RFMC Willowbridge Fund, L.P. (formerly named The Willowbridge Fund L.P.) (the “Partnership”) engages in the speculative trading of commodity futures contracts, options on commodities or commodity futures contracts and forward contracts (“Commodity Interests”). The objective of the Partnership is the appreciation of its assets through speculative trading. Ruvane Fund Management Corporation is the General Partner of the Partnership (the “General Partner”) and Willowbridge Associates, Inc. is the Partnership’s trading advisor (the “Advisor”).
The success of the Partnership is dependent upon the ability of the Advisor to generate trading profits through the speculative trading of Commodity Interests sufficient to produce capital appreciation after payment of all fees and expenses. Future results will depend in large part upon the Commodity Interests markets in general, the performance of its advisor, the amount of additions and redemptions and changes in interest rates. Due to the highly leveraged nature of the Partnership’s trading activity, small price movements in Commodity Interests may result in substantial gains or losses to the Partnership. Because of the nature of these factors and their interaction, past performance is not indicative of future results. As a result, any recent increases in net realized or unrealized gains may have no bearing on any results that may be obtained in the future.
The Partnership incurs substantial charges from the payment of brokerage commissions to the General Partner, payment of management and incentive fees to the Advisor, payment of management fees to the General Partner and administrative expenses. The Partnership is required to make trading profits to avoid depleting and exhausting its assets from the payment of such fees and expenses.
The markets in which the Commodity Interests trade are constantly changing in character and in degree of volatility. Although the Advisor has been the sole advisor trading on behalf of the Partnership since April 1991, the General Partner continues to evaluate and analyze from both quantitative and qualitative perspectives the ability of the Advisor to trade effectively on the Partnership’s behalf in the context of the current market environment. The General Partner seeks to limit market and credit risks by monitoring daily income and margin levels. The General Partner also relies upon the risk management strategies inherent in the Advisor’s trading programs. In the future, the General Partner may utilize additional strategies or appoint additional advisors to trade on behalf of the Partnership.
Class A Interests paid to the General Partner a flat-rate monthly brokerage commission of approximately 0.29% of the net asset value of the Class A Interests as of the beginning of each month (a 3.5% annual rate) for the period, January 1, 2001 to July 31, 2002. Beginning August 1, 2002, the Class A Interests pay to the General Partner a flat-rate monthly brokerage commission of approximately 0.33% of the net asset value of the Class A Interests as of the beginning of each month (a 4.0% annual rate).
Class B Interests pay to the General Partner commission of up to 6.0% annually of the net asset value of the Class B partners' capital. The General Partner will pay up to 3.0% from this amount to properly registered selling agents as their compensation, and to the extent the amount is less than 3.0% the brokerage fee with respect to such Class B limited partnership interests will be reduced accordingly. The General Partner pays from this amount all commission charges and fees with respect to the Partner’s trading in Commodity Interests. The flat-rate monthly commission is common among programs such as the Partnership.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported in the Partnership’s financial statements. The critical accounting estimates and related judgments underlying the Partnership’s financial statements are summarized below. In applying these policies, management makes judgments that frequently require estimates about matters that are inherently uncertain. The Partnership’s significant accounting policies are described in detail in Note 3 of the Notes to the Condensed Financial Statements.
Investments in commodity futures, options and forward contracts are recorded on the trade date and open contracts are recorded in the financial statements at their fair value on the last business day of the reporting period. The difference between the original cost basis of the contract and fair value is recorded in income as a net unrealized gain or loss on open positions on the Condensed Statements of Financial Condition. Realized gains and losses on closed contracts are recorded on a first-in-first-out basis. Interest income is recognized on an accrual basis. All Commodity Interests and financial instruments are recorded at fair value in the financial statements. Fair value is based on quoted market prices or estimates of fair value.
The Partnership records all investments at fair value in its financial statements, with changes in fair value reported as a component of Trading Profits (Losses) in the Condensed Statements of Income (Loss). Generally, fair values are based on quoted market prices; however, in certain circumstances, significant judgments and estimates are involved in determining fair value in the absence of an active market closing price.
