Item 1B.
Unresolved Staff Comments.
Not required.
The Fund does not own or use any physical properties in the conduct of its business. Its assets currently consist of futures and other contracts, cash and U.S. Treasury Bills.
None.
PART II
Item 5.
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
(a)
Market Information
There is no trading market for the Units, and none is likely to develop. Units may be redeemed upon five (5) business days prior notice to Superfund Capital Management at their net asset value as of the last day of the month in which the redemption request is received.
(b)
Holders
As of December 31, 2009, there were 1,450 holders of Series A Units and 2,763 holders of Series B Units.
(c)
Dividends
Superfund Capital Management has sole discretion in determining what distributions, if any, the Fund will make to its Unitholders. Superfund Capital Management has not made any distributions as of the date hereof and has no present intention to make any.
(d)
Securities Authorized for Issuance Under Equity Compensation Plans
None.
(e)
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
There have been no sales of unregistered securities of the Fund during 2008 or 2009. A description of the use of proceeds from the sale of registered securities is contained in the Fund’s current Prospectus, dated November 24, 2009, as supplemented on December 3, 2009, included within the Registration Statement on Form S-1 (File No. 333-162132), under “Use of Proceeds” and such description is incorporated herein by reference from the Prospectus.
(f)
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Pursuant to the Fund’s Limited Partnership Agreement, Unitholders may redeem their Units at the end of each calendar month at the then current month-end net asset value per Unit. The redemption of Units has no impact on the value of the Units that remain outstanding, and Units are not reissued once redeemed.
The following tables summarize the redemptions by Unitholders during the fourth calendar quarter of 2009:
Series A:
Series B:
Item 6.
Item 6.
Selected Financial Data.
Not required.
Item 7.
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Introduction
The Fund commenced the offering of its Units on October 22, 2002. The initial offering terminated on October 31, 2002, and the Fund commenced operations on November 5, 2002. The continuing offering period commenced at the termination of the initial offering period and is ongoing. For the year ended December 31, 2009, subscriptions totaling $22,712,095 in Series A and $42,437,152 in Series B had been accepted and redemptions over the same period totaled $11,964,755 in Series A and $16,203,214 in Series B.
Liquidity
Most United States commodity exchanges limit fluctuations in futures contracts prices during a single day by regulations referred to as “daily price fluctuation limits” or “daily limits.” During a single trading day, no trades may be executed at prices beyond the daily limit. This may affect the Fund’s ability to initiate new positions or close existing ones or may prevent it from having orders executed. Futures prices have occasionally moved the daily limit for several consecutive days with little or no trading. Similar occurrences could
prevent the Fund from promptly liquidating unfavorable positions and subject the Fund to substantial losses, which could exceed the margin initially committed to such trades. In addition, even if futures prices have not moved the daily limit, the Fund may not be able to execute futures trades at favorable prices if little trading in such contracts is taking place.
Trading in forward contracts introduces a possible further impact on liquidity. Because such contracts are executed “off exchange” between private parties, the time required to offset or “unwind” these positions may be greater than that for regulated instruments. This potential delay could be exacerbated to the extent a counterparty is not a United States person.
Other than these limitations on liquidity, which are inherent in the Fund’s futures and forward trading operations, the Fund’s assets are expected to be highly liquid.
Capital Resources
The Fund will raise additional capital only through the sale of Units offered pursuant to the continuing offering and does not intend to raise any capital through borrowings. Due to the nature of the Fund’s business, it will make no capital expenditures and will have no capital assets which are not operating capital or assets.
Results of Operations
Series A:
Net results for the year ended December 31, 2009 were a loss of 29.9% in net asset value compared to the preceding year. In this period, Series A experienced a net decrease in net assets from operations of $12,407,179. This net decrease consisted of interest income of $36,541, trading losses of $9,359,825, and total expenses of $3,083,895. Expenses included $642,447 in management fees, $347,268 in ongoing offering expenses, $52,090 in operating expenses, $1,389,074 in selling commissions, $637,825 in brokerage commissions, and $15,191 in other expenses. At December 31, 2009, and December 31, 2008, the net asset value per Unit of Series A was $1,354.49 and $1,932.30, respectively.
Series B:
Net results for the year ended December 31, 2009 were a loss of 44.1% in net asset value compared to the preceding year. In this period, Series B experienced a net decrease in net assets from operations of $35,027,641. This net decrease consisted of interest income of $64,467, trading losses of $28,880,122, and total expenses of $6,211,986. Expenses included $1,097,606 in management fees, $593,300 in ongoing offering expenses, $88,995 in operating expenses, $2,373,202 in selling commissions, $301,233 in incentive fees, $1,736,922 in brokerage commissions, and $20,728 in other expenses. At December 31, 2009, and December 31, 2008, the net asset value per Unit of Series B was $1,454.64 and $2,600.96, respectively.
