracts   0.89    3,657,252 
           
TOTAL INVESTMENTS IN FORWARD CURRENCY CONTRACTS - Net   0.86    3,532,263 
           
TOTAL   2.05%  $8,377,796 

  

(Continued)

 

17
 

 

Millburn Multi-Markets Trading L.P.

Condensed Schedule of Investments

December 31, 2011


 

U.S. Treasury Notes

 

Face Amount   Description  Fair Value as a % of
Partners' Capital
   Fair Value 
             
$97,740,000   U.S. Treasury notes, 0.875%, 02/29/2012   23.90%  $97,869,811 
 122,960,000   U.S. Treasury notes, 0.375%, 08/31/2012   30.08    123,180,944 
 133,180,000   U.S. Treasury notes, 4.250%, 09/30/2012   33.52    137,248,233 
 27,240,000   U.S. Treasury notes, 0.500%, 11/30/2012   6.67    27,328,317 
     Total investments in U.S. Treasury notes          
     (amortized cost $385,622,622)   94.17%  $385,627,305 

 

 

See notes to financial statements (Concluded)

 

18
 

 

Millburn Multi-Markets Trading L.P.

Statements of Operations (UNAUDITED)
 

   For the three months ended 
   September 30   September 30 
   2012   2011 
INVESTMENT INCOME:          
Interest income  $81,715   $171,776 
           
EXPENSES:          
Brokerage commissions   237,203    246,497 
Management fees   1,252,520    1,740,520 
Selling commissions and platform fees   860,476    724,620 
Administrative and operating expenses   333,634    362,803 
Custody fees and other expenses   19,152    16,148 
Total expenses   2,702,985    3,090,588 
           
NET INVESTMENT LOSS   (2,621,270)   (2,918,812)
           
NET REALIZED AND UNREALIZED GAINS (LOSSES):          
Net realized gains (losses) on closed positions:          
Futures and forward currency contracts   (3,433,598)   13,600,278 
Foreign exchange translation   (30,359)   (74,906)
Net change in unrealized:          
Futures and forward currency contracts   4,193,118    (57,104)
Foreign exchange translation   (16,954)   (57,353)
Net gains (losses) from U.S. Treasury notes          
Realized   (30,256)   - 
Net change in unrealized   49,200    (124,667)
           
TOTAL NET REALIZED AND UNREALIZED GAINS   731,151    13,286,248 
           
NET GAIN (LOSS)   (1,890,119)   10,367,436 
LESS PROFIT SHARE TO GENERAL PARTNER   -    2,640 
NET GAIN (LOSS) AFTER PROFIT SHARE TO GENERAL PARTNER  $(1,890,119)  $10,364,796 
           

 

See notes to financial statements (Continued)

 

19
 

 

Millburn Multi-Markets Trading L.P.

Statements of Operations (UNAUDITED)
 

   For the nine months ended 
   September 30   September 30 
   2012   2011 
INVESTMENT INCOME:          
Interest income  $347,446   $539,946 
           
EXPENSES:          
Brokerage commissions   821,703    746,108 
Management fees   4,767,005    4,660,140 
Selling commissions and platform fees   2,550,026    1,713,194 
Administrative and operating expenses   1,131,401    1,005,514 
Custody fees and other expenses   60,347    43,144 
Total expenses   9,330,482    8,168,100 
           
NET INVESTMENT LOSS   (8,983,036)   (7,628,154)
           
NET REALIZED AND UNREALIZED GAINS (LOSSES):          
Net realized gains (losses) on closed positions:          
Futures and forward currency contracts   (15,624,192)   12,841,121 
Foreign exchange translation   (108,788)   (51,008)
Net change in unrealized:          
Futures and forward currency contracts   (11,748,072)   (15,933,276)
Foreign exchange translation   4,688    (26,514)
Net gains (losses) from U.S. Treasury notes          
Realized   (37,060)   6,906 
Net change in unrealized   26,350    (16,322)
           
TOTAL NET REALIZED AND UNREALIZED LOSSES   (27,487,074)   (3,179,093)
           
NET LOSS   (36,470,110)   (10,807,247)
LESS PROFIT SHARE TO GENERAL PARTNER   -    63,226 
NET LOSS AFTER PROFIT SHARE TO GENERAL PARTNER  $(36,470,110)  $(10,870,473)
           

 

See notes to financial statements (Concluded)

 

20
 

 

Millburn Multi-Markets Trading L.P.

Statements of Changes in Partners' Capital (UNAUDITED)

 

For the nine months ended September 30, 2012:

 

   Limited
Partners
   New Profit
Memo
Account
   General
Partner
   Total 
PARTNERS' CAPITAL- January 1, 2012  $407,700,313   $-   $1,801,044   $409,501,357 
Contributions   45,489,286    -    -    45,489,286 
Withdrawals   (139,212,160)   -    -    (139,212,160)
Net loss   (36,346,713)   -    (123,397)   (36,470,110)
PARTNERS' CAPITAL- September 30, 2012  $277,630,726   $-   $1,677,647   $279,308,373 

 

For the nine months ended September 30, 2011:

 

   Limited
Partners
   New Profit
Memo
Account
   General
Partner
   Total 
PARTNERS' CAPITAL- January 1, 2011  $295,722,233   $-   $1,737,376   $297,459,609 
Contributions   130,596,183    -    -    130,596,183 
Withdrawals   (21,944,621)   -    -    (21,944,621)
Net loss   (10,786,942)   (2,379)   (17,926)   (10,807,247)
General Partner's allocation:                    
New Profit-Accrued   (63,226)   63,226    -    - 
PARTNERS' CAPITAL- September 30, 2011  $393,523,627   $60,847   $1,719,450   $395,303,924 

 

See notes to financial statements

 

21
 

 

Millburn Multi-Markets Trading L.P.

Statements of Financial Highlights (UNAUDITED)

 

The following information presents financial highlights of a Limited Partner that is charged a monthly management fee of 1/12 of 2.00% (2.00% per annum) and an annual profit share of 20% of Trading Profits (as defined in the Limited Partnership Agreement).

 

 

  For the three months ended   For the nine months ended 
  September 30
2012
   September 30
2011
   September 30
2012
   September 30
2011
 
                 
Total return before General Partner profit share allocation (3)   (0.30)%   3.01%   (8.24)%   (2.50)%
Less: General Partner profit share allocation (3)   0.00    0.00    0.00    0.00 
                     
Total return after General Partner profit share allocation (3)   (0.30)%   3.01%   (8.24)%   (2.50)%
                     
Ratios to average net asset value:                    
Expenses (1) (4)   2.56%   2.46%   2.52%   2.50%
General Partner profit share allocation (3)   0.00    0.00    0.00    0.00 
                     
Total expenses (1)   2.56%   2.46%   2.52%   2.50%
                     
Net investment loss (1) (2) (4)   (2.44)%   (2.29)%   (2.39)%   (2.30)%

 

Total returns and the ratios to average net asset value are calculated for a Limited Partner. An individual Limited Partner's total returns and ratios may vary from the above total returns and ratios based on different management fee and General Partner profit share allocation agreements and the timing of contributions and withdrawals.

 

(1) Includes the Partnership's proportionate share of expenses allocated from the Partnership's operations.

 

(2) Excludes General Partner profit share allocation and includes interest income.

 

(3) Not Annualized

 

(4) Annualized

 

See notes to financial statements

 

22
 

 

Millburn Multi-Markets Trading L.P.

Statements of Financial Highlights (UNAUDITED)

 

The following information presents financial highlights for Limited Partners as a whole.

 

 

   For the three months ended   For the nine months ended 
   September 30   September 30   September 30   September 30 
   2012   2011   2012   2011 
                 
Total return before General Partner profit share allocation (3)   (0.58)%   2.84%   (8.85)%   (2.93)%
Less: General Partner profit share allocation (3)   0.00    0.00    0.00    0.02 
                     
Total return after General Partner profit share allocation (3)   (0.58)%   2.84%   (8.85)%   (2.95)%
                     
Ratios to average net asset value:                    
Expenses (1) (2) (4)   3.68%   3.16%   3.46%   3.09%
General Partner profit share allocation (3)   0.00    0.00    0.00    0.02 
                     
Total expenses (1) (2)   3.68%   3.16%   3.46%   3.11%
                     
Net investment loss (1) (2) (4)   (3.56)%   (2.98)%   (3.33)%   (2.89)%

 

Total returns and the ratios to average net asset value are calculated for a Limited Partner. An individual Limited Partner's total returns and ratios may vary from the above total returns and ratios based on different management fee and General Partner profit share allocation agreements and the timing of contributions and withdrawals.