Results of Operations
Comparison of the Three Months September 30, 2007 and 2006
For the quarter ended September 30, 2007, the Partnership had total net trading profits of $2,569,915 comprised of $2,293,217 in realized gains on closed positions, and $276,698 in change in net unrealized gains on open positions. For the same quarter in 2006 the Partnership had total net trading profits of $1,751,358 comprised of $(667,600) in realized losses on closed positions, and $2,419,018 in change in net unrealized gains on open positions.
In July 2007, the Partnership recorded a net loss of $550,283. Trading was unprofitable with losses in the Japanese Yen, gasoline, soybean mean and gold, and offsetting gains were made in crude oil, the Euro currency and natural gasoline. In August 2007, the Partnership recorded a net loss of $2,067,363. Trading was unprofitable in copper, crude oil, and heating oil, and there were offsetting gains in the Japanese Yen, Japanese government bonds and wheat. In September 2007, the Partnership recorded net income of $4,696,445. Trading was profitable in the Euro currency, crude oil, heating oil and wheat, and there were offsetting losses in natural gasoline and copper.
In July 2006, trading was unprofitable in the Euro currency, heating oil and Long Gilts, although offsetting gains were made in natural gasoline and the Partnership recorded a net loss of $3,166,822. In August 2006, trading was profitable in the Japanese Yen, sugar and US Treasury bonds although offsetting losses were made in natural gas and Partnership recorded a net income of $222,151. In September 2006, trading was profitable in natural gas, heating oil, unleaded gasoline and crude oil, although offsetting losses were made in the Euro currency and Long Gilts, and Partnership recorded a net income of $4,240,069
For the quarter ended September 30, 2007, the Partnership had expenses comprised of $723,781 in brokerage commissions (including clearing and exchange fees), $295,704 in management fees, $133,236 in administrative expenses, and $0 in incentive fees. For the same quarter in 2006, the Partnership had expenses comprised of $688,641 in brokerage commissions (including clearing and exchange fees), $274,371 in management fees, $156,841 in administrative expenses, and $0 in incentive fees. Incentive fees are a fraction of quarterly trading profits. Brokerage commissions and management fees vary primarily as a result of change in assets under management, which are affected by net income, and capital additions and redemptions. Administrative expenses consists primary of professional fees and other expenses relating to the Partnership’s reporting requirements under the Securities Exchange Act of 1934, as amended.
As a result of the above, the Partnership recorded net income of $2,078,799 for the three months ended September 30, 2007, compared to a net income of $1,295,398 for the same period in 2006.
At September 30, 2007, the net asset value of the Partnership was $60,240,582, compared to its net asset value of $58,043,905 at December 31, 2006.
During the quarter, the Partnership had no credit exposure to a counterparty that is a foreign commodities exchange or to any counterparty dealing in over the counter contracts which is material.
Comparison of Nine Months Ended September 30, 2007 and 2006
For the nine months ended September 30, 2007, the Partnership had total net trading profits of $7,079,936 comprised of $5,438,577 in net realized gains on closed positions, and $1,641,359 in change in net unrealized gains on open positions. For the same period in 2006 the Partnership had total net trading profits of $7,485,671 comprised of $4,989,702 in net realized gains on closed positions, and $2,495,969 in change in net unrealized gains on open positions.
