10-Q 1 f10q0619_millburnmulti.htm QUARTERLY REPORT

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the Quarterly Period Ended: June 30, 2019

 

Or

 

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

 

Commission File Number: 000-54028

 

MILLBURN MULTI-MARKETS FUND L.P. 

 

(Exact name of registrant as specified in its charter)

 

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

 

c/o MILLBURN RIDGEFIELD CORPORATION

55 West 46th Street, 31st Floor

New York, NY 10036

 

(Address of principal executive offices) (Zip Code)

 

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

 

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  ☐

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
         

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ☐  No  ☒

 

 

 

 

 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

Millburn Multi-Markets Fund L.P.

Financial statements

For the three and six months ended June 30, 2019 and 2018 (unaudited)

 

Statements of Financial Condition (a)   2
Statements of Operations (c)   3-4
Statements of Changes in Partners’ Capital (b)   5
Statements of Financial Highlights (c)   6-9
Notes to Financial Statements   10

 

(a) At June 30, 2019 (unaudited) and December 31, 2018

 

(b) For the six months ended June 30, 2019 and 2018 (unaudited)

 

(c) For the three and six months ended June 30, 2019 and 2018 (unaudited)

 

1

 

 

Millburn Multi-Markets Fund L.P.

Statements of Financial Condition

 

   June 30,
2019
   December 31,
2018
 
ASSETS  (unaudited)     
Investment in Millburn Multi-Markets        
Trading L.P. (the “Master Fund”)  $165,257,957   $159,519,606 
Due from the Master Fund   1,125,431    659,683 
Cash and cash equivalents   502,892    2,480,000 
           
Total assets  $166,886,280   $162,659,289 
           
LIABILITIES AND PARTNERS’ CAPITAL          
           
LIABILITIES:          
Capital contributions received in advance  $502,500   $2,480,000 
Capital withdrawal payable to Limited Partners   1,125,431    659,683 
Due to the Master Fund   392    - 
           
Total liabilities   1,628,323    3,139,683 
           
PARTNERS’ CAPITAL:          
General Partner   2,906,208    2,788,913 
           
Limited partners:          
Series A (119,848.6685 and 121,399.2481 units outstanding)   145,224,240    144,621,713 
Series B (6,931.1068 and 6,794.4628 units outstanding)   9,732,864    9,305,965 
Series C (2,181.5489 and 1,437.1195 units outstanding)   3,125,559    2,008,278 
Series D (3,123.2861 and 593.8529 units outstanding)   4,269,086    794,737 
           
Total limited partners   162,351,749    156,730,693 
           
Total partners’ capital   165,257,957    159,519,606 
           
TOTAL  $166,886,280   $162,659,289 
           
NET ASSET VALUE PER UNIT OUTSTANDING:          
Series A  $1,211.73   $1,191.29 
Series B  $1,404.23   $1,369.64 
Series C  $1,432.72   $1,397.43 
Series D  $1,366.86   $1,338.27 

 

See notes to financial statements (Unaudited)

 

2

 

 

Millburn Multi-Markets Fund L.P.

Statements of Operations (UNAUDITED)

 

   For the three months ended 
   June 30,
2019
   June 30,
2018
 
         
INVESTMENT INCOME:        
Interest income (allocated from the Master Fund)  $972,059   $632,892 
           
EXPENSES:          
Management fees   817,828    818,023 
Brokerage commissions (allocated from the Master Fund)   214,084    134,915 
Selling commissions and platform fees   739,067    743,759 
Administrative and operating expenses   148,324    158,920 
Custody fees and other expenses (allocated from the Master Fund)   6,916    7,347 
           
Total expenses   1,926,219    1,862,964 
           
NET INVESTMENT LOSS   (954,160)   (1,230,072)
           
REALIZED AND UNREALIZED GAINS (LOSSES) ALLOCATED FROM THE MASTER FUND          
Net realized gains (losses) on closed positions:          
Futures and forward currency contracts   1,461,937    4,543,564 
Foreign exchange translation   (40,678)   (28,805)
Net change in unrealized:          
Futures and forward currency contracts   (904,767)   (44,769)
Foreign exchange translation   91,162    (148,353)
Net gains (losses) from U.S. Treasury notes:          
Realized   -    (5,206)
Net change in unrealized   214,716    93,469 
           
Net realized and unrealized gains allocated from the Master Fund   822,370    4,409,900 
           
NET INCOME (LOSS)   (131,790)   3,179,828 
           
LESS PROFIT SHARE ALLOCATION TO (FROM) THE MASTER FUND   (31,131)   2,198 
           
NET INCOME (LOSS) AFTER PROFIT SHARE  $(100,659)  $3,177,630 

 

(Continued)

 

3

 

 

Millburn Multi-Markets Fund L.P.

Statements of Operations (UNAUDITED)

 

   For the six months ended 
   June 30,
2019
   June 30,
2018
 
         
INVESTMENT INCOME:        
Interest income (allocated from the Master Fund)  $1,890,692   $1,174,110 
           
EXPENSES:          
Management fees   1,616,182    1,663,195 
Brokerage commissions (allocated from the Master Fund)   390,334    278,775 
Selling commissions and platform fees   1,470,116    1,509,670 
Administrative and operating expenses   295,556    314,085 
Custody fees and other expenses (allocated from the Master Fund)   14,054    14,579 
           
Total expenses  3,786,242    3,780,304 
           
NET INVESTMENT LOSS   (1,895,550)   (2,606,194)
           
REALIZED AND UNREALIZED GAINS (LOSSES) ALLOCATED FROM THE MASTER FUND          
Net realized gains (losses) on closed positions:          
Futures and forward currency contracts   10,440,982    (13,783,447)
Foreign exchange translation   (90,619)   310,558 
Net change in unrealized:          
Futures and forward currency contracts   (5,146,654)   8,426,871 
Foreign exchange translation   47,171    (292,932)
Net gains (losses) from U.S. Treasury notes:          
Realized   (926)   (12,646)
Net change in unrealized   340,254    71,999 
           
Net realized and unrealized gains (losses) allocated from the Master Fund   5,590,208    (5,279,597)
           
NET INCOME (LOSS)   3,694,658    (7,885,791)
           
LESS PROFIT SHARE ALLOCATION TO THE MASTER FUND   720,039    3,054 
           
NET INCOME (LOSS) AFTER PROFIT SHARE  $2,974,619   $(7,888,845)

 

See notes to financial statements (Unaudited)

 

(Concluded)

 

4

 

 

Millburn Multi-Markets Fund L.P.