Fund results for 4th Quarter 2009:
In December, equities ended the year on a rally that began in March. Economic data improved as stimulus measures took hold in the second half of the year. A mixture of long and short positions in the stock indices sector produced an overall gain for the Fund for the month. U.S. bonds sold off at the end of the year as the economic recovery gained momentum on improving unemployment, retail sales, and housing figures. European bonds also rallied from their June lows as the global recovery spread. A mixture of long and short positions in the bond sector led to a loss for the Fund for the month. Front-month Eurodollar futures retreated from record highs as better than expected employment data and rising inflation readings in the U.S. increased speculation that monetary policy may tighten sooner than anticipated. The Fund’s long positions in the interest rate sector led to an overall loss for the month. Front month U.S. dollar index futures finished 2009 with a 3.9% rally in December, while the euro lost 4.4%. The Fund’s short positions in the U.S. dollar resulted in a relatively large loss for the month. Front-month gold futures posted a 7.2% loss in December. The Fund’s long position in the metals sector resulted in an overall loss for the month. Front-month natural gas futures finished up more than 12.0% in December to finish the year near unchanged. A mixture of long and short positions in the energy markets produced a loss for the Fund for the month.
In November, world bond markets rallied as a significant downward revision in U.S. gross domestic product (“GDP”) and the reemergence of global deflation supported buying. European bonds traded higher after Euro-zone producer prices declined on an annual basis for the ninth straight month as consumer prices fell for a fifth consecutive month. The Fund’s long positions in the bond sector produced an overall gain. Global short-term interest rate futures experienced a substantial rally in November after central banks signaled that historically low rates would extend well into the future. The Fund’s long positions in the interest rate sector led to an overall gain for the month. The U.S. dollar index posted another new low for the year in November, losing 1.9% as investors and central bankers alike continued to seek diversity from the U.S. dollar. Commodity-intensive currencies maintained their strong trends with the Australian and Canadian dollar and the Chilean peso moving 1.8%, 2.2% and 6.3% higher, respectively. The Fund’s short positions in the U.S. dollar led to an overall gain for the currencies sector for the month. January crude oil futures spent most of the first half of the month trading near or above the $80 level, finding support from a weak U.S. dollar. January natural gas moved lower most of the month, finishing with
a loss of 10.1%. The Fund’s short positions in the energy sector led to an overall gain for the month. Gold opened the month sharply higher on news that the International Monetary Fund sold the equivalent of 8.0% of world annual mine production to the government of India in October. As a result, February gold rallied, finishing 13.5% higher. January silver and platinum joined the rally finishing 14.1% and 9.8% higher, respectively. A mixture of long and short positions in the metals sector led the Fund to an overall gain for the month.
In October, world equities continued to move higher early in the month before running out of steam late. Japan’s Nikkei 225 continued to lag, finishing the month down 0.9%, as an improving unemployment picture was unable to offset tepid growth. European equities markets, including those in Germany, France and the United Kingdom, sold off, finishing down 5.2%, 4.8% and 2.1%, respectively. A mixture of long and short positions in the stock indices sector produced an overall loss for the Fund for the month. World bond markets retracted from recent highs, finishing October significantly lower as early data conveyed a sense of sustainability to the overall recovery. A mixture of long and short positions in the bond sector led to an overall loss for the Fund for the month. U.S. dollar index futures established 14-month lows in October as investors throughout the world called into question the reserve status of the U.S. currency. The British pound recovered most of September’s month’s losses, finishing 2.7% higher, amid talk that the Bank of England might pause quantitative easing if economic growth continued to improve. The Brazilian real added another 0.3%. The Fund’s long positions in the U.S. dollar produced an overall loss in the currencies sector. December corn and November soybean futures finished 6.4% and 5.5% higher, respectively, finding support as unseasonably cool and wet weather in the U.S. complicated late development and harvest of the crop. A mixture of long and short positions in the grains sector produced an overall loss for the Fund for the month. December gold futures rose sharply in early October, posting all-time highs above $1,070 per ounce as concerns mounted over the stability of the U.S. dollar as the world’s reserve currency. The Fund’s gold position produced an overall gain for the month. Silver and copper finished the month 7.0% and 4.8% higher, respectively. A mixture of long and short positions led the metals sector to an overall loss for the Fund on the month. Sugar futures fell 10.1% as signs emerged that physical buyers were slowing purchases following the establishment of 28-year highs in September. December hogs rose sharply, finishing 15.0% higher, amid an improved export outlook after restrictions were lifted for U.S. pork exports to Russia and China. December cotton futures added 7.8%, posting new one-year highs as crop conditions worsened in the U.S. cotton harvest stood at only 19.0% complete as the Mississippi Delta region (99% of production) continued to be pounded by rain. December NY cocoa finished 5.1% higher on the month. A mixture of long and short positions in the agricultural sector led to an overall loss for the Fund on the month.
