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EX-31.03 - EX-31.03 - NESTOR PARTNERSc471-20150630ex31030fdf1.htm
EX-31.02 - EX-31.02 - NESTOR PARTNERSc471-20150630ex3102616d4.htm
EX-32.01 - EX-32.01 - NESTOR PARTNERSc471-20150630ex3201d5d07.htm
EX-31.01 - EX-31.01 - NESTOR PARTNERSc471-20150630ex3101453df.htm
EX-32.03 - EX-32.03 - NESTOR PARTNERSc471-20150630ex3203317b3.htm
EX-32.02 - EX-32.02 - NESTOR PARTNERSc471-20150630ex32024d786.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

 

 

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

 

 

For the Quarterly Period Ended:   June 30, 2015

Or

 

 

 

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

 

 

Commission File Number: 000-50725

 

NESTOR PARTNERS

 

 

 

 

(Exact name of registrant as specified in its charter)

 

 

 

 

NEW JERSEY

 

22-2149317

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

 

c/o MILLBURN RIDGEFIELD CORPORATION

411 West Putnam Avenue

Greenwich, Connecticut  06830

 

 

 

 

(Address of principal executive offices) (Zip code)

 

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

 

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

 

Yes            No 

 

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

 

Yes            No 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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

 

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

 

Yes          No   

 

 

 

 

 

 

 

 

 

 

 

 

 


 

PART 1. FINANANCIAL INFORMATION

 

 

ITEM 1. FINANCIAL STATEMENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nestor Partners

 

 

 

Financial statements

 

 

 

For the three and six months ended June 30, 2015 and 2014 (unaudited)

 

 

 

 

 

 

 

 

 

Statements of Financial Condition (a)

 

 

Condensed Schedules of Investments (a)

 

 

Statements of Operations (b)

 

 

Statements of Changes in Partners' Capital (c)

 

 

Statements of Financial Highlights (b)

 

 

Notes to the Financial Statements

 

 

10 

 

 

 

 

 

 

 

(a) At June 30, 2015 and December 31, 2014 (unaudited)

 

(b) For the three and six months ended June 30, 2015 and 2014 (unaudited)

 

(c) For the six months ended June 30, 2015 and 2014 (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

 

 

 

 

 

 

 

 

Nestor Partners

Statements of Financial Condition (UNAUDITED)

 

 

 

 

 

 

 

 

June 30, 2015

 

 

December 31, 2014

ASSETS

 

 

 

 

 

 

 

 

 

 

 

EQUITY IN TRADING ACCOUNTS:

 

 

 

 

 

Investments in U.S. Treasury notes − at fair value

 

 

 

 

 

(amortized cost $20,089,609 and $14,499,118)

$

20,091,375 

 

$

14,499,918 

Net unrealized appreciation on open futures and forward

 

 

 

 

 

currency contracts

 

730,072 

 

 

1,396,471 

Due from brokers

 

269,588 

 

 

3,100,309 

Cash denominated in foreign currencies (cost $1,984,958

 

 

 

 

 

and $1,529,032)

 

1,948,880 

 

 

1,413,316 

 

 

 

 

 

 

Total equity in trading accounts

 

23,039,915 

 

 

20,410,014 

 

 

 

 

 

 

INVESTMENTS IN U.S. TREASURY NOTES − at fair value

 

 

 

 

 

(amortized cost $96,600,644 and $92,253,329)

 

96,632,622 

 

 

92,248,350 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS

 

12,427,506 

 

 

18,990,245 

 

 

 

 

 

 

ACCRUED INTEREST RECEIVABLE

 

86,737 

 

 

101,013 

 

 

 

 

 

 

TOTAL

$

132,186,780 

 

$

131,749,622 

 

 

 

 

 

 

LIABILITIES AND PARTNERS' CAPITAL

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

Capital contributions received in advance

$

150,000 

 

$

3,139,000 

Net unrealized depreciation on open futures and forward

 

 

 

 

 

currency contracts

 

402,500 

 

 

355,846 

Accrued brokerage fees

 

239,700 

 

 

211,866 

Cash denominated in foreign currencies (cost $0

 

 

 

 

 

and $179,983)

 

 -

 

 

183,943 

Accrued expenses

 

154,452 

 

 

107,844 

Capital withdrawals payable

 

1,122,821 

 

 

1,371,319 

 

 

 

 

 

 

Total liabilities

 

2,069,473 

 

 

5,369,818 

 

 

 

 

 

 

PARTNERS' CAPITAL

 

130,117,307 

 

 

126,379,804 

 

 

 

 

 

 

TOTAL

$

132,186,780 

 

$

131,749,622 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to financial statements (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 


 

Nestor Partners

Condensed Schedule of Investments

June 30, 2015 (UNAUDITED)

 

 

 

 

 

Futures and Forward Currency Contracts

Net Unrealized
Appreciation/
(Depreciation) as a % of
Partners' Capital

 

 

Net Unrealized
Appreciation/
(Depreciation)

 

 

 

 

 

FUTURES CONTRACTS

 

 

 

 

Long futures contracts:

 

 

 

 

Energies

0.03 

%

$

41,680 

Grains

0.44 

 

 

578,915 

Interest rates:

 

 

 

 

2 Year U.S. Treasury Note (590 contracts, settlement date September 2015)

0.16 

 

 

209,750 

5 Year U.S. Treasury Note (381 contracts, settlement date September 2015)

0.03 

 

 

43,492 

30 Year U.S. Treasury Bond (6 contracts, settlement date September 2015)

0.00 

 

 

5,719 

Other

0.30 

 

 

372,934 

 

 

 

 

 

Total interest rates

0.49 

 

 

631,895 

 

 

 

 

 

Metals

(0.97)

 

 

(1,259,667)

Softs

0.04 

 

 

53,995 

Stock indices

(1.31)

 

 

(1,715,056)

 

 

 

 

 

Total long futures contracts

(1.28)

 

 

(1,668,238)

 

 

 

 

 

Short futures contracts:

 

 

 

 

Energies

(0.00)

 

 

(2,851)

Grains

(0.28)

 

 

(357,976)

Interest rates

(0.02)

 

 

(22,277)

Livestock

0.06 

 

 

73,320 

Metals

1.63 

 

 

2,121,406 

Softs

0.00 

 

 

(117)

Stock indices

(0.08)

 

 

(103,108)

 

 

 

 

 

Total short futures contracts

1.31 

 

 

1,708,397 

 

 

 

 

 

TOTAL INVESTMENTS IN FUTURES CONTRACTS − Net

0.03 

 

 

40,159 

FORWARD CURRENCY CONTRACTS

 

 

 

 

Total long forward currency contracts

(0.02)

 

 

(26,093)

Total short forward currency contracts

0.24 

 

 

313,506 

 

 

 

 

 

TOTAL INVESTMENTS IN FORWARD CURRENCY

 

 

 

 

CONTRACTS − Net

0.22 

 

 

287,413 

 

 

 

 

 

TOTAL

0.25 

%

$

327,572 

 

 

 

 

 

 

 

 

 

(Continued)

 

 

 

2

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nestor Partners

Condensed Schedule of Investments

June 30, 2015 (UNAUDITED)

 

 

 

 

 

 

 

 

U.S. TREASURY NOTES

 

 

 

 

 

Face
Amount

Description

Fair Value as a % of Partners' Capital

 

 

Fair Value

 

 

 

 

 

 

 

$

30,970,000 

   U.S. Treasury notes, 0.250%,  07/15/2015

23.80 

%

$

30,972,420 

 

30,780,000 

   U.S. Treasury notes, 0.250%,  09/15/2015

23.67 

 

 

30,795,029 

 

34,890,000 

   U.S. Treasury notes, 0.375%,  04/30/2016

26.84 

 

 

34,922,028 

 

20,040,000 

   U.S. Treasury notes, 0.250%,  05/15/2016

15.40 

 

 

20,034,520 

 

 

 

 

 

 

 

 

 

TOTAL INVESTMENTS IN U.S. TREASURY

 

 

 

 

 

 

NOTES (amortized cost $116,690,253)

89.71 

%

$

116,723,997 

 

 

 

 

 

 

 

 

See notes to financial statements (unaudited)

 

 

 

(Concluded)

 

 

 

 

 

 

 

 

 

 

3

 


 

  

 

 

 

 

 

 

Nestor Partners

Condensed Schedule of Investments

December 31, 2014

 

 

 

 

 

Futures and Forward Currency Contracts

Net Unrealized
Appreciation/
(Depreciation) as a % of
Partners' Capital

 

 

Net Unrealized
Appreciation/
(Depreciation)

FUTURES CONTRACTS

 

 

 

 

Long futures contracts:

 

 

 

 

Grains

(0.10)

%

$

(132,128)

Interest rates:

 

 

 

 

5 Year U.S. Treasury Note (415 contracts, settlement date March 2015)

0.01 

 

 

17,500 

30 Year U.S. Treasury Bond (34 contracts, settlement date March 2015)

0.03 

 

 

42,875 

Other

0.50 

 

 

624,749 

 

 

 

 

 

Total interest rates

0.54 

 

 

685,124 

 

 

 

 

 

Livestock

(0.01)

 

 

(14,180)

Metals

(0.75)

 

 

(950,059)

Softs

0.00 

 

 

2,730 

Stock indices

0.37 

 

 

469,097 

 

 

 

 

 

Total long futures contracts

0.05 

 

 

60,584 

 

 

 

 

 

Short futures contracts:

 

 

 

 

Energies

0.31 

 

 

392,983 

Interest rates

(0.10)

 

 

(120,616)

Livestock

0.03 

 

 

35,540 

Metals

0.49 

 