Statements of Changes in Partners’ Capital (UNAUDITED)

For the six months ended June 30, 2019 and 2018

 

   General   Limited Partners     
   Partner   Series A   Series B   Series C   Series D   Total 
   Amount   Amount   Units   Amount   Units   Amount   Units   Amount   Units   Amount 
                                         
PARTNERS’ CAPITAL — December 31, 2018  $2,788,913   $144,621,713    121,399.2481   $9,305,965    6,794.4628   $2,008,278    1,437.1195   $794,737    593.8529   $159,519,606 
                                                   
Capital contributions   -    3,085,000    2,581.4299    685,000    497.9878    1,211,000    859.3544    3,405,150    2,529.4332    8,386,150 
Capital withdrawals   -    (4,958,397)   (4,132.0095)   (501,799)   (361.3438)   (162,222)   (114.9250)   -    -    (5,622,418)
Net income before profit share   117,295    3,100,414    -    304,520    -    85,930    -    86,499    -    3,694,658 
Profit share   -    (624,490)   -    (60,822)    -    (17,427)   -    (17,300)   -    (720,039)
PARTNERS’ CAPITAL — June 30 2019  $2,906,208   $145,224,240    119,848.6685   $9,732,864    6,931.1068   $3,125,559    2,181.5489   $4,269,086    3,123.2861   $165,257,957 
                                                   
Net Asset Value per Unit at June 30, 2019            $1,211.73        $1,404.23        $1,432.72        $1,366.86      

 

    General   Limited Partners     
   Partner   Series A   Series B   Series C   Series D   Total 
   Amount   Amount   Units   Amount   Units   Amount   Units   Amount   Units   Amount 
                                         
PARTNERS’ CAPITAL — 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    3,819.6181    778,000    596.1155    999,000    771.0340    473,820    390.2856    6,501,820 
Capital withdrawals   -    (15,957,417)   (14,566.9870)   (883,338)   (710.6480)   (2,621,822)   (2,047.5480)   -    -    (19,462,577)
Transfers between Series   -    (119,505)   (106.8317)   -    -    119,505    92.3507    -    -    - 
Net income (loss) before profit share   (61,789)   (7,278,985)   -    (350,422)   -    (210,639)   -    16,044    -    (7,885,791)
Profit share   -    -    -    -     -    -    -    (3,054)   -    (3,054)
PARTNERS’ CAPITAL — June 30, 2018  $2,535,479   $144,087,318    129,575.9797   $8,799,397    6,921.5000   $3,596,591    2,772.7696   $536,038    427.8457   $159,554,823 
                                                   
Net Asset Value per Unit at June 30, 2018            $1,111.99        $1,271.31        $1,297.11        $1,252.88      

 

See notes to financial statements (Unaudited)

 

5

 

 

Millburn Multi-Markets Fund L.P.

Statement of Financial Highlights (UNAUDITED)

For the three months ended June 30, 2019

 

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

 

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

 

(1)The net investment loss per unit and profit share allocation from the Master Fund per unit is calculated by dividing the net investment loss and profit share allocation from the Master Fund by the average number of units outstanding during the period. Total trading and investing gains is a balancing amount necessary to reconcile the change in net asset value per unit with the other per unit information.
(2)Not Annualized.
(3)Annualized.
(4)Includes the Partnership’s proportionate share of income 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)

 

(Continued)

6

 

 

Millburn Multi-Markets Fund L.P.

Statement of Financial Highlights (UNAUDITED)

For the six months ended June 30, 2019

 

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

 

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

 

(1)The net investment loss per unit and profit share allocation from the Master Fund per unit is calculated by dividing the net investment loss and profit share allocation from the Master Fund by the average number of units outstanding during the period. Total trading and investing gains is a balancing amount necessary to reconcile the change in net asset value per unit with the other per unit information.
(2)Not Annualized.
(3)Annualized.
(4)Includes the Partnership’s proportionate share of income 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)

 

7

 

 

Millburn Multi-Markets Fund L.P.

Statement of Financial Highlights (UNAUDITED)

For the three months ended June 30, 2018

 

The following information presents per unit operating performance data for each series for the three months ended June 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  $1,091.09   $1,241.20   $1,266.39   $1,230.84 
                     
INCOME (LOSS) ALLOCATED FROM MASTER FUND:                    
Net investment loss (1)   (8.83)   (3.79)   (3.92)   (5.86)
Total trading and investing gains (1)   29.73    33.90    34.64    32.39 
                     
Net income before profit share allocation from Master Fund   20.90    30.11    30.72    26.53 
                     
Less: profit share allocation from Master Fund (1) (6)   0.00    0.00    0.00    4.49 
                     
Net income from operations after profit share allocation from Master Fund   20.90    30.11    30.72    22.04 
                     
NET ASSET VALUE PER UNIT — End of period  $1,111.99   $1,271.31   $1,297.11   $1,252.88 
                     
TOTAL RETURN BEFORE PROFIT SHARE ALLOCATION FROM MASTER FUND (2)   1.92%   2.43%   2.43%   2.25%
                     
LESS: PROFIT SHARE ALLOCATION FROM MASTER FUND (2) (6)   0.00    0.00    0.00    0.46 
                     
TOTAL RETURN AFTER PROFIT SHARE ALLOCATION FROM MASTER FUND (2)   1.92%   2.43%   2.43%   1.79%
                     
RATIOS TO AVERAGE NET ASSET VALUE:                    
Expenses (3) (4) (5)   4.73%   2.73%   2.72%   3.50%
Profit share allocation from Master Fund (2) (6)   0.00    0.00    0.00    0.46 
                     
Total expenses   4.73%   2.73%   2.72%   3.96%
                     
Net investment loss (3) (4) (5)   (3.20)%   (1.20)%   (1.21)%   (1.95)%

 

(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)

 

(Continued)

 

8

 

 

Millburn Multi-Markets Fund L.P.

Statement of Financial Highlights (UNAUDITED)

For the six months ended June 30, 2018

 

The following information presents per unit operating performance data for each series for the six months ended June 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)   (18.23)   (8.29)   (8.50)   (12.18)
Total trading and investing losses (1)   (31.87)   (35.79)   (36.48)   (33.12)
                     
Net loss before profit share allocation from Master Fund   (50.10)   (44.08)   (44.98)   (45.30)
                     
Less: profit share allocation from Master Fund (1) (6)   0.00    0.00    0.00    12.47 
                     
Net loss from operations after profit share allocation from Master Fund   (50.10)   (44.08)   (44.98)   (57.77)
                     
NET ASSET VALUE PER UNIT — End of period  $1,111.99   $1,271.31   $1,297.11   $1,252.88 
                     
TOTAL RETURN BEFORE PROFIT SHARE ALLOCATION FROM MASTER FUND (2)   (4.31)%   (3.35)%   (3.35)%   (3.40)%
                     
LESS: PROFIT SHARE ALLOCATION FROM MASTER FUND (2) (6)   0.00    0.00    0.00    1.01 
                     
TOTAL RETURN AFTER PROFIT SHARE ALLOCATION FROM MASTER FUND (2)   (4.31)%   (3.35)%   (3.35)%   (4.41)%
                     
RATIOS TO AVERAGE NET ASSET VALUE:                    
Expenses (3) (4) (5)   4.73%   2.72%   2.72%   3.49%
Profit share allocation from Master Fund (2) (6)   0.00    0.00    0.00    1.01 
                     
Total expenses   4.73%   2.72%   2.72%   4.50%
                     
Net investment loss (3) (4) (5)   (3.33)%   (1.33)%   (1.34)%   (1.98)%

 

(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)

 

9

 

 

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

 

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The accompanying financial statements, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of Millburn Multi-Markets Fund L.P.’s (the “Partnership”) financial condition at June 30, 2019 (unaudited) and December 31, 2018 and the results of its operations for the three and six months ended June 30, 2019 and 2018 (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 2018 annual report included in Form 10-K filed with the Securities and Exchange Commission. The December 31, 2018 information has been derived from the audited financial statements as of December 31, 2018. 