For the fourth quarter of 2009, the most profitable market group overall was the metals sector, while the greatest losses were attributable to positions in the energy sector.
Fund results for 3rd Quarter 2009:
In September, world bond markets finished on the upside after better than expected economic data was discounted as several global central banks weighed the withdrawal of economic stimulus packages. These conditions led the Fund’s long positions in the bond sector to an overall gain. Global short-term interest rate futures continued their strong upward trend as inflation fears weakened and sustainability of the economic recovery came into question. Three month eurodollar futures extended their upside move after the Federal Open Market Committee kept rates at record lows in an effort to combat a 26-year high in unemployment. The Fund’s long positions produced gains in the interest rates sector. The U.S. dollar established new lows for the year in September, falling 2.0% as investors around the world aggressively borrowed the low yielding currency to finance purchases of assets in countries offering higher yields. Emerging South American currencies continued to shine due to their relatively high yields. The Colombian peso and Brazilian real finished 6.8% and 6.0% higher, respectively. The Fund’s short positions in the U.S. dollar led to gains in the currencies sector. November crude oil contracts finished near unchanged as existing homes sales and consumer confidence came in well below expectations. Crude inventories continued to expand as demand remained weak. The Fund’s short energy positions produced losses on the month. December gold futures finished 5.9% higher, closing above the significant $1,000 mark. December silver futures also attracted investment demand, finishing 11.6% higher on the month. The Fund’s long metals positions produced an overall gain.
In August, world bond markets moved steadily higher as perceptions surrounding economic data shifted. U.S. Treasury bonds attracted steady buying in the latter half of the month as retail sales missed forecasts and producer prices fell more than expected. These developments led the Fund’s long positions in the interest rate sector to an overall gain. The U.S. dollar remained near its lows for the year as risk appetite remained elevated, while the British pound and Canadian dollar finished down 2.5% and 1.1%, respectively. The Fund’s short positions in U.S. dollar led to an overall gain. Crude oil finished down 1.7%, while natural gas lost 23.3%. The Fund’s short positions in the energy sector lead to an overall gain. October gold continued to trade sideways between $900-$1,000, while London copper, nickel and lead finished 12.6%, 6.7% and 12.2% higher, respectively. The Fund’s short positions in the metals sector led to an overall loss. Hog futures continued their steady drive lower, finishing down 10.5%. Sugar and coffee finished 30.1% and 7.6% higher, respectively. The Fund’s mix of long and short positions in the agriculture sector resulted in an overall gain.
In July, global stock markets continued to advance as many markets rose to new multi-month highs. China’s Shenzen 300 finished 15.0% higher, while Germany’s DAX, London’s FTSE and France’s CAC40 established new highs, rising between 8.0% and 11.0%. Short positions in the stock indices sector produced relatively large losses for the month. The Canadian dollar surged, finishing 7.0% higher, and the Norwegian krona, Brazilian real and Australian dollar finished 5%, 4.4% and 3.6% higher, respectively. These conditions led the Fund’s long positions in the U.S. dollar to an overall loss. Gold gained slightly in July as investors continued to search for
conviction on short-term price action. U.S. dollar weakness combined with an inflationary Producer Price Index report caused December gold futures to experience a 2.8% gain. Industrial metals continued to trend higher with London copper leading the way, finishing 15.2% higher. The Fund’s short positions in metals led to an overall loss.
For the third quarter of 2009, the most profitable market sector for the Fund on an overall basis was the interest rates sector, while the greatest losses resulted from the Fund’s positions in the stock indices sector.
Fund results for 2nd Quarter 2009:
In June, U.S. stock indices finished near unchanged, while most Asian stock indices finished higher; Hong Kong’s Chinese Enterprise Index rose 6.1%. The Fund’s short positions in the stock indices sector experienced a loss. World bond markets reversed early month lows by month- end, finishing higher as improving bond yields and a stagnating equity rally attracted buyers. The Fund’s long positions in the bonds sector led to a gain. U.S. and European short-term interest rate futures finished slightly higher in June, recovering from a substantial early month selloff. The Fund’s long positions during the earlier part of the month resulted in losses. The Australian dollar finished the month 1.2% higher, while the British pound finished 2.0% higher. The Fund’s long positions in the U.S. dollar led to a loss. December wheat contracts plunged, losing 17.5% as the global recession continued to destroy demand. The Fund’s short positions in the grains sector produced gains. London copper added 3.7%, while lead also rose 8.9% as Chinese auto sales soared. London nickel finished up 10.0% as Chinese imports for the first 4 months of 2009 exceeded 2008 levels by 16.0%. The Fund’s short positions in the metals sector resulted in losses. U.S. August crude oil futures added 4.1% despite rising inventories as Chinese buying supported values. The Fund’s short positions in the energy sector produced losses. Other market sectors, relative to the sectors mentioned above, did not reveal significant trends and did not have a substantial influence on this month’s overall negative performance.
