UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 FORM 10-Q

 

☒

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

 

For the Quarterly Period Ended: September 30, 2018

 

Or

 

☐

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

 

Commission File Number: 000-54028

 

MILLBURN MULTI-MARKETS FUND L.P.

 

(Exact name of registrant as specified in its charter)

 

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

 

c/o MILLBURN RIDGEFIELD CORPORATION 411 West Putnam Avenue Greenwich, Connecticut 06830

 

 (Address of principal executive offices) (Zip Code)

 

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

 

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

 

Yes ☒ No ☐

 

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

 

Yes ☒ No ☐

 

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

 

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☐	Smaller reporting company ☒
	Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Yes  ☐           No  ☐

 

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

 

Yes ☐ No ☒

 

 

PART I. FINANANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

Millburn Multi-Markets Fund L.P.
Financial statements
For the three and nine months ended September 30, 2018 and 2017 (unaudited)
Statements of Financial Condition (a)		1
Statements of Operations (c)		2
Statements of Changes in Partners’ Capital (b)		4
Statements of Financial Highlights (c)		5
Notes to Financial Statements		9

 

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

 

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

 

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

 

 

Millburn Multi-Markets Fund L.P.

Statements of Financial Condition (UNAUDITED)

 

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

 

See notes to financial statements (Unaudited)

 

Millburn Multi-Markets Fund L.P. 

Statements of Operations (UNAUDITED)

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

 

(Continued)

 

 

Millburn Multi-Markets Fund L.P.

Statements of Operations (UNAUDITED)

 

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

 

See notes to financial statements (Unaudited)

(Concluded)

 

 

Millburn Multi-Markets Fund L.P.

Statements of Changes in Partners’ Capital (UNAUDITED)

For the nine months ended September 30, 2018 and 2017

 

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

						Limited Partners
		General
		Partner				Series A								Series B								Series C								Total
		Amount				Amount				Units				Amount				Units				Amount				Units				Amount
PARTNERS’ CAPITAL — December 31, 2016		$	2,779,224			$	158,782,193				140,590.2950			$	8,846,058				7,017.8811			$	2,478,858				1,930.6399			$	172,886,333
Capital contributions			—				22,783,577				19,836.2183				952,000				752.2613				315,000				240.6106				24,050,577
Capital withdrawals			—				(17,672,573	)			(15,358.9212	)			(1,011,080	)			(787.2125	)			(424,041	)			(321.7214	)			(19,107,694	)
Transfers between Series							(1,663,205	)			(1,491.4795	)											1,663,205				1,297.3703				—
Net income before profit share			117,920				1,806,103				—				240,618				—				115,626				—				2,280,267
Profit share							(375,069	)							(50,756	)							(21,089	)							(446,914	)
PARTNERS’ CAPITAL — September 30, 2017		$	2,897,144			$	163,661,026				143,576.1126			$	8,976,840				6,982.9299			$	4,127,559				3,146.8994			$	179,662,569
Net Asset Value per Unit at September 30, 2017										$	1,139.89							$	1,285.54							$	1,311.63

 

See notes to financial statements (Unaudited)

 

 

  

Millburn Multi-Markets Fund L.P.

Statement of Financial Highlights (UNAUDITED)

For the three months ended September 30, 2018

 

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

 

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

 

(1)

The net investment loss per unit and profit share allocation from the Master Fund per unit is calculated by dividing the net investment loss and profit share allocation from the Master Fund by the average number of units outstanding during the period. Total trading and investing gains is a balancing amount necessary to reconcile the change in net asset value per unit with the other per unit information.

(2)

Not Annualized.

(3)

Annualized.

(4)

Includes the Partnership’s proportionate share of income and expense allocated from the Master Fund.

(5)

Excludes profit share allocation from the Master Fund.

(6)

Profit share for Series B and C is calculated based on Series B and C aggregate trading profits and may be impacted by rebalancing due to monthly capital activity.

 

(Continued)

 

 

Millburn Multi-Markets Fund L.P.

Statement of Financial Highlights (UNAUDITED)

For the nine months ended September 30, 2018

 

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

  

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

 

(1)

The net investment loss per unit and profit share allocation from the Master Fund per unit is calculated by dividing the net investment loss and profit share allocation from the Master Fund by the average number of units outstanding during the period. Total trading and investing gains is a balancing amount necessary to reconcile the change in net asset value per unit with the other per unit information.

(2)

Not Annualized.

(3)

Annualized.

(4)

Includes the Partnership’s proportionate share of income and expense allocated from the Master Fund.

(5)

Excludes profit share allocation from the Master Fund.

(6)

Profit share for Series B and C is calculated based on Series B and C aggregate trading profits and may be impacted by rebalancing due to monthly capital activity.

 

See notes to financial statements (Unaudited)

(Concluded) 

 

  

Millburn Multi-Markets Fund L.P.

Statement of Financial Highlights (UNAUDITED)

For the three months ended September 30, 2017

 

The following information presents per unit operating performance data for each series for the three months ended September 30, 2017.

 

Per Unit Performance
(For a Unit Outstanding Throughout the Period)			Series A				Series B				Series C
NET ASSET VALUE PER UNIT — Beginning of period		$	1,106.68			$	1,246.45			$	1,271.22
INCOME (LOSS) ALLOCATED FROM MASTER FUND:
Net investment loss (1)			(10.88	)			(6.39	)			(5.98	)
Total trading and investing gains (1)			46.27				52.12				52.95
Net income before profit share allocation from Master Fund			35.39				45.73				46.97
Less: profit share allocation from Master Fund (1) (6)			2.18				6.64				6.56
Net income from operations after profit share allocation from Master Fund			33.21				39.09				40.41
NET ASSET VALUE PER UNIT — End of period		$	1,139.89			$	1,285.54			$	1,311.63
TOTAL RETURN BEFORE PROFIT SHARE ALLOCATION FROM MASTER FUND (2)			3.19	%			3.66	%			3.68	%
LESS: PROFIT SHARE ALLOCATION FROM MASTER FUND (2) (6)			0.19				0.52				0.50
TOTAL RETURN AFTER PROFIT SHARE ALLOCATION FROM MASTER FUND (2)			3.00	%			3.14	%			3.18	%
RATIOS TO AVERAGE NET ASSET VALUE:
Expenses (3) (4) (5)			4.69	%			2.86	%			2.70	%
Profit share allocation from Master Fund (2) (6)			0.19				0.52				0.50
Total expenses			4.88	%			3.38	%			3.20	%
Net investment loss (3) (4) (5)			(3.83	)%			(1.99	)%			(1.82	)%

 

(1)

The net investment loss per unit and profit share allocation from the Master Fund per unit is calculated by dividing the net investment loss and profit share allocation from the Master Fund by the average number of units outstanding during the period. Total trading and investing gains is a balancing amount necessary to reconcile the change in net asset value per unit with the other per unit information.

(2)

Not Annualized.

(3)

Annualized.

(4)

Includes the Partnership’s proportionate share of income and expense allocated from the Master Fund.

(5)

Excludes profit share allocation from the Master Fund.

(6)

Profit share for Series B and C is calculated based on Series B and C aggregate trading profits and may be impacted by rebalancing due to monthly capital activity.

 

(Continued)

 

 

Millburn Multi-Markets Fund L.P.

Statement of Financial Highlights (UNAUDITED)

For the nine months ended September 30, 2017

 

The following information presents per unit operating performance data for each series for the nine months ended September 30, 2017.

 

Per Unit Performance
(For a Unit Outstanding Throughout the Period)			Series A				Series B				Series C
NET ASSET VALUE PER UNIT — Beginning of period		$	1,129.40			$	1,260.50			$	1,283.96
INCOME (LOSS) ALLOCATED FROM MASTER FUND:
Net investment loss (1)			(33.77	)			(20.83	)			(19.08	)
Total trading and investing gains (1)			47.07				52.83				54.61
Net income before profit share allocation from Master Fund			13.30				32.00				35.53
Less: profit share allocation from Master Fund (1) (6)			2.81				6.96				7.86
Net income from operations after profit share allocation from Master Fund			10.49				25.04				27.67
NET ASSET VALUE PER UNIT — End of period		$	1,139.89			$	1,285.54			$	1,311.63
TOTAL RETURN BEFORE PROFIT SHARE ALLOCATION FROM MASTER FUND (2)			1.15	%			2.55	%			2.88	%
LESS: PROFIT SHARE ALLOCATION FROM MASTER FUND (2) (6)			0.22				0.56				0.72
TOTAL RETURN AFTER PROFIT SHARE ALLOCATION FROM MASTER FUND (2)			0.93	%			1.99	%			2.16	%
RATIOS TO AVERAGE NET ASSET VALUE:
Expenses (3) (4) (5)			4.68	%			2.90	%			2.68	%
Profit share allocation from Master Fund (2) (6)			0.22				0.56				0.72
Total expenses			4.90	%			3.46	%			3.40	%
Net investment loss (3) (4) (5)			(3.94	)%			(2.17	)%			(1.93	)%

 

(1)

The net investment loss per unit and profit share allocation from the Master Fund per unit is calculated by dividing the net investment loss and profit share allocation from the Master Fund by the average number of units outstanding during the period. Total trading and investing gains is a balancing amount necessary to reconcile the change in net asset value per unit with the other per unit information.