 

(1) Includes the Partnership's proportionate share of expenses allocated from the Partnership's operations.

 

(2) Excludes General Partner profit share allocation and includes interest income.

 

(3) Not Annualized

 

(4) Annualized

 

See notes to financial statements

 

23
 

  

NOTES TO FINANCIAL STATEMENTS

 

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The Master Fund engages in the speculative trading of futures and forward currency contracts and also acts as a master fund for the Partnership and Millburn Multi-Markets Ltd. (the “Company”).

 

The accompanying unaudited financial statements, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the Master Fund’s financial condition at September 30, 2012 (unaudited) and December 31, 2011 and the results of its operations for the three and nine months ended September 30, 2012 and 2011 (unaudited).

 

These financial statements present the results of interim periods and do not include all disclosures normally provided in annual financial statements. It is suggested that these financial statements be read in conjunction with the audited financial statements and notes included in the Master Fund’s annual report for the year ended December 31, 2011 included in the Partnership’s annual report on Form 10-K filed with the Securities and Exchange Commission. The December 31, 2011 information has been derived from the audited financial statements as of December 31, 2011.

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts and disclosures reported in the financial statements. Actual results could differ from these estimates.

 

The Master Fund enters into contracts with various financial institutions that contain a variety of indemnifications. The Master Fund's maximum exposure under these arrangements is unknown. However, the Master Fund has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.

 

The Income Taxes topic of the Codification clarifies the accounting for uncertainty in tax positions. This requires that the Master Fund recognize in its financial statements the impact of any uncertain tax position. Based on a review of the Master Fund’s open tax years, 2009 through 2011, for the U.S. Federal jurisdiction, the New York, Connecticut and Delaware State jurisdictions, and the New York City jurisdiction, there are no uncertain tax positions. The Master Fund is treated as a limited partnership for federal and state income tax reporting purposes.

 

2. RECENT ACCOUNTING STANDARD

 

In December 2011, FASB issued ASU 2011-11, “Disclosures about Offsetting Assets and Liabilities” which creates a new disclosure requirement about the nature of an entity’s rights of setoff and the related arrangement associated with its financial instruments and derivative instruments. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the Statements of Financial Condition and instruments and transactions subject to an agreement similar to a master netting arrangement. The objective of this disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of International Financial Reporting Standards. The disclosure requirements are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The Master Fund should also provide the disclosures retrospectively for all comparative periods presented. Millburn Ridgefield Corporation (the “General Partner”) is currently evaluating the impact that the standard would have on the financial statements.

 

3. INVESTORS IN MILLBURN MULTI-MARKETS TRADING L.P.

 

The Partnership and the Company invest substantially all of their assets in the Master Fund. The Partnership’s and the Company’s ownership percentages of the Master Fund at September 30, 2012 and December 31, 2011 of total partners’ capital of the Master Fund are detailed below. The remaining interests are held by direct investors.

 

   September 30,   December 31, 
   2012   2011 
Partnership   81.23%   57.64%
Company   4.07%   31.07%
           
Total   85.30%   88.71%

 

The capital withdrawals payable at September 30, 2012 of $5,685,590 consists of withdrawals of $3,945,631, $1,643,242 and $96,717 from the Partnership, Company and Master Fund, respectively. The capital withdrawal payable at December 31, 2011 of $5,902,350 consists of withdrawals of $684,447 from the Company, $3,160,409 from the Partnership and $2,057,494 from the Master Fund.

 

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The Master Fund bears expenses, including, but not limited to, periodic legal, accounting and filing fees, up to an amount equal to 1/4 of 1% per annum of average net assets of the Master Fund (the “Expense Cap”). Amounts subject to the Expense Cap include expenses incurred at the Master Fund and Company level and the Administration Fee due to the General Partner, as general partner of the Master Fund. The General Partner bears any excess over such amounts.

 

4. FAIR VALUE

 

The Fair Value Measurements and Disclosures topic of the Codification defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The three levels of the fair value hierarchy are described below:

 

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

 

Level 2: Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly;

 

Level 3: Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

 

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

 

In determining fair value, the Master Fund separates its investments into two categories: cash instruments and derivative contracts.

 

Cash Instruments. The Master Fund’s cash instruments are generally classified within Level 1 of the fair value hierarchy because they are typically valued using quoted market prices. The types of instruments valued based on quoted market prices in active markets include U.S. government obligations. The General Partner does not adjust the quoted price for such instruments, even in situations where the Master Fund holds a large position and a sale could reasonably impact the quoted price.

 

Derivative Contracts. Derivative contracts can be exchange-traded or over-the-counter (“OTC”). Exchange-traded futures contracts are valued based on quoted closing settlement prices and typically fall within Level 1 of the fair value hierarchy.

 

OTC derivatives, or forward currency contracts, are valued based on pricing models that consider the current market prices plus the time value of money (“Forward Points”) and contractual prices of the underlying financial instruments. The Forward Points from the quotation service providers are generally in periods of one month, two months, three months and six months forward while the contractual forward delivery dates for the foreign forward currency contracts traded by the Master Fund may be in between these periods. The General Partner’s policy is to calculate the Forward Points for each contract being valued by determining the number of days from the date the forward currency contract is being valued to its maturity date and then using straight-line interpolation to calculate the valuation of Forward Points for the applicable forward currency contract. Model inputs can generally be verified and model selection does not involve significant management judgment. Such instruments are typically classified within Level 2 of the fair value hierarchy.

 

During the three and nine months ended September 30, 2012 and 2011, there were no transfers of assets or liabilities between Level 1 and Level 2. The following tables represent the Master Fund’s investments by hierarchical level as of September 30, 2012 and December 31, 2011 in valuing the Master Funds’ investments at fair value. At September 30, 2012 and December 31, 2011, the Master Fund had no assets or liabilities in Level 3.

 

Financial assets and liabilities at fair value as of September 30, 2012

 

   Level 1   Level 2   Total 
             
U.S. Treasury notes (1)  $260,530,372   $-   $260,530,372 
                
Exchange-traded futures contracts               
Energies   86,161    -    86,161 
Grains   924,308    -    924,308 
Interest rates   2,640,072    -    2,640,072 
Livestock   (182,800)   -    (182,800)
Metals   (3,079,735)   -    (3,079,735)
Softs   363,645    -    363,645 
Stock indices   (2,081,331)   -    (2,081,331)
Total exchange-traded futures contracts   (1,329,680)   -    (1,329,680)
                
Over-the-counter forward currency contracts   -    (2,040,596)   (2,040,596)
                
Total futures and forward currency contracts (2)   (1,329,680)   (2,040,596)   (3,370,276)
                
Total financial assets and liabilities at fair value  $259,200,692   $(2,040,596)  $257,160,096 
                
Per line item in Statements of Financial Condition               
(1)               
Investments in U.S. Treasury notes held in brokers' trading accounts as collateral            $43,791,258 
Investments in U.S. Treasury notes held in custody             216,739,114 
Total investments in U.S. Treasury notes            $260,530,372 
                
(2)               
Net unrealized appreciation on futures and forward currency contracts            $1,693,514 
Net unrealized depreciation on futures and forward currency contracts             (5,063,790)
Total unrealized depreciation on futures and forward currency contracts            $(3,370,276)

 

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Financial assets and liabilities at fair value as of December 31, 2011

 

   Level 1   Level 2   Total 
             
U.S. Treasury notes (1)  $385,627,305   $-   $385,627,305 
                
Exchange-traded futures contracts               
Energies   632,758    -    632,758 
Grains   (2,205,766)   -    (2,205,766)
Interest rates   4,040,820    -    4,040,820 
Livestock   56,550    -    56,550 
Metals   254,987    -    254,987 
Softs   2,527,808    -    2,527,808 
Stock indices   (461,624)   -    (461,624)
Total exchange-traded futures contracts   4,845,533    -    4,845,533 
                
Over-the-counter forward currency contracts   -    3,532,263    3,532,263 
                
Total futures and forward currency contracts (2)   4,845,533    3,532,263    8,377,796 
                
Total financial assets and liabilities at fair value  $390,472,838   $3,532,263   $394,005,101 
                
Per line item in Statements of Financial Condition               
(1)               
Investments in U.S. Treasury notes held in brokers' trading accounts as collateral            $41,274,794 
Investments in U.S. Treasury notes held in custody             344,352,511 
Total investments in U.S. Treasury notes            $385,627,305 
                
(2)               
Net unrealized appreciation on futures and forward currency contracts            $8,775,049 
Net unrealized depreciation on futures and forward currency contracts             (397,253)
Total unrealized appreciation on futures and forward currency contracts            $8,377,796 

 

5. DERIVATIVE INSTRUMENTS

 

The Derivatives and Hedging topic of the Codification requires qualitative disclosure about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements.