In May, world bond markets traded dramatically lower as burgeoning budget deficits led to heavy bond issuance, foreshadowing long-term inflation. U.S. 30-year bond futures, German Bund futures, and Japanese 10-year bond futures traded to their lowest levels since November 2008. The Fund’s long positions in the bonds sector resulted in losses. Emerging market strength contributed to a steep selloff in U.S. treasuries, resulting in a 6.2% loss for the U.S. dollar index. The Brazilian real and the Australian dollar were up 10.0% and 13.2%, respectively, against the U.S. dollar. The Fund’s long positions in the U.S. dollar produced losses. Despite crude demand falling more than 7.5% from last year, inventories declined, leading to a 24.8% gain for July crude futures. The Fund’s short positions in this sector incurred relatively large losses. Other market sectors did not reveal significant trends and did not have a significant influence on this month’s overall negative performance.
In April, the S&P 500 Index rose 9.4% led by bank stocks as (i) FAS 157-4 provided guidance for determining the fair value of assets and liabilities, including guidance on identifying circumstances that indicate an observed transaction used to determine fair value is not orderly and, therefore, is not indicative of fair value and (ii) strong earnings from favorable spreads created by cheap central bank liquidity supported values. The Fund’s short stock indices positions led to a relatively large loss. World bond markets tracked steadily lower in April as money flowed out of low yielding treasuries and into equities. The Fund’s long positions in the bonds sector produced an overall loss. The U.S. dollar index finished down 1.2% while the euro moved sideways as capital moved out of the U.S. and European Union amid unattractive treasury yields. The Hungarian forint, Polish zloty and Czech koruna gained 6.0%, 4.6% and 2.1%, respectively against the U.S. dollar, while the Australian dollar, Canadian dollar and Brazilian real finished up 5.0%, 5.5% and 5.7%, respectively against the U.S. dollar. The Fund’s long positions in the U.S. dollar lead to an overall loss for the currency sector. Positive economic signals from the G20 meeting and the resulting rise in world equity markets were offset by rising inventories as global energy demand continued to contract. June natural gas prices continued lower, posting a 13.8% loss as storage increased to nearly 34.0% greater than a year ago and 23.0% greater than the five-year moving average. The Fund’s short positions in the energy sector produced a relatively large gain. Other market sectors did not reveal significant trends and did not have a substantial influence on April’s overall negative performance.
For the second quarter of 2009, the most profitable market sector for the Fund on an overall basis was the grains sector, while the greatest losses resulted from the Fund’s positions in the energy sector.
Fund results for 1st Quarter 2009:
In March, global stock indices finished the month with significant gains. On the basis of strong economic indicators, U.S. indices experienced gains of 7.0% to 10.0%, while Korea’s Kospi and the China-based H-Shares experienced gains of 14.2% and 13.7%, respectively. The Fund’s short stock indices positions resulted in losses for the month. Global short-term interest rate futures trended higher during March as the continuous actions of world central banks attempting to combat the recession and reverse deflation provided steady support. The Fund’s long interest rates positions produced gains. The Australian dollar gained 8.2% against the U.S. dollar, while the Brazilian real and New Zealand dollar gained 2.6% and 11.7%, respectively against the U.S. dollar, based on strong relative economic performance bolstered by commodity market strength. The euro added 4.6% against the U.S. dollar and 6.0% against the Japanese yen, while the Norwegian krone rose 4.4% against the U.S. dollar. A relatively large loss resulted from the Fund’s short positions in these foreign currency markets. In March, Australian wheat production estimates grew by 1.4 million tons, while global 2008-09 total wheat production was projected to be a record 684.4 million tons. May corn moved 12.7% higher as rising crude oil and
fertilizer prices resulted in the United States Department of Agriculture (“USDA”) shifting production from corn to soybeans. The Fund’s short positions in grain lead to a loss in the sector. May crude oil futures added to February’s late month rebound, rising 6.1%, supported by solid U.S. housing and durable goods orders and a weaker U.S. dollar. A surprisingly dramatic recovery in Chinese demand also provided underlying support. The Fund’s short energy sector positions resulted in losses for the month. Gold ETF holdings posted yet another record high, supporting the market at levels well above $900 per ounce as investors continued to seek protection from currency debasing moves by central bankers. In London, base metals, led by copper and zinc, up 19.7% and 21.4%, respectively, moved sharply higher amid widespread evidence that China is moving to counteract damage to its export-led economic growth by stockpiling industrial metals to use for vast infrastructure projects. These developments produced losses for the Fund’s short positions in the metals sector.