In January 2007, the Partnership was slightly unprofitable. The Partnership earned profits trading in copper, UK fixed income, crude oil and Japanese Yen; the Partnership generated losses in the Euro currency, coffee, natural gas and gasoline. The Partnership recorded a net loss of $169,798. In February 2007, trading was unprofitable as the Partnership had losses in Japanese Yen, UK fixed income, US fixed income and natural gas; the Partnership earned profits in soybeans, the Euro currency and gasoline. The Partnership recorded a net loss of $2,290,973. In March 2007, trading was not profitable. The Partnership had losses in silver, Japanese Yen, gold, British Pound and soybeans; the Partnership had gains in gasoline, crude oil and cocoa. The Partnership recorded a net loss of $1,659,131. In April 2007, the Partnership had gains in gasoline, the Euro currency, the Canadian Dollar, the Australian Dollar and the Japanese Yen; there were losses in crude oil, natural gas and silver. The Partnership recorded a net income of $3,227,321. In May 2007, the Partnership had gains in the Japanese Yen, the Canadian Dollar and European fixed income instruments; there were losses in the Euro currency, heating oil and silver. The
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Partnership recorded a net income of $898,624 . In June 2007, the Partnership had gains in European fixed income instruments, wheat, natural gas and US Treasury Bonds; there were losses in coffee, heating oil and gasoline. The Partnership recorded a net income of $3,597,235. In July 2007, the Partnership recorded a net loss of $550,283. Trading was unprofitable with losses in the Japanese Yen, gasoline, soybean mean and gold, and offsetting gains were made in crude oil, the Euro currency and natural gasoline. In August 2007, the Partnership recorded a net loss of $2,067,363. Trading was unprofitable in copper, crude oil, and heating oil, and there were offsetting gains in the Japanese Yen, Japanese government bonds and wheat. In September 2007, the Partnership recorded a net income of $4,696,445. Trading was profitable in the Euro currency, crude oil, heating oil and wheat, and there were offsetting losses in natural gasoline and copper.
In January 2006, trading was slightly profitable. The Partnership earned profits trading in silver, natural gas, Japanese Yen and copper; the Partnership generated losses in the Euro currency and US fixed income. The Partnership recorded a net income of $435,883. In February 2006, trading was unprofitable as the Partnership had losses in heating oil and the Euro currency; the Partnership earned profits in natural gas. The Partnership recorded a net loss of $2,185,076. In March 2006, trading was not profitable. The Partnership had losses in unleaded gasoline and the Japanese Yen; the Partnership had gains in silver and global fixed income markets. The Partnership recorded a net loss of $1,014,742. In April 2006, trading was profitable in gold and silver, the Euro currency, and the energy sector. There were losses in the Japanese Yen and wheat. The Partnership recorded a net income of $11,455,038. In May 2006, trading was unprofitable in silver, Japanese Yen and the energy sector. There were gains in gold and British Pound. The Partnership recorded a net loss of $493,628. In June 2006, trading was unprofitable in the Canadian Dollar and the energy sector. There were some gains in UK fixed income. The Partnership recorded a net loss of $3,443,780. In July 2006, trading was unprofitable in the Euro currency, heating oil and Long Gilts, although offsetting gains were made in natural gas and the Partnership recorded a net loss of $3,166,822. In August 2006, trading was profitable in the Japanese Yen, sugar and US Treasury bonds although offsetting losses were made in natural gas and Partnership recorded a net income of $222,151. In September 2006, trading was profitable in natural gas, heating oil, unleaded gasoline and crude oil, although offsetting losses were made in the Euro currency and Long Gilts, and Partnership recorded a net income of $4,240,069.
For the nine months ended September 30, 2007, the Partnership had expenses comprised of $2,114,718 in brokerage commissions (including clearing and exchange fees), $873,736 in management fees, $409,843 in administrative expenses, and $0 in incentive fees. For the same period in 2006, the Partnership had expenses comprised of $1,996,265 in brokerage commissions (including clearing and exchange fees), $814,088 in management fees, $435,880 in administrative expenses and $0 in incentive fees. Incentive fees are generated by quarterly profits. Brokerage commissions and management fees vary primarily as a result of change in assets under management, which are affected by net income, and capital additions and redemptions. Administrative expenses consists primary of professional fees and other expenses relating to the Partnership’s reporting requirements under the Securities Exchange Act of 1934, as amended.
As a result of the above, the Partnership recorded net income of $5,682,077 for the nine months ended September 30, 2007, as compared to a net income of $6,049,073 for the same period in 2006.
Liquidity and Capital Resources
In general, the Advisor trades only those Commodity Interests that have sufficient liquidity to enable it to enter and close out positions without causing major price movements. Notwithstanding the foregoing, most United States commodity exchanges limit the amount by which certain commodities may move during a single day by regulations referred to as “daily price fluctuation limits” or “daily limits.” Pursuant to such regulations, no trades may be executed on any given day at prices beyond daily limits the price of a futures contract occasionally has exceeded the daily limit for several consecutive days, with little or no trading, thereby effectively preventing a party From liquidating its position. While the occurrence of such an event may reduce or eliminate the liquidity of a particular market, it will not eliminate losses and may, in fact, substantially increase losses because of the inability to liquidate unfavorable positions. In addition, if there is little or no trading in a particular futures or forward contract that the Partnership is trading, whether such liquidity is caused by any the above reasons or otherwise, the Partnership may be unable to liquidate its position prior to its expiration date, thereby requiring the Partnership to make or take delivery of the underlying interests of the Commodity Interests.