 

The Master Fund’s market risk is influenced by a wide variety of factors, including the level and volatility of interest rates, exchange rates, equity price levels, the market value of financial instruments and contracts, the diversification effects among the Master Fund’s open positions and the liquidity of the markets in which it trades.

 

The Master Fund engages in the speculative trading of futures and forward contracts on interest rates, grains, softs, currencies, metals, energies, livestock and stock indices. The following were the primary trading risk exposures of the Master Fund at September 30, 2012, by market sector:

 

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

 

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

 

Energies – The Master Fund’s primary energy market exposure is to gas and oil price movements, often resulting from political developments in the 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 sector.

 

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

 

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

 

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

 

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

 

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

 

The following tables present the fair value of open futures and forward currency contracts, held long or sold short, at September 30, 2012 and December 31, 2011. Fair value is presented on a gross basis even though the contracts are subject to master netting agreements and qualify for net presentation in the Master Fund’s Statements of Financial Condition.

 

Fair value of futures and forward currency contracts at September 30, 2012

 

                   Net
Unrealized
Gain (Loss)
 
   Fair Value - Long Positions   Fair Value - Short Positions   on Open 
Sector  Gains   Losses   Gains   Losses   Positions 
Futures contracts:                         
Energies  $319,090   $(1,688,991)  $1,684,132   $(228,070)  $86,161 
Grains   1,567,086    (801,091)   240,350    (82,037)   924,308 
Interest rates   2,789,163    (100,253)   -    (48,838)   2,640,072 
Livestock   -    (132,500)   136,640    (186,940)   (182,800)
Metals   2,167,465    (34,585)   -    (5,212,615)   (3,079,735)
Softs   50,270    (56,404)   526,030    (156,251)   363,645 
Stock indices   88,534    (2,347,883)   215,488    (37,470)   (2,081,331)
Total futures contracts   6,981,608    (5,161,707)   2,802,640    (5,952,221)   (1,329,680)
                          
Forward currency contracts   2,761,847    (698,913)   107,830    (4,211,360)   (2,040,596)
                          
Total futures and forward currency contracts  $9,743,455   $(5,860,620)  $2,910,470   $(10,163,581)  $(3,370,276)

 

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Fair value of futures and forward currency contracts at December 31, 2011

 

                   Net Unrealized
Gain (Loss)
 
   Fair Value - Long Positions   Fair Value - Short Positions   on Open 
Sector  Gains   Losses   Gains   Losses   Positions 
Futures contracts:                         
Energies  $438,585   $(199,972)  $898,632   $(504,487)  $632,758 
Grains   875,525    (10,825)   -    (3,070,466)   (2,205,766)
Interest rates   4,286,895    (233,275)   8,850    (21,650)   4,040,820 
Livestock   -    -    105,290    (48,740)   56,550 
Metals   88,086    (662,804)   1,612,529    (782,824)   254,987 
Softs   379,604    (279,511)   2,800,700    (372,985)   2,527,808 
Stock indices   6,167    (43,100)   406,309    (831,000)   (461,624)
Total futures contracts   6,074,862    (1,429,487)   5,832,310    (5,632,152)   4,845,533 
                          
Forward currency contracts   1,756,029    (1,881,018)   5,203,785    (1,546,533)   3,532,263 
                          
Total futures and forward currency contracts  $7,830,891   $(3,310,505)  $11,036,095   $(7,178,685)  $8,377,796 

 

The effect of trading futures and forward currency contracts is represented on the Master Fund’s Statements of Operations for the three and nine months ended September 30, 2012 and 2011 as “Net realized gains (losses) on closed positions: futures and forward currency contracts” and “Net change in unrealized: futures and forward currency contracts.” These trading gains and losses are detailed below.

 

Trading gains (losses) of futures and forward currency contracts for the three and nine months ended September 30, 2012 and 2011

 

Sector  Three months
ended:
September 30,
2012
   Three months
ended:
September 30,
2011
   Nine months
ended:
September 30,
2012
   Nine months
ended:
September 30,
2011
 
Futures contracts:                    
                     
Energies  $(4,231,524)  $(793,923)  $(4,247,670)  $1,525,095 
Grains   2,717,732    (2,075,614)   (347,424)   (4,420,676)
Interest rates   5,352,758    27,030,228    11,401,277    28,687,963 
Livestock   (118,146)   (1,380,530)   (1,380,850)   (2,598,160)
Metals   (3,186,028)   2,998,864    (6,368,550)   616,156 
Softs   (901,092)   365,495    (1,052,759)   (1,683,893)
Stock indices   1,340,060    1,550,044    (10,583,404)   (16,786,913)
Total futures contracts   973,760    27,694,564    (12,579,380)   5,339,572 
                     
Forward currency contracts   (214,240)   (14,151,390)   (14,792,884)   (8,431,727)
                     
Total futures and forward currency contracts  $759,520   $13,543,174   $(27,372,264)  $(3,092,155)

 

For the three months ended September 30, 2012, the monthly average number of futures contracts bought and sold was 22,580 and 20,571, respectively, and the monthly average notional value of forward currency contracts traded was approximately $1,046,000,000. Over the same period in 2011, the monthly average of futures contracts bought and sold was 21,389 and 22,780, respectively, and the monthly average notional value of forward currency contracts traded was approximately $1,230,000,000.

 

For the nine months ended September 30, 2012, the monthly average number of futures contracts bought and sold was 26,121 and 24,835, respectively, and the monthly average notional value of forward currency contracts traded was approximately $1,197,000,000. Over the same period in 2011, the monthly average of futures contracts bought and sold was 21,233 and 21,549, respectively, and the monthly average notional value of forward currency contracts traded was approximately $1,105,000,000.

 

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CONCENTRATION OF CREDIT RISK

 

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

 

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

 

The Master Fund’s forward currency trading activities are cleared by Deutsche Bank AG (“DB”), Morgan Stanley & Co. LLC. (“MS”) and Barclays Bank PLC (“BB”). The Master Fund’s concentration of credit risk associated with DB, MS or BB nonperformance includes unrealized gains inherent in such contracts, which are recognized in the Statements of Financial Condition plus the value of margin or collateral held by DB, MS and BB. The amount of such credit risk was $19,915,908 and $18,514,952 at September 30, 2012 and December 31, 2011, respectively.

 

6. PROFIT SHARE

 

The following table indicates the total profit share earned and accrued during the three and nine months ended September 30, 2011. Profit share earned (from Limited Partners’ redemptions) is credited to the New Profit Memo account as defined in the Master Fund’s Agreement of Limited Partnership. There was no profit share earned or accrued for the three and nine months ended September 30, 2012.