(2)

Not Annualized.

(3)

Annualized.

(4)

Includes the Partnership’s proportionate share of income and expense allocated from the Master Fund.

(5)

Excludes profit share allocation from the Master Fund.

(6)

Profit share for Series B and C is calculated based on Series B and C aggregate trading profits and may be impacted by rebalancing due to monthly capital activity.

 

See notes to financial statements (Unaudited)

 

(Concluded) 

 

 

 NOTES TO FINANCIAL STATEMENTS

 

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The accompanying unaudited financial statements, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of Millburn Multi-Markets Fund L.P.’s (the “Partnership”) financial condition at September 30, 2018 (unaudited) and December 31, 2017 and the results of its operations for the three and nine months ended September 30, 2018 and 2017 (unaudited).

 

These financial statements present the results of interim periods and do not include all disclosures normally provided in annual financial statements. It is suggested that these financial statements be read in conjunction with the audited financial statements and notes included in the Partnership’s 2017 annual report included in Form 10-K filed with the Securities and Exchange Commission. The December 31, 2017 information has been derived from the audited financial statements as of December 31, 2017. 

 

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

 

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

 

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

 

The Income Taxes topic of the Codification clarifies the accounting for uncertainty in tax positions. This requires that the Partnership recognize in its financial statements the impact of any uncertain tax positions. Based on a review of the Partnership’s open tax years, 2015 to 2017, Millburn Ridgefield Corporation (the “General Partner”) has determined that no reserves for uncertain tax positions were required.

 

There have been no material changes with respect to the Partnership’s critical accounting policies, off-balance sheet arrangements or disclosure of contractual obligations as reported in the Partnership’s Annual Report on Form 10-K for fiscal year 2017.

 

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

 

The Partnership invests substantially all of its assets in Millburn Multi-Markets Trading L.P. (the “Master Fund”). The Partnership’s ownership percentage of the Master Fund at September 30, 2018 and December 31, 2017 was 28.97% and 35.47%, respectively, of total partners’ capital of the Master Fund. See the attached financial statements of the Master Fund.

 

3. RELATED PARTY TRANSACTIONS

 

The Partnership bears its own expenses, including, but not limited to, periodic legal, accounting and filing fees. Total operating expenses related to investors in the Partnership (including their pro-rata share of Master Fund expenses) are not expected to exceed 1/2 of 1% per annum of the Partnership’s average month-end partners’ capital.

 

Series A Limited Partners that redeem Units at or prior to the end of the first eleven months after such Units are sold shall be assessed redemption charges calculated based on their redeemed Units’ net asset value as of the date of redemption. All redemption charges will be paid to the General Partner. At September 30, 2018 and December 31, 2017, there were no redemption charges owed to the General Partner.

 

4. FINANCIAL HIGHLIGHTS

 

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

 

		Three months ended September 30,								Nine months ended September 30,
		2018				2017				2018				2017
Series A			127,214.867				148,282.529				134,329.212				146,547.251
Series B			6,914.548				7,014.374				7,207.979				7,010.924
Series C			2,349.102				2,814.813				3,550.886				2,251.568
Series D			531.918				—				341.624				—

 

 

5. SUBSEQUENT EVENTS

 

The General Partner has performed its evaluation of subsequent events from October 1, 2018 to November 13, 2018, the date this form 10-Q was filed. Based on such evaluation, no events were discovered that required disclosure or adjustment to the financial statements.

 

 

Millburn Multi-Markets Trading L.P.

Financial statements

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

 

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

 

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

 

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

 

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

 

 

Millburn Multi-Markets Trading L.P. 

Statements of Financial Condition (UNAUDITED)

 

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

 

See notes to financial statements (Unaudited)

 

 

Millburn Multi-Markets Trading L.P. 

Condensed Schedule of Investments (UNAUDITED) 

September 30, 2018 

 

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

 

(Continued)

 

 

Millburn Multi-Markets Trading L.P. 

Condensed Schedule of Investments (UNAUDITED) 

September 30, 2018

 

U.S. TREASURY NOTES

 

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

 

See notes to financial statements (Unaudited)

(Concluded)

 

 

Millburn Multi-Markets Trading L.P. 

Condensed Schedule of Investments 

December 31, 2017 

 

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

  

(Continued) 

 

 

Millburn Multi-Markets Trading L.P. 

Condensed Schedule of Investments 

December 31, 2017

 

U.S. TREASURY NOTES  

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

 

 

See notes to financial statements (Unaudited)

(Concluded)

 

Millburn Multi-Markets Trading L.P. 

Statements of Operations (UNAUDITED)

 

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

 

(Continued)

 

 

Millburn Multi-Markets Trading L.P.

Statements of Operations (UNAUDITED) 

 

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

 

(Concluded)

See notes to financial statements (Unaudited)

 

 

Millburn Multi-Markets Trading L.P. 

Statements of Changes in Partners’ Capital (UNAUDITED) 

 

For the nine months ended September 30, 2018:

 

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

 

For the nine months ended September 30, 2017:

 

		Limited Partners				New Profit Memo Account				General Partner				Total
PARTNERS’ CAPITAL - January 1, 2017		$	229,993,162			$	—			$	806,883			$	230,800,045
Contributions			276,213,975				93,168				—				276,307,143
Withdrawals			(21,420,877	)			—				—				(21,420,877	)
Net income (loss) before profit share			7,514,367				(1,017	)			35,663				7,549,013
General Partner’s allocation - profit share			(1,130,868	)			—				—				(1,130,868	)
PARTNERS’ CAPITAL- September 30, 2017		$	491,169,759			$	92,151			$	842,546			$	492,104,456

 

See notes to financial statements (Unaudited)

 

 

Millburn Multi-Markets Trading L.P. 

Statements of Financial Highlights (UNAUDITED)

 

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

 

		For the three months ended								For the nine months ended
		September 30,				September 30,				September 30,				September 30,
		2018				2017				2018				2017
Total return before General Partner profit share allocation (3)			2.87	%			3.74	%			(0.44	)%			2.86	%
Less: General Partner profit share allocation (3)			—				0.56				—				0.56
Total return after General Partner profit share allocation (3)			2.87	%			3.18	%			(0.44	)%			2.30	%
Ratios to average net asset value:
Expenses (1) (4)			2.44	%			2.44	%			2.46	%			2.44	%
General Partner profit share allocation (3)			—				0.56				—				0.56
Total expenses (1)			2.44	%			3.00	%			2.46	%			3.00	%
Net investment loss (1) (2) (4)			(0.60	)%			(1.56	)%			(0.91	)%			(1.71	)%

 

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

 

(1)

Includes the Partnership’s proportionate share of expenses allocated from the Partnership’s operations.

(2)

Excludes General Partner profit share allocation and includes interest income.

(3)

Not Annualized.

(4)

Annualized.

 

See notes to financial statements (Unaudited)

 

 

Millburn Multi-Markets Trading L.P. 

Statements of Financial Highlights (UNAUDITED)

 

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

 

		For the three months ended								For the nine months ended
		September 30,				September 30,				September 30,				September 30,
		2018				2017				2018				2017
Total return before General Partner profit share allocation (3)			2.82	%			3.69	%			(0.54	)%			2.31	%
Less: General Partner profit share allocation (3)			0.06				0.22				0.07				0.29
Total return after General Partner profit share allocation (3)			2.76	%			3.47	%			(0.61	)%			2.02	%
Ratios to average net asset value:
Expenses (1) (4)			2.56	%			2.68	%			2.58	%			2.91	%
General Partner profit share allocation (3)			0.06				0.22				0.07				0.29
Total expenses (1)			2.62	%			2.90	%			2.65	%			3.20	%
Net investment loss (1) (2) (4)			(0.72	)%			(1.80	)%			(1.03	)%			(2.14	)%

 

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

 

(1)

Includes the proportionate share of expenses of the Partnership and the Cayman Feeder for the period   ending September 30, 2018 and September 30, 2017.