 

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

 

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

 

The Income Taxes topic of the Codification clarifies the accounting for uncertainty in tax positions. This requires that the Partnership recognize in its financial statements the impact of any uncertain tax positions. Based on a review of the Partnership’s open tax years, 2015 to 2018, 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 2018.

 

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

 

The Partnership invests substantially all of its assets in Millburn Multi-Markets Trading L.P. (the “Master Fund”). The Partnership’s ownership percentage of the Master Fund at June 30, 2019 and December 31, 2018 was 27.98% and 33.60%, 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 June 30, 2019 and December 31, 2018, there were no redemption charges owed to the General Partner.

 

4. FINANCIAL HIGHLIGHTS

 

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

 

   Three months ended
June 30,
   Six months ended
June 30,
 
   2019   2018   2019   2018 
Series A   121,178.879    135,019.682    121,811.636    137,945.343 
Series B   7,082.976    7,197.217    7,013.214    7,357.126 
Series C   1,813.897    3,894.068    1,634.484    4,161.738 
Series D   2,484.977    381.042    1,887.069    244.900 

 

5. SUBSEQUENT EVENTS

 

During the period from July 1, 2019 to August 13, 2019, contributions of $10,233,500 were made to the Partnership. The General Partner has performed its evaluation of subsequent events through August 13, 2019, the date the form 10-Q was filed. Based on such evaluation, no further events were discovered that required disclosure or adjustment to the 10-Q.

 

10

 

 

Millburn Multi-Markets Trading L.P.

Financial statements

For the three and six months ended June 30, 2019 and 2018 (unaudited)

 

Statements of Financial Condition (a)   12
Condensed Schedules of Investments (a)   13-16
Statements of Operations (c)   17-18
Statements of Changes in Partners’ Capital (b)   19
Statements of Financial Highlights (c)   20-21
Notes to Financial Statements   22

 

(a) At June 30, 2019 (unaudited) and December 31, 2018

 

(b) For the six months ended June 30, 2019 and 2018 (unaudited)

 

(c) For the three and six months ended June 30, 2019 and 2018 (unaudited)

 

11

 

 

Millburn Multi-Markets Trading L.P.

Statements of Financial Condition

 

   June 30,
2019
   December 31,
2018
 
   (unadited)     
ASSETS        
         
EQUITY IN TRADING ACCOUNTS:        
Investments in U.S. Treasury notes — at fair value (amortized cost $82,771,873 and $72,751,039)  $82,960,127   $72,705,286 
Net unrealized appreciation on open futures and forward currency contracts   3,988,568    15,031,193 
Due from brokers, net   23,535,961    18,741,601 
Cash denominated in foreign currencies (cost $20,844,482 and $14,722,589)   21,037,163    14,704,063 
           
Total equity in trading accounts   131,521,819    121,182,143 
           
INVESTMENTS IN U.S. TREASURY NOTES — at fair value (amortized cost $411,922,232 and $336,217,865)   412,751,868    336,146,438 
           
CASH AND CASH EQUIVALENTS   55,976,070    51,632,381 
           
ACCRUED INTEREST RECEIVABLE   1,494,394    823,388 
           
DUE FROM MILLBURN MULTI-MARKETS LTD.   6,133    196 
           
DUE FROM MILLBURN MULTI-MARKETS FUND L.P.   392    - 
           
TOTAL  $601,750,676   $509,784,546 
           
LIABILITIES AND PARTNERS’ CAPITAL          
           
LIABILITIES:          
Net unrealized depreciation on open futures and forward currency contracts  $4,744,648   $362,196 
Cash denominated in foreign currencies (cost $0 and $168,198)   -    178,969 
Capital withdrawal payable to Limited Partners   1,625,431    28,284,302 
Capital withdrawal payable to General Partner   -    4,993,975 
Management fee payable   730,075    630,458 
Selling commissions payable   248,350    244,651 
Accrued expenses   560,663    228,272 
Due to brokers, net   554,669    - 
Commissions and other trading fees on open futures contracts   48,693    37,349 
Accrued profit share   2,655,437    - 
           
Total liabilities   11,167,966    34,960,172 
           
PARTNERS’ CAPITAL   590,582,710    474,824,374 
           
TOTAL  $601,750,676   $509,784,546 

 

See notes to financial statements (Unaudited)

 

12

 

 

Millburn Multi-Markets Trading L.P.

Condensed Schedule of Investments (UNAUDITED)

June 30, 2019

 

  Net Unrealized
Appreciation
(Depreciation)
as a % of
Partners’ Capital
   Net Unrealized
Appreciation
(Depreciation)
 
FUTURES AND FORWARD CURRENCY CONTRACTS        
         
FUTURES CONTRACTS        
Long futures contracts:        
Energies   0.20%  $1,189,747 
Grains   (0.01)   (82,740)
Interest rates   0.23    1,337,442 
Metals   0.04    249,032 
Stock indices   0.20    1,201,510 
           
Total long futures contracts   0.66    3,894,991 
           
Short futures contracts:          
Energies   0.11    652,594 
Grains   0.10    609,605 
Interest rates   (0.45)   (2,738,144)
Livestock   0.01    77,470 
Metals   0.03    199,891 
Softs   (0.05)   (316,334)
Stock indices   (0.11)   (625,654)
           
Total short futures contracts   (0.36)   (2,140,572)
           
TOTAL INVESTMENTS IN FUTURES CONTRACTS — Net   0.30    1,754,419 
           
FORWARD CURRENCY CONTRACTS          
Total long forward currency contracts   2.33    13,786,637 
Total short forward currency contracts   (2.76)   (16,297,136)
           
TOTAL INVESTMENTS IN FORWARD CURRENCY CONTRACTS — Net   (0.43)   (2,510,499)
           
TOTAL   (0.13)%  $(756,080)

 

(Continued)

 

13

 

 

Millburn Multi-Markets Trading L.P.

Condensed Schedule of Investments (UNAUDITED)

June 30, 2019

 

U.S. TREASURY NOTES

 

Face Amount   Description  Fair Value as a % of
Partners’
Capital
   Fair Value 
             
$123,740,000   U.S. Treasury notes, 0.750%, 08/15/2019   20.93%  $123,534,572 
 124,340,000   U.S. Treasury notes, 1.000%, 11/15/2019   20.97    123,839,726 
 125,040,000   U.S. Treasury notes, 1.375%, 02/15/2020   21.08    124,522,256 
 124,340,000   U.S. Treasury notes, 1.500%, 05/15/2020   20.96    123,815,441 
     Total investments in U.S. Treasury notes (amortized cost $494,694,105)   83.94%  $495,711,995 

 

See notes to financial statements (Unaudited)

 

(Concluded)

 

14

 

 

Millburn Multi-Markets Trading L.P.