The Partnership’s capital resources are dependent upon three factors: (a) the income or losses generated by the Advisor; (b) the capital invested or redeemed by the limited partners; and (c) the capital invested or redeemed by the General Partner. The Partnership sells limited partnership units to investors from time to time in private placements pursuant to Regulation D of the Securities Act of 1933, as amended. As of the last day of any month, a limited partner may redeem all of its limited partnership units on 10 days' prior written notice to the General Partner.
The General Partner is required to contribute $1,000 to the Partnership. All capital contributions by the General Partner necessary to maintain such capital account balance are evidenced by units of general partnership interest, each of which has an initial value equal to the net asset value per unit at the time of such contribution. The General Partner may withdraw any excess above its required capital contribution without notice to the limited partners and may also contribute any greater amount to the Partnership.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Partnership is a commodity pool engaged in the speculative trading of commodity futures contracts (including agricultural and non-agricultural commodities, currencies and financial instruments), options on commodities or commodity futures contracts, and forward contracts. The risk of market sensitive instruments is integral to the Partnership’s primary business activities. The futures interests traded by the Partnership involve varying degrees of related market risk. Such market risk is often dependent upon changes in the level or volatility of interest rates, exchange rates, and/or market values of financial instruments and commodities. Fluctuations in related market risk based upon the aforementioned factors result in frequent changes in the fair value of the Partnership’s open positions, and, consequently, in its earnings and cash flow. The Partnership accounts for open positions on a timely basis of market-to-market accounting principles. As such, any gain or loss in the fair value of the Partnership’s open positions is directly reflected in the Partnership’s earnings, whether realized or unrealized. The Partnership’s total market risk is influenced by a wide variety of factors including the diversification effects among the Partnership’s existing open positions, the volatility present within the markets and the liquidity of the markets. At varying times, each of these factors may act to exacerbate or mute the market risk associated with the Partnership. The following were the primary trading risk exposures of the Partnership as of September 30, 2007, by market sector:
Interest Rate
Interest rate risk is a significant market exposure of the Partnership. Interest rate movements in one country as well as relative interest rate movements between countries materially impact the Partnership’s profitability. The Partnership’s primary interest rate exposure is to interest rate fluctuations in the United States and the other- G-7 countries. The General Partner anticipates that G-7 interest rates will remain the primary interest rate market exposure of the Partnership for the foreseeable future.
Currency
The Partnership’s currency exposure is to exchange rate fluctuations, primarily in the following countries: Germany, England, Japan, France, Switzerland, Australia, Canada and the United States of America. These fluctuations are influenced by interest rate changes as well as political and general economic conditions. The General Partner does not anticipate that the risk profile of the Partnership’s currency sector will change significantly in the future.
Commodity
The Partnership’s primary metals market exposure is to fluctuations in the price of gold, silver and copper. The Partnership also has commodity exposures in the price of soft commodities, which are often directly affected by severe or unexpected weather conditions. The General Partner anticipates that the Advisor will maintain an emphasis in the commodities described above. Additionally, the Partnership had exposure to the energy markets (natural gas, crude oil, heating oil and unleaded gasoline) as of September 30, 2007, and it is anticipated that positions in this sector will continue to be evaluated on an ongoing basis.