(2)

Excludes General Partner profit share allocation and includes interest income.

(3)

Not Annualized.

(4)

Annualized.

 

See notes to financial statements (Unaudited)

 

 

 

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

 

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

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

 

The accompanying unaudited financial statements, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the Master Fund’s financial condition at September 30, 2018 (unaudited) and December 31, 2017 and the results of its operations for the three and nine months ended September 30, 2018 and 2017 (unaudited).

 

These financial statements present the results of interim periods and do not include all disclosures normally provided in annual financial statements. It is suggested that these financial statements be read in conjunction with the audited financial statements and notes included in the Master Fund’s annual report for the year ended December 31, 2017 included in the Partnership’s annual report on Form 10-K filed with the Securities and Exchange Commission. The December 31, 2017 information has been derived from the audited financial statements as of December 31, 2017.

 

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

 

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

 

The Income Taxes topic of the Codification clarifies the accounting for uncertainty in tax positions. This requires that the Partnership recognize in its financial statements the impact of any uncertain tax positions. Based on a review of the Partnership’s open tax years, 2015 to 2017, the General Partner has determined that no reserves for uncertain tax positions were required. 

 

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

 

The Partnership and the Cayman Feeder invest substantially all of their assets in the Master Fund. At September 30, 2018 and December 31, 2017, the respective ownership percentages of the Master Fund are detailed below. The remaining interests are held by direct investors in the Master Fund. 

 

		September 30, 2018				December 31, 2017
Partnership			28.97	%			35.47	%
Cayman Feeder			61.97	%			55.14	%
Total			90.94	%			90.61	%

 

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

 

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

 

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

 

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

 

 

3. FAIR VALUE

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

During the three and nine months ended September 30, 2018 and 2017, there were no transfers of assets or liabilities between Level 1 and Level 2. The following tables represent the Master Fund’s investments by hierarchical level as of September 30, 2018 and December 31, 2017 in valuing the Master Fund’s investments at fair value. At September 30, 2018 and December 31, 2017, the Master Fund had no assets or liabilities in Level 3.

 

 

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

 

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

 

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

 

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

 

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

 

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

 

 

4. DERIVATIVE INSTRUMENTS

 

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

 

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

 

The Master Fund engages in the speculative trading of futures and forward contracts on interest rates, grains, softs, currencies, metals, energies, livestock and stock indices. The following were the primary trading risk exposures of the Master Fund at September 30, 2018 by market sector:

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

The following tables present the fair value of open futures and forward currency contracts, held long or sold short, at September 30, 2018 and December 31, 2017. Fair value is presented on a gross basis even though the contracts are subject to master netting agreements and qualify for net presentation in the Master Fund’s Statements of Financial Condition.

 

 

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

 

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

 

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

 

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

 

 

The effect of trading futures and forward currency contracts is represented on the Master Fund’s Statements of Operations for the three and nine months ended September 30, 2018 and 2017 as “Net realized gains (losses) on closed positions: Futures and forward currency contracts” and “Net change in unrealized: Futures and forward currency contracts.” These trading gains and losses are detailed below.

 

Trading gains (losses) of futures and forward currency contracts for the three and nine months ended September 30, 2018 and 2017

 

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

  

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

 

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

 

The customer agreements between the Master Fund, the futures clearing brokers including, Deutsche Bank Securities Inc. (a wholly owned subsidiary of Deutsche Bank AG), SG Americas Securities, LLC, and Merrill Lynch Pierce, Fenner & Smith Inc. as well as the FX prime brokers, Deutsche Bank AG and Bank of America, N.A., and the swap dealer, Morgan Stanley & Co., LLC, give the Master Fund the legal right to net unrealized gains and losses on open futures and forward currency contracts. The Master Fund netted, for financial reporting purposes, the unrealized gains and losses on open futures and forward currency contracts on the Statements of Financial Condition as the criteria under ASC 210-20, “Balance Sheet,” were met.

 

 

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

 

Offsetting of derivative assets and liabilities at September 30, 2018 

 

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

 

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

 

Amounts Not Offset in the Statement
of Financial Condition

 

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

 

Amounts Not Offset in the Statement
of Financial Condition

 

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

 

(1)

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

 

(2)

Collateral disclosed is limited to an amount not to exceed 100% of the net amount of assets and liabilities presented in the Statement of Financial Condition, for each respective counterparty.

 

(3)

Net amount represents the amount that is subject to loss in the event of a counterparty failure as of September 30, 2018.

 

(4)

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

 

 

Offsetting of derivative assets and liabilities at December 31, 2017

 

Assets		Gross amounts of recognized assets				Gross amounts offset in the Statement of Financial Condition				Net amounts of assets presented in the Statement of Financial Condition
Futures contracts
Counterparty C		$	8,020,778			$	(7,204,167	)		$	816,611
Counterparty I			16,954,695				(15,625,849	)			1,328,846
Total futures contracts			24,975,473				(22,830,016	)			2,145,457
Total assets		$	24,975,473			$	(22,830,016	)		$	2,145,457

 

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

 

Amounts Not Offset in the Statement
of Financial Condition

 

Counterparty		Net amounts of Assets presented in the Statement of Financial Condition				Financial Instruments				Collateral Received(1)(2)				Net Amount(3)
Counterparty C		$	816,611			$	—			$	(816,611	)		$	—
Counterparty I			1,328,846				—				(1,328,846	)			—
Total		$	2,145,457			$	—			$	(2,145,457	)		$	—

 

Amounts Not Offset in the Statement
of Financial Condition

 

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

 

(1)

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

 

(2)

Collateral disclosed is limited to an amount not to exceed 100% of the net amount of liabilities presented in the Statement of Financial Condition, for each respective counterparty.

 

(3)

Net amount represents the amount that is subject to loss in the event of a counterparty failure as of December 31, 2017.

 

(4)

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

 

 

CONCENTRATION OF CREDIT RISK

 

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

 

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

 

The Master Fund’s forward currency trading activities are cleared through Deutsche Bank AG (“DB”), Bank of America N.A. (“ML”) and Morgan Stanley & Co. LLC (“MS”). The Master Fund’s concentration of credit risk associated with DB, ML 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, ML and MS. The amount of such credit risk was $54,018,520 and $49,457,913 at September 30, 2018 and December 31, 2017, respectively.

 

5. PROFIT SHARE

 

The following table indicates the total profit share earned and accrued during the three and nine months ended September 30, 2018 and 2017. Profit share earned (from Limited Partners’ redemptions) is credited to the New Profit Memo account as defined in the Master Fund’s Agreement of Limited Partnership.

 

			Three months ended: September 30, 2018				Three months ended: September  30, 2017
Profit share earned			$	78,041			$	29,596
Reversal of profit share (1)				(66,845	)			—
Profit share accrued				299,224				1,037,700
Total profit share			$	310,420			$	1,067,296

 

			Nine months ended: September 30, 2018				Nine months ended: September  30, 2017
Profit share earned			$	78,041			$	93,168
Profit share accrued				299,224				1,037,700
Total profit share			$	377,265			$	1,130,868

 

⁽¹⁾ Reversal of profit sharing on July 1st

 

6. FINANCIAL HIGHLIGHTS

 

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

 

7. SUBSEQUENT EVENTS

 

During the period from October 1, 2018 to November 13, 2018, contributions of $10,000,000 were made to the Master Fund. The General Partner has performed its evaluation of subsequent events through November 13, 2018, the date this form 10-Q was filed. Based on such evaluation, no further events were discovered that required disclosure or adjustment to the 10-Q.

 

 

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

 

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

 

OPERATIONAL OVERVIEW

 

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

 

LIQUIDITY AND CAPITAL RESOURCES

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

 

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

 

The Master Fund’s assets are generally held as cash or cash equivalents, including U.S. government securities or securities issued by federal agencies, other Commodity Futures Trading Commission-authorized investments or bank held or certain other money market instruments (e.g., bankers acceptances and Eurodollar or other time deposits), which are used to margin the Master Fund’s futures, forwards, and spot currency positions and withdrawn, as necessary, to pay redemptions and expenses. Other than potential market-imposed limitations on liquidity, due, for example, to limited open interest in certain futures markets or to daily price fluctuation limits, which are inherent in the Master Fund’s futures, forward and spot trading, the Master Fund’s assets are highly liquid and are expected to remain so. During its operations through September 30, 2018, the Partnership, through its investment in the Master Fund, experienced no meaningful periods of illiquidity in any of the numerous markets traded by the General Partner.