Condensed Schedule of Investments

December 31, 2018

 

  Net Unrealized Appreciation (Depreciation) as a % of Partners’ Capital   Net Unrealized Appreciation (Depreciation) 
FUTURES AND FORWARD CURRENCY CONTRACTS        
         
FUTURES CONTRACTS        
Long futures contracts:        
Energies   (0.02)%  $(81,910)
Grains   (0.02)   (87,600)
Interest rates:          
30 Year U.S. Treasury Bond (28 contracts, settlement date March 2019)   0.00    15,313 
Other interest rates   1.48    6,999,457 
           
Total interest rates   1.48    7,014,770 
           
Metals   (0.48)   (2,299,124)
Softs   0.00    1,987 
Stock indices   (0.07)   (314,716)
           
Total long futures contracts   0.89    4,233,407 
           
Short futures contracts:          
Energies   2.30    10,972,521 
Grains   0.20    952,339 
Interest rates   (0.97)   (4,612,428)
Livestock   0.00    1,620 
Metals   0.43    2,019,609 
Softs   0.07    325,370 
Stock indices   (0.11)   (541,383)
           
Total short futures contracts   1.92    9,117,648 
           
TOTAL INVESTMENTS IN FUTURES CONTRACTS — Net   2.81    13,351,055 
           
FORWARD CURRENCY CONTRACTS          
Total long forward currency contracts   0.58    2,734,043 
Total short forward currency contracts   (0.30)   (1,416,101)
           
TOTAL INVESTMENTS IN FORWARD CURRENCY CONTRACTS — Net   0.28    1,317,942 
           
TOTAL   3.09%  $14,668,997 

 

(Continued)

 

15

 

 

Millburn Multi-Markets Trading L.P.

Condensed Schedule of Investments

December 31, 2018

 

U.S. TREASURY NOTES

 

Face Amount   Description  Fair Value as a % of
Partners’
Capital
   Fair Value 
             
$101,240,000   U.S. Treasury notes, 0.750%, 02/15/2019   21.28%  $101,030,401 
 105,540,000   U.S. Treasury notes, 0.875%, 05/15/2019   22.10    104,931,908 
 99,940,000   U.S. Treasury notes, 0.750%, 08/15/2019   20.81    98,827,387 
 105,540,000   U.S. Treasury notes, 1.000%, 11/15/2019   21.92    104,062,028 
     Total investments in U.S. Treasury notes (amortized cost $408,968,904)   86.11%  $408,851,724 

 

See notes to financial statements (Unaudited)

 

(Concluded)

 

16

 

 

Millburn Multi-Markets Trading L.P.

Statements of Operations (UNAUDITED)

 

  

For the

three months ended

 
   June 30,   June 30, 
   2019   2018 
INVESTMENT INCOME — Interest income  $3,391,184   $2,161,375 
           
EXPENSES:          
Brokerage fees   745,098    460,856 
Management fees   2,123,907    2,076,674 
Selling commissions and platform fees   741,840    748,635 
Administrative and operating expenses   304,414    297,787 
Custody fees and other expenses   24,186    25,097 
Total expenses   3,939,445    3,609,049 
           
NET INVESTMENT LOSS   (548,261)   (1,447,674)
           
REALIZED AND UNREALIZED GAINS (LOSSES):          
Net realized gains (losses) on closed positions:          
Futures and forward currency contracts   4,651,094    15,020,832 
Foreign exchange translation   (170,451)   (40,406)
Net change in unrealized:          
Futures and forward currency contracts   (2,863,569)   422,200 
Foreign exchange translation   355,266    (561,676)
Net gains (losses) from U.S. Treasury notes          
Realized   -    (17,785)
Net change in unrealized   759,167    319,444 
Total net realized and unrealized gains   2,731,507    15,142,609 
           
NET INCOME   2,183,246    13,694,935 
LESS PROFIT SHARE TO GENERAL PARTNER   360,041    58,914 
NET INCOME AFTER PROFIT SHARE TO GENERAL PARTNER  $1,823,205   $13,636,021 

 

(Continued)

 

17

 

 

Millburn Multi-Markets Trading L.P.

Statements of Operations (UNAUDITED)

 

  

For the

six months ended

 
   June 30,   June 30, 
   2019   2018 
INVESTMENT INCOME — Interest income  $6,148,942   $3,922,926 
           
EXPENSES:          
Brokerage fees   1,270,120    928,530 
Management fees   3,933,616    4,131,755 
Selling commissions and platform fees   1,475,611    1,519,366 
Administrative and operating expenses   577,878    573,579 
Custody fees and other expenses   45,255    48,781 
Total expenses   7,302,480    7,202,011 
           
NET INVESTMENT LOSS   (1,153,538)   (3,279,085)
           
REALIZED AND UNREALIZED GAINS (LOSSES):          
Net realized gains (losses) on closed positions:          
Futures and forward currency contracts   31,641,912    (44,727,423)
Foreign exchange translation   (322,096)   1,076,528 
Net change in unrealized:          
Futures and forward currency contracts   (15,425,077)   28,480,442 
Foreign exchange translation   221,978    (1,053,426)
Net gains (losses) from U.S. Treasury notes          
Realized   (2,728)   (42,149)
Net change in unrealized   1,135,070    249,733 
Total net realized and unrealized gains (losses)   17,249,059    (16,016,295)
           
NET INCOME (LOSS)   16,095,521    (19,295,380)
LESS PROFIT SHARE TO GENERAL PARTNER   2,685,610    66,845 
NET INCOME (LOSS) AFTER PROFIT SHARE TO GENERAL PARTNER  $13,409,911   $(19,362,225)

 

See notes to financial statements (Unaudited)

 

(Concluded)

 

18

 

 

Millburn Multi-Markets Trading L.P.

Statements of Changes in Partners’ Capital (UNAUDITED)

 

For the six months ended June 30, 2019

 

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

 

For the six months ended June 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   102,706,646    -    -    102,706,646 
Withdrawals   (49,082,685)   -    -    (49,082,685)
Net (loss) before profit share   (19,275,776)         -    (19,604)   (19,295,380)
General Partner’s allocation - profit share   (66,845)   -    -    (66,845)
PARTNERS’ CAPITAL - June 30, 2018  $542,036,396   $-  $852,889  $542,889,285 

 

See notes to financial statements (Unaudited)

 

19

 

 

Millburn Multi-Markets Trading L.P.

Statements of Financial Highlights (UNAUDITED)

 

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

 

  

For the

three months ended

  

For the

six months ended

 
   June 30,   June 30,   June 30,   June 30, 
   2019   2018   2019   2018 
                 
Total return before General Partner profit share allocation (3)   0.40%   2.50%   3.28%   (3.22)%
Less: General Partner profit share allocation (3)   0.08    -    0.65    - 
                     
Total return after General Partner profit share allocation (3)   0.32%   2.50%   2.63%   (3.22)%
                     
Ratios to average net asset value:                    
Expenses (1) (4)   2.64%   2.44%   2.66%   2.48%
General Partner profit share allocation (3)   0.08    -    0.65    - 
                     
Total expenses (1)   2.72%   2.44%   3.31%   2.48%
                     
Net investment loss (1) (2) (4)   (0.28)%   (0.92)%   (0.34)%   (1.08)%

 

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)

 

20

 

 

Millburn Multi-Markets Trading L.P.