 

   Three months ended: 
   September 30, 2011 
Profit share earned  $- 
Profit share accrued   2,640 
Total profit share  $2,640 

 

   Nine months ended: 
   September 30, 2011 
Profit share earned  $60,586 
Profit share accrued   2,640 
Total profit share  $63,226 

 

7. FINANCIAL HIGHLIGHTS

 

Ratios to average capital are calculated based on 1) a Limited Partner that is charged a monthly management fee of 1/12 of 2.00% (2.00% per annum) and 20% of Trading Profits (the Tracking Partner) and 2) limited partners’ capital taken as a whole. The computation of such ratios based on the amount of expenses and profit share allocation assessed to an individual partner’s capital account may vary from these ratios based on the timing of capital transactions and differences in individual partner’s management fee, selling commission, platform fee and profit share allocation arrangements. Returns are calculated based on 1) a Limited Partner that is charged a monthly management fee of 1/12 of 2.00% (2.00% per annum) and 20% of Trading Profits and 2) limited partners’ capital taken as a whole. An individual partner’s returns may vary from these returns based on the timing of capital transactions and differences in individual partners’ management fee, selling commission, platform fee and profit share allocation arrangements.

 

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Reference is made to Item 1, "Financial Statements.” The information contained therein is essential to, and should be read in connection with, the following analysis.

 

OPERATIONAL OVERVIEW

 

The Partnership invests substantially all of its assets in the Master Fund. Due to the nature of the Master Fund's business, its results of operations depend on the General Partner's ability to recognize and capitalize on trends and other profit opportunities in different sectors of the global capital and commodity markets. The General Partner's investment and trading methods are confidential so that substantially the only information that can be furnished regarding the Master Fund's results of operations is contained in the performance record of its trading. Unlike operating businesses, general economic or seasonal conditions do not directly affect the profit potential of the Master Fund, and its past performance is not necessarily indicative of future results. The General Partner believes, however, that there are certain market conditions, for example, markets with strong price trends, in which the Master Fund has a better likelihood of being profitable than in others.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Units may be offered for sale as of the beginning, and may be redeemed as of the end, of each month.

 

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The amount of capital raised for the Partnership should not have a significant impact on its operations, as the Partnership and the Master Fund have no significant capital expenditure or working capital requirements other than for monies to pay trading losses, brokerage commissions and charges. Within broad ranges of capitalization, the General Partner’s trading positions should increase or decrease in approximate proportion to the size of the Master Fund (in which the Partnership participates).

 

The Partnership raises additional capital only through the sale of Units and capital is increased through trading profits (if any). Neither the Partnership nor the Master Fund engages in borrowing.

 

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

 

The General Partner has procedures in place to control market risk, although there can be no assurance that they will, in fact, succeed in doing so. These procedures primarily focus on (1) real time monitoring of open positions; (2) diversifying positions among various markets; (3) limiting the assets committed as margin or collateral, generally within a range of 5% to 35% of an account’s net assets at exchange, though the amount may at any time be higher; (4) prohibiting pyramiding (that is, using unrealized profits in a particular market as margin for additional positions in the same market); and (5) changing the equity utilized for trading by an account solely on a controlled periodic basis, not automatically due to an increase in equity from trading profits. The General Partner attempts to control credit risk by causing the Partnership to deal exclusively with large, well capitalized financial institutions as brokers and counterparties.

 

The financial instruments traded by the Master Fund contain varying degrees of off-balance sheet risk whereby changes in the market values of the futures and forward contracts or the Master Fund’s satisfaction of the obligations may exceed the amount recognized in the Statements of Financial Condition of the Master Fund.

 

Due to the nature of the Master Fund’s business, substantially all its assets are represented by cash, cash equivalents and U.S. government obligations, while the Master Fund maintains its market exposure through open futures and forward contract positions.

 

The Master Fund’s futures contracts are settled by offset and are cleared by the exchange clearinghouse function. Open futures positions are marked to market each trading day and the Master Fund’s trading accounts are debited or credited accordingly. Options on futures contracts are settled either by offset or by exercise. If an option on a future is exercised, the Master Fund is assigned a position in the underlying future which is then settled by offset. The Master Fund’s spot and forward currency transactions conducted in the interbank market are settled by netting offsetting positions or payment obligations and by cash payments.

 

The value of the Master Fund’s cash and financial instruments is not materially affected by inflation. Changes in interest rates, which are often associated with inflation, could cause the value of certain of the Master Fund’s debt securities to decline, but only to a limited extent. More important, changes in interest rates could cause periods of strong up or down market price trends, during which the Master Fund’s profit potential generally increases. However, inflation can also give rise to markets which have numerous short price trends followed by rapid reversals, markets in which the Master Fund is likely to suffer losses.

 

The Master Fund’s assets are generally held as cash or cash equivalents, including U.S. government securities or securities issued by federal agencies, other Commodity Futures Trading Commission-authorized investments or held in bank or certain other money market instruments (e.g., bankers acceptances and Eurodollar or other time deposits), which are used to margin the Master Fund’s futures and forward currency positions and withdrawn, as necessary, to pay redemptions and expenses. Other than potential market-imposed limitations on liquidity, due, for example, to limited open interest in certain futures markets or to daily price fluctuation limits, which are inherent in the Master Fund’s futures and forward trading, the Master Fund’s assets are highly liquid and are expected to remain so. During its operations through September 30, 2012, the Partnership, through its investment in the Master Fund, experienced no meaningful periods of illiquidity in any of the numerous markets traded by the General Partner.

 

CRITICAL ACCOUNTING ESTIMATES

 

The Master Fund records its transactions in futures and forward currency contracts, including related income and expenses, on a trade date basis. Open futures contracts traded on an exchange are valued at fair value, which is based on the closing settlement price on the exchange where the futures contract is traded by the Master Fund on the day with respect to which net assets are being determined. Open forward currency contracts are recorded at fair value, based on pricing models that consider the current market prices plus the time value of money and contractual prices of the underlying financial instruments. The spot prices and Forward Points for open forward currency contracts are generally based on the 3:00 P.M. New York time prices provided by widely used quotation service providers on the day with respect to which net assets are being determined. The Forward Points from the quotation service providers are generally in periods of one month, two months, three months and six months forward while the contractual forward delivery dates for the foreign currency contracts traded by the Partnership may be in between these periods.

 

30
 

 

The General Partner’s policy is to calculate the Forward Points for each contract being valued by determining the number of days from the date the forward currency contract is being valued to its maturity date and then using straight-line interpolation to calculate the valuation of Forward Points for the applicable forward currency contract. The General Partner will also compare the calculated price to the forward currency prices provided by dealers to determine whether the calculated price is fair and reasonable.

 

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions, such as accrual of expenses, that affect the amounts and disclosures reported in the financial statements. Based on the nature of the business and operations of the Partnership, the General Partner believes that the estimates utilized in preparing the Partnership’s financial statements are appropriate and reasonable, however actual results could differ from these estimates. The estimates used do not provide a range of possible results that would require the exercise of subjective judgment. The General Partner further believes that, based on the nature of the business and operations of the Partnership, no other reasonable assumptions relating to the application of the Partnership’s critical accounting estimates other than those currently used would likely result in materially different amounts from those reported.

 

The General Partner has paid expenses incurred in connection with the organization of the Partnership and the initial offering of the Units. The Master Fund, on behalf of the Partnership, is reimbursing the General Partner for these costs in 60 equal monthly installments of $3,199 which began on August 1, 2009. However, to the extent that for any month the $3,199 exceeds 1/12 of 0.05% (0.05% per annum) of the Partnership’s month-end net asset value, such excess will not be reimbursed by the Partnership but will be absorbed by the General Partner.

 

RESULTS OF OPERATIONS

 

Due to the nature of the Partnership’s trading, through its investment in the Master Fund, the results of operations for the interim periods presented should not be considered indicative of the results that may be expected for the entire year.

 


 

Periods ended September 30, 2012

 


 

   Total 
   Partners' 
   Capital of the 
Month Ending:  Partnership 
September 30, 2012  $226,888,702 
June 30, 2012   221,338,153 
December 31, 2011   236,019,823 

 

   Three Months   Nine Months 
Change in Partners' Capital  $5,550,549   $(9,131,121)
Percent Change   2.51%   (3.87)%

 

THREE MONTHS ENDED SEPTEMBER 30, 2012

 

The increase in the Partnership’s net assets of $5,550,549 was attributable to contributions of $17,338,266 which was partially offset by withdrawals of $9,912,625 and a net loss through its investment in the Master Fund of $1,875,092.