 

CRITICAL ACCOUNTING ESTIMATES

 

The Master Fund records its transactions in futures, forward and spot contracts, including related income and expenses, on a trade date basis. Open futures contracts traded on an exchange are valued at fair value, which is based on the closing settlement price on the exchange where the futures contract is traded by the Master Fund on the day with respect to which net assets are being determined. Spot currency contracts are valued based on current market prices (“Spot Price”). Forward currency contracts are valued based on pricing models that consider the Spot Price plus the financing cost or benefit (“Forward Point”). Forward Points from the quotation service providers are generally in periods of one month, two months, three months, six months, nine months and twelve months forward while the contractual forward delivery dates for the forward currency contracts traded by the Master Fund may be in between these periods. The General Partner’s policy to determine fair value for forward currency contracts involves first calculating the number of months from the date the forward currency contract is being valued to its maturity date (“Months to Maturity”), then identifying the forward currency contracts for the two forward months that are closest to the Months to Maturity (“Forward Month Contracts”). Linear interpolation is then performed between the dates of these two Forward Month Contracts to calculate the interpolated Forward Point. Model inputs can generally be verified and model selection does not involve significant management judgment. Such instruments are typically classified within Level 2 of the fair value hierarchy.

 

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

 

RESULTS OF OPERATIONS

 

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

 

 

Periods ended September 30, 2018

 

 

			Total
			Partners’
			Capital of the
Month Ending:			Partnership
September 30, 2018			$	155,807,223
June 30, 2018				159,554,823
December 31, 2017				180,404,425

 

		Three Months				Nine Months
Change in Partners’ Capital		$	(3,747,600	)		$	(24,597,202	)
Percent Change			(2.35	)%			(13.63	)%

 

 

THREE MONTHS ENDED SEPTEMBER 30, 2018

 

The decrease in the Partnership’s net assets of $3,747,600 was attributable to withdrawals of $7,587,880 which were partially offset by contributions of $331,363 and net income after profit share of $3,508,917.

 

Management fees, through the Partnership’s investment in the Master Fund, are calculated on the net asset value on the last day of each month and are affected by trading performance, contributions and withdrawals. Management fees, through the Partnership’s investment in the Master Fund, for the three months ended September 30, 2018 decreased $141,224 relative to the corresponding period in 2017. The decrease was due to a decrease in the average net asset value of the Partnership during the three months ended September 30, 2018, relative to the corresponding period in 2017.

 

The Partnership, through its investment in the Master Fund, bears all trade-related commission and clearing charges due to third-party brokers. Brokerage commissions, through the Partnership’s investment in the Master Fund, for the three months ended September 30, 2018 decreased $13,871 relative to the corresponding period in 2017. The decrease was due to a decrease in the average net asset value of the Partnership during the three months ended September 30, 2018, relative to the corresponding period in 2017.

 

Selling commissions and platform fees are calculated on the net asset value on the last day of each month and are affected by trading performance, contributions and withdrawals. Selling commissions and platform fees for the three months ended September 30, 2018 decreased $140,371 relative to the corresponding period in 2017. The decrease was due to a decrease in the average net asset value of commission paying investors of the Partnership during the three months ended September 30, 2018, relative to the corresponding period in 2017.

 

The Partnership, through its investment in the Master Fund, pays administrative expenses for legal, audit and accounting services. Administrative expenses, net of amounts borne by the General Partner, through the Partnership’s investment in the Master Fund, for the three months ended September 30, 2018 decreased $3,634 relative to the corresponding period in 2017. The decrease was due to a decrease in the average net asset value of the Partnership during the three months ended September 30, 2018, relative to the corresponding period in 2017.

 

Interest income, through the Partnership’s investment in the Master Fund, is derived from cash and U.S. Treasury instruments held at the Master Fund’s brokers and custodian. Interest income, through the Partnership’s investment in the Master Fund, for the three months ended September 30, 2018 increased $333,315 relative to the corresponding period in 2017. This increase was due predominantly to an increase in short-term U.S. Treasury yields during the three months ended September 30, 2018 relative to the corresponding period in 2017.

 

For the three months ended September 30, 2018, the Partnership, through its investment in the Master Fund, achieved net realized and unrealized gains of $4,553,548 from trading operations (including foreign exchange transactions and translations). Management fees of $771,433, brokerage commissions of $130,991, selling commissions and platform fees of $707,588, administrative and operating expenses of $156,156, custody fees and other expenses of $6,809, and profit share of $4,445 were paid or accrued. Interest income of $732,791 partially offset the Master Fund expenses allocated to the Partnership resulting in net income after profit share of $3,508,917.

 

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

 

Sector		% Gain (Loss)
Currencies			0.73	%
Energies			1.09	%
Grains			0.22	%
Interest rates			(2.61	)%
Livestock			0.04	%
Metals			(0.03	)%
Softs			0.11	%
Stock indices			3.52	%
Trading gain			3.07	%

 

NINE MONTHS ENDED SEPTEMBER 30, 2018

 

The decrease in the Partnership’s net assets of $24,597,202 was attributable to withdrawals of $27,050,457 and net loss after profit share of $4,379,928 which were partially offset by contributions of $6,833,183.

 

Management fees, through the Partnership’s investment in the Master Fund, are calculated on the net asset value on the last day of each month and are affected by trading performance, contributions and withdrawals. Management fees, through the Partnership’s investment in the Master Fund, for the nine months ended September 30, 2018 decreased $247,791 relative to the corresponding period in 2017. The decrease was due to a decrease in the average net asset value of the Partnership during the nine months ended September 30, 2018, relative to the corresponding period in 2017.

 

 

The Partnership, through its investment in the Master Fund, bears all trade-related commission and clearing charges due to third-party brokers. Brokerage commissions, through the Partnership’s investment in the Master Fund, for the nine months ended September 30, 2018 increased $18,616 relative to the corresponding period in 2017. The increase was due to an increase in trading activity during the nine months ended September 30, 2018, relative to the corresponding period in 2017.

 

Selling commissions and platform fees are calculated on the net asset value on the last day of each month and are affected by trading performance, contributions and withdrawals. Selling commissions and platform fees for the nine months ended September 30, 2018 decreased $306,122 relative to the corresponding period in 2017. The decrease was due to a decrease in the average net asset value of commission paying investors of the Partnership during the nine months ended September 30, 2018, relative to the corresponding period in 2017.

 

The Partnership, through its investment in the Master Fund, pays administrative expenses for legal, audit and accounting services. Administrative expenses, net of amounts borne by the General Partner, through the Partnership’s investment in the Master Fund, for the nine months ended September 30, 2018 decreased $20,592 relative to the corresponding period in 2017. The decrease was due to a decrease in the average net asset value of the Partnership during the nine months ended September 30, 2018, relative to the corresponding period in 2017.

 

Interest income, through the Partnership’s investment in the Master Fund, is derived from cash and U.S. Treasury instruments held at the Master Fund’s brokers and custodian. Interest income, through the Partnership’s investment in the Master Fund, for the nine months ended September 30, 2018 increased $900,929 relative to the corresponding period in 2017. This increase was due predominantly to an increase in short-term U.S. Treasury yields during the nine months ended September 30, 2018 relative to the corresponding period in 2017.

 

For the nine months ended September 30, 2018, the Partnership, through its investment in the Master Fund, experienced net realized and unrealized losses of $726,049 from trading operations (including foreign exchange transactions and translations) albeit an overall percentage trading gain due to the timing of redemptions during the period. Management fees of $2,434,628, brokerage commissions of $409,766, selling commissions and platform fees of $2,217,258, administrative and operating expenses of $470,241, custody fees and other expenses of $21,388, and profit share of $7,499 were paid or accrued. Interest income of $1,906,901 partially offset the Master Fund expenses allocated to the Partnership resulting in net loss after profit share of $4,379,928.

 

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

 

Sector		% Gain (Loss)
Currencies			0.37	%
Energies			4.93	%
Grains			0.79	%
Interest rates			(0.87	)%
Livestock			0.00	%
Metals			(1.05	)%
Softs			0.23	%
Stock indices			(4.17	)%
Trading gain			0.23	%

 

MANAGEMENT DISCUSSION – 2018

 

Three months ended September 30, 2018

 

The Partnership was profitable during the third quarter due to profits from long equity and energy positions, and, to a lesser extent, from trading currency forwards and non-energy commodities. Meanwhile, trading of interest rate futures was unprofitable.