Statements of Financial Highlights (UNAUDITED)

 

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

 

  

For the

three months ended

  

For the

six months ended

 
   June 30,   June 30,   June 30,   June 30, 
   2019   2018   2019   2018 
                 
Total return before General Partner profit share allocation (3)   0.38%   2.48%   3.18%   (3.27)%
Less: General Partner profit share allocation (3)   0.06    0.01    0.51    0.01 
                     
Total return after General Partner profit share allocation (3)   0.32%   2.47%   2.67%   (3.28)%
                     
Ratios to average net asset value:                    
Expenses (1) (4)   2.72%   2.56%   2.80%   2.60%
General Partner profit share allocation (3)   0.06    0.01    0.51    0.01 
                     
Total expenses (1)   2.78%   2.57%   3.31%   2.61%
                     
Net investment loss (1) (2) (4)   (0.36)%   (1.04)%   (0.46)%   (1.20)%

 

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 ended June 30, 2019 and June 30, 2018.

(2)Excludes General Partner profit share allocation and includes interest income.
(3)Not Annualized.
(4)Annualized.

 

See notes to financial statements (Unaudited)

 

21

 

 

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 financial statements, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the Master Fund’s financial condition at June 30, 2019 (unaudited) and December 31, 2018 and the results of its operations for the three and six months ended June 30, 2019 and 2018 (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, 2018 included in the Partnership’s annual report on Form 10-K filed with the Securities and Exchange Commission. The December 31, 2018 information has been derived from the audited financial statements as of December 31, 2018.

 

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 2018, the General Partner has determined that no reserves for uncertain tax positions were required.

 

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

 

The Partnership and the Cayman Feeder invest substantially all of their assets in the Master Fund. At June 30, 2019 and December 31, 2018, the respective ownership percentages of the Master Fund are detailed below. The remaining interests are held by direct investors in the Master Fund. 

 

   June 30,   December 31, 
   2019   2018 
Partnership   27.98%   33.60%
Cayman Feeder   62.51%   55.54%
           
Total   90.49%   89.14%

 

The capital withdrawals payable at June 30, 2019 and December 31, 2018 were $1,625,431 and $33,278,277, respectively, as detailed below.

 

   June 30,   December 31, 
   2019   2018 
Direct investors (1)  $-   $5,018,975 
Partnership   1,125,431    659,683 
Cayman Feeder   500,000    27,599,619 
Total  $1,625,431   $33,278,277 

 

(1)Includes General Partner’s profit share of $4,993,975 at December 31, 2018.

 

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.

 

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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.

 

During the three and six months ended June 30, 2019 and 2018, there were no transfers of assets or liabilities between Level 1 and Level 2. The following tables represent the Master Fund’s investments by hierarchical level as of June 30, 2019 and December 31, 2018 in valuing the Master Fund’s investments at fair value. At June 30, 2019 and December 31, 2018, the Master Fund had no assets or liabilities in Level 3.

 

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Financial assets and liabilities at fair value as of June 30, 2019

 

   Level 1   Level 2   Total 
             
U.S. Treasury notes (1)  $495,711,995   $-   $495,711,995 
                
Short-Term Money Market Fund*   55,726,070    -    55,726,070 
Exchange-traded futures contracts               
Energies   1,842,341    -    1,842,341 
Grains   526,865    -    526,865 
Interest rates   (1,400,702)   -    (1,400,702)
Livestock   77,470    -    77,470 
Metals   448,923    -    448,923 
Softs   (316,334)   -    (316,334)
Stock indices   575,856    -    575,856 
                
Total exchange-traded futures contracts   1,754,419    -    1,754,419 
                
Over-the-counter forward currency contracts   -    (2,510,499)   (2,510,499)
                
Total futures and forward currency contracts (2)   1,754,419    (2,510,499)   (756,080)
                
Total financial assets and liabilities at fair value  $553,192,484   $(2,510,499)  $550,681,985 
                
Per line item in Statements of Financial Condition               
(1)               
Investments in U.S. Treasury notes held in equity trading accounts as collateral            $82,960,127 
Investments in U.S. Treasury notes held in custody             412,751,868 
Total investments in U.S. Treasury notes            $495,711,995 
                
(2)               
Net unrealized appreciation on open futures and forward currency contracts            $3,988,568 
Net unrealized depreciation on open futures and forward currency contracts             (4,744,648)
Total net unrealized depreciation on open futures and forward currency contracts            $(756,080)

 

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

 

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Financial assets and liabilities at fair value as of December 31, 2018

 

   Level 1   Level 2   Total 
             
U.S. Treasury notes (1)  $408,851,724   $-   $408,851,724 
                
Short-Term Money Market Fund*   51,382,381    -    51,382,381 
Exchange-traded futures contracts               
Energies   10,890,611    -    10,890,611 
Grains   864,739    -    864,739 
Interest rates   2,402,342    -    2,402,342 
Livestock   1,620    -    1,620 
Metals   (279,515)   -    (279,515)
Softs   327,357    -    327,357 
Stock indices   (856,099)   -    (856,099)
                
Total exchange-traded futures contracts   13,351,055    -    13,351,055 
                
Over-the-counter forward currency contracts   -    1,317,942    1,317,942 
                
Total futures and forward currency contracts (2)   13,351,055    1,317,942    14,668,997 
                
Total financial assets and liabilities at fair value  $473,585,160   $1,317,942   $474,903,102 
                
Per line item in Statements of Financial Condition               
(1)               
Investments in U.S. Treasury notes held in equity trading accounts as collateral            $72,705,286 
Investments in U.S. Treasury notes             336,146,438 
Total investments in U.S. Treasury notes            $408,851,724 
                
(2)               
Net unrealized appreciation on open futures and forward currency contracts            $15,031,193 
Net unrealized depreciation on open futures and forward currency contracts             (362,196)
Total net unrealized appreciation on open futures and forward currency contracts            $14,668,997 

 

*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 June 30, 2019 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.

 

25

 

 

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

 

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

 

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

 

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

 

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 June 30, 2019 and December 31, 2018. Fair value is presented on a gross basis even though the contracts are subject to master netting agreements and qualify for net presentation in the Master Fund’s Statements of Financial Condition.