 

624,953 

Softs

0.23 

 

 

285,307 

Stock indices

0.07 

 

 

83,917 

 

 

 

 

 

Total short futures contracts

1.03 

 

 

1,302,084 

 

 

 

 

 

TOTAL INVESTMENTS IN FUTURES CONTRACTS − Net

1.08 

 

 

1,362,668 

FORWARD CURRENCY CONTRACTS

 

 

 

 

Total long forward currency contracts

(0.71)

 

 

(895,510)

Total short forward currency contracts

0.45 

 

 

573,467 

 

 

 

 

 

TOTAL INVESTMENTS IN FORWARD CURRENCY

 

 

 

 

CONTRACTS − Net

(0.26)

 

 

(322,043)

 

 

 

 

 

TOTAL

0.82 

%

$

1,040,625 

 

 

 

 

 

 

 

 

 

(Continued)

 

4

 


 

 

 

 

 

 

 

 

 

 

Nestor Partners

Condensed Schedule of Investments

December 31, 2014

 

 

 

 

 

 

 

 

U.S. TREASURY NOTES

 

 

 

 

 

Face
Amount

Description

Fair Value as a % of Partners' Capital

 

 

Fair Value

 

 

 

 

 

 

 

$

34,890,000 

   U.S. Treasury notes, 0.375%,  03/15/2015

27.63 

%

$

34,915,213 

 

10,040,000 

   U.S. Treasury notes, 0.250%,  05/15/2015

7.95 

 

 

10,047,452 

 

30,970,000 

   U.S. Treasury notes, 0.250%,  07/15/2015

24.52 

 

 

30,991,776 

 

30,780,000 

   U.S. Treasury notes, 0.250%,  09/15/2015

24.37 

 

 

30,793,827 

 

 

 

 

 

 

 

 

 

TOTAL INVESTMENTS IN U.S. TREASURY

 

 

 

 

 

 

NOTES (amortized cost $106,752,447)

84.47 

%

$

106,748,268 

 

 

 

 

 

 

 

 

See notes to financial statements (unaudited)

 

 

 

(Concluded)

 

 

 

 

 

 

 

 

 

 

 

 

  

5

 


 

 

    

 

 

 

 

 

 

 

 

Nestor Partners

Statements of Operations (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

 

June 30, 2015

 

 

June 30, 2014

INVESTMENT INCOME:

 

 

 

 

 

Interest income

$

58,284 

 

$

33,479 

 

 

 

 

 

 

EXPENSES:

 

 

 

 

 

Brokerage fees

 

789,278 

 

 

696,531 

Administrative expenses

 

84,287 

 

 

75,580 

Custody fees and other expenses

 

7,219 

 

 

9,471 

Total expenses

 

880,784 

 

 

781,582 

 

 

 

 

 

 

NET INVESTMENT LOSS

 

(822,500)

 

 

(748,103)

 

 

 

 

 

 

NET REALIZED AND UNREALIZED GAINS (LOSSES):

 

 

 

 

 

Net realized gains (losses) on closed positions:

 

 

 

 

 

Futures and forward currency contracts

 

(7,522,245)

 

 

8,834,975 

Foreign exchange translation

 

(54,000)

 

 

16,148 

Net change in unrealized:

 

 

 

 

 

Futures and forward currency contracts

 

(2,383,884)

 

 

1,948,923 

Foreign exchange translation

 

(10,054)

 

 

(4,278)

Net gains from U.S. Treasury notes:

 

 

 

 

 

Realized

 

 -

 

 

 -

Net change in unrealized

 

9,343 

 

 

5,028 

Total net realized and unrealized gains (losses)

 

(9,960,840)

 

 

10,800,796 

 

 

 

 

 

 

NET INCOME (LOSS)

 

(10,783,340)

 

 

10,052,693 

LESS PROFIT SHARE TO GENERAL PARTNER

 

(574,949)

 

 

33,702 

NET INCOME (LOSS) AFTER PROFIT SHARE TO

 

 

 

 

 

GENERAL PARTNER

$

(10,208,391)

 

$

10,018,991 

 

 

 

 

 

 

See notes to financial statements (unaudited)

 

 

 

 

           (Continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

6

 


 

 

 

 

 

 

 

 

 

Nestor Partners

Statements of Operations (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the six months ended

 

 

June 30, 2015

 

 

June 30, 2014

INVESTMENT INCOME:

 

 

 

 

 

Interest income

$

95,245 

 

$

66,845 

 

 

 

 

 

 

EXPENSES:

 

 

 

 

 

Brokerage fees

 

1,564,441 

 

 

1,406,586 

Administrative expenses

 

169,392 

 

 

148,664 

Custody fees and other expenses

 

13,594 

 

 

17,024 

 

 

 

 

 

 

Total expenses

 

1,747,427 

 

 

1,572,274 

 

 

 

 

 

 

NET INVESTMENT LOSS

 

(1,652,182)

 

 

(1,505,429)

 

 

 

 

 

 

NET REALIZED AND UNREALIZED GAINS (LOSSES):

 

 

 

 

 

Net realized gains (losses) on closed positions:

 

 

 

 

 

Futures and forward currency contracts

 

588,087 

 

 

12,996,187 

Foreign exchange translation

 

(180,034)

 

 

(17,951)

Net change in unrealized:

 

 

 

 

 

Futures and forward currency contracts

 

(713,053)

 

 

677,323 

Foreign exchange translation

 

83,598 

 

 

(2,548)

Net gains from U.S. Treasury notes:

 

 

 

 

 

Realized

 

 -

 

 

169 

Net change in unrealized

 

37,923 

 

 

5,300 

 

 

 

 

 

 

Total net realized and unrealized gains (losses)

 

(183,479)

 

 

13,658,480 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS)

 

(1,835,661)

 

 

12,153,051 

LESS PROFIT SHARE TO GENERAL PARTNER

 

4,203 

 

 

35,531 

NET INCOME (LOSS) AFTER PROFIT SHARE TO

 

 

 

 

 

GENERAL PARTNER

$

(1,839,864)

 

$

12,117,520 

 

 

 

 

 

 

See notes to financial statements (unaudited)

 

 

 

 

(Concluded)

 

 

 

7

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nestor Partners

Statements of Changes in Partners' Capital (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the six months ended June 30, 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Limited Partners

 

 

Special Limited Partners

 

 

New Profit Memo Account

 

 

General Partner

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PARTNERS' CAPITAL-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

January 1, 2015

$

63,032,169 

 

$

60,881,449 

 

$

 -

 

$

2,466,186 

 

$

126,379,804 

Contributions

 

10,215,000 

 

 

 -

 

 

4,203 

 

 

 -

 

 

10,219,203 

Withdrawals

 

(1,128,558)

 

 

(3,513,278)

 

 

 -

 

 

 -

 

 

(4,641,836)

Net loss

 

(1,649,420)

 

 

(178,361)

 

 

(225)

 

 

(7,655)

 

 

(1,835,661)

General Partner's allocation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New Profit-Accrued

 

(2,137)

 

 

(2,066)

 

 

 -

 

 

 -

 

 

(4,203)

PARTNERS' CAPITAL-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2015

$

70,467,054 

 

$

57,187,744 

 

$

3,978 

 

$

2,458,531 

 

$

130,117,307 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the six months ended June 30, 2014:

 

 

 

 

 

 

 

 

 

 

 

Limited Partners

 

 

Special Limited Partners

 

 

New Profit Memo Account

 

 

General Partner

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PARTNERS' CAPITAL-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

January 1, 2014

$

61,875,986 

 

$

53,263,359 

 

$

 -

 

$

2,216,299 

 

$

117,355,644 

Contributions

 

656,000 

 

 

 -

 

 

 -

 

 

 -

 

 

656,000 

Withdrawals

 

(7,603,054)

 

 

(885,401)

 

 

 -

 

 

 -

 

 

(8,488,455)

Net income

 

5,751,718 

 

 

6,136,852 

 

 

 -

 

 

264,481 

 

 

12,153,051 

General Partner's allocation:

 

 

 

 

 

 

 

 -

 

 

 

 

 

 

New Profit-Accrued

 

(35,531)

 

 

 -

 

 

 -

 

 

 -

 

 

(35,531)

PARTNERS' CAPITAL-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2014

$

60,645,119 

 

$

58,514,810 

 

$

 -

 

$

2,480,780 

 

$

121,640,709 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to financial statements (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

8

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nestor Partners

Statements of Financial Highlights (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended June 30, 2015 and 2014

 

Limited
Partners

 

 

Special Limited
Partners

 

 

 

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios to average capital:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment loss (a)

 

 

(3.84)

%

 

(3.88)

%

 

(0.83)

%

 

(1.06)

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total expenses (a)

 

 

4.01

%

 

3.99

%

 

1.00

%

 

1.17

%

Profit share allocation (b)

 

 

(0.77)

%

 

0.06

%

 

(0.02)

%

 

0.00

%

Total expenses and profit share allocation

 

3.24

%

 

4.05

%

 

0.98

%

 

1.17

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total return before profit share allocation (b)

 

(8.00)

%

 

8.45

%

 

(7.21)

%

 

9.21

%

Less: profit share allocation (b)

 

 

(0.77)

%

 

0.06

%

 

(0.02)

%

 

0.00

%

Total return after profit share allocation

 

(7.23)

%

 

8.39

%

 

(7.19)

%

 

9.21

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a) annualized

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(b) not annualized

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the six months ended June 30, 2015 and 2014

 

Limited
Partners

 

 

Special Limited
Partners

 

 

 

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios to average capital:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment loss (a)

 

 

(3.85)

%

 

(3.93)

%

 

(0.89)

%

 

(1.10)

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total expenses (a)

 

 

3.99

%

 

4.04

%

 

1.03

%

 

1.21

%

Profit share allocation (b)

 

 

0.00

%

 

0.06

%

 

0.00

%

 

0.00

%

Total expenses and profit share allocation

 

3.99

%

 

4.10

%

 

1.03

%

 

1.21

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total return before profit share allocation (b)

 

(2.06)

%

 

10.07

%

 

(0.58)

%

 

11.64

%

Less: profit share allocation (b)

 

 

0.00

%

 

0.06

%

 

0.00

%

 

0.00

%

Total return after profit share allocation

 

(2.06)

%

 

10.01

%

 

(0.58)

%

 

11.64

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a) annualized

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(b) not annualized

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to financial statements (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9

 


 

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

 

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The accompanying unaudited financial statements, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of Nestor Partners’ (the “Partnership”) financial condition at June 30, 2015 and December 31, 2014 (unaudited) and the results of its operations for the three and six months ended June 30, 2015 and 2014 (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 annual report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2014. The December 31, 2014 information has been derived from the audited financial statements as of December 31, 2014.