 

Although currency turmoil, trade concerns and worries about Chinese growth clouded market outlook, equity markets were underpinned by solid global growth, favorable business and consumer sentiment, positive news on North American Free Trade Agreement renegotiations and still accommodative monetary policy globally, despite some recent tightening. Notably, some investor rotation out of highly valued U.S. equity markets late in the quarter boosted returns from other markets. In addition to gains realized from Nasdaq equity futures, long positions in Japanese, European, Taiwanese and Australian equity futures were profitable. A short VIX trade posted an attractive gain too. A short position in Korean futures early in the period and trading of Singaporean futures were also profitable. On the other hand, trading of Canadian equity futures was slightly unprofitable.

 

Energy prices rose from mid-August to the end of September particularly following the resumption of Iranian sanctions and especially after the Organization of the Petroleum Exporting Countries (“OPEC”) / Non-OPEC group indicated that they would not increase current production any further for now even though events in Iran, Venezuela and Libya continue to constrain supplies. Larger-than-expected declines in U.S. crude stockpiles also supported crude prices, while an interruption to RBOB gasoline supplies as a result of hurricane Florence underpinned RBOB gasoline prices. Long positions in Brent crude, WTI crude, RBOB gasoline and London gas oil were profitable. A short U.S. natural gas trade was profitable in early September.

 

 

The U.S. dollar, which had risen sharply from mid-April to the end of June, vacillated at this higher level during the third quarter and results, though profitable overall, were mixed. The U.S. dollar was supported by solid U.S. growth and corporate profit reports and actual and anticipated interest rate increases by the U.S. Federal Reserve (the “Fed”). Idiosyncratic trade, current account deficit, fiscal deficit, foreign debt and political problems in a number of emerging economies, including Turkey, Brazil, India and Argentina among others, further buoyed the American dollar. The U.S. dollar did settle back somewhat after news of a potential U.S.-Mexico trade deal was reported. Long dollar trades against the Japanese yen, euro, Turkish lira, Brazilian real, and Indian rupee were profitable. A long euro/short Turkish lira position was profitable as well. Brexit worries led to profits from a short sterling position. Alternatively, long U.S. dollar positions versus the currencies of Switzerland, Norway, Sweden, Poland, Australia, Canada, South Africa and Singapore were unprofitable. A short euro/long Norway trade was also unprofitable.

 

Global central banks, led by the Fed’s third ¼% interest rate increase this year, raised official interest rates 25 times during the third quarter. In addition, the European Central Bank (the “ECB”) and Bank of Japan have adjusted their quantitative easing policies toward less accommodation. Recent inflation data in many economies including that of the U.S., U.K., Canada and European Union have approached or exceeded targeted levels. Proposed budget deficit targets in Italy raised concerns with E.U. authorities. In this environment, long positions in German, French, Italian, British, Australian, Canadian, and Japanese note and bond futures and in U.S. long bond futures posted losses. A long 3-month euribor trade was also unprofitable. Meanwhile, short positions in short-term Eurodollar futures and in U.S. 2-year, 5-year and 10-year note futures provided partially offsetting gains, especially late in the period.

 

Short positions in corn, wheat and soybeans were profitable as the existence of sizable inventories, record recent harvests and tariff influences outweighed worries about the impact of the European heat wave on future supplies, at least for now. A long soybean meal trade was unprofitable.

 

With interest rates rising, to subdue global inflation and with a strong U.S. dollar, the fractional profit on a short gold trade combined with a small gain on a long palladium position to largely offset small losses from trading silver, platinum and aluminum.

 

Trading of soft commodity futures was marginally profitable as gains from short sugar and coffee positions were greater than losses from long cocoa and cotton trades.

 

Three months ended June 30, 2018

 

The Partnership was profitable during the quarter as gains from trading energy and grain futures, and to a lesser extent, currency forwards, and interest rate and soft commodity futures outweighed losses from trading stock index and metal futures.

 

Global markets were rattled during the quarter by deepening and accelerating trade tensions between the U.S. on the one hand, and China, the European Union (“E.U.”), Canada and Mexico on the other; by divergent monetary policy trajectories among major central banks; by a strengthening dollar; by the Organization of the Petroleum Exporting Countries (“OPEC”) supply developments; and by numerous national political and geopolitical events.

 

With the OPEC/non-OPEC production control agreement, the U.S. decision to pull out of the Joint Comprehensive Plan of Action agreement with Iran, the implosion of the Venezuelan economy, Libyan production difficulties, and declining U.S. inventories all negatively impacting energy supplies, crude prices rose to four year highs during the quarter, with Brent crude climbing to nearly $80 per barrel on May 23 and WTI crude touching above $74 per barrel on June 29. Late in the period, OPEC and Russia announced a relaxation of their production restraint agreement, but the stated production increase disappointed market expectations, particularly in light of future potential supply cuts from Iran, Venezuela and Libya. For the quarter, long positions in Brent crude, WTI crude, London gas oil, heating oil and RBOB gasoline were profitable. Meanwhile, a short natural gas trade was slightly unprofitable, particularly in May.

 

A likely reduction in demand due to increased tariffs on grain combined with ample global supplies produced marked grain price decreases. Hence, short soybean and corn trades were profitable, most pronounced in June.

 

During the second quarter, the U.S. dollar advanced solidly with most of the gain occurring from mid-April to end-May when it rose about six per cent as measured by the Bloomberg dollar index. At first, the more hawkish stance by the Federal Reserve (“Fed”) relative to other major central banks underpinned the dollar advance. Next, capital flight from emerging markets, and then increased demand in the wake of the European political uncertainties, boosted the U.S. currency.

 

Long dollar trades versus the currencies of Brazil, Korea, Turkey, India, Israel, Chile, Sweden and the euro were profitable, with most of the larger gains coming in May. On the other hand, trading the dollar relative to the yen, Mexican peso, Canadian dollar, British pound, New Zealand dollar, South African rand, Australian dollar, Norwegian kroner, Russian ruble, and Swiss franc generated partially offsetting losses. Trading the euro versus a few other European currencies also produced small losses, especially during the political stresses in May.

 

 

A short coffee position was profitable, while other soft commodities were about flat.

 

Global trade tensions, tightening credit, a stronger U.S. dollar, and a slowing manufacturing sector in China buffeted metal prices. Consequently, trading of aluminum, copper, other industrial metals and silver was unprofitable.

 

Synchronized global growth underpinned equity markets early in the quarter. Later however, increasing trade tensions, a rising U.S. dollar, political uncertainties in Europe and emerging markets and worries about future global growth spooked market participants and triggered some spirited selling. Long positions in German, Chinese, Hong Kong, and Japanese equity futures, countries whose economies are heavily trade-dependent, were particularly unprofitable. Trading of Korean, emerging market, Spanish and large cap U.S. stock index futures also registered losses. On the other hand, long positions in French, Dutch, British, Canadian, Australian and NASDAQ equity futures produced partially offsetting gains.

 

The interest rate sector registered a slight loss, although futures prices and yields experienced wide swings during the quarter. The yield on U.S. 10-yr notes rose from 2.74% on March 30 to hit a 4-year high of 3.11% on May 17 due to solid global growth, incipient signs of increasing inflation and wages, especially in the U.S., and expectations of further Fed official rate increases. As interest rates rose broadly, prices of interest rate futures declined and long positions in U.S., European, British, Canadian, Australian and Japanese interest rate futures were unprofitable. Subsequently, however, these rising interest rates, a rising U.S. dollar, trade frictions and political uncertainties sparked tumult in emerging markets, including Turkey, Brazil Argentina, Mexico and Indonesia, triggering growth concerns and capital flight. In addition, there were worries that political turmoil in Italy and Spain could spread and impede European growth. Hence, a flight to safety drove interest rates sharply off their highs (except in Italy where rates shot up), and produced profits on long interest rates futures positions. The yield on the U.S. 10-yr note plunged to near 2.75% on May 28 before recovering to about 2.85% near quarter-end. Overall, gains on long positions in German, French and British note and bond futures, and in the 3-month euribor futures in late May and June slightly outweighed losses on long positions in U.S., Canadian, Australian, and Italian notes and bonds—particularly in April and early May. A long Eurodollar futures trade was also unprofitable.