 

Fair value of futures and forward currency contracts at June 30, 2019

 

                   Net Unrealized Gain (Loss) 
   Fair Value - Long Positions   Fair Value - Short Positions   on Open 
Sector  Gains   Losses   Gains   Losses   Positions 
Futures contracts:                    
Energies  $1,366,017   $(176,270)  $1,161,447   $(508,853)  $1,842,341 
Grains   -    (82,740)   638,169    (28,564)   526,865 
Interest rates   1,848,276    (510,834)   155,191    (2,893,335)   (1,400,702)
Livestock   -    -    78,740    (1,270)   77,470 
Metals   802,760    (553,728)   1,171,730    (971,839)   448,923 
Softs   -    -    76,593    (392,927)   (316,334)
Stock indices   1,748,823    (547,313)   712,208    (1,337,862)   575,856 
Total futures contracts   5,765,876    (1,870,885)   3,994,078    (6,134,650)   1,754,419 
                          
Forward currency contracts   16,117,496    (2,330,859)   2,204,150    (18,501,286)   (2,510,499)
                          
Total futures and forward currency contracts  $21,883,372   $(4,201,744)  $6,198,228   $(24,635,936)  $(756,080)

 

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Fair value of futures and forward currency contracts at December 31, 2018

 

                   Net Unrealized Gain (Loss) 
   Fair Value - Long Positions   Fair Value - Short Positions   on Open 
Sector  Gains   Losses   Gains   Losses   Positions 
Futures contracts:                    
Energies  $-   $(81,910)  $11,259,709   $(287,188)  $10,890,611 
Grains   2,660    (90,260)   963,418    (11,079)   864,739 
Interest rates   7,566,927    (552,157)   198    (4,612,626)   2,402,342 
Livestock   -    -    8,600    (6,980)   1,620 
Metals   405,566    (2,704,690)   3,218,169    (1,198,560)   (279,515)
Softs   1,987    -    403,806    (78,436)   327,357 
Stock indices   337,899    (652,615)   250,827    (792,210)   (856,099)
Total futures contracts   8,315,039    (4,081,632)   16,104,727    (6,987,079)   13,351,055 
                          
Forward currency contracts   6,399,109    (3,665,066)   6,859,413    (8,275,514)   1,317,942 
                          
Total futures and forward currency contracts  $14,714,148   $(7,746,698)  $22,964,140   $(15,262,593)  $14,668,997 

 

The effect of trading futures and forward currency contracts is represented on the Master Fund’s Statements of Operations for the three and six months ended June 30, 2019 and 2018 as “Net realized gains (losses) on closed positions: Futures and forward currency contracts” and “Net change in unrealized: Futures and forward currency contracts.” These trading gains and losses are detailed below.

 

Trading gains (losses) of futures and forward currency contracts for the three and six months ended June 30, 2019 and 2018

 

   Three months   Three months   Six months   Six months 
   ended:   ended:   ended:   ended: 
   June 30,   June 30,   June 30,   June 30, 
Sector  2019   2018   2019   2018 
Futures contracts:                
Energies  $(4,742,987)  $19,654,543   $(15,249,314)  $21,052,804 
Grains   3,869,741    4,480,361    5,372,518    3,233,604 
Interest rates   4,050,500    854,198    27,681,034    9,637,707 
Livestock   939,390    (276,520)   938,460    (179,020)
Metals   215,551    (3,891,816)   (907,171)   (5,615,896)
Softs   (678,899)   834,880    (492,834)   901,579 
Stock indices   (247,192)   (9,945,817)   5,543,088    (43,231,539)
Total futures contracts   3,406,104    11,709,829    22,885,781    (14,200,761)
                     
Forward currency contracts   (1,618,579)   3,733,203    (6,668,946)   (2,046,220)
                     
Total futures and forward currency contracts  $1,787,525   $15,443,032   $16,216,835   $(16,246,981)

 

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For the three months ended June 30, 2019 and 2018, the monthly average number of future contracts bought and sold and the monthly average notional value of forward currency contracts traded are detailed below:

 

   2019   2018 
         
Average bought   84,902    50,913 
Average sold   88,601    53,026 
Average notional  $12,228,000,000   $4,397,000,000 

 

The customer agreements between the Master Fund, the futures clearing brokers including, Deutsche Bank Securities Inc. (a wholly owned subsidiary of Deutsche Bank AG), SG Americas Securities, LLC, and BofA Securities, Inc. (formerly Merrill Lynch Pierce, Fenner & Smith Inc.) as well as the FX prime brokers, Deutsche Bank AG (“DB”) and Bank of America, N.A. (“BA”), and the swap dealer, Morgan Stanley & Co., LLC (“MS”), give the Master Fund the legal right to net unrealized gains and losses on open futures and forward currency contracts. The Master Fund ceased utilizing MS as a swap dealer during October 2018.The Master Fund netted, for financial reporting purposes, the unrealized gains and losses on open futures and forward currency contracts on the Statements of Financial Condition as the criteria under FASB Accounting Standards Codification Topic 210, “Balance Sheet,” were met.

 

The following tables represent gross amounts of assets or liabilities which qualify for offset as presented in the Statements of Financial Condition as of June 30, 2019 and December 31, 2018.

 

Offsetting of derivative assets and liabilities at June 30, 2019

 

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 I  $6,715,035   $(4,494,783)  $2,220,252 
Counterparty J   936,600    (667,327)   269,273 
Total futures contracts   7,651,635    (5,162,110)   2,489,525 
                
Forward currency contracts               
Counterparty G   9,663,960    (8,164,917)   1,499,043 
                
Total assets  $17,315,595   $(13,327,027)  $3,988,568 

 

Liabilities  Gross amounts of recognized liabilities   Gross amounts offset in the Statement of Financial Condition   Net amounts of liabilities presented in the Statement of Financial Condition 
             
Futures contracts               
Counterparty C  $2,843,425   $(2,108,319)  $735,106 
                
Forward currency contracts               
Counterparty K   12,667,228    (8,657,686)   4,009,542 
                
Total liabilities  $15,510,653   $(10,766,005)  $4,744,648 

 

28

 

   Net amounts of Assets presented in the Statement of   Amounts Not Offset in the Statement of Financial Condition     
Counterparty  Financial Condition   Financial Instruments   Collateral Received(1)(2)  

Net

Amount(3)

 
                 
Counterparty I  $2,220,252   $          -   $(2,220,252)  $- 
Counterparty J   269,273    -    (269,273)   - 
Counterparty G   1,499,043    -    -    1,499,043 
                     
Total  $3,988,568   $-   $(2,489,525)  $1,499,043 

 

   Net amounts of Liabilities presented in the Statement of   Amounts Not Offset in the Statement of Financial Condition     
Counterparty  Financial Condition   Financial Instruments   Collateral Pledged(1)(2)  

Net

Amount

 
                 
Counterparty C  $735,106   $          -   $(735,106)  $       - 
Counterparty K   4,009,542    -    (4,009,542)   - 
                     
Total  $4,744,648   $-   $(4,744,648)  $- 

 

(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 June 30, 2019.