 

Management fees, through the Partnership’s investment in the Master Fund, are calculated on the net asset value on the last day of each month and are affected by trading performance, subscriptions and redemptions. Management fees, through the Partnership’s investment in the Master Fund, for the three months ended September 30, 2012 increased $109,695 relative to the corresponding period in 2011. The increase was due to an increase in the average net asset value of the Partnership during the three months ended September 30, 2012, relative to the corresponding period in 2011.

 

The Partnership, through its investment in the Master Fund, bears all trade-related commission and clearing charges due to third-party brokers. Brokerage commissions, through the Partnership’s investment in the Master Fund, for the three months ended September 30, 2012 increased $57,564 relative to the corresponding period in 2011. The increase was due mainly to an increase in the Partnership’s net asset value during the three months ended September 30, 2012 which resulted in higher trading volume, relative to the corresponding period in 2011.

 

Selling commissions and platform fees are calculated on the net asset value on the last day of each month and are affected by trading performance, subscriptions and redemptions. Selling commissions and platform fees for the three months ended September 30, 2012 increased $128,141 relative to the corresponding period in 2011. The increase was due to an increase in the average net asset value of the Partnership during the three months ended September 30, 2012, relative to the corresponding period in 2011.

 

The Partnership, through its investment in the Master Fund, pays administrative expenses for legal, audit and accounting services. Administrative expenses, net of amounts borne by the General Partner, through the Partnership’s investment in the Master Fund, for the three months ended September 30, 2012 increased $48,793 relative to the corresponding period in 2011. The increase was due mainly to an increase in the Partnership’s net asset value during the three months ended September 30, 2012, relative to the corresponding period in 2011.

 

Interest income, through the Partnership’s investment in the Master Fund, is derived from cash and U.S. Treasury instruments held at the Master Fund’s brokers and custodian. Interest income, through the Partnership’s investment in the Master Fund, for the three months ended September 30, 2012 decreased $25,206 relative to the corresponding period in 2011. This decrease was due primarily to a decrease in short-term Treasury yields during the three months ended September 30, 2012 relative to the corresponding period in 2011.

 

For the three months ended September 30, 2012, the Partnership, through its investment in the Master Fund, achieved net realized and unrealized gains of $553,027 from trading operations (including foreign exchange transactions and translations). Management fees of $1,140,379, brokerage commissions of $191,288, selling commissions and platform fees of $847,996, administrative and operating expenses of $298,934 and custody fees and other expenses of $15,411 were paid or accrued. Interest income of $65,889 partially offset the Master Fund expenses allocated to the Partnership resulting in net loss of $1,875,092.

 

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

 

   % Gain 
Sector  (Loss) 
Currencies   (0.02)%
Energies   (1.51)%
Grains   0.96%
Interest rates   1.93%
Livestock   (0.06)%
Metals   (1.11)%
Softs   (0.34)%
Stock indices   0.45%
Trading gain   0.30%

 

31
 

 

NINE MONTHS ENDED SEPTEMBER 30, 2012

 

The decrease in the Partnership’s net assets of $9,131,121 was attributable to withdrawals of $28,737,210 and a net loss through its investment in the Master Fund of $23,194,194 which was partially offset by subscriptions of $42,800,283.

 

Management fees, through the Partnership’s investment in the Master Fund, are calculated on the net asset value on the last day of each month and are affected by trading performance, subscriptions and redemptions. Management fees, through the Partnership’s investment in the Master Fund, for the nine months ended September 30, 2012 increased $933,013 relative to the corresponding period in 2011. The increase was due to an increase in the average net asset value of the Partnership during the nine months ended September 30, 2012, relative to the corresponding period in 2011.

 

The Partnership, through its investment in the Master Fund, bears all trade-related commission and clearing charges due to third-party brokers. Brokerage commissions, through the Partnership’s investment in the Master Fund, for the nine months ended September 30, 2012 increased $186,604 relative to the corresponding period in 2011. The increase was due mainly to an increase in the Partnership’s net asset value during the nine months ended September 30, 2012 which resulted in higher trading volume, relative to the corresponding period in 2011.

 

Selling commissions and platform fees are calculated on the net asset value on the last day of each month and are affected by trading performance, subscriptions and redemptions. Selling commissions and platform fees for the nine months ended September 30, 2012 increased $818,647 relative to the corresponding period in 2011. The increase was due to an increase in the average net asset value of the Partnership during the nine months ended September 30, 2012, relative to the corresponding period in 2011.

 

The Partnership, through its investment in the Master Fund, pays administrative expenses for legal, audit and accounting services. Administrative expenses, net of amounts borne by the General Partner, through the Partnership’s investment in the Master Fund, for the nine months ended September 30, 2012 increased $185,582 relative to the corresponding period in 2011. The increase was due mainly to an increase in the Partnership’s average net asset value during the nine months ended September 30, 2012, relative to the corresponding period in 2011.

 

Interest income, through the Partnership’s investment in the Master Fund, is derived from cash and U.S. Treasury instruments held at the Master Fund’s brokers and custodian. Interest income, through the Partnership’s investment in the Master Fund, for the nine months ended September 30, 2012 decreased $27,160 relative to the corresponding period in 2011. This decrease was due primarily to a decrease in short-term Treasury yields during the nine months ended September 30, 2012 relative to the corresponding period in 2011.

 

For the nine months ended September 30, 2012, the Partnership, through its investment in the Master Fund, achieved net realized and unrealized losses of $15,967,565 from trading operations (including foreign exchange transactions and translations). Management fees of $3,440,530, brokerage commissions of $542,447, selling commissions and platform fees of $2,527,076, administrative and operating expenses of $901,635 and custody fees and other expenses of $40,029 were paid or accrued. Interest income of $225,088 partially offset the Master Fund expenses allocated to the Partnership resulting in net loss after profit share of $23,194,194.

 

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

 

   % Gain 
Sector  (Loss) 
Currencies   (3.62)%
Energies   (1.57)%
Grains   0.20%
Interest rates   3.55%
Livestock   (0.37)%
Metals   (1.81)%
Softs   (0.36)%
Stock indices   (2.56)%
Trading loss   (6.54)%

 

MANAGEMENT DISCUSSION – 2012

 

Three months ended September 30, 2012

 

The Partnership, through its investment in the Master Fund, recorded a small trading gain during the quarter as markets struggled to find a persistent direction. Profits from trading interest rate, grain and stock index futures were largely offset by losses from trading energy, metals and soft commodity futures. Currency trading was essentially flat.

 

Market participants had to weigh the deterioration in actual economic facts against additional easing of monetary policies by a variety of central banks. Moreover, they had to grapple with the ability and willingness of fiscal authorities to rein in deficits with appropriate and effective tax and expenditure programs. Economic statistics worldwide indicated negative or slowing growth and stagnant employment levels at best. The one exception was the U.S. where growth, though slow, seemed steady, although employment levels remained depressed. Moreover, official forecasts—from the International Monetary Fund, Organization for Economic Co-Operation and Development, World Bank, Asian Development Bank and others as well as from various national authorities—were uniformly downgraded. In an effort to counter these tendencies, monetary policies have become ever more accommodative. The latest installments on this easing occurred when on September 8, the European Central Bank (“E.C.B“) announced a plan (vigorously opposed by the Bundesbank) to purchase unlimited amounts of government bonds of Spain and other weak European members if these countries would first request assistance from Europe’s bailout funds. On September 13, the Federal Reserve announced another round of quantitative easing (“QE3“). This was followed by the Bank of Japan increasing the size and duration of its asset purchases. And yet, market participants know that unless European policy makers finally fulfill promises concerning banking unification and fiscal policy unification; and unless the U.S. avoids the fiscal cliff and deals with its debt and deficit problems, the monetary efforts will be for naught. All in all, world markets enter the fourth quarter confronted with considerable uncertainty.

 

Against this background, long positions in safe haven U.S., German, British, and Japanese government notes and bonds were profitable, as were long positions in short-term interest rate futures. These gains were pared back later in the quarter due to a run-up in interest rates on government debt which suggests that market participants may be concluding that the ongoing deluge of monetary stimulus may be ineffective and eventually inflationary.

 

Stock index futures generated a gain due to long positions in U.S. and South African indices and short positions in the VIX, the so-called “fear index,” which showed a decrease in expected stock market volatility. Meanwhile, trading of Chinese, Korean, Australian, Canadian and Italian indices was unprofitable.