 

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

 

The Partnership enters into contracts that contain a variety of indemnification provisions. The Partnership’s maximum exposure under these arrangements is unknown. The Partnership does not anticipate recognizing any loss related to these arrangements.

 

The Income Taxes topic of the Codification clarifies the accounting for uncertainty in tax positions. This requires that the Partnership recognize in its financial statements the impact of any uncertain tax positions. Based on a review of the Partnership’s open tax years,  2011 to 2014,  Millburn Ridgefield Corporation (the “General Partner”) has determined that no reserves for uncertain tax positions were required.

 

There have been no material changes with respect to the Partnership's critical accounting policies, off-balance sheet arrangements or disclosure of contractual obligations as reported in the Partnership's Annual Report on Form 10-K for fiscal year 2014.

  

2. FAIR VALUE

 

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

 

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

 

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

 

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

 

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

 

Cash Instruments – The Partnership’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 and an investment in a quoted short-term U.S. government securities money market fund. The General Partner does not adjust the quoted price for such instruments even in situations where the Partnership holds a large position and a sale could reasonably impact the quoted price.

 

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

  

Spot currency contracts are valued based on current market prices (“Spot Price”). Forward currency contracts are valued based on pricing models that consider the Spot Price, plus the financing cost or benefit (“Forward Point”). Forward Points from the quotation service providers are generally in periods of one month, two months, three months, six months, nine months and twelve months forward while the contractual forward delivery dates for the forward currency contracts traded by the Partnership may be in between these periods. The General Partner’s policy to determine fair value for forward currency contracts involves first calculating the number of months from the date the forward currency contract is being valued to its maturity date (“Months to Maturity”), then identifying the forward currency contracts for the two forward months that are closest to the Months to Maturity (“Forward Month Contracts”). Linear interpolation is then performed between the dates of these two Forward Month Contracts to calculate the interpolated Forward Point. Model inputs can generally be verified and model selection does not involve significant management judgment. Such instruments are typically classified within Level 2 of the fair value hierarchy.

 

10

 


 

Effective January 1, 2014, the Partnership adopted ASU 2013-08, “Financial Services – Investment Companies (Topic 946): Amendments to the Scope, Measurement and Disclosure Requirements.” ASU 2013-08 changes the approach to the investment company assessment, requires non-controlling ownership interests in other investment companies to be measured at fair value, and requires additional disclosures about the investment company’s status as an investment company. ASU 2013-08 is effective for interim and annual reporting periods beginning after December 15, 2013. The adoption of this ASU did not have a material impact on the Partnership’s financial statements. Based on management’s assessment, the Partnership has been deemed to be an investment company since inception. It has all of the fundamental characteristics of an investment company. Although the Partnership does not possess all of the typical characteristics of an investment company, its activities are consistent with those of an investment company.

   

During the three and six months ended June 30, 2015 and 2014, there were no transfers of assets or liabilities between Level 1 and Level 2. The following tables represent the Partnership’s investments by hierarchical level as of June 30, 2015 and December 31, 2014 in valuing the Partnership’s investments at fair value. At June 30, 2015 and December 31, 2014, the Partnership held no assets or liabilities in Level 3.

  

 

 

 

 

 

 

 

 

 

 

Financial assets at fair value as of June 30, 2015

 

 

 

 

 

 

 

 

 

 

 

Level 1

 

 

Level 2

 

 

Total

 

 

 

 

 

 

 

 

 

U.S. Treasury Notes (1)

$

116,723,997 

 

$

 -

 

$

116,723,997 

Short-Term Money Market Fund*

 

12,177,506 

 

 

 -

 

 

12,177,506 

Exchange-Traded Futures Contracts

 

 

 

 

 

 

 

 

Energies

 

38,829 

 

 

 -

 

 

38,829 

Grains

 

220,939 

 

 

 -

 

 

220,939 

Interest rates

 

609,618 

 

 

 -

 

 

609,618 

Livestock

 

73,320 

 

 

 -

 

 

73,320 

Metals

 

861,739 

 

 

 -

 

 

861,739 

Softs

 

53,878 

 

 

 -

 

 

53,878 

Stock indices

 

(1,818,164)

 

 

 -

 

 

(1,818,164)

 

 

 

 

 

 

 

 

 

Total exchange-traded futures contracts

 

40,159 

 

 

 -

 

 

40,159 

 

 

 

 

 

 

 

 

 

Over-the-Counter Forward Currency Contracts

 

 -

 

 

287,413 

 

 

287,413 

 

 

 

 

 

 

 

 

 

Total futures and forward currency contracts (2)

 

40,159 

 

 

287,413 

 

 

327,572 

 

 

 

 

 

 

 

 

 

Total financial assets at fair value

$

128,941,662 

 

$

287,413 

 

$

129,229,075 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per line item in Statements of Financial Condition

 

 

 

 

 

 

 

 

(1)

 

 

 

 

 

 

 

 

Investments in U.S. Treasury notes held in equity trading accounts as collateral

 

 

 

$

20,091,375 

Investments in U.S. Treasury notes held in custody

 

 

 

 

 

 

 

96,632,622 

Total investments in U.S. Treasury notes

 

 

 

 

 

 

$

116,723,997 

 

 

 

 

 

 

 

 

 

(2)

 

 

 

 

 

 

 

 

Net unrealized appreciation on open futures and forward currency contracts

 

$

730,072 

Net unrealized depreciation on open futures and forward currency contracts

 

 

(402,500)

Total unrealized appreciation on open futures and forward currency contracts

 

$

327,572 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

11

 


 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets and liabilities at fair value as of December 31, 2014

 

 

 

 

 

 

 

 

 

 

 

Level 1

 

 

Level 2

 

 

Total

 

 

 

 

 

 

 

 

 

U.S. Treasury Notes (1)

$

106,748,268 

 

$

 -

 

$

106,748,268 

Short-Term Money Market Fund*

 

18,740,245 

 

 

 -

 

 

18,740,245 

Exchange-Traded Futures Contracts

 

 

 

 

 

 

 

 

Energies

 

392,983 

 

 

 -

 

 

392,983 

Grains

 

(132,128)

 

 

 -

 

 

(132,128)

Interest rates

 

564,508 

 

 

 -

 

 

564,508 

Livestock

 

21,360 

 

 

 -

 

 

21,360 

Metals

 

(325,106)

 

 

 -

 

 

(325,106)

Softs

 

288,037 

 

 

 -

 

 

288,037 

Stock indices

 

553,014 

 

 

 -

 

 

553,014 

 

 

 

 

 

 

 

 

 

Total exchange-traded futures contracts

 

1,362,668 

 

 

 -

 

 

1,362,668 

 

 

 

 

 

 

 

 

 

Over-the-Counter Forward Currency Contracts

 

 -

 

 

(322,043)

 

 

(322,043)

 

 

 

 

 

 

 

 

 

Total futures and forward currency contracts (2)

 

1,362,668 

 

 

(322,043)

 

 

1,040,625 

 

 

 

 

 

 

 

 

 

Total financial assets at fair value

$

126,851,181 

 

$

(322,043)

 

$

126,529,138 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per line item in Statements of Financial Condition

 

 

 

 

 

 

 

 

(1)

 

 

 

 

 

 

 

 

Investments in U.S. Treasury notes held in equity trading accounts (as collateral)

 

$

14,499,918 

Investments in U.S. Treasury notes

 

 

 

 

 

 

 

92,248,350 

Total investments in U.S. Treasury notes

 

 

 

 

 

 

$

106,748,268 

 

 

 

 

 

 

 

 

 

(2)

 

 

 

 

 

 

 

 

Net unrealized appreciation on open futures and forward currency contracts

 

$

1,396,471 

Net unrealized depreciation on open futures and forward currency contracts

 

 

(355,846)

Total unrealized appreciation on open futures and forward currency contracts

 

$

1,040,625 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

3. 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 Partnership’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 Partnership’s open positions, and the liquidity of the markets in which it trades.

 

The Partnership engages in the speculative trading of futures and forward contracts on currencies, energies, grains, interest rates, livestock, metals, softs and stock indices. The following were the primary trading risk exposures of the Partnership at June 30, 2015, by market sector:

 

Agricultural (grains, livestock and softs) – The Partnership’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.

  

12

 


 

 

Currencies – Exchange rate risk is a principal market exposure of the Partnership. The Partnership’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 Partnership trades in a large number of currencies, including cross-rates—e.g., positions between two currencies other than the U.S. dollar.