The Partnership measures its market risk, related to its holdings of Commodity Interests based on changes in interest rates, foreign currency rates, and commodity prices utilizing a sensitivity analysis. The sensitivity analysis estimates the potential change in fair values, cash flows and earnings based on a hypothetical 10% change (increase and decrease) in interest, currency and commodity prices. The Partnership used September 30, 2007 market rates and prices on its instruments to perform the sensitivity analysis. The sensitivity analysis has been prepared separately for each of the Partnership’s market risk exposures (interest rate, currency rate, and commodity price) instruments. The estimates are based on the market risk sensitive portfolios described in the preceding paragraph above. The potential loss in earnings is based on an immediate change in:
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• | The prices of the Partnership’s positions resulting from a 10% change in interest rates. | |
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• | The U.S. dollar equivalent balances of the Partnership’s currency exposures due to a 10% shift in currency exchange rates. | |
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• | The market value of the Partnership’s Commodity Interests due to a 10% change in the price of the Commodity Instruments. The Partnership has determined that the impact of a 10% change in market rates and prices on its fair values, cash flows and earnings would not be material. The Partnership has disclosed the potential loss to earnings of its commodity price, interest rate and currency exchange rate sensitivity positions as of September 30, 2007. | |
| The potential loss in earnings for each market risk exposure as of September 30, 2007 was approximately: |
| | | |
Trading portfolio:
| Commodity price risk | $ | 1,013,653 |
| Interest rate risk | $ | 117,180 |
| Currency exchange rate risk | $ | 387,352 |
Item 4. Controls and Procedures
The President of the General Partner (who serves as the principal executive officer and financial officer of the Partnership) evaluated the effectiveness of the design and operation of the Partnership’s disclosure controls and procedures, which are designed to ensure that the Partnership records, processes, summarizes and reports in a timely and effective manner the information required to be disclosed in the reports filed with or submitted to the Securities and Exchange Commission. Based upon this evaluation, the General Partner concluded that, as of September 30, 2007 the Partnership’s disclosure controls are effective and ensure that information required to be disclosed in the reports filed under the Securities Exchange Act of 1934 are accumulated and communicated to management of the General Partner (which consists of the principal of the General Partner) to allow timely decisions regarding required disclosure. There were no significant changes in the Partnership’s internal controls or in other factors that could significantly affect those controls during the third quarter of 2007.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
The General Partner is not aware of any pending legal proceedings to which the Partnership or the General Partner is a party or to which any of their assets are subject.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
There currently is no established public trading market for the Limited Partnership Units. As of September 30, 2007, 42,172.5987 Partnership Units were held by 670 Limited Partners and the General Partner. All of the Limited Partnership Units are “restricted securities” within the meaning of Rule 144 promulgated under the Securities Act of 1933, as amended (the “Securities Act”), and may not be sold unless registered under the Securities Act or sold in accordance with an exemption therefrom, such as Rule 144. The Partnership has no plans to register any of the Limited Partnership Units for resale. In addition, the Partnership Agreement contains certain restrictions on the transfer of Limited Partnership Units. Pursuant to the Partnership Agreement, the General Partner has the sole discretion to determine whether distributions (other than on redemption of Limited Partnership Units), if any, will be made to partners. The Partnership has never paid any distributions and does not anticipate paying any distributions to partners in the foreseeable future. From January 1, 2007 through September 30, 2007, a total of 4,023.24645 Partnership Units were subscribed for the aggregate subscription amount of $4,993,308. The monthly subscriptions of these Partnership Units are as follows:
| | |
Date of Subscription | Amount of
Subscriptions |
| | | |
| January 2007 | $ | 273,492 |
| February 2007 | $ | 710,687 |
| March 2007 | $ | 496,243 |
| April 2007 | $ | 107,272 |
| May 2007 | $ | 2,085,281 |
| June 2007 | $ | 32,655 |
| July 2007 | $ | 436,770 |
| August 2007 | $ | 394,253 |
| September 2007 | $ | 456,655 |
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Investors in the Partnership who subscribed through a selling agent may have been charged a sales commission at a rate negotiated between such selling agent and the investor. Such sales commission in no event exceeded 4% of the subscription amount. All of the sales of Partnership Units were exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits
31.1 | Rule 13a - 14(a)/15d-14(a) Certification |
32.1 | Section 1350 Certification |
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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.
Date: November 14, 2007 | | RFMC WILLOWBRIDGE FUND L.P. By: Ruvane Fund Management Corporation Its: General Partner |
| | |
| | By: /s/ Robert L. Lerner Robert L. Lerner President, Principal Executive Officer and Principal Financial Officer |
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