 

Three months ended March 31, 2018

 

The Partnership was unprofitable during the quarter almost entirely due to losses from trading global stock index futures. Elsewhere, profits from trading interest rate and energy futures were largely offset by losses from trading currency forwards, and grain and metal futures. Trading of soft and livestock futures was essentially flat.

 

Against a background of synchronized global growth and expanding corporate profits, stocks reached overbought levels during the sharp price run-up in early 2018. Subsequently, equity markets were weighed down by a series of worries including: reports suggesting that an acceleration of U.S. wages and inflation combined with increased fiscal deficit spending could prompt the Fed to raise interest rates faster and further than previously anticipated; increased equity market volatility globally as the “central bank put” was removed from market psychology; the rising threat of a trade war; a first quarter slowdown in global growth momentum; and unsettled political conditions in the U.S., Germany and the U.K. Importantly, the tech sector, which has led the equity rally of recent years, was negatively impacted by the Facebook data breach, by the influence of the first autonomous car fatalities on the stock prices of Uber, Nvidia, and Tesla, by Moody’s downgrade of Tesla and by President Trump’s tweets about Amazon. As a result, equity markets fell sharply in volatile trading from their late January highs to the end of March. For example, the S&P 500 and EAFE equity indices fell nearly 10% from those peaks. Short VIX trades were the largest contributor to the Partnership’s equity sector losses during the quarter as this market saw an historic spike in prices caused by the sudden February selloff in equity markets, the increase in volatility, and the resulting liquidation of two short volatility exchange traded notes. Long positions in European, British, Japanese, Australian, Canadian, and U.S equity futures also generated losses. There were also losses from countertrend short positions in U.S. equity futures that were triggered by short term trading systems during the rapid equity price gains in January. On the other hand, long positions in Chinese, Hong Kong and Taiwanese stock futures were slightly profitable.

 

Interest rate futures were buffeted by conflicting forces during the quarter. At the start of the year, signs of strengthening global growth, evidence of rising wages and inflation in the U.S., and indications that major central banks, including the U.S. Fed, European Central Bank (“ECB”), and Bank of Japan, were pulling back on monetary accommodation led to rising interest rates and falling prices of interest rate futures. Later in the quarter, however, the threat of a trade war, increased equity market volatility globally, subdued actual inflation statistics, and a first quarter slowdown in global growth momentum generated solid demand for government securities, contributing to rising futures prices. Strong demand from central banks, pension funds and insurance related buyers for high quality government debt with attractive yields added to the price rallies. Meanwhile, in Japan, the February reappointment of Hiroki Kuroda to a second term as Bank of Japan Governor underpinned demand for Japanese government bonds. Ultimately, long positions in German, French, Italian, Canadian and Japanese interest rate futures were profitable. Trading of U.S. interest rate futures, though mixed, was also profitable. Long U.S. 2- and 5-year note trades were unprofitable in January, while a long 10-year note position was profitable in March. Also, a short euro-dollar trade was quite profitable in January as rates rose, while a long euro-dollar trade posted a small gain in March as rates declined. Meanwhile trading of British interest rate futures was fractionally negative.

 

Energy prices were volatile during the quarter, but energy trading was marginally profitable. For example, Brent crude prices climbed over $70 per barrel in January as the OPEC/non-OPEC production control agreement and rising global demand continued to drag down inventories. A weaker U.S. dollar early in 2018 also boosted energy prices. Then prices plunged to under $63/barrel in mid-February due to the depressive impacts from the shale revolution and some worries about a slowing in global growth. From then to quarter end the price ratcheted up above $70 per barrel again in response to rising geopolitical anxiety. The hawkish appointments by President Trump of Mike Pompeo as U.S. Secretary of State and John Bolton as National Security Advisor heightened concern about the continuation of the 2015 Iran Nuclear Deal, and hence, about supplies of Iranian oil to the global market. For the quarter, the profits on long positions in Brent and WTI crude slightly outweighed the losses on long positions in RBOB gasoline, heating oil, and London gas oil. A short natural gas position was also slightly negative as unusually severe winter weather underpinned natural gas prices.

 

 

 

A short sugar trade was profitable as prices declined as world sugar production hit record highs in the wake surging supplies from India and Thailand. A short coffee position was also profitable. Meanwhile, a short cocoa trade produced a largely offsetting loss as dry weather in western Africa and demand increases from Europe and Asia supported prices.

 

Currency trading was unprofitable during the quarter. The U.S. dollar index, after falling about 4% during January, was range-bound thereafter. Long U.S. dollar positions against the currencies of Japan, Switzerland, Australia, New Zealand and Norway posted losses as the U.S. dollar displayed surprising weakness in January. Deterioration in the political environment in the U.S. and relatively stronger growth abroad weighed on the U.S. dollar even as interest rates rose in America. Later in the quarter as the U.S. dollar bounced off its lows, short U.S. dollar trades against the Swedish krona, Turkish lira and Brazilian real posted small losses. A cut in the official interest rate by Brazil’s central bank, a persistently negative official short term rate in Sweden, and worsening inflation and trade balance data from Turkey also influenced these losses. Trading the Canadian dollar was also unprofitable. On the other hand, long positions in the Mexican peso, Columbian peso and euro were profitable as the U.S. dollar weakened early in the quarter. A short British pound trade was also profitable due to Brexit concerns.

 

Early in the period, drought concerns in Argentina and the U.S. pushed grain prices higher despite the persistence of large inventories. However, later in the quarter, worries about a trade war with China weighed heavily on grain prices. Overall, losses on short soybean, corn and wheat trades early on and from long soybean and corn trades late in the period fractionally outdistanced the profits from a long soybean meal trade in January and February and a short wheat trade in March.

 

Metal trading was marginally negative for the quarter as losses from trading copper, aluminum and palladium outweighed the profit from a short silver position. 

 

 

Periods ended September 30, 2017

 

 

			Total
			Partners’
			Capital of the
Month Ending:			Partnership
September 30, 2017			$	179,662,569
June 30, 2017				178,182,813
December 31, 2016				172,886,333

 

		Three Months				Nine Months
Change in Partners’ Capital		$	1,479,756			$	6,776,236
Percent Change			0.83	%			3.92	%

 

THREE MONTHS ENDED SEPTEMBER 30, 2017

 

The increase in the Partnership’s net assets of $1,479,756 was attributable to net income after profit share through its investment in the Master Fund of $5,539,243, and contributions of $3,631,000 which were partially offset by withdrawals of $7,690,487.

 

Management fees, through the Partnership’s investment in the Master Fund, are calculated on the net asset value on the last day of each month and are affected by trading performance, contributions and withdrawals. Management fees, through the Partnership’s investment in the Master Fund, for the three months ended September 30, 2017 increased $115,847 relative to the corresponding period in 2016. The increase was due to an increase in the average net asset value of the Partnership during the three months ended September 30, 2017, relative to the corresponding period in 2016.

 

The Partnership, through its investment in the Master Fund, bears all trade-related commission and clearing charges due to third-party brokers. Brokerage commissions, through the Partnership’s investment in the Master Fund, for the three months ended September 30, 2017 increased $54,402 relative to the corresponding period in 2016. The increase was due to an increase in average net assets of the Partnership during the three months ended September 30, 2017, relative to the corresponding period in 2016.

 

 

Selling commissions and platform fees are calculated on the net asset value on the last day of each month and are affected by trading performance, contributions and withdrawals. Selling commissions and platform fees for the three months ended September 30, 2017 increased $124,559 relative to the corresponding period in 2016. The increase was due to an increase in the average net asset value of commission paying investors of the Partnership during the three months ended September 30, 2017, relative to the corresponding period in 2016.

 

The Partnership, through its investment in the Master Fund, pays administrative expenses for legal, audit and accounting services. Administrative expenses, net of amounts borne by the General Partner, through the Partnership’s investment in the Master Fund, for the three months ended September 30, 2017 decreased $44,052 relative to the corresponding period in 2016. The decrease was due mainly to the Partnership no longer paying The Millburn Corporation (“TMC”) for legal and accounting services during the three months ended September 30, 2017, relative to the corresponding period in 2016.

 

Interest income, through the Partnership’s investment in the Master Fund, is derived from cash and U.S. Treasury instruments held at the Master Fund’s brokers and custodian. Interest income, through the Partnership’s investment in the Master Fund, for the three months ended September 30, 2017 increased $231,224 relative to the corresponding period in 2016. This increase was due predominantly to an increase in short-term U.S. Treasury yields during the three months ended September 30, 2017 relative to the corresponding period in 2016, and partially due to an increase in average net assets over the same period.