 

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

 

Interest rates – Interest rate movements directly affect the price of the sovereign bond futures positions held by the Partnership and indirectly the value of its stock index and currency positions. Interest rate movements in one country, as well as relative interest rate movements between countries, may materially impact the Partnership’s profitability. The Partnership’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 Partnership 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 Partnership for the foreseeable future.

 

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

 

Stock indices – The Partnership’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 Partnership’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 Partnership 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 Partnership’s trading gains and losses in the Statements of Operations.

 

13

 


 

The following tables present the fair value of open futures and forward currency contracts, held long or sold short, at June 30, 2015 and December 31, 2014. 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 Statements of Financial Condition.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value of Futures and Forward Currency Contracts at June 30, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Unrealized

 

 

Fair Value - Long Positions

 

 

Fair Value - Short Positions

 

 

Gain (Loss) on

Sector

 

Gains

 

 

Losses

 

 

Gains

 

 

Losses

 

 

Open Positions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Futures contracts:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Energies

$

57,441 

 

$

(15,761)

 

$

10,449 

 

$

(13,300)

 

$

38,829 

Grains

 

578,915 

 

 

 -

 

 

 -

 

 

(357,976)

 

 

220,939 

Interest rates

 

822,421 

 

 

(190,526)

 

 

 -

 

 

(22,277)

 

 

609,618 

Livestock

 

 -

 

 

 -

 

 

73,320 

 

 

 -

 

 

73,320 

Metals

 

8,988 

 

 

(1,268,655)

 

 

2,123,529 

 

 

(2,123)

 

 

861,739 

Softs

 

54,025 

 

 

(30)

 

 

54,540 

 

 

(54,657)

 

 

53,878 

Stock indices

 

117,481 

 

 

(1,832,537)

 

 

742 

 

 

(103,850)

 

 

(1,818,164)

Total futures contracts

 

1,639,271 

 

 

(3,307,509)

 

 

2,262,580 

 

 

(554,183)

 

 

40,159 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward currency contracts

 

820,500 

 

 

(846,593)

 

 

770,842 

 

 

(457,336)

 

 

287,413 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total futures and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

forward currency contracts

$

2,459,771 

 

$

(4,154,102)

 

$

3,033,422 

 

$

(1,011,519)

 

$

327,572 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value of Futures and Forward Currency Contracts at December 31, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Unrealized

 

 

Fair Value - Long Positions

 

 

Fair Value - Short Positions

 

 

Gain (Loss) on

Sector

 

Gains

 

 

Losses

 

 

Gains

 

 

Losses

 

 

Open Positions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Futures contracts:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Energies

$

 -

 

$

 -

 

$

409,768 

 

$

(16,785)

 

$

392,983 

Grains

 

275 

 

 

(132,403)

 

 

 -

 

 

 -

 

 

(132,128)

Interest rates

 

1,143,514 

 

 

(458,390)

 

 

 -

 

 

(120,616)

 

 

564,508 

Livestock

 

1,280 

 

 

(15,460)

 

 

35,540 

 

 

 -

 

 

21,360 

Metals

 

8,401 

 

 

(958,460)

 

 

645,172 

 

 

(20,219)

 

 

(325,106)

Softs

 

3,120 

 

 

(390)

 

 

294,048 

 

 

(8,741)

 

 

288,037 

Stock indices

 

726,711 

 

 

(257,614)

 

 

115,655 

 

 

(31,738)

 

 

553,014 

Total futures contracts

 

1,883,301 

 

 

(1,822,717)

 

 

1,500,183 

 

 

(198,099)

 

 

1,362,668 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward currency contracts

 

347,015 

 

 

(1,242,525)

 

 

1,347,542 

 

 

(774,075)

 

 

(322,043)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total futures and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

forward currency contracts

$

2,230,316 

 

$

(3,065,242)

 

$

2,847,725 

 

$

(972,174)

 

$

1,040,625 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

14

 


 

 

The effect of trading futures and forward currency contracts is represented on the Statements of Operations for the three and six months ended June 30, 2015 and 2014 as “Net realized gains (losses) on closed positions: Futures and forward currency contracts” and “Net change in unrealized: Futures and forward currency contracts.” These trading gains and losses are detailed below.

Trading gains (losses) of futures and forward currency contracts for the three and six months ended June 30, 2015 and 2014 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sector

 

Three months ended: June 30, 2015

 

Three months ended: June 30, 2014

 

Six months ended: June 30, 2015

 

Six months ended: June 30, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

Futures contracts:

 

 

 

 

 

 

 

 

 

 

 

 

Energies

 

$

(2,989,877)

 

$

769,317 

 

$

(2,949,993)

 

$

1,105,694 

Grains

 

 

(155,993)

 

 

(594,232)

 

 

(594,580)

 

 

228,221 

Interest rates

 

 

(3,831,407)

 

 

5,056,773 

 

 

614,664 

 

 

8,059,681 

Livestock

 

 

23,410 

 

 

175,460 

 

 

69,980 

 

 

398,690 

Metals

 

 

452,840 

 

 

10,959 

 

 

492,097 

 

 

(1,439,866)

Softs

 

 

(115,776)

 

 

(16,418)

 

 

176,093 

 

 

135,642 

Stock indices

 

 

(757,616)

 

 

3,470,255 

 

 

3,028,596 

 

 

3,134,082 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total futures contracts

 

 

(7,374,419)

 

 

8,872,114 

 

 

836,857 

 

 

11,622,144 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward currency contracts

 

 

(2,531,710)

 

 

1,911,784 

 

 

(961,823)

 

 

2,051,366 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total futures and

 

 

 

 

 

 

 

 

 

 

 

 

forward currency contracts

 

$

(9,906,129)

 

$

10,783,898 

 

$

(124,966)

 

$

13,673,510 

 

 

 

 

 

 

 

 

 

 

 

 

 

The following table presents average notional value by sector of open futures and forward currency contracts for the six months ended June 30, 2015 and 2014 in U.S. dollars. The Partnership’s average net asset value for the six months ended June 30, 2015 and 2014 was approximately $135,000,000 and $119,000,000, respectively.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average notional value by sector of futures and forward currency contracts for the six months ended June 30, 2015 and 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2015

 

 

2014

Sector

 

 

Long positions

 

 

Short positions

 

 

Long positions

 

 

Short positions

 

 

 

 

 

 

 

 

 

 

 

 

 

Futures contracts:

 

 

 

 

 

 

 

 

 

 

 

 

Energies

 

$

1,448,663 

 

$

9,825,926 

 

$

43,187,540 

 

$

16,434,889 

Grains

 

 

4,207,213 

 

 

3,424,191 

 

 

12,834,349 

 

 

10,423,528 

Interest rates

 

 

211,081,309 

 

 

18,252,128 

 

 

336,815,868 

 

 

16,597,615 

Livestock

 

 

283,487 

 

 

815,403 

 

 

3,825,823 

 

 

1,863,333 

Metals

 

 

1,132,739 

 

 

16,090,270 

 

 

19,597,600 

 

 

6,694,788 

Softs

 

 

725,130 

 

 

3,439,708 

 

 

3,518,628 

 

 

3,285,744 

Stock indices

 

 

104,505,168 

 

 

4,724,210 

 

 

127,966,284 

 

 

1,038,173 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total futures contracts

 

 

323,383,709 

 

 

56,571,836 

 

 

547,746,092 

 

 

56,338,070 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward currency contracts

 

 

46,143,784 

 

 

48,596,808 

 

 

149,971,988 

 

 

12,659,725 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total futures and

 

 

 

 

 

 

 

 

 

 

 

 

forward currency contracts

 

$

369,527,493 

 

$

105,168,644 

 

$

697,718,080 

 

$

68,997,795 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notional values in the interest rate sector were calculated by converting the notional value in local currency of open interest rate futures positions with maturities less than 10 years to 10-year equivalent fixed income instruments and translated to U.S. dollars at June 30, 2015 and 2014. The 10-year note is often used as a benchmark for many types of fixed-income instruments and the General Partner believes it is a more meaningful representation of notional values of the Partnership’s open interest rate positions.

 

15

 


 

The customer agreements between the Partnership, the futures clearing brokers, including Deutsche Bank Securities Inc. (a wholly-owned subsidiary of Deutsche Bank AG), and J.P. Morgan Securities LLC., as well as the FX prime broker, Deutsche Bank AG, and the swap dealer, Morgan Stanley & Co., LLC, give the Partnership the legal right to net unrealized gains and losses on open futures and foreign currency contracts. The Partnership netted, for financial reporting purposes, the unrealized gains and losses on open futures and forward currency contracts on the Statements of Financial Condition as the criteria under ASC 210-20, “Balance Sheet,” were met. The Partnership ceased clearing trades through Barclays Capital Inc. and Barclays Bank PLC during June 2014 and October 2014, respectively.

 

On January 1, 2013, the Partnership adopted ASU 2011-11, “Disclosure about Offsetting Assets and Liabilities” and ASU 2013-01, “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities.” ASU 2011-11 and ASU 2013-01 did not have a significant impact on the Partnership’s financial statements. The following tables present gross amounts of assets or liabilities which qualify for offset as presented in the Statements of Financial Condition at June 30, 2015 and December 31, 2014.