 

Offsetting of derivative assets and liabilities at December 31, 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  $3,628,567   $(2,236,487)  $1,392,080 
Counterparty I   16,443,433    (7,459,780)   8,983,653 
Counterparty J   4,347,766    (1,372,444)   2,975,322 
Total futures contracts   24,419,766    (11,068,711)   13,351,055 
                
Forward currency contracts               
Counterparty G   5,528,657    (3,848,519)   1,680,138 
                
Total assets  $29,948,423   $(14,917,230)  $15,031,193 

 

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 K  $8,092,061   $(7,729,865)  $362,196 
                
Total liabilities  $8,092,061   $(7,729,865)  $362,196 

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   Net amounts of Assets presented in the Statement of   Amounts Not Offset in the Statement of Financial Condition     
Counterparty  Financial Condition   Financial Instruments   Collateral Received(1)(2)  

Net

Amount(3)

 
                 
Counterparty C  $1,392,080   $        -   $(1,392,080)  $- 
Counterparty I   8,983,653    -    (8,983,653)   - 
Counterparty J   2,975,322    -    (2,975,322)   - 
Counterparty G   1,680,138    -    -    1,680,138 
                     
Total  $15,031,193   $-   $(13,351,055)  $1,680,138 

 

   Net amounts of Liabilities presented in the Statement of   Amounts Not Offset in the Statement of Financial Condition     
Counterparty  Financial Condition   Financial Instruments   Collateral Pledged(1)(2)  

Net

Amount(4)

 
                 
Counterparty K  $362,196   $        -   $362,196   $        - 
                     
Total  $362,196   $-   $362,196   $- 

 

(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, 2018.
(4)Net amount represents the amounts owed by the Partnership to each counterparty as of December 31, 2018.

 

CONCENTRATION OF CREDIT RISK

 

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

 

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

 

The Master Fund’s forward currency trading activities are cleared by DB, BA and prior to October 2018, MS. The Master Fund’s concentration of credit risk associated with DB, BA, 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, BA and MS. The amount of such credit risk was $59,286,896 and $35,418,108 at June 30, 2019 and December 31, 2018, respectively.

 

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5. PROFIT SHARE

 

The following table indicates the total profit share earned and accrued during the three and six months ended June 30, 2019 and 2018. Profit share earned (from Limited Partners’ redemptions) is credited to the New Profit Memo account as defined in the Master Fund’s Agreement of Limited Partnership.

 

   Three months ended:   Three months ended: 
   June 30,
2019
   June 30,
2018
 
Profit share earned  $30,173   $- 
Reversal of profit share (1)   (2,325,569)   (7,931)
Profit share accrued   2,655,437    66,845 
Total profit share  $360,041   $58,914 

 

   Six months ended:   Six months ended: 
   June 30,
2019
   June 30,
2018
 
Profit share earned  $30,173   $- 
Profit share accrued   2,655,437    66,845 
Total profit share  $2,685,610   $66,845 

 

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

 

6. FINANCIAL HIGHLIGHTS

 

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

 

7. SUBSEQUENT EVENTS

 

During the period from July 1, 2019 to August 13, 2019, contributions of $12,733,500 were made to the Master Fund. The General Partner has performed its evaluation of subsequent events through August 13, 2019, the date this form 10-Q was filed. Based on such evaluation, no further events were discovered that required disclosure or adjustment to the 10-Q.

 

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

 

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

 

OPERATIONAL OVERVIEW

 

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

 

LIQUIDITY AND CAPITAL RESOURCES

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

32

 

 

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 June 30, 2019, 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.

 

33

 

 

RESULTS OF OPERATIONS

 

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

 

 

 

Periods ended June 30, 2019 

 

 

 

   Total 
   Partners’ 
   Capital of the 
Month Ended:  Partnership 
June 30, 2019  $165,257,957 
March 31, 2019   164,573,043 
December 31, 2018   159,519,606 

 

   Three Months   Six Months 
Change in Partners’ Capital  $684,914   $5,738,351 
Percent Change   0.42%   3.60%

 

THREE MONTHS ENDED JUNE 30, 2019

 

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

 

Management fees, through the Partnership’s investment in the Master Fund, are calculated on the net asset value on the last day of each month and are affected by trading performance, contributions and withdrawals. Management fees, through the Partnership’s investment in the Master Fund, for the three months ended June 30, 2019 decreased $195 relative to the corresponding period in 2018. The decrease was due to a decrease in the average net asset value of the Partnership during the three months ended June 30, 2019, relative to the corresponding period in 2018.

 

The Partnership, through its investment in the Master Fund, bears all trade-related commission and clearing charges due to third-party brokers. Brokerage commissions, through the Partnership’s investment in the Master Fund, for the three months ended June 30, 2019 increased $79,169 relative to the corresponding period in 2018. The increase was due to an increase in trading activity during the three months ended June 30, 2019, relative to the corresponding period in 2018.

 

Selling commissions and platform fees are calculated on the net asset value on the last day of each month and are affected by trading performance, contributions and withdrawals. Selling commissions and platform fees for the three months ended June 30, 2019 decreased $4,692 relative to the corresponding period in 2018. The decrease was due to a decrease in the average net asset value of commission paying investors of the Partnership during the three months ended June 30, 2019, relative to the corresponding period in 2018. 

 

The Partnership, through its investment in the Master Fund, pays administrative expenses for legal, audit and accounting services. Administrative expenses, net of amounts borne by the General Partner, through the Partnership’s investment in the Master Fund, for the three months ended June 30, 2019 decreased $10,596 relative to the corresponding period in 2018. The decrease was due to a decrease in the average net asset value of the Partnership during the three months ended June 30, 2019, relative to the corresponding period in 2018.

 

Interest income, through the Partnership’s investment in the Master Fund, is derived from cash and U.S. Treasury instruments held at the Master Fund’s brokers and custodian. Interest income, through the Partnership’s investment in the Master Fund, for the three months ended June 30, 2019 increased $339,167 relative to the corresponding period in 2018. This increase was due predominantly to an increase in short-term U.S. Treasury yields during the three months ended June 30, 2019 relative to the corresponding period in 2018.

 

34

 

 

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

 

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

 

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

 

SIX MONTHS ENDED JUNE 30, 2019

 

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

 

Management fees, through the Partnership’s investment in the Master Fund, are calculated on the net asset value on the last day of each month and are affected by trading performance, contributions and withdrawals. Management fees, through the Partnership’s investment in the Master Fund, for the six months ended June 30, 2019 decreased $47,013 relative to the corresponding period in 2018. The decrease was due to a decrease in the average net asset value of the Partnership during the six months ended June 30, 2019, relative to the corresponding period in 2018. 

 

The Partnership, through its investment in the Master Fund, bears all trade-related commission and clearing charges due to third-party brokers. Brokerage commissions, through the Partnership’s investment in the Master Fund, for the six months ended June 30, 2019 increased $111,559 relative to the corresponding period in 2018. The increase was due to an increase in trading activity during the six months ended June 30, 2019, relative to the corresponding period in 2018.

 

Selling commissions and platform fees are calculated on the net asset value on the last day of each month and are affected by trading performance, contributions and withdrawals. Selling commissions and platform fees for the six months ended June 30, 2019 decreased $39,554 relative to the corresponding period in 2018. The decrease was due to a decrease in the average net asset value of commission paying investors of the Partnership during the six months ended June 30, 2019, relative to the corresponding period in 2018. 

 

The Partnership, through its investment in the Master Fund, pays administrative expenses for legal, audit and accounting services. Administrative expenses, net of amounts borne by the General Partner, through the Partnership’s investment in the Master Fund, for the six months ended June 30, 2019 decreased $18,529 relative to the corresponding period in 2018. The decrease was due to a decrease in the average net asset value of the Partnership during the six months ended June 30, 2019, relative to the corresponding period in 2018.