In February, equities continued their collapse as dark economic clouds hung over global markets. In Asia, major indices lost between 3.0% and 9.0%. The Nikkei Index fell nearly 4.7% amid a startling 84.0% drop in January machine orders (year over year). The Fund’s short positions in stock indices produced gains on the month. Front month U.S. 30 year bond futures finished slightly lower as the unexpected inflation readings and massive debt supply offset the short term inflation outlook. European bonds returned to recent highs as reports showed economic contraction of 1.5% in the 4th quarter, the most in 13 years. Japanese bonds also returned to recent highs as gross domestic product (“GDP”) shrank at a 12.7% annualized rate in the fourth quarter. The Fund’s long positions in the bonds sector produced gains for the month. May soybean futures showed strength early in the month on concern that dry conditions in Argentina would result in significant production losses. Nonetheless, soybeans finished over 10.7% lower as the combination of timely rains and persistent U.S. dollar strength weighed on values. May corn futures finished 8% lower despite the dry weather in Argentina leading the USDA to lower world production estimates by 4.6 million tons. The Fund’s short positions in the grains sector resulted in gains for the month. U.S. crude inventories rose to 351.3 million barrels versus 299.8 million barrels in February 2009 despite several rounds of production cuts by the Organization of the Petroleum Exporting Countries (“OPEC”). Despite the negative news, April crude managed a late rally of over 20.0% to finish with a loss of 3.3% on the back of a bullish gasoline inventory report. April gasoline futures rallied over 20.0% from its lows to finish 1.3% higher as capacity utilization in the refining sector shrank to 81.4%. April natural gas finished 6.2% lower as supplies stood more than 12.0% above the five-year average. The Fund’s short positions in the energy sector resulted in overall gains for the month.
In January, negative news sent equities lower around the world. Asian indices finished lower as the Nikkei declined 10.0% due to distressed vehicle sales and industrial production, while Hong Kong’s Hang Seng index fell 8.2% on poor export data. In Europe, falling industrial production and bank sector trouble pressured markets, leading to a 10.2% decline for Germany’s DAX. The Fund’s short positions in the stock indices sector produced gains for the month. World bond markets gave back most of December’s gains as stimulus and bailout package announcements by world governments made bond investors nervous. In Europe, producer prices fell the most in 27 years and consumer inflation reached the lowest in more than 2 years. This data propelled front-month Bund futures to a record high by mid-month, however the market finished near unchanged as the European Central Bank rejected talk of easing to a 0% target rate. The Fund’s long positions in the bonds sector resulted in losses for the month. Crude oil settled near its December low of around $40 per barrel as the market shrugged off a litany of bullish factors, choosing instead to focus on deteriorating demand, growing inventories, and the strong U.S dollar. March natural gas futures continued trending lower, falling 21.8% as inventories remained plentiful despite below average temperatures throughout the U.S. The Fund’s short positions in the energy sector produced overall gains for the month.
For the first quarter of 2009, the most profitable market sector was interest rates, while the largest losses resulted from positions in the currency sector.
Series A:
Net results for the year ended December 31, 2008 were a gain of 30.00% in net asset value compared to the preceding year. In this period, Series A experienced a net increase in net assets from operations of $13,083,514. This net increase consisted of interest income of $917,244, trading gains of $17,665,180, and total expenses of $5,498,910. Expenses included $813,892 in management fees, $439,942 in ongoing offering expenses, $65,991 in operating expenses, $1,759,767 in selling commissions, $1,786,681 in incentive fees, $615,631 in brokerage commissions, and $17,006 in other expenses. At December 31, 2008, and December 31, 2007, the net asset value per Unit of Series A was $1,932.30 and $1,486.44, respectively.
Series B:
Net results for the year ended December 31, 2008 were a gain of 46.56% in net asset value compared to the preceding year. In this period, Series B experienced a net gain in net assets from operations of $17,346,271. This net increase consisted of interest income of $792,092, trading gains of $24,927,058, and total expenses of $8,372,879. Expenses included $936,891 in management fees, $506,427 in ongoing offering expenses, $75,964 in operating expenses, $2,025,709 in selling commissions, $3,831,165 in incentive fees, $971,657 in brokerage commissions, and $25,066 in other expenses. At December 31, 2008, and December 31, 2007, the net asset value per Unit of Series B was $2,600.96 and $1,774.69, respectively.