 

 

 

 

 

 

 

 

 

 

 

Offsetting derivative assets at June 30, 2015

 

 

 

 

 

 

 

 

 

Assets

 

Gross amounts of
recognized assets

 

 

Gross amounts
offset in the
Statement of
Financial Condition

 

 

Net amounts of
assets presented in
the Statement of
Financial Condition

Futures contracts

 

 

 

 

 

 

 

 

Counterparty D

$

2,915,592 

 

$

(2,580,117)

 

$

335,475 

Total futures contracts

 

2,915,592 

 

 

(2,580,117)

 

 

335,475 

 

 

 

 

 

 

 

 

 

Forward currency contracts

 

 

 

 

 

 

 

 

Counterparty G

 

1,225,342 

 

 

(830,745)

 

 

394,597 

 

 

 

 

 

 

 

 

 

Total assets

$

4,140,934 

 

$

(3,410,862)

 

$

730,072 

 

 

 

 

 

 

 

 

 

Liabilities

 

Gross amounts of
recognized liabilities

 

 

Gross amounts
offset in the
Statement of
Financial Condition

 

 

Net amounts of
liabilities presented in
the Statement of
Financial Condition

Futures contracts

 

 

 

 

 

 

 

 

Counterparty C

$

1,281,575 

 

$

(986,259)

 

$

295,316 

Total futures contracts

 

1,281,575 

 

 

(986,259)

 

 

295,316 

 

 

 

 

 

 

 

 

 

Forward currency contracts

 

 

 

 

 

 

 

 

Counterparty H

 

473,184 

 

 

(366,000)

 

 

107,184 

 

 

 

 

 

 

 

 

 

Total liabilities

$

1,754,759 

 

$

(1,352,259)

 

$

402,500 

 

 

 

 

 

 

 

 

 

 

16

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amounts Not Offset in the Statement of Financial Condition

 

 

 

Counterparty

 

 

Net amounts of Assets
presented in the Statement
of Financial Condition

 

 

Financial Instruments

 

 

Collateral Received(1)(2)

 

 

Net Amount(3)(4)

 

 

 

 

 

 

 

 

 

 

 

 

 

Counterparty D

 

$

335,475 

 

$

 -

 

$

(335,475)

 

$

 -

Counterparty G

 

 

394,597 

 

 

 -

 

 

 -

 

 

394,597 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

730,072 

 

$

 -

 

$

(335,475)

 

$

394,597 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amounts Not Offset in the Statement of Financial Condition

 

 

 

Counterparty

 

 

Net amounts of Liabilities
presented in the Statement
of Financial Condition

 

 

Financial Instruments

 

 

Collateral Pledged(1)(2)

 

 

Net Amount(3)(4)

 

 

 

 

 

 

 

 

 

 

 

 

 

Counterparty C

 

$

295,316 

 

$

 -

 

$

(295,316)

 

$

 -

Counterparty H

 

 

107,184 

 

 

 -

 

 

(107,184)

 

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

402,500 

 

$

 -

 

$

(402,500)

 

$

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Collateral received includes trades made on exchanges. These trades are subject to central counterparty clearing where settlement is guaranteed by the exchange. Collateral pledged includes both cash and U.S. Treasury notes held at each respective counterparty.

(2) Collateral disclosed is limited to an amount not to exceed 100% of the net amount of assets presented in the Statement of Financial Condition,

for each respective counterparty.

(3) Net amount represents the amount that is subject to loss in the event of a counterparty failure as of June 30, 2015.

(4) Net amount represents the amounts owed by the Partnership to each counterparty as of June 30, 2015.

 

 

 

 

 

 

 

 

 

 

 

Offsetting derivative assets and liabilities at December 31, 2014

 

 

 

 

 

 

 

 

 

Assets

 

Gross amounts of
recognized assets

 

 

Gross amounts
offset in the
Statement of
Financial Condition

 

 

Net amounts of
assets presented in
the Statement of
Financial Condition

Futures contracts

 

 

 

 

 

 

 

 

Counterparty C

$

1,755,738 

 

$

(487,705)

 

$

1,268,033 

Counterparty D

 

1,627,746 

 

 

(1,533,111)

 

 

94,635 

Total futures contracts

 

3,383,484 

 

 

(2,020,816)

 

 

1,362,668 

 

 

 

 

 

 

 

 

 

Forward currency contracts

 

 

 

 

 

 

 

 

Counterparty G

 

566,228 

 

 

(532,425)

 

 

33,803 

Total forward currency contracts

 

566,228 

 

 

(532,425)

 

 

33,803 

 

 

 

 

 

 

 

 

 

Total assets

$

3,949,712 

 

$

(2,553,241)

 

$

1,396,471 

 

 

 

 

 

 

 

 

(Continued)

17

 


 

 

 

 

 

 

 

 

 

 

Liabilities

 

Gross amounts of
recognized liabilities

 

 

Gross amounts
offset in the
Statement of
Financial Condition

 

 

Net amounts of
liabilities presented in
the Statement of
Financial Condition

Forward currency contracts

 

 

 

 

 

 

 

 

Counterparty H

$

1,484,175 

 

$

(1,128,329)

 

$

355,846 

Total liabilities

$

1,484,175 

 

$

(1,128,329)

 

$

355,846 

 

 

 

 

 

 

 

 

(Concluded)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amounts Not Offset in the Statement of Financial Condition

 

 

 

Counterparty

 

 

Net amounts of Assets
presented in the Statement
of Financial Condition

 

 

Financial Instruments

 

 

Collateral Received(1)(2)

 

 

Net Amount(3)(4)

 

 

 

 

 

 

 

 

 

 

 

 

 

Counterparty C

 

$

1,268,033 

 

$

 -

 

$

(1,268,033)

 

$

 -

Counterparty D

 

 

94,635 

 

 

 -

 

 

(94,635)

 

 

 -

Counterparty G

 

 

33,803 

 

 

 -

 

 

(33,803)

 

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

1,396,471 

 

$

 -

 

$

(1,396,471)

 

$

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amounts Not Offset in the Statement of Financial Condition

 

 

 

Counterparty

 

 

Net amounts of Liabilities
presented in the Statement
of Financial Condition

 

 

Financial Instruments

 

 

Collateral Pledged(1)(2)

 

 

Net Amount(3)(4)

 

 

 

 

 

 

 

 

 

 

 

 

 

Counterparty H

 

$

355,846 

 

$

 -

 

$

(355,846)

 

$

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

355,846 

 

$

 -

 

$

(355,846)

 

$

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Collateral received includes trades made on exchanges. These trades are subject to central counterparty clearing where settlement is guaranteed by the exchange. Collateral pledged includes both cash and U.S. Treasury notes held at each respective counterparty.

(2) Collateral disclosed is limited to an amount not to exceed 100% of the net amount of assets presented in the Statement of Financial Condition,

for each respective counterparty.

(3) Net amount represents the amount that is subject to loss in the event of a counterparty failure as of December 31, 2014.

(4) Net amount represents the amounts owed by the Partnership to each counterparty as of December 31, 2014.

 

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.

18

 


 

The General Partner seeks to minimize credit risk primarily by depositing and maintaining the Partnership’s assets at financial institutions and trading counterparties which the General Partner believes to be creditworthy. In addition, for OTC forward currency contracts, the Partnership 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 Partnership’s forward currency trading activities are cleared through Deutsche Bank AG (“DB”) and Morgan Stanley & Co. LLC (“MS”). The Partnership’s concentration of credit risk associated with DB or MS nonperformance includes unrealized gains inherent in such contracts, which are recognized in the Statements of Financial Condition plus the value of margin or collateral held by DB and MS. The amount of such credit risk was $8,953,706 and $6,737,537 at June 30, 2015 and December 31, 2014, respectively.

 

 

4. PROFIT SHARE

 

The following table indicates the total profit share earned and accrued during the three and six months ended June 30, 2015 and 2014. Profit share earned (from Limited Partners’ redemptions) is credited to the New Profit Memo Account as defined in the Partnership’s Agreement of Limited Partnership. 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended:

 

 

June 30,

 

 

 

June 30,

 

 

2015

 

 

 

2014

Profit share earned

 

$

3,109 

 

 

 

$

 -

Reversal of profit share

 

 

(578,058)

 

 

 

 

(1,829)

Profit share accrued

 

 

 -

 

 

 

 

35,531 

Total profit share

 

$

(574,949)

 

 

 

$

33,702 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended:

 

 

June 30,

 

 

 

June 30,

 

 

2015

 

 

 

2014

Profit share earned

 

$

4,203 

 

 

 

$

 -

Profit share accrued

 

 

 -

 

 

 

 

35,531 

Total profit share

 

$

4,203 

 

 

 

$

35,531 

 

 

 

 

 

 

 

 

 

 

 

 

5. RELATED PARTY TRANSACTIONS

 

The Partnership pays administrative expenses for legal, audit and accounting services, up to 0.25 of 1% per annum of the Partnership's average month-end net assets. A portion of such expenses are paid to an affiliate of the General Partner, The Millburn Corporation (“TMC”), for providing accounting services to the Partnership. The following table indicates the portion relating to administrative expenses as well as the portion relating to legal and accounting services provided to the Partnership by TMC during the three and six months ended June 30, 2015 and 2014. The General Partner pays all administrative expenses in excess of 0.25 of 1% per annum of the Partnership's average month-end net assets.

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2015

Three Months Ended June 30, 2014

Six Months Ended June 30, 2015

Six Months Ended June 30, 2014

Administrative Expenses

$                     84,287

$                     75,580

$              169,392

$              148,664

Legal and Accounting Services Provided by TMC

$                     53,979

$                       4,259

$                81,293

$                41,052

 

Limited partnership interests (“Interests”) sold through selling agents engaged by the General Partner are generally subject to a 2.5% redemption charge for redemptions made prior to the end of the twelfth month following their sale. All redemption charges will be paid to the General Partner. At June 30, 2015 and December 31, 2014, $0 was owed to the General Partner.

 

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.

19

 


 

 

 

OPERATIONAL OVERVIEW

 

Due to the nature of the Partnership'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 Partnership'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 Partnership 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 Partnership has a better likelihood of being profitable than in others.