 

Drought in the U.S. drove grain prices sharply higher during much of the quarter and long positions in soybeans, soybean meal, wheat and corn were profitable, even though the gains were scaled back as prices receded from their highs late in the period. A short soybean oil trade lost money and was reversed.

 

32
 

 

Short Brent and WTI crude oil, heating oil, London gas oil and RBOB gasoline trades were unprofitable and closed or reversed to long trades as concerns about developments in the Middle East underpinned prices despite an apparently abundant current supply. Natural gas trading was also somewhat unprofitable.

 

Short positions in industrial metals were unprofitable as demand from the U.S. auto industry and some stock building demand from China outweighed the broader concerns about worldwide growth.

 

Currency trading was volatile. Market sentiment toward the euro and the U.S. dollar was continually in flux. On balance, short euro trades against a variety of currencies were profitable amid rising concern about European Union (“E.U.”) growth. Long positions in Norwegian and Swedish currencies were profitable as the Scandinavian units seemed to become the latest “safe havens”.

 

Short dollar trades versus the currencies of Korea, Singapore, Chile and Turkey were also profitable. On the other hand, long dollar positions versus the euro and the currencies of the United Kingdom., Brazil, India, Japan, Mexico, Poland, Russia and the Czech Republic produced largely offsetting losses.

 

Short positions in cotton, sugar and Arabica coffee, and long trades in Robusta coffee and London sugar were unprofitable and outweighed the gain from a short palm oil trade.

 

Three months ended June 30, 2012

 

The Master Fund was marginally negative during the quarter as gains from trading over the first 89 calendar days of the period were erased on the final trading day of June following a surprise announcement from the latest E.U. economic summit. Gains from interest rate futures trading and, to a lesser extent, from trading non-dollar cross rates and metal futures were offset by losses from trading stock index, energy and grain and livestock futures. Trading of tropical soft commodities was flat.

 

The global recovery, which was not very robust to begin with, displayed signs of additional weakness throughout the April-June period. Banking and sovereign stresses in the Eurozone, highlighted by two Greek elections in two months, increased. Growth in a number of emerging market economies—China, Brazil, and India, for example—disappointed. In the U.S., economic activity decelerated during the first half of the year so that second quarter growth is now expected to register less than 2%. These forces had led to gains on long interest rate positions, long dollar positions, and short energy, metals and soft commodity positions. Then, on June 29, E.U. leaders announced an agreement to moderate conditions on emergency loans to Spanish banks, ease borrowing costs for Spain and Italy, move toward direct recapitalization of European banks with bailout funds, discuss a full E.U. banking union with E.C.B. supervision, advance the fiscal union discussion and discuss a 120 billion euro fund to promote growth. While most of these provisions were anticipatory and not hard facts, the timing of the news—on a Friday before a U.S. holiday on the last trading day of the month and quarter—triggered a strong, albeit ephemeral, response, resulting in a major appreciation of the Euro and other currencies versus the U.S. dollar, a selloff of safe harbor government debt and a strong rise in energy and metal prices. These market moves sent the Partnership’s returns for the quarter from a sizable gain to roughly breakeven.

 

Despite some end of June giveback, the sizable demand for the safest investments drove higher the prices of German, U.S., British, Australian, Canadian and Japanese government note and bond futures, leading to sizable profits on long positions. Indeed the yields on German, U.S. and British ten year notes, among others, fell to post World War II record lows. Measures to ease monetary policy by Brazil, India, China and Australia pointed to growth concerns and further encouraged safe haven demand.

 

As the growth outlook deteriorated, the prices of industrial metals fell and short positions were profitable. Gold prices also fell and a long position generated a loss and was closed and reversed to a short trade.

 

Turning to soft commodities, short positions in cotton and coffee produced a profit, while a long crude palm oil trade, a short cocoa position and trading of sugar generated largely offsetting losses.

 

Short Euro trades versus the Australian dollar and Turkish lire were profitable, as was a long Australian trade against the Swiss franc. U.S. dollar currency trading was fractionally negative for the quarter largely due to U.S. dollar selling in the wake of the June 29 news from Europe. For most of the quarter the U.S. dollar had risen and long dollar positions against the Euro, the currencies of India, Israel, Switzerland, Brazil and the Czech Republic were profitable. Meanwhile, losses were suffered on short dollar trades vis-à-vis the British pound, Australian dollar, Canadian dollar, New Zealand dollar, Chilean peso, Mexican peso, Korean won, Russian ruble, and South African rand. Most of these short dollar positions were reversed to long positions and experienced losses at the end of June. A long dollar position against the yen was unprofitable.

 

Energy prices fell against the background of weakening growth and a stronger U.S. dollar, and long positions in crude and crude products produced losses and in most cases were closed or reversed. Those short energy positions sustained losses during the June 29 rally. Natural gas trading was marginally negative.

 

Equity futures prices weakened as first quarter optimism dissipated. Long positions in U.S., Japanese, British, German, Dutch, South African and Australian equity futures produced losses and were reduced and, in some cases, reversed. Those that did reverse suffered June 29 losses also. Short positions in Spanish and Korean equity futures generated smaller profits.

 

33
 

 

Grain prices were quite volatile during the quarter, generally declining through May as crop prospects were encouraging, and then soaring during June as drought struck the U.S. Midwest. Short corn, wheat, Kansas City wheat and Minnesota spring wheat positions produced losses and were reversed to long positions. Long milling wheat and soy meal trades generated some small offsetting profits. Short livestock trades were fractionally negative.

 

Three months ended March 31, 2012

 

The Master Fund registered a loss during the quarter as losses from trading currency forwards, interest rates, equities, metals and grains futures overwhelmed gains from trading energies and soft commodities futures. The sentiment of market participants during the quarter was dominated by the belief that both the economic outlook and the European debt crisis were improving.

 

Foreign exchange trading was particularly volatile and unprofitable. Entering the quarter, the U.S. dollar had been trading higher against most currencies based on relative economic strength, financial tumult in Europe and perceived weakening of growth in China, but as these factors receded, U.S. interest rates appeared to be staying negligible for an extended period. The U.S. dollar sold off against Central and South American, European and Asian currencies generating losses on long U.S. dollar positions and in many cases bringing a reversal to short U.S. dollar positions. Later, short U.S. dollar trades versus the Australian dollar, Brazilian real, Columbian peso and Chilean peso also generated losses. For the Brazilian real, in particular, a larger than expected cut in the Brazilian Central Bank’s Selic benchmark interest rate and increased capital controls geared toward weakening the currency undermined the real. Also, a long Japanese yen trade versus the U.S. dollar lost money and was reversed to a short trade after the yen weakened suddenly following a surprise expansionary move by the Bank of Japan which increased its asset purchase program by $130 billion and set an inflation target for the first time.

 

Turning to non-U.S. dollar cross rates, long Australian dollar positions against a variety of currencies generated losses when the Aussie weakened as slowing growth, rising unemployment and declining inflation statistics combined with forecasts of a Chinese growth slowdown to increase the likelihood that the Reserve Bank of Australia might ease monetary policy. Short euro trades against several currencies were unprofitable as the euro rebounded when the E.C.B.’s Long Term Refinancing Operations program improved the functioning of financial markets in Europe and as the size of the European rescue fund was substantially raised.

 

Whether from a reduced need for safety because of an improving economic outlook, particularly in the U.S., from an increased worry about inflation, from a renewed concern about government debt levels or from a reduced likelihood of QE3, interest rates rose and long positions in U.S., Australian, Canadian, British and Japanese note and bond futures produced losses.

 

A first quarter rally in equity markets was rather widespread as market participants responded favorably to an apparent improvement in the global economic outlook, particularly in the U.S., and to progress by the E.U. toward resolving their sovereign debt crisis. Long positions in U.S. equity futures were profitable, as was a short CBOE VIX trade that also benefitted from rising equity markets. However, short positions in numerous European and Asian equity indices, especially China, Hong Kong, Japan and Germany, produced even bigger losses.