 

For the three months ended September 30, 2017, the Partnership, through its investment in the Master Fund, experienced net realized and unrealized gains of $7,599,877 from its trading operations (including foreign exchange transactions and translations). Management fees of $912,657, brokerage commissions of $144,862, selling commissions and platform fees of $847,959, administrative and operating expenses of $159,790, custody fees and other expenses of $8,005, and profit share of $386,837 were paid or accrued. Interest income of $399,476 partially offset the Master Fund expenses allocated to the Partnership resulting in net income after profit share of $5,539,243.

 

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

 

Sector		% Gain (Loss)
Currencies			(0.15	)%
Energies			(0.28	)%
Grains			0.14	%
Interest rates			(0.08	)%
Livestock			0.06	%
Metals			(0.17	)%
Softs			(0.07	)%
Stock indices			4.54	%
Trading gain			3.99	%

 

NINE MONTHS ENDED SEPTEMBER 30, 2017

 

The increase in the Partnership’s net assets of $6,776,236 was attributable to contributions of $24,050,577 and net income after profit share through its investment in the Master Fund of $1,833,353 which were offset by withdrawals of $19,107,694.

 

Management fees, through the Partnership’s investment in the Master Fund, are calculated on the net asset value on the last day of each month and are affected by trading performance, contributions and withdrawals. Management fees, through the Partnership’s investment in the Master Fund, for the nine months ended September 30, 2017 increased $594,881 relative to the corresponding period in 2016. The increase was due to an increase in the average net asset value of the Partnership during the nine months ended September 30, 2017, relative to the corresponding period in 2016.

 

The Partnership, through its investment in the Master Fund, bears all trade-related commission and clearing charges due to third-party brokers. Brokerage commissions, through the Partnership’s investment in the Master Fund, for the nine months ended September 30, 2017 increased $123,278 relative to the corresponding period in 2016. The increase was due an increase in average net assets of the Partnership during the nine months ended September 30, 2017, relative to the corresponding period in 2016.

 

Selling commissions and platform fees are calculated on the net asset value on the last day of each month and are affected by trading performance, contributions and withdrawals. Selling commissions and platform fees for the nine months ended September 30, 2017 increased $603,918 relative to the corresponding period in 2016. The increase was due to an increase in the average net asset value of commission paying investors of the Partnership during the nine months ended September 30, 2017, relative to the corresponding period in 2016.

 

 

The Partnership, through its investment in the Master Fund, pays administrative expenses for legal, audit and accounting services. Administrative expenses, net of amounts borne by the General Partner, through the Partnership’s investment in the Master Fund, for the nine months ended September 30, 2017 decreased $50,967 relative to the corresponding period in 2016. The decrease was due mainly to the Partnership no longer paying TMC for legal and accounting services during the nine months ended September 30, 2017, relative to the corresponding period in 2016.

 

Interest income, through the Partnership’s investment in the Master Fund, is derived from cash and U.S. Treasury instruments held at the Master Fund’s brokers and custodian. Interest income, through the Partnership’s investment in the Master Fund, for the nine months ended September 30, 2017 increased $625,745 relative to the corresponding period in 2016. This increase was due predominantly to an increase in short-term U.S. Treasury yields during the nine months ended September 30, 2017 relative to the corresponding period in 2016, and partially due to an increase in average net assets over the same period.

 

For the nine months ended September 30, 2017, the Partnership, through its investment in the Master Fund, achieved net realized and unrealized gains of $7,413,874 from trading operations (including foreign exchange transactions and translations). Management fees of $2,709,419, brokerage commissions of $391,150, selling commissions and platform fees of $2,523,380, administrative and operating expenses of $490,833, custody fees and other expenses of $24,797, and profit share of $446,914 were paid or accrued. Interest income of $1,005,972 partially offset the Master Fund expenses allocated to the Partnership resulting in net income after profit share of $1,833,353.

 

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

 

Sector		% Gain (Loss)
Currencies			(2.91	)%
Energies			(2.47	)%
Grains			(1.45	)%
Interest rates			(1.68	)%
Livestock			(0.18	)%
Metals			(0.11	)%
Softs			0.35	%
Stock indices			12.31	%
Trading gain			3.86	%

 

Three months ended September 30, 2017

 

The Fund was profitable during the third quarter of 2017 due to gains on long stock index futures positions. On the other hand, trading of interest rate, energy, and metal futures, and currency forwards were each unprofitable. Trading of soft and agricultural commodity futures was nearly flat.

 

Expanding global growth, increasing corporate profits and continuing accommodation in monetary policy led to broad-based gains from long equity futures positions. These positive influences outweighed the negative influences of North Korea’s belligerence, the Barcelona terrorist attack, the Charlottesville white supremacist rally, and hurricanes in the U.S. and Caribbean. Long positions in European, Asian, and U.S. equity futures were profitable, as was a short VIX trade. A short position in South African stock index futures and trading of Australian equity futures were slightly unprofitable.

 

Long positions in interest rate futures were unprofitable for the quarter as gains during July and August were outweighed by losses suffered in September. Persistent indications that major central banks - the U.S. Federal Reserve (the “Fed”), European Central Bank (“ECB”), Bank of England, and Bank of Canada – would raise official rates and/or reduce balance sheets in order to lower monetary accommodation; continued expansion in global growth; rising energy prices; and incipient signs of a pickup in general inflation boosted interest rates and depressed prices of interest rate futures. On balance, long positions in Australian, Canadian, British, U.S. 2-year, and German 30-year interest rate futures were unprofitable; while long positions in Japanese, French, Italian, and German 2-, 5-, and 10-year note futures, and U.S. long bond futures remained somewhat profitable even after sustaining losses in September.

 

The persistent political dysfunction in Washington weighed heavily on the U.S. dollar, driving the Bloomberg dollar index to a nearly 33 month low on September 8, down about 11% from the highs reached early this year. Short dollar trades versus the currencies of Brazil, Canada, the euro, Singapore, Sweden, and Israel were profitable, especially during July. On the other hand, long dollar trades against the yen and Korean won were unprofitable. A short U.S. dollar/long New Zealand dollar trade was unprofitable as political uncertainty mounted ahead of the September 23 election in New Zealand. Also, a short U.S. dollar/long Swiss franc trade proved unprofitable as reduced political uncertainty in Europe reduced the need for protection provided by the “safe haven” Swiss franc. Finally, trading the euro against several other European units was fractionally unprofitable.

 

Although energy prices were volatile, especially due to the disparate impacts of Hurricane Harvey on crude oil, crude products, and natural gas, prices did move generally higher during the quarter. Energy prices were buoyed by persistent declines in U.S. oil inventories, by Organization of the Petroleum Exporting Countries (“OPEC”) efforts to strengthen the production curtailment agreement, by evidence of increasing demand and by the falling dollar. Overall, energy trading was fractionally unprofitable as losses on short positions in RBOB gasoline, natural gas, and WTI crude outweighed profits from long positions in Brent crude and London gas oil.

 

 

Metal trading was fractionally unprofitable as losses from a short aluminum trade, a long copper position and trading other industrial metals outpaced the profits from trading silver, platinum, palladium and gold.

 

USDA reports that drought conditions earlier this year had little impact on yields and that bumper harvests of corn and soybeans are expected, combined with news that Russia was expecting record wheat and corn harvests weighed on grain prices. Subsequently, profits on short corn and wheat positions, particularly in August, slightly outweighed the loss from trading soybeans. A short hog trade was also profitable, while a short sugar position was unprofitable.

 

Three months ended June 30, 2017

 

The Partnership sustained a decline in returns during the second quarter of 2017 due largely to losses from trading financial and energy futures in the wake of hawkish monetary policy comments from the heads of several central banks at the ECB conference in Sintra, Portugal late in June (the “Sintra Conference”). For the quarter, losses from trading interest rate, energy and grain futures and currency forwards outweighed gains from trading equity and soft commodity futures. Trading of metal and livestock futures were each nearly flat.

 

Mario Draghi from the ECB, Mark Carney from the Bank of England and Stephen Poloz from the Bank of Canada each indicated at the Sintra Conference that with global growth broadening and strengthening, the time is approaching for 10 years of extraordinarily easy monetary policy to come to an end. Janet Yellen from the Fed had provided a similar comment after the recent Federal Open Market Committee meeting. In response, global interest rates, which had been falling or stable for most of the quarter, spiked higher and long interest rate futures positions, which had been profitable through June 26, 2017, turned unprofitable. Long positions in German and British interest rate futures were unprofitable. Long positions in French and Italian bond futures, which had benefitted from the French election results and from the Italian bank rescues, were profitable, although the gains were reduced significantly after the Sintra Conference. Long positions in U.S. note and bond futures were also profitable albeit with reductions at the end of June.