 

LIQUIDITY AND CAPITAL RESOURCES

 

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

 

The amount of capital raised for the Partnership should not have a significant impact on its operations, as the Partnership has 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 Partnership.

 

The Partnership raises additional capital only through the sale of Interests and capital is increased through trading profits (if any). The Partnership does not engage in borrowing.

 

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

 

The General Partner has procedures in place to control market risk, although there can be no assurance that they will, in fact, succeed in doing so. These procedures primarily focus on (1) real time monitoring of open positions; (2) diversifying positions among various markets; (3) limiting the assets committed as margin or collateral, generally within a range of 5% to 35% of an account’s net assets, though the amount may at any time be higher; and (4) prohibiting pyramiding - that is, using unrealized profits in a particular market as margin for additional positions in the same market. The General Partner attempts to control credit risk by causing the Partnership to deal exclusively with large, well-capitalized financial institutions as brokers and counterparties.

 

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

 

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

 

The Partnership’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 Partnership’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 Partnership is assigned a position in the underlying future which is then settled by offset. The Partnership’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 Partnership’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 Partnership’s debt securities to decline, but only to a limited extent. More importantly, changes in interest rates could cause periods of strong up or down market price trends during which the Partnership’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 Partnership is likely to suffer losses.

 

20

 


 

The Partnership’s assets are generally held as cash or cash equivalents, including U.S. government securities or securities issued by federal agencies (or, to a limited extent, foreign government securities in connection with trading on non-U.S. exchanges), other Commodity Futures Trading Commission authorized investments or bank held or certain other money market instruments (e.g., bankers acceptances and Eurodollar or other time deposits), which are used to margin the Partnership’s futures, forwards, and spot currency positions and withdrawn, as necessary, to pay redemptions and expenses. Other than potential market-imposed limitations on liquidity, due, for example, to limited open interest in certain futures markets or to daily price fluctuation limits, which are inherent in the Partnership’s futures, forwards and spot trading, the Partnership’s assets are highly liquid and are expected to remain so.

 

During its operations for the three and six months ended June 30, 2015, the Partnership experienced no meaningful periods of illiquidity in any of the numerous markets traded by the General Partner.

 

CRITICAL ACCOUNTING ESTIMATES

 

The Partnership records its transactions in futures, forwards and spot contracts, including related income and expenses, on a trade date basis. Open futures contracts traded on an exchange are valued at fair value, which is based on the closing settlement price on the exchange where the futures contract is traded by the Partnership on the day with respect to which net assets are being determined. Open spot currency contracts are valued based on the current Spot Price. Open forward currency contracts are recorded at fair value, based on pricing models that consider the Spot Price and Forward Point. Spot Prices and Forward Points for open forward currency contracts are generally based on the average midpoint of bid/ask quotations at the last second ending at 3:00 P.M. New York time provided by widely used quotation service providers on the day with respect to which net assets are being determined. Forward Points from the quotation service providers are generally in periods of one month, two months, three months, six months, nine months and twelve months forward while the contractual forward delivery dates for the forward currency contracts traded by the Partnership may be in between these periods. The General Partner’s policy to determine fair value for forward currency contracts involves first calculating the number of Months to Maturity, then identifying the Forward Month Contracts. Linear interpolation is then performed between the dates of these two Forward Month Contracts to calculate the interpolated Forward Point. 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

 

RESULTS OF OPERATIONS

 

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

 

 

 

 

 

 

 

 

 

 

 

Periods ended June 30, 2015

 

 

 

 

 

Month Ending:

 

 

 

Total Partners'
Capital

 

 

 

 

 

June 30, 2015

 

 

$

130,117,307 

March 31, 2015

 

 

 

139,476,342 

December 31, 2014

 

 

 

126,379,804 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months ended

 

Six Months ended

Change in Partners' Capital

$

(9,359,035)

$

3,737,503 

Percent Change

 

(6.71)%

 

2.96% 

 

 

 

 

 

THREE MONTHS ENDED JUNE 30, 2015

 

The decrease in the Partnership’s net assets of $9,359,035 was attributable to net loss after profit share of $10,208,391 and withdrawals of $1,875,753, which were partially offset by contributions of $2,725,109. 

 

Brokerage fees are calculated on the net asset value on the last day of each month and are affected by trading performance, subscriptions and redemptions. Brokerage fees for the three months ended June 30, 2015 increased  $92,747 relative to the corresponding period in 2014.  The increase was due to an increase in average net assets of the Partnership during the three months ended June 30, 2015, relative to the corresponding period in 2014.

 

The Partnership pays administrative expenses for legal, audit and accounting services, up to 0.25 of 1% per annum of the Partnership’s average month-end net assets. Administrative expenses for the three months ended June 30, 2015 increased $8,707 relative to the corresponding period in 2014. The increase was due mainly to an increase in the Partnership’s average net assets during the three months ended June 30, 2015, relative to the corresponding period in 2014.

 

21

 


 

Interest income is derived from cash and U.S. Treasury instruments held at the Partnership’s brokers and custodian. Interest income for the three months ended June 30, 2015 increased $24,805 relative to the corresponding period in 2014. This increase was due predominantly to an increase in average net assets during the three months ended June 30, 2015 relative to the corresponding period in 2014.

 

During the three months ended June 30, 2015, the Partnership experienced net realized and unrealized losses of $9,960,840 from its trading operations (including foreign exchange translations and U.S. Treasury notes). Brokerage fees of $789,278, administrative expenses of $84,287, and custody fees and other expenses of $7,219 were incurred. Interest income of $58,284 and the reversal of accrued profit share to the General Partner of $574,949 partially offset the Partnership's  expenses resulting in net loss after profit share to the General Partner of $10,208,391. An analysis of the trading gain (loss) by sector is as follows:

 

 

 

 

 

 

 

Sector

 

% Gain (Loss)

 

Currencies

 

 

(1.80)

%

Energies

 

 

(2.09)

%

Grains

 

 

(0.09)

%

Interest rates

 

 

(2.73)

%

Livestock

 

 

0.04 

%

Metals

 

 

0.37 

%

Softs

 

 

(0.06)

%

Stock indices

 

 

(0.63)

%

 

 

 

 

 

Trading Loss

 

 

(6.99)

%

 

SIX MONTHS ENDED JUNE 30, 2015

 

The increase in the Partnership’s net assets of $3,737,503 was attributable to contributions of $10,219,203, which were partially offset by net loss after profit share of $1,839,864 and withdrawals of $4,641,836.

 

Brokerage fees are calculated on the net asset value on the last day of each month and are affected by trading performance, subscriptions and redemptions. Brokerage fees for the six months ended June 30, 2015 increased $157,855 relative to the corresponding period in 2014. The increase was due an increase in average net assets of the Partnership during the six months ended June 30, 2015, relative to the corresponding period in 2014.

 

The Partnership pays administrative expenses for legal, audit and accounting services, up to 0.25 of 1% per annum of the Partnership’s average month-end net assets. Administrative expenses for the six months ended June 30, 2015 increased $20,728 relative to the corresponding period in 2014. The increase was due mainly to an increase in the Partnership’s average net assets during the six months ended June 30, 2015, relative to the corresponding period in 2014.

 

Interest income is derived from cash and U.S. Treasury instruments held at the Partnership’s brokers and custodian. Interest income for the six months ended June 30, 2015 increased $28,400 relative to the corresponding period in 2014. This increase was due predominantly to an increase in average net assets during the six months ended June 30, 2015 relative to the corresponding period in 2014.

 

During the six months ended June 30, 2015, the Partnership experienced net realized and unrealized losses of $183,479 from its trading operations (including foreign exchange translations and U.S. Treasury notes). Brokerage fees of $1,564,441, administrative expenses of $169,392, custody fees and other expenses of $13,594 and an accrued profit share to the General Partner of $4,203 were incurred. Interest income of $95,245 partially offset the Partnership's expenses resulting in net loss after profit share to the General Partner of $1,839,864. An analysis of the trading gain (loss) by sector is as follows:

 

 

 

 

 

 

 

Sector

 

% Gain (Loss)

 

Currencies

 

 

(0.66)

%

Energies

 

 

(2.15)

%

Grains

 

 

(0.45)

%

Interest rates

 

 

0.54 

%

Livestock

 

 

0.04 

%

Metals

 

 

0.37 

%

Softs

 

 

0.13 

%

Stock indices

 

 

2.09 

%

 

 

 

 

 

Trading Loss

 

 

(0.09)

%   

22

 


 

MANAGEMENT DISCUSSION –2015

 

Three months ended June 30, 2015

  

The Partnership sustained a loss as a number of profitable, consensus trades from the first quarter proved unprofitable in the second quarter.  Long positions in interest rate futures, equity futures, and U.S. dollar forwards and short euro currency trades were unprofitable. Short energy futures trades were unprofitable as well. On the other hand, trading of metal futures was profitable, while trading of soft and agricultural commodities was nearly flat.

 

The sanguine attitude towards Greece from the first quarter became a second quarter ebb and flow of meetings, proposals, information and recriminations around the Greek crisis, culminating in the imposition of capital controls; a week-long bank holiday; and a nationwide referendum that rattled equity, bond and currency markets. The U.S. economy rebounded from its poor first quarter performance, although inflation and wages did not register explicit improvements. Consequently, the on-again, off-again prospects for a Federal Reserve rate increase added to market anxiety.  Finally, uncertainty about China’s growth prospects were compounded late in the period by the sudden, precipitous collapse in Chinese equity markets.  