 

Industrial metals had been in a sustained downtrend but as pessimism about global growth swung to modest optimism – perhaps prematurely – the metals rallied strongly and generated losses on short positions. A short platinum position also was unprofitable as a supply interruption from South Africa boosted prices. Finally, a short silver trade was unprofitable.

 

In the energy markets, long positions in Brent crude, RBOB gasoline, and London gas oil benefited from the general commodity rally and continued stresses from the Middle East and were profitable. The biggest winners in the sector were short positions in U.S. natural gas where the supply boom from fracking and horizontal drilling in shale formations continued to drive prices down.

 

Trading of soft agricultural commodities was fractionally negative. Short grain trades, especially in the soybean complex, were unprofitable as was non-trend trading of grains. A short cocoa position was unprofitable as hot, dry weather hit the Ivory Coast and raised fears that an expected bumper crop might face significant damage. Short cotton and rubber trades were also unprofitable when prices rose as pessimism about worldwide growth lifted, at least temporarily. A short Arabica coffee trade produced a profit as expectations of a bumper Brazilian harvest pushed Arabica to its lowest price in 18 months in late March. A long crude palm oil trade was profitable.

 


 

Periods ended September 30, 2011

 


 

   Total 
   Partners' 
   Capital of the 
Month Ending:  Partnership 
September 30, 2011  $215,820,219 
June 30, 2011   172,486,029 
December 31, 2010   111,327,838 

 

34
 

 

   Three Months   Nine Months 
Change in Partners' Capital  $43,334,190   $104,492,381 
Percent Change   25.12%   93.86%

 

THREE MONTHS SEPTEMBER 30, 2011

 

The increase in the Partnership’s net assets of $43,334,190 was attributable to subscriptions of $41,098,969 and, through its investment in the Master Fund, net income after profit share of $4,806,850 which was partially offset by withdrawals of $2,571,629.

 

For the three months ended September 30, 2011, the Partnership, through its investment in the Master Fund, achieved net realized and unrealized gains of $6,856,562 from trading operations (including foreign exchange transactions and translations). Management fees of $1,030,684, brokerage commissions of $133,724, selling commissions and platform fees of $719,855, administrative and operating expenses of $250,141 and custody fees and other expenses of $8,334 were paid or accrued. Of these expenses, $1,931 was borne by the General Partner. Interest income of $91,095 partially offset the Master Fund expenses allocated to the Partnership resulting in net gain of $4,806,850.

 

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

 

   % Gain 
Sector  (Loss) 
Currencies   (3.52)%
Energies   (0.22)%
Grains   (0.56)%
Interest rates   7.15%
Livestock   (0.38)%
Metals   0.77%
Softs   0.07%
Stock indices   0.33%
Trading gain   3.64%

 

NINE MONTHS SEPTEMBER 30, 2011

 

The increase in the Partnership’s net assets of $104,492,381 was attributable to subscriptions of $116,028,083 which was partially offset by withdrawals of $4,664,005 and, through its investment in the Master Fund, a net loss after profit share of $6,871,697.

 

For the nine months ended September 30, 2011, the Partnership, through its investment in the Master Fund, achieved net realized and unrealized losses of $1,871,294 from trading operations (including foreign exchange transactions and translations). Management fees of $2,507,517, brokerage commissions of $355,843, selling commissions and platform fees of $1,708,429, administrative and operating expenses of $716,053 and custody fees and other expenses of $19,731 were paid or accrued. Of these expenses, $57,517 was borne by the General Partner. The Master Fund allocated $2,595 in Profit Share to the General Partner in respect of the Partnership. Interest income of $252,248 partially offset the Master Fund expenses allocated to the Partnership resulting in net loss after profit share of $6,871,697.

 

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

 

   % Gain 
Sector  (Loss) 
Currencies   (1.76)%
Energies   0.78%
Grains   (1.29)%
Interest rates   7.43%
Livestock   (0.79)%
Metals   0.21%
Softs   (0.48)%
Stock indices   (4.86)%
Trading loss   (0.76)%

 

35
 

 

MANAGEMENT DISCUSSION – 2011

 

Three months ended September 30, 2011

 

The Partnership posted a gain during the third quarter as gains from trading interest rates, metals and to a lesser extent stock indices outweighed losses from trading currencies, energy and agricultural commodities.

 

Third quarter trading was volatile as pervasive uncertainty pushed cautionary, safety-first trades to the forefront of market action. The continuing failure of courage in Washington to come to a bipartisan solution on the U.S. deficit and debt ceiling imbroglio and the lack of a complete solution to Europe’s debt quagmire with its knock-on impact on banks held market participants hostage to uncertainty which had a negative influence on growth prospects worldwide. In addition, inflation worries in emerging markets kept monetary policy on a tightening trajectory, especially in China and India, even as growth slowed.

 

The flight to safety produced gains from long positions in note and bond futures for the U.S., United Kingdom, Australia, Canada, Germany and Japan. The “Quantitative Easing” that was implemented in the U.S., United Kingdom and Japan added to the demand for longer term instruments.

 

Metal trading was volatile during the quarter but profitable overall due largely to gains from a long gold position. As growth prospects receded, long positions in industrial metals produced losses in August and were reversed to short positions which generated a sizable gain in September.

 

The deteriorating growth outlook, the fiscal problems in the developed world and policy tightening in emerging economies undermined equity futures prices. Consequently, the long equity positions held at the start of the quarter generated losses in July and early August but after being reversed to short positions produced a more than offsetting gain.

 

Coming into the quarter, the U.S. dollar had been in a lengthy decline and was not viewed as a safe haven. However with Switzerland and Japan enacting policy initiatives to limit the attractiveness of their currencies, with slower growth undermining the attraction of commodity and emerging market currencies and with the Euro’s existence in question, the U.S. dollar reemerged as a safe haven investment despite the rating downgrade of U.S. government securities by Standard & Poor’s. As a result, short U.S. dollar trades, which had been profitable in July, were unprofitable during August and September. Non-U.S. dollar cross rate trading was negative due to losses on long Australian and New Zealand dollar trades and on short British Pound and Euro trades.

 

With the economic outlook weakening, losses on long positions in Brent Crude, blendstock gasoline and London gas oil led to a fractional loss from energy trading, although short West Texas Intermediate crude and natural gas positions were profitable.

 

Trading of agricultural commodities was fractionally negative as long coffee, sugar, corn, soybean and soybean meal positions and a short livestock trade registered losses toward quarter end. Profits from short cocoa trades offset some of these losses.

 

Three months ended June 30, 2011

 

While growth oriented trades produced gains early in the quarter, market sentiment toward these “risk on” positions deteriorated during May and June and the Master Fund registered a decline for the three months. Losses from trading of equity, energy, metal and agricultural commodity futures outdistanced gains from currency and interest rate futures trading.

 

Manufacturing activity, as evidenced by weakening purchasing manager surveys and employment statistics, slowed worldwide during the quarter. In the developed economies, the continued depression in the housing markets and the knock-on effects of the Japan crisis added to the negative sentiment as did the coming end of the second round of quantitative easing ("QE2") in the U.S. and the increase in bank regulations worldwide. Meanwhile, in the developing economies, more moves toward tighter monetary policy to contain inflation, led by China, reined in “animal spirits.” Combining this worsening growth outlook with the Greek debt drama and the U.S. debt ceiling imbroglio served to undermine the long equity and commodity trades in the Master Fund.

 

Against this background, long equity futures positions produced losses and were reduced significantly and in some instances closed or reversed to short trades. Losses were registered on long equity positions in U.S., Chinese, Hong Kong, Korean, Taiwanese, Canadian, Australian, South African and European—especially Italian, Spanish, Swedish and Dutch—equity futures. There was a bounce in equity markets near quarter-end as the Greek austerity approval triggered some short covering, and perhaps due to quarter-end window dressing purchases.

 

A steadying U.S. dollar, slowing growth and news that the International Energy Agency would release 60 million barrels of oil from strategic reserves to compensate for the Libyan shortfall pushed energy prices lower and led to losses on long positions in crude and related products. Trading of natural gas also resulted in a loss.

 

Diminishing industrial activity and global economic growth produced losses from long positions in industrial metals, especially aluminum, lead, zinc and nickel. A long gold position was profitable, although the gains were pared back as the U.S. dollar stabilized after April. Silver trading was highly volatile with gains in April offset by losses in May and June.