Fund results for 4th Quarter 2008:
In December, the world bond market rally continued as U.S. 30-year bond futures and the German Bund traded to record highs. U.S. bonds finished the year exceptionally strong as unemployment reached 6.7%, the highest rate since 1993. European bond futures climbed to record highs as euro zone GDP dropped to 0.6% (year-on-year). Japanese 10-year bond futures finished the year higher as the Tankan Survey showed business sentiment at a 10-year low, forcing the Bank of Japan to lower interest rates to 0.1% as yen appreciation decimated exports. The Fund’s long bond positions produced gains in December. World energy markets endured extreme volatility in 2008. After crude oil futures peaked in July with an intra-day high of $147.27 per barrel, energy markets moved sharply lower for the balance of the year as the credit crisis and high prices quashed demand and sent the world into recession. Crude oil finished down 54.2% on the year as growing inventories and wholesale commodity deleveraging sent buyers to the exits. Heating oil, gasoline, and natural gas followed a similar path. Heating oil peaked with a gain of over 57%, only to finish down 46.3%. Gasoline and natural gas futures also finished the year with losses of 59.5% and 25%, respectively. Short positions in the energy sector produced gains in December.
In November, the credit crunch continued to stifle the world banking system and choke off corporate funding, leading to additional layoffs. In Asia, the Taiwan Index lost nearly 9.5% as exports and industrial production collapsed. Australia’s SPI Index fell 7.5% as commodity prices remained depressed. Germany’s DAX led European equities lower, declining 7.8%, as GDP and industrial production sank. The Fund’s short positions in stock indices futures produced gains. World bond markets rose sharply as fears of a protracted global economic recession led to a parallel concern that deflation was establishing itself. The rally continued as U.S. retail sales sustained the largest drop since records began in 1992, declining 2.8%. Front month U.S. 30-year bond futures responded by trading to near a 10 year high as the CPI decreased the greatest amount on record, conveying a steep drop off in inflation. European bonds continued their upward trend with December bond futures reaching a 33 month high. The Fund’s long bond positions resulted in significant gains. Global short-term interest rate futures continued their strong upward trend in November as the economic crisis intensified. Three month Eurodollar futures rallied to over 4-year highs after Treasury Secretary Paulson announced the U.S. would abandon buying soured assets from banks in favor of easing consumer credit. In Europe, three month Euribor futures continued higher as the European Community Bank cut rates by 50 basis points, while stating the possibility of further rate reductions in the near future. Front month three month Euroswiss futures traded to over 3-year highs as the Swiss National Bank stunned the market with a 100 bps rate cut, their third cut in 6 weeks. The Fund’s long currency positions produced gains in November.
In October, global equity markets crashed as panic spread amid the realization that the credit crisis would continue to constrain economic growth for the foreseeable future. Equity markets around the world fell between 20% and 35% as volatility surged to all-time highs. Central banks in Asia, Europe, South America, and the United States responded with interest rate cuts and massive liquidity injections. The Fund’s short positions in stock indices futures resulted in relatively large gains. Global short term interest rate futures experienced a momentous rally in October as recession fears deepened and short term interbank financing froze. The U.S. Federal Reserve cut rates 100 basis points during the month. Central banks throughout Europe and Asia followed suit with aggressive cuts of their own. Front month Euribor and Sterling futures traded to 22 month and 3 year highs, respectively. By month-end, the aggressive efforts of central bankers appeared to pay off as LIBOR-OIS narrowed 15 consecutive days to finish at 242 basis points over. The Fund’s long interest rate positions produced gains. Currencies plummeted worldwide in October amid fears of a global depression. The attractiveness of the U.S. dollar as a safe haven during periods of uncertainty helped push the U.S. dollar index to a 2 year high, rising 8.7%. The British pound fell to a 6 year low of below $1.53 when the United Kingdom’s gross domestic product dropped 0.5% in the 3rd quarter, the first contraction since 1992. Australian and Canadian dollar futures plummeted, declining 15.5% and 11.6%, respectively, along with the Brazil real, which declined 13.3%, as commodity driven economies were expected to suffer from declining demand. The Fund gained from its long positions in the U.S. dollar.
For the fourth quarter of 2008, the most profitable market group overall was the stock indices sector, while the greatest losses were attributable to positions in the grains sector.
Fund results for 3rd Quarter 2008:
In September, worldwide stock indices finished the month with significant losses. Major European indices finished 6-19% lower, while the Dow Jones and Nasdaq finished 6.3% and 15.6% lower, respectively. The Fund’s short positions in stock indices produced gains for the month. Energy markets continued to drop from record highs three months prior, finishing the month with steep losses. Despite a short lived rally, crude oil prices finished 13.2% lower on the month, while natural gas and gasoline futures lost 11% and 12.6%, respectively. The Fund’s long energy positions resulted in losses for the month.