 

The prices of German, French, and Italian note and bond futures, which had risen precipitously in the wake of the European Central Bank’s quantitative easing program, reversed course abruptly, driving rates sharply higher as analysts questioned the extraordinarily low levels they had reached particularly as EU economic data was improving and the Greek situation seemed to defy solution. Consequently, long positions in Continental European note and bond futures were unprofitable. Though the path was not a straight line partly due to reduced global bond market liquidity, better U.S. economic news pushed U.S. interest rates higher, producing losses from long positions in U.S. note and bond futures. Long positions in Japanese bond futures, U.K. bond futures, and short sterling futures also registered losses. Long positions in U.S. 2-year notes and short term euro-U.S. dollar futures did register small gains.

 

The path of equity prices during the quarter was uneven across time and markets. Equity futures were buffeted in a positive way by improving economic data from the U.S. and Europe, and in a negative way by the unfolding Greek tragedy; by economic growth concerns and wild swings in equity markets in China that prompted a Bank of China rate cut; and by worries about the timing of possible federal funds rate increases. In the end, the negative influences carried the day. Long positions in European, British, Canadian, Australian, Korean and Taiwanese equity futures posted losses, especially in June. Meanwhile, long positions in Chinese, Hong Kong and Japanese futures remained profitable even after posting losses in May and June.  As volatility spiked in June, the gain from a short VIX position was pared back.

 

Currency trading was also volatile during the quarter.  In April and early May, the poor results from the U.S. first quarter GDP report raised the likelihood that an anticipated Federal Reserve interest rate increase would be delayed.  Consequently, long U.S. dollar positions registered losses and were reduced or reversed.  Later on, the U.S. dollar steadied as U.S. economic data recovered and as the situations in China and Greece deteriorated.  On balance, trading the U.S. dollar against the currencies of Australia, the U.K., Canada, Brazil, Chile, Columbia, Czech Republic, Sweden, and Korea was unprofitable.  Short euro trades versus several currencies were also unprofitable.  The gain from a long U.S. dollar/short Japanese yen trade provided a partial offset.

 

Energy prices moved higher in April amid signs of a growth improvement in Europe and a weakening dollar.  Consequently, short positions in crude oil, crude oil products and natural gas generated losses and were scaled back.

 

Short positions in aluminum, copper, palladium, platinum, and silver were profitable, particularly in May and June, as China’s slowdown and equity turmoil led to reduced demand and some increased supplies on world markets.  Increased palladium and platinum production from South Africa also weighed on prices. Meanwhile, a sharp swing in the price of zinc led to a loss on a long position, and trading of gold was also unprofitable.

 

Grain prices, which have been falling rather persistently, rose somewhat late in the period as heavy rains in the U.S. threatened to delay harvests of some crops and planting of others.  Consequently, losses on short corn and wheat positions outweighed the gains from long soybean and soybean meal trades.

 

The loss on a short sugar trade slightly outweighed the gains from a long cocoa position and a short coffee trade.

 

Three months ended March 31, 2015 

    

Solid first quarter performance was led by gains from trading of financial markets—interest rate and equity futures, and currency forwards.  Commodity futures trading was nearly flat as losses from trading grain futures were countered by gains from trading soft, metal and livestock futures.

 

The European Central Bank’s historic quantitative easing announcement, several easing moves by the People’s Bank of China and more than 20 other official interest rate reductions led to sharp gains on long positions in U.S. interest rate futures across the yield curve. Long positions in German, Italian, French, Canadian and Australian notes and bonds also registered profits. A long position in short-term sterling rates was profitable as events suggested that any tightening of U.K. monetary policy would be delayed.

 

23

 


 

The more accommodative monetary policy environment and some improvement in growth indicators for Europe led to gains on long positions in Continental European, Chinese, Hong Kong, Japanese, and Australian equity futures. On the other hand, a short Korean kospi futures trade was unprofitable.  Meanwhile, U.S. equity futures, after reaching record levels, stagnated in the wake of the stronger dollar, disappointing earnings reports, and a first quarter growth slowdown. 

 

Currency markets were volatile during the quarter, although a solid U.S. economic outlook, generally higher relative interest rates, and some safe haven cachet underpinned the U.S. dollar. Still, a tentative Russia/ Ukraine ceasefire and temporary bouts of sanity around the Greek crisis periodically took some steam out of the dollar. Overall, long dollar positions versus the euro, Czech koruna, Swedish krona, Turkish lira, Brazilian real, and Canadian dollar were profitable. On the other hand, a long U.S. dollar/short Swiss franc trade sustained a large loss when, on January 15th, the Swiss National Bank unexpectedly ended the franc’s peg to the euro and the franc soared 15%. Long U.S. dollar trades against the South African, Norwegian, and New Zealand currencies produced small losses. 

 

Grain prices recovered a bit after the USDA projected a reduction in planting acreage for the current crop year. Consequently, short wheat positions, and to a lesser extent trading of corn, soybeans, soybean meal and bean oil produced minor losses. Coffee and sugar prices continued to fall and short positions in both were profitable. A short hog trade was marginally positive.

 

Energy trading was flat as the gains from short WTI crude and natural gas positions offset the losses from short Brent crude, heating oil, and London gas oil trades.  Metal trading was also nearly flat with gains from short aluminum, silver, and nickel positions and trading of gold marginally outpacing the losses from short copper, zinc, and platinum positions and trading of palladium. 

 

 

 

 

 

 

 

 

 

Periods ended June 30, 2014

 

 

 

 

 

Month Ending:

 

 

 

Total Partners'
Capital

 

 

 

 

 

June 30, 2014

 

 

$

121,640,709 

March 31, 2014

 

 

 

116,135,738 

December 31, 2013

 

 

 

117,355,644 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months ended

 

Six Months ended

Change in Partners' Capital

$

5,504,971 

$

4,285,065 

Percent Change

 

4.74% 

 

3.65% 

 

THREE MONTHS ENDED JUNE 30, 2014

 

The increase in the Partnership’s net assets of $5,504,971 was attributable to net income after profit share of $10,018,991 and contributions of $176,000, which were partially offset by withdrawals of $4,690,020. 

  

Brokerage fees are calculated on the net asset value on the last day of each month and are affected by trading performance, subscriptions and redemptions. Brokerage fees for the three months ended June 30, 2014 decreased $227,558 relative to the corresponding period in 2013. The decrease was due to a decrease in average net assets of the Partnership during the three months ended June 30, 2014, relative to the corresponding period in 2013. 

  

The Partnership pays administrative expenses for legal, audit and accounting services, up to 0.25 of 1% per annum of the Partnership’s average month-end net assets. Administrative expenses for the three months ended June 30, 2014 decreased $11,032 relative to the corresponding period in 2013. The decrease was due mainly to a decrease in the Partnership’s average net assets during the three months ended June 30, 2014, relative to the corresponding period in 2013. 

  

Interest income is derived from cash and U.S. Treasury instruments held at the Partnership’s brokers and custodian. Interest income for the three months ended June 30, 2014 decreased $28,162 relative to the corresponding period in 2013. This decrease was due predominantly to a decrease in average net assets during the three months ended June 30, 2014 relative to the corresponding period in 2013. 

  

During the three months ended June 30, 2014, the Partnership experienced net realized and unrealized gains of $10,800,796 from its trading operations (including foreign exchange translations and U.S. Treasury notes). Brokerage fees of $696,531, administrative expenses of $75,580, custody fees and other expenses of $9,471 and an accrued profit share to the General Partner of $33,702 were incurred. Interest income of $33,479 partially offset the Partnership's expenses resulting in net income after profit share to the General Partner of $10,018,991. An analysis of the trading gain (loss) by sector is as follows: 

24

 


 

 

 

 

 

 

Sector

 

% Gain (Loss)

 

Currencies

 

 

1.64 

%

Energies

 

 

0.68 

%

Grains

 

 

(0.47)

%

Interest rates

 

 

4.42 

%

Livestock

 

 

0.18 

%

Metals

 

 

0.05 

%

Softs

 

 

0.02 

%

Stock indices

 

 

3.02 

%

 

 

 

 

 

Trading Gain

 

 

9.54 

%

 

SIX MONTHS ENDED JUNE 30, 2014

 

The increase in the Partnership’s net assets of $4,285,065 was attributable to net income after profit share of $12,117,520 and contributions of $656,000, which were partially offset by withdrawals of $8,488,455. 

  

Brokerage fees are calculated on the net asset value on the last day of each month and are affected by trading performance, subscriptions and redemptions. Brokerage fees for the six months ended June 30, 2014 decreased $448,776 relative to the corresponding period in 2013. The decrease was due a decrease in average net assets of the Partnership during the six months ended June 30, 2014, relative to the corresponding period in 2013. 

  

The Partnership pays administrative expenses for legal, audit and accounting services, up to 0.25 of 1% per annum of the Partnership’s average month-end net assets. Administrative expenses for the six months ended June 30, 2014 decreased $29,118 relative to the corresponding period in 2013. The decrease was due mainly to a decrease in the Partnership’s average net assets during the six months ended June 30, 2014, relative to the corresponding period in 2013. 

  

Interest income is derived from cash and U.S. Treasury instruments held at the Partnership’s brokers and custodian. Interest income for the six months ended June 30, 2014 decreased $59,470 relative to the corresponding period in 2013. This decrease was due predominantly to a decrease in average net assets during the six months ended June 30, 2014 relative to the corresponding period in 2013. 