 

Turning to agricultural commodities, long positions in the soybean complex, crude palm oil, cotton, coffee and cattle were unprofitable, while a short London cocoa trade lost money and a short wheat trade was profitable.

 

36
 

 

Interest rate trading was profitable during April and May but in June sovereign debt concerns and inflation worries undermined some long note and bond trades. For the quarter, long positions in U.S., Australian, Canadian and Japanese long-term futures and a long position in short-term sterling were profitable. Meanwhile, short trades in European interest rate futures produced losses.

 

The Federal Reserve’s policy of miniscule interest rates and quantitative easing caused the U.S. dollar to take a significant dip in April. During May and June, the U.S. dollar partially recovered as the end of QE2 approached and as growth and debt concerns outside the U.S. caused market participants to trim back short U.S. dollar positions. Still, on balance, short U.S. dollar positions versus emerging market, high yield and safe haven currencies like the Swiss franc were profitable. Meanwhile, non-U.S. dollar trading lost money from long positions in the Australian dollar, Norwegian kroner and Swedish krona. On the other hand, a short pound/long Australian dollar trade was profitable.

 

Three months ended March 31, 2011

 

Trading during the quarter was volatile largely as a result of the disaster in Japan. There was a loss for the period as profits from energy, U.S. dollar currency, metal and soft commodity trading were outweighed by losses from equity, interest rate and currency cross rate trading.

 

Through the first two and one-third months of the quarter, generous liquidity creation by developed country central banks, especially the Federal Reserve, led to a weakening U.S. dollar, and rising equity and commodity prices. Meanwhile, inflation concerns, monetary policy tightening in emerging economies and persistent worry about government debt problems encouraged interest rates on government securities to rise.

 

Given the diverse monetary policy stances of the U.S. and emerging economies, capital flowed toward high yield and emerging market exporting countries. Short U.S. dollar positions were profitable as the U.S. dollar fell versus the currencies of Brazil, Canada, Korea, Mexico, Russia and Scandinavia.

 

Persistent ease in U.S. monetary policy also led to increasing optimism regarding global economic growth. This environment was favorable to global equities and long positions in index futures in the U.S., Canada, Europe and South Africa were profitable. Asian equities did less well as policy tightening progressed.

 

The weak U.S. dollar and strong growth outlook supported commodity prices and agricultural commodity, metal and energy trading were all profitable. The agricultural markets were also boosted by supply concerns caused by a variety of weather conditions – too much or too little rain, too hot or not hot enough. Long positions in corn, wheat, cotton, coffee and rubber were profitable.

 

Energy prices were up on the roiling violence in the Middle East and North Africa, a better economic growth outlook and supply drawdowns. Long positions in crude, heating oil, London gas oil and RBOB gasoline were profitable.

 

Contrary to some expectations, QE2 failed to keep interest rates low. With market participants worried about massive government borrowing requirements and future inflation, there was a substantial uptick in rates and moderate losses were sustained on long interest rate futures positions.

 

In mid-March, the Japanese earthquake/tsunami/nuclear disaster had a sizable negative impact on these profitable results as market participants altered their prior views producing significant price reversals.

 

A flight to safety triggered a strong move into the U.S. dollar which had been falling because of concern regarding fiscal and monetary problems in the U.S., as well as into the Swiss franc and yen which had been weak due to low interest rates. This flight also led to rising prices for “suddenly safe” government securities which had previously been under pressure due to debt problems and recent signs of tighter monetary policies, particularly in Asia. Given the threat to worldwide growth due to the crippling of the Japanese economy, global equity markets, which had weakened noticeably on March 9 in the wake of a Bank of Korea rate hike and further signs of a persistent inflation problem in China, fell sharply as the scale of the disaster expanded. Finally, with Japan’s industrial sector somewhat crippled and global growth now more uncertain, the demands for and prices of metals, energy, and other commodities, which have been experiencing a secular boom, fell, negatively impacting performance.

 

The increase in volatility led our risk management systems to reduce positions in order to keep risk in line with intended exposures. Also, price changes produced new signals from directional models that led to position adjustments. Equity exposures were reduced about 50% from earlier levels, although the portfolio remained partially long Asian, U.S. and European indices. In Japan, equity positions were reduced close to flat, as were positions in Japanese government bonds, while the portfolio stayed slightly short the U.S. dollar against the yen. Metal and energy positions stayed long though 10-20% under earlier levels. The portfolio also went somewhat long interest rate futures, particularly Canadian, U.S. and British instruments.

 

Over the final days of the month, earlier trends resurfaced and much of the Japan related loss was recaptured, but with positions lowered, especially in equities, the quarter finished slightly negative.

 

37
 

 

OFF-BALANCE SHEET ARRANGEMENTS

 

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

 

CONTRACTUAL OBLIGATIONS

 

Neither the Partnership nor the Master Fund enters into contractual obligations or commercial commitments to make future payments of a type that would be typical for an operating company or that would affect its liquidity or capital resources. The Partnership’s sole business, through its investment in the Master Fund, is trading futures and forward contracts, both long (contracts to buy) and short (contacts to sell). All such contracts are settled by offset, not delivery. Substantially all such contracts are for settlement within four months of the trade date and substantially all such contracts are held by the Master Fund for less than four months before being offset or rolled over into new contracts with similar maturities. The financial statements of the Master Fund present a condensed schedule of investments setting forth open futures, forward and other contracts at September 30, 2012 and December 31, 2011.

 

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not required.

 

ITEM 4.   CONTROLS AND PROCEDURES

 

The General Partner, with the participation of the General Partner's Co-Chief Executive Officers and 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 covered by this quarterly report, and, based on their evaluation, have concluded that these disclosure controls and procedures are effective. There were no changes in the General Partner's internal control over financial reporting during the quarter ended September 30, 2012 that have materially affected, or are reasonably likely to materially affect, the General Partner's internal control over financial reporting with respect to the Partnership.

 

PART II.  OTHER INFORMATION

 

ITEM 1.  Legal Proceedings

 

None.

 

ITEM 1A. Risk Factors

 

Not required.

 

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

 

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

 

The following table summarizes the redemptions by Series A, Series B and Series C limited partners during the three months ended September 30, 2012.

 

   Series A   Series B   Series C 
Date of
Withdrawal
  Units
Redeemed
   NAV
per Unit
   Units
Redeemed
   NAV
per Unit
   Units
Redeemed
   NAV
per Unit
 
July 31, 2012   (1,144.4224)  $988.72    (421.7200)  $1,035.02    (668.6391)  $1,042.90 
August 31, 2012   (2,804.5009)   962.37    (887.2779)   1,008.90    (103.0124)   1,016.80 
September 30, 2012   (3,519.3532)   938.21    (494.3946)   985.01    (160.6590)   992.93 
                               
Total   (7,468.2765)        (1,803.3925)        (932.3105)     

 

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

 

Not Applicable.

 

ITEM 4.   MINE SAFETY DISCLOSURES

 

Not Applicable. 

 

38
 

 

ITEM 5.  OTHER INFORMATION

 

None.

 

ITEM 6.  EXHIBITS

 

The following exhibits are included herewith:

 

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

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

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

32.01 Section 1350 Certification of Co-Chief Executive Officer

32.02 Section 1350 Certification of Co-Chief Executive Officer

32.03 Section 1350 Certification of Chief Financial Officer

 

101.INS*                       XBRL Instance Document

101.SCH*                      XBRL Taxonomy Extension Schema Document

101.CAL*                      XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*                      XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*                      XBRL Taxonomy Extension Labe Linkbase Document

101.PRE*                      XBRL Taxonomy Extension Presentation Linkbase Document

 

*              XBRL information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934, and is not subject to liability under those sections, is not part of any registration statement or prospectus to which it relates and is not incorporated or deemed to be incorporated by reference into any registration statement, prospectus or other document.

 

SIGNATURES

 

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

 

By:  Millburn Ridgefield Corporation,  
  General Partner  

 

Date: November 13, 2012  
   
  /s/ Tod A. Tanis
  Tod A. Tanis
  Vice-President
  (Principal Accounting Officer)

 

39