In August, U.S. dollar index futures surged 5.5% as the EUR/USD declined 8.5%. Recessionary fears in the United Kingdom led to the GBP/USD’s largest decline in two years, while the Australian dollar declined 8.4%. The Fund’s short positions in the U.S. dollar resulted in a relatively large loss for the month. U.S. dollar gains combined with contracting global demand and record OPEC production contributed to a 7.1% decline in crude oil. Natural gas also declined, finishing 13.8% lower. The Fund’s long positions in the energy sector resulted in losses for the month. Gold dropped to its lowest levels since December, finishing the month 9.4% lower. Silver and platinum also experienced declines, falling 23.7% and 14.8%, respectively. Nickel had a surprise gain of 10.2% as key producers announced plans to cut output. The Fund’s long positions in the metals sector resulted in a relatively large loss. World bond markets
traded higher as global economic growth concerns widened. U.S. 30-year bond futures traded to a four month high, while European bond futures rallied as euro zone annual inflation eased to 3.8% and German GDP contracted by 0.8%. The Fund’s long positions in the bonds sector resulted in an overall gain.
In July, write-offs continued to plague financials as equities endured heavy selling. The U.S. government responded by enacting emergency measures to stabilize the financial system. In the United Kingdom, the FTSE Index finished with a 4.5% loss. The Fund’s short position in stock indices resulted in an overall gain. Agricultural futures gave back nearly all of June’s gains as soybean futures fell 10.8%, corn plummeted 19.7%, and wheat futures fell 8.2% on the month. The Fund’s long positions in the agricultural market resulted in a substantial loss. Energy prices fell sharply in July due to a reduction in geopolitical hostilities and further evidence of overall reductions in global demand. Both crude oil and gas futures experienced greater than 10% declines. Natural gas plummeted over 30% due to inventory gains. The Fund’s long positions in the energy sector resulted in significant losses. Gold ultimately finished 1.5% lower after an initial rally in the first half of July. Platinum also fell over 15%, a result of significant declines in U.S. auto sales. The Fund’s long positions in the metals sector produced an overall loss.
For the third quarter of 2008, the most profitable market group overall was stock indices while the largest losses resulted from positions in the energy sector.
Fund results for 2nd Quarter 2008:
In June, equity markets declined around the globe due to slowing growth and rising unemployment and commodity prices. Short positions in equity markets produced significant gains. Severe flooding in the U.S. caused significant delays in the grain planting process, sending prices soaring. Long positions in the agricultural sector resulted in an overall gain. World energy markets remained elevated as geopolitical concerns kept oil supply uncertainty high. Crude oil finished with a 9.8% gain. Long positions in the energy sector resulted in overall gains. Other market sectors, relative to the sectors mentioned above, did not reveal significant trends and did not have any major influence on June’s positive performance.
In May, some foreign currencies approached all time highs. Long positions in foreign currencies resulted in an overall gain for this sector. World energy markets continued their historic advances in May as crude oil finished 12.9% higher. Heating oil, gasoline, and natural gas all rose sharply as declining margins continued to result in insufficient distillate fuel production. Long positions in this sector resulted in a substantial gain. Other market sectors, relative to the sectors mentioned above, did not reveal significant trends and did not have any major influence on May’s overall positive performance.
In April, world bond markets moved lower as growing inflation readings added to late March’s weakness. U.S. bonds rallied early in the month before values moved lower as consumer prices rose due to higher fuel and food costs. Long positions in this market sector resulted in a loss. World energy markets traded higher in April as oil futures moved 12.3%, reaching all time highs. The ongoing weakness of the U.S. dollar provided early support, while strong demand from developing nations, bullish domestic inventory reports, and continued geopolitical concerns provided support throughout the month. Long positions led to an overall gain in the energy sector. Other market sectors, relative to the bond and energy sector, did not reveal significant trends and did not have a major influence on April’s slightly negative performance.
For the second quarter of 2008, the most profitable market sector for the Fund on an overall basis was the energy sector, while the greatest losses resulted from the Fund’s positions in the bonds sector.
Fund results for 1st Quarter 2008:
In March, long positions in world bond markets resulted in a gain. Long positions in the currencies markets resulted in a relatively large gain. The U.S. dollar’s historic decline accelerated against most world currencies in March. Long positions in the currencies markets resulted in a relatively large gain. Long positions in the agricultural markets led to an overall loss for the agricultural sector. Crude oil rose to record highs with long positions producing gains in the energy sector. Although gold touched record highs well above $1000 per ounce, the precious metals markets reversed. Long positions in the metals sector resulted in a relatively large loss. Other market sectors, relative to the sectors mentioned above, did not reveal significant trends and did not have a significant influence on March’s overall positive performance.
In February, wheat and corn futures posted record highs, with soybean futures also surging. Long positions in this sector produced considerable gains. Crude oil futures moved to record highs over $100 in February, extending a long-standing bull run. A relatively large gain resulted from energy sector long positions. Gold and platinum futures rose to record highs in February and silver reached a 28-year high resulting in significant gains from long positions in the metals sector. A mix of long and short positions produced overall gains in agricultural markets. Other market sectors did not reveal significant trends and did not have a major influence on February’s positive overall performance.