  

During the six months ended June 30, 2014, the Partnership experienced net realized and unrealized gains of $13,658,480 from its trading operations (including foreign exchange translations and U.S. Treasury notes). Brokerage fees of $1,406,586, administrative expenses of $148,664, custody fees and other expenses of $17,024 and an accrued profit share to the General Partner of $35,531 were incurred. Interest income of $66,845 partially offset the Partnership's expenses resulting in net income after profit share to the General Partner of $12,117,520. An analysis of the trading gain (loss) by sector is as follows: 

 

 

 

 

 

 

 

 

Sector

 

% Gain (Loss)

 

Currencies

 

 

1.78 

%

Energies

 

 

0.99 

%

Grains

 

 

0.24 

%

Interest rates

 

 

7.10 

%

Livestock

 

 

0.36 

%

Metals

 

 

(1.18)

%

Softs

 

 

0.14 

%

Stock indices

 

 

2.74 

%

 

 

 

 

 

Trading Gain

 

 

12.17 

%

 

 

 

 

 

25

 


 

MANAGEMENT DISCUSSION –2014

 

Three months ended June 30, 2014

 

The Partnership registered a gain during the second quarter largely due to profits from long interest rate and equity futures positions, and from short U.S. dollar trades. Long energy positions were also profitable but those gains were offset by losses from trading agricultural commodities.  Finally, trading of metal futures was flat. 

  

A further easing of monetary policy by the European Central Bank in early June, persistently accommodative monetary policy elsewhere in the developed world, stubbornly low inflation worldwide, and some flight to safety demand pushed government bond prices higher. Consequently, long positions in U.S., German, U.K., Canadian, French, Italian, Australian and Japanese note and bond future were profitable, especially in April and May. On the other hand, a long position in short-term British interest rate futures was unprofitable after Bank of England Governor Carney hinted that official British rates might rise sooner than previously expected. 

  

Against this easy money background and with economic growth rebounding from a weather induced first quarter slowdown, long positions in German, Spanish, Dutch, French, U.S., British, Indian, Taiwanese, Singaporean, and South African equity futures were profitable. Also, with volatility plummeting to historically low levels, a short VIX trade produced a gain. 

  

Higher interest rates and/or stronger growth prospects in certain countries weighed on the U.S. dollar. In particular, short dollar trades against the New Zealand dollar, British pound, Australian dollar, Korean won and Brazilian real were profitable. Short dollar trades against the currencies of Colombia, Israel, Mexico, Singapore and Switzerland also registered gains. On the other hand, long dollar positions relative to the Canadian dollar and Japanese yen were unprofitable, as was trading of the Swedish and Norwegian currencies. 

  

The expanding turmoil in the Middle East pushed energy prices higher, particularly in May and June, and long positions in Brent crude, WTI crude and RBOB gasoline were profitable, and outpaced small losses from trading heating oil and London gas oil.

  

Grain prices were volatile during the quarter, rising early on due to dry weather in the U.S. and concern about the impact of the Russia-Ukraine confrontation and falling later due to improved weather conditions and better USDA crop forecasts. As a result, long positions in corn, wheat, soybeans, and soybean meal were unprofitable. Meanwhile, trading of cattle was marginally profitable, and trading of soft commodities was flat. 

  

A long nickel trade benefitted from the Indonesian export ban that drove prices higher; a long palladium trade was profitable as labor turmoil in South Africa and Russian tensions boosted prices; and a long gold trade was positive due to flight to safety demand. Losses were incurred from trading aluminum, copper, lead and silver.

 

Three months ended March 31, 2014 

 

After a quarter of significant market volatility, the Partnership produced a profit, predominantly due to gains from long interest rate futures positions. There were also fractional profits from trading agricultural commodities, energy and currencies, but these were largely offset by the losses from trading metals.

   

Shifting perceptions about U.S. and Chinese growth prospects, the future course of Federal Reserve monetary policy, political and economic turmoil in several emerging economies—including Turkey, India, Indonesia, and Thailand, and the impact of the Russia/Ukraine-Crimea situation kept markets off balance during the quarter.

   

Given persistent concerns about worldwide growth, social and political unrest in numerous emerging markets and a lack of inflationary impulses in the developed world, it should come as no surprise that a flight to safety and quality would push up note and bond prices. Consequently, long positions in German, French, Italian, Japanese, Canadian and U.S. note and bond futures were profitable. Long positions in U.S. and German short term interest rate futures also registered gains. On the other hand, trading Australian and British note and bond futures was unprofitable.

   

Equity prices were particularly volatile during the quarter as the markets digested weather related growth problems in the U.S., slowing Chinese growth, the outlook for U.S. quantitative easing, and Chinese policy efforts to wring excess debt and capacity out of the economy without threatening too many corporate defaults or bankruptcies. Losses from trading of and long positions in Chinese, Hong Kong, Korean, Japanese, Singaporean and Australian equity futures slightly outweighed the gains from long U.S., German, Spanish and Canadian equity futures positions.

   

Foreign exchange markets were rattled by the political and economic turmoil in many emerging markets, by monetary policy developments in China and the U.S., as well as by growth concerns. Short U.S. dollar positions against sterling, the Indian rupee, the New Zealand dollar, and the Swiss franc were profitable, as were long dollar trades against Chile and Russia and a long New Zealand/short Canada trade. These gains were partially offset by losses on: short dollar trades against the euro, Czech koruna, Polish zloty and Korean won; a long U.S. short Singapore dollar position; long euro trades versus Australia and Turkey; and trading the Australian dollar relative to the yen and pound sterling.

   

26

 


 

Turning to agricultural commodities, long positions in soybeans, soybean meal, corn, coffee, cocoa, cotton and livestock, and a short wheat trade were profitable. Meanwhile, short sugar and soybean oil trades produced small losses.

 

Metal trading was unprofitable due to losses from long copper, lead, gold and silver trades and from a short aluminum position. A long nickel trade produced a partially offsetting profit. 

   

Energy trading was marginally profitable as gains from a long WTI crude position and trading of natural gas outweighed the losses from long Brent crude and London gas oil positions.

 

OFF-BALANCE SHEET ARRANGEMENTS

 

The Partnership does not engage in off-balance sheet arrangements with other entities.

 

CONTRACTUAL OBLIGATIONS

 

The Partnership does not enter into any contractual obligations or commercial commitments to make future payments of a type that would be typical for an operating company or that would affect its liquidity or capital resources. The Partnership’s sole business is trading futures, forward currency, spot, option and swap contracts, both long (contracts to buy) and short (contacts to sell). All such contracts are settled by offset, not delivery. Substantially all such contracts are for settlement within four months of the trade date and substantially all such contracts are held by the Partnership for less than four months before being offset or rolled over into new contracts with similar maturities. The financial statements present a Condensed Schedule of Investments setting forth the Partnership’s open futures and forward currency contracts, both long and short, at June 30, 2015.

 

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not required.

 

ITEM 4.   CONTROLS AND PROCEDURES

 

The General Partner, with the participation of its principal executive officers and principal financial officer, has evaluated the effectiveness of the design and operation of its disclosure controls and procedures with respect to the Partnership as of the end of the period covered by this quarterly report, and, based on its evaluation, has concluded that these disclosure controls and procedures are effective. There were no changes in the General Partner's internal controls over financial reporting during the quarter ended June 30, 2015 that have materially affected, or are reasonably likely to materially affect, the General Partner's internal controls over financial reporting with respect to the Partnership.

 

PART II.  OTHER INFORMATION

 

ITEM 1.  Legal Proceedings

 

None.

 

ITEM 1A. Risk Factors

 

Not required.

 

ITEM 2.  Unregistered Sales of Equity Securities and Use of Proceeds

 

(a)   Pursuant to the Partnership's Agreement of Limited Partnership, the Partnership may sell Interests at the beginning of each calendar month.  On April 1,  2015,  May 1, 2015 and June 1, 2015 the Partnership sold Interests to new and existing limited partners of $2,047,000,  $500,000 and  $175,000, respectively. There were no underwriting discounts or commissions in connection with the sales of the Interests described above.

 

Each of the foregoing Interests were offered and sold only to “accredited investors” as defined in Rule 501(a) under the Securities Act of 1933 as amended (the “1933 Act”), in reliance on the exemption from registration provided by Rule 506(b) under the 1933 Act.

 

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

27

 


 

 

 

 

 

 

 

 

 

The following table summarizes Interests redeemed during the three months ended June 30, 2015:

 

 

 

 

 

 

 

Date of
Withdrawal

 

Limited
Partners

 

Special Limited
Partners

 

Total

 

 

 

 

 

 

 

April 30, 2015

 

$              (65,766)

 

$            (200,983)

 

$                (266,749)

May 31, 2015

 

(286,182)

 

(200,000)

 

(486,182)

June 30, 2015

 

(201,259)

 

(921,563)

 

(1,122,822)

Total

 

$            (553,207)

 

$         (1,322,546)

 

$             (1,875,753)

 

 

 

 

 

 

 

 

ITEM 3.  Defaults Upon Senior Securities

 

None.

 

ITEM 4.  Mine Safety Disclosures

 

Not Applicable.

 

ITEM 5.  Other Information

 

None.

  

ITEM 6.  Exhibits

 

The following exhibits are included herewith:

 

 

 

 

31.01

 

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

31.02

 

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

31.03

 

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

32.01

 

Section 1350 Certification of Co-Chief Executive Officer

32.02

 

Section 1350 Certification of Co-Chief Executive Officer

32.03

 

Section 1350 Certification of Chief Financial Officer

 

 

 

101.INS

 

XBRL Instance Document

101.SCH

 

XBRL Taxonomy Extension Schema Document

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

 

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

 

 

 

 

 

 

 

 

 

 

 

28

 


 

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,

/s/ Michael W. Carter

 

General Partner

Michael W. Carter

 

Vice-President

Date: August  13, 2015

(Principal Accounting Officer)

 

29