 

Foreign exchange trading remained volatile as the U.S. dollar, buffeted by conflicting influences, declined markedly in a saw-toothed pattern during the quarter. On the one hand, persistent increases in the official interest rate by the Fed were supportive of the dollar. On the other hand, the fact that growth in Europe and Asia was accelerating while growth in the U.S. remained tepid, and that politics in the U.S. was becoming increasingly more volatile while the political outlook in Europe had improved significantly, weighed on the U.S. dollar. Finally, the fact that comments from the Sintra Conference suggested a relative tightening of non-U.S. monetary policy also worked against the U.S. dollar. Consequently, long dollar positions against the currencies of Australia, the U.K., Canada, New Zealand, Europe, Switzerland, Sweden, Norway, Poland, Japan, and Singapore were unprofitable. Short dollar carry trades in the Brazilian real and Russian ruble were also unprofitable as political uncertainties in each country prompted declines that outweighed the interest rate advantages. A long Mexican peso trade was profitable as the market came to believe that the impact of the Trump Presidency on Mexico would be less than initially feared.

 

Energy prices displayed sharp swings within a broad range during the quarter. On balance, trading of crude oil, RBOB gasoline, London gas oil, heating oil, and natural gas were each unprofitable, with significant losses occurring on short energy positions late in the period as the U.S. dollar fell and energy prices rose after the Sintra Conference comments.

 

Long positions in most European and Asian equity futures were profitable against the backdrop of the IMF, the Brookings Institution, the Financial Times and central banks around the globe agreeing that the economic recovery is broadening throughout Europe and Asia; recent elections in France, the Netherlands and the U.K., producing moderate rather than extreme outcomes; a generally weakening U.S. dollar; and signs that China is addressing its debt problems. A short VIX position was also fractionally profitable. U.S. equity futures were slightly profitable as gains from long S&P and Dow Jones futures positions were partially offset by losses from trading the Nasdaq futures. Long positions in Dutch and Canadian futures were unprofitable. The sector gains were reduced markedly when interest rates rose sharply late in June.

 

Short wheat, corn and soybean trades were unprofitable late in quarter as a drought in the U.S. high plains region and reduced wheat plantings in Canada underpinned prices. In addition, long soybean and soybean meal positions were unprofitable in April and May.

 

A short sugar position was profitable and, to a lesser extent, so too were short coffee and cocoa trades.

 

The profits from a short silver trade were countered by losses from trading gold, platinum and most industrial metals.

 

Three months ended March 31, 2017

 

The Partnership registered a solid first quarter gain due to profits from long equity futures positions. Trading of currency forwards was slightly profitable, trading of commodity futures was fractionally negative and trading of interest rate futures was essentially flat.

 

 

According to the Brookings Institution and the Financial Times, the global economic recovery is now “broad-based and stable”. Morgan Stanley concurs, stating that a “…synchronous global recovery…is exhibiting more self-sustaining characteristics”. Against this background, long positions in U.S., European and Asian equity futures were broadly profitable. A long VIX trade was also profitable. Short positions in Indian and South African stock futures were marginally negative. Neither the fading of the positive impulses from the Trump election victory nor an increase in political and geopolitical tensions was able to blunt this equity advance.

 

The U.S. dollar, which had risen sharply during 2016’s fourth quarter, was volatile and weakened during the first three months of 2017 as the difficult reality of governing diminished the election euphoria for the Trump administration. Profits from short U.S. dollar trades versus the currencies of Australia, Brazil, India, Mexico, Russia, and Turkey were offset by the losses from long U.S. dollar positions versus the euro and the currencies of Great Britain, Canada, Japan, Korea, New Zealand, Norway, Sweden and Singapore. Meanwhile, a long euro/short Polish zloty trade and a short euro/long Turkish lira position were each slightly profitable.

 

Interest rates rose early in the period in response to the improving economic outlook and to evidence that central banks worldwide were pulling back from the long era of ultralow interest rates and quantitative easing. Indeed the Fed did raise its official rate again by 0.25% during the quarter. Moreover, Mario Draghi, the President of ECB, indicated that “there is no longer the sense of urgency in taking further actions.” The People’s Bank of China (the “PBOC”) edged toward a tighter policy during the quarter, as well. Finally, the Bank of England and the Bank of Japan issued improved outlooks for their economies. Later on, however, political tensions in the U.S., Great Britain, the Netherlands, France, Turkey and South Africa and geopolitical tensions and terrorism involving North Korea, South Korea, the U.K., Canada and Syria produced a flight to safety and declining rates. On balance, the sector was flat for the quarter and at month-end the Partnership’s interest rate futures positions remained generally long.

 

Energy prices were volatile and range-bound in the quarter. Production cut efforts by the Organization of the Petroleum Exporting Countries buoyed prices at times, while increasing U.S. shale production weighed on prices at other times. A long RBOB gasoline position was unprofitable as was trading of crude oil and other products.

 

Trading of metal futures was marginally profitable as small profits from long aluminum, zinc and palladium positions were larger than small losses from short gold and silver positions.

 

Trading of soft and agricultural commodities was marginally unprofitable. Grain trading was unprofitable due to losses from a short corn trade early in the period and from long soybean and soybean meal positions. A short wheat position was profitable in March. A short sugar position was also profitable in March. Trading of livestock was slightly negative.

 

OFF-BALANCE SHEET ARRANGEMENTS

 

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

 

CONTRACTUAL OBLIGATIONS

 

Neither the Partnership nor the Master Fund enters into any contractual obligations or commercial commitments to make future payments of a type that would be typical for an operating company or that would affect its liquidity or capital resources. The Partnership’s sole business, through

 

its investment in the Master Fund, is trading futures, forward currency, spot and swap contracts, both long (contracts to buy) and short (contacts to sell). All such contracts are settled by offset, not delivery. Substantially all such contracts are for settlement within four months of the trade date and substantially all such contracts are held by the Master Fund for less than four months before being offset or rolled over into new contracts with similar maturities. The financial statements of the Master Fund present a condensed schedule of investments setting forth open futures, forward and other contracts at September 30, 2018 and December 31, 2017.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not required.

 

ITEM 4. CONTROLS AND PROCEDURES

 

The General Partner, with the participation of the principal executive officers and principal financial officer, has evaluated the effectiveness of the design and operation of its disclosure controls and procedures with respect to the Partnership as of the end of the period covered by this quarterly report, and, based on its evaluation, has concluded that these disclosure controls and procedures are effective. There were no changes in the General Partner’s internal controls over financial reporting during the quarter ended September 30, 2018 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 Third Amended and Restated Agreement of Limited Partnership (the “Partnership Agreement”), the Partnership may sell Units at the beginning of each calendar month.  On July 1, 2018, August 1, 2018 and September 1, 2018 the Partnership sold Units to new and existing limited partners of $40,000, $228,657 and $62,706 respectively. There were no underwriting discounts or commissions in connection with the sales of the Units described above.

 

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

 

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

 

The following table summarizes the redemptions by Series A, Series B and Series C limited partners during the three months ended September 30, 2018. There were no Series D redemptions.

 

			Series A								Series B								Series C								Series D
Date of Withdrawal			Units Redeemed				NAV per Unit				Units Redeemed				NAV per Unit				Units Redeemed				NAV per Unit				Units Redeemed				NAV per Unit
July 31, 2018				(2,455.1404	)		$	1,076.84				(117.9370	)		$	1,233.18				(478.4870	)		$	1,258.20				—			$	1,220.98
August 31, 2018				(2,146.3257	)			1,118.94				(78.1000	)			1,283.53				(326.2409	)			1,309.57				—				1,261.13
September 30, 2018				(1,046.9308	)			1,137.42				—				1,306.90				(57.5000	)			1,333.42				—				1,278.97
Total				(5,648.3969	)							(196.0370	)							(862.2279	)							—

  

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not Applicable.

 

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

 

 

SIGNATURES

 

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

 

By:	Millburn Ridgefield Corporation,
	General Partner

 

Date: November 13, 2018
	/s/ Michael W. Carter
	Michael W. Carter
	Vice-President
	(Principal Accounting Officer)