 

Interest income, through the Partnership’s investment in the Master Fund, is derived from cash and U.S. Treasury instruments held at the Master Fund’s brokers and custodian. Interest income, through the Partnership’s investment in the Master Fund, for the six months ended June 30, 2019 increased $716,582 relative to the corresponding period in 2018. This increase was due predominantly to an increase in short-term U.S. Treasury yields during the six months ended June 30, 2019 relative to the corresponding period in 2018.

 

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

 

35

 

 

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

 

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

 

MANAGEMENT DISCUSSION – 2019

 

Three months ended June 30, 2019

 

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

 

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

 

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

 

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

 

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

 

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

 

36

 

 

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

 

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

 

Three months ended March 31, 2019

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

37

 

 

 

 

Periods ended June 30, 2018 

 

 

 

   Total 
   Partners’ 
   Capital of the 
Month Ended:  Partnership 
June 30, 2018  $159,554,823 
March 31, 2018   167,774,370 
December 31, 2017   180,404,425 

 

   Three Months   Six Months 
Change in Partners’ Capital  $(8,219,547)  $(20,849,602)
Percent Change   (4.90)%   (11.56)%

 

THREE MONTHS ENDED JUNE 30, 2018

 

The decrease in the Partnership’s net assets of $8,219,547 was attributable to withdrawals of $12,750,177 which were partially offset by contributions of $1,353,000 and net income after profit share of $3,177,630.

 

Management fees, through the Partnership’s investment in the Master Fund, are calculated on the net asset value on the last day of each month and are affected by trading performance, contributions and withdrawals. Management fees, through the Partnership’s investment in the Master Fund, for the three months ended June 30, 2018 decreased $98,529 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 June 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 June 30, 2018 decreased $2,748 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 June 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 June 30, 2018 decreased $111,607 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 June 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 June 30, 2018 increased $27,907 relative to the corresponding period in 2017. The increase was primarily due to an increase in audit, consulting and legal fees incurred by the Partnership during the three months ended June 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 June 30, 2018 increased $287,708 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 June 30, 2018 relative to the corresponding period in 2017.

 

For the three months ended June 30, 2018, the Partnership, through its investment in the Master Fund, achieved net realized and unrealized gains of $4,409,900 from trading operations (including foreign exchange transactions and translations). Management fees of $818,023, brokerage commissions of $134,915, selling commissions and platform fees of $743,759, administrative and operating expenses of $158,920, custody fees and other expenses of $7,347, and profit share of $2,198 were paid or accrued. Interest income of $632,892 partially offset the Master Fund expenses allocated to the Partnership resulting in net income after profit share of $3,177,630.

 

38

 

 

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

 

   % Gain 
Sector  (Loss) 
Currencies   0.66%
Energies   3.52%
Grains   0.81%
Interest rates   0.15%
Livestock   (0.04)%
Metals   (0.70)%
Softs   0.14%
Stock indices   (1.77)%
Trading gain   2.77%

 

SIX MONTHS ENDED JUNE 30, 2018

 

The decrease in the Partnership’s net assets of $20,849,602 was attributable to withdrawals of $19,462,577 and net loss after profit share of $7,888,845 which were partially offset by contributions of $6,501,820.

 

Management fees, through the Partnership’s investment in the Master Fund, are calculated on the net asset value on the last day of each month and are affected by trading performance, contributions and withdrawals. Management fees, through the Partnership’s investment in the Master Fund, for the six months ended June 30, 2018 decreased $133,567 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 six months ended June 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 six months ended June 30, 2018 increased $32,487 relative to the corresponding period in 2017. The increase was due to an increase in trading activity during the six months ended June 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 six months ended June 30, 2018 decreased $165,751 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 six months ended June 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 six months ended June 30, 2018 decreased $16,958 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 six months ended June 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 six months ended June 30, 2018 increased $567,614 relative to the corresponding period in 2017. This increase was due predominantly to an increase in short-term U.S. Treasury yields during the six months ended June 30, 2018 relative to the corresponding period in 2017

 

For the six months ended June 30, 2018, the Partnership, through its investment in the Master Fund, achieved net realized and unrealized losses of $5,279,597 from trading operations (including foreign exchange transactions and translations). Management fees of $1,663,195, brokerage commissions of $278,775, selling commissions and platform fees of $1,509,670, administrative and operating expenses of $314,085, custody fees and other expenses of $14,579, and profit share of $3,054 were paid or accrued. Interest income of $1,174,110 partially offset the Master Fund expenses allocated to the Partnership resulting in net loss after profit share of $7,888,845.

 

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

 

   % Gain 
Sector  (Loss) 
Currencies   (0.38)%
Energies   3.78%
Grains   0.55%
Interest rates   1.76%
Livestock   (0.06)%
Metals   (1.04)%
Softs   0.10%
Stock indices   (7.45)%
Trading loss   (2.74)%

 

39

 

 

MANAGEMENT DISCUSSION – 2018

 

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.

 

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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 Haruhiko 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.

  

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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.

 

OFF-BALANCE SHEET ARRANGEMENTS

 

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

 

CONTRACTUAL OBLIGATIONS

 

Neither the Partnership nor the Master Fund enters into any contractual obligations or commercial commitments to make future payments of a type that would be typical for an operating company or that would affect its liquidity or capital resources. The Partnership’s sole business, through its investment in the Master Fund, is trading futures, forward currency, spot and swap contracts, both long (contracts to buy) and short (contacts to sell). All such contracts are settled by offset, not delivery. Substantially all such contracts are for settlement within four months of the trade date and substantially all such contracts are held by the Master Fund for less than four months before being offset or rolled over into new contracts with similar maturities. The financial statements of the Master Fund present a condensed schedule of investments setting forth open futures, forward and other contracts at June 30, 2019 and December 31, 2018.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not required.

 

ITEM 4. CONTROLS AND PROCEDURES

 

The General Partner, with the participation of the principal executive officers and principal financial officer, has evaluated the effectiveness of the design and operation of its disclosure controls and procedures with respect to the Partnership as of the end of the period covered by this quarterly report, and, based on its evaluation, has concluded that these disclosure controls and procedures are effective. There were no changes in the General Partner’s internal controls over financial reporting during the quarter ended June 30, 2019 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.

 

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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.

 

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

 

The following table summarizes the redemptions by Series A and Series B limited partners during the three months ended June 30, 2019. There were no Series C or Series D redemptions.

 

   Series A   Series B 
Date of Withdrawal  Units Redeemed   NAV per Unit   Units Redeemed   NAV per Unit 
April 30, 2019   (927.4989)  $1,225.34    (38.3270)  $1,416.23 
May 31, 2019   (525.5820)   1,190.41    (230.2197)   1,377.86 
June 30, 2019   (821.2413)   1,211.73    (92.7971)   1,404.23 
                     
Total   (2,274.3222)        (361.3438)     

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

Not Applicable.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not Applicable. 

 

ITEM 5. OTHER INFORMATION

 

None.

 

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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

 

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SIGNATURES

 

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

 

By: Millburn Ridgefield Corporation,
    General Partner
     
Date: August 13, 2019   /s/ Michael W. Carter
    Michael W. Carter
    Vice-President
    (Principal Accounting Officer)

 

 

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