Crude oil futures opened January near all-time highs, but the market moved lower as the month progressed. Long positions in the energy markets resulted in relatively large losses for the sector. Gold and platinum futures traded at all-time highs, silver traded at its highest level since January 1981, and copper rose, resulting in gains in the metals sector. Other market sectors, relative to the energy and metals sectors, did not reveal significant trends and did not have a major influence on January’s overall negative performance.
Off-Balance Sheet Risk
The term “off-balance sheet risk” refers to an unrecorded potential liability that, even though it does not appear on the balance sheet, may result in a future obligation or loss. The Fund trades in futures and forward contracts and is therefore a party to financial instruments with elements of off-balance sheet market and credit risk. In entering into these contracts, there exists a market risk that such contracts may be significantly influenced by conditions, such as interest rate volatility, resulting in such contracts being less valuable. If the markets should move against all of the futures interests positions of the Fund at the same time, and if Superfund Capital Management was unable to offset such positions, the Fund could experience substantial losses. Superfund Capital Management attempts to minimize market risk through real-time monitoring of open positions, diversification of the portfolio and maintenance of a margin-to-equity ratio in all but extreme instances not greater than 50%.
In addition to market risk, in entering into futures and forward contracts, there is a credit risk that a counterparty will not be able to meet its obligations to the Fund. The counterparty for futures contracts traded in the United States and on most foreign exchanges is the clearinghouse associated with such exchange. In general, clearinghouses are backed by the corporate members of the clearinghouse who are required to share any financial burden resulting from the non-performance by one of their members and, as such, should significantly reduce this credit risk. In cases where the clearinghouse is not backed by the clearing members, like some foreign exchanges, it is normally backed by a consortium of banks or other financial institutions.
Off-Balance Sheet Arrangements
The Fund does not engage in off-balance sheet arrangements with other entities.
Contractual Obligations
The Fund does not enter into contractual obligations or commercial commitments to make future payments of a type that would be typical for an operating company. The Fund’s sole business is trading futures, currency, forward and certain swap contracts, both long (contracts to buy) and short (contracts 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 Fund for less than four months before being offset or rolled over into new contracts with similar maturities. The Financial Statements of Series A and Series B, each present a Condensed Schedule of Investments setting forth net unrealized appreciation (depreciation) of such Series’ open forward contracts as well as the fair value of the futures contracts purchased and sold by each Series at December 31, 2009, and December 31, 2008.
Critical Accounting Policies - Valuation of the Fund’s Positions
Superfund Capital Management believes that the accounting policies that will be most critical to the Fund’s financial condition and results of operations relate to the valuation of the Fund’s positions. The majority of the Fund’s positions will be exchange-traded futures contracts, which will be valued daily at settlement prices published by the exchanges. Any spot and forward foreign currency contracts held by the Fund will also be valued at published daily settlement prices or at dealers’ quotes. Thus, Superfund Capital Management expects that under normal circumstances substantially all of the Fund’s assets will be valued on a daily basis using objective measures.
Recently Issued Accounting Pronouncements
ASC 105.10.05
In June 2009, the Financial Accounting Standards Board (“FASB”) issued FASB Accounting Standards Codification (“ASC”) 105.10.05, Generally Accepted Accounting Principles (“ASC 105.10.05”). ASC 105.10.05 establishes FASB ASC as the single source of authoritative generally accepted accounting principles (“GAAP”). Pursuant to the provisions of ASC 105.10.05, the Fund has updated references to GAAP in its financial statements issued subsequent to September 15, 2009. The adoption of ASC 105.10.05 did not have any impact on the Fund’s results of operations, financial condition or cash flows.
ASU 2010-06
In January 2010, FASB issued Accounting Standards Update No. 2010-06 (“ASU 2010-06”), Improving Disclosures about Fair Value Measurements, which, among other things, amends ASC 820 to require entities to separately present purchases, sales, issuances, and settlements in their reconciliation of Level 3 fair value measurements (i.e. to present such items as gross basis rather than on a net basis), and which clarifies existing disclosure requirements provided by ASC 820 regarding the level of disaggregation and the inputs and valuation techniques used to measure fair value for measurements that fall within either Level 2 or Level 3 of the fair value hierarchy. ASU 2010-06 is effective for interim and annual periods beginning after December 15, 2009, except for the disclosures about
purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements (which are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years). Superfund Capital Management is currently evaluating the impact of ASU 2010-06 on the Fund’s financial statements.
Item 7A.
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk.
Not required.
Item 8.
Item 8.
Financial Statements and Supplementary Data.
Financial statements appear beginning on page 19 of this report. Supplementary data is not required.
Item 9.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A.
Item 9A.
Controls and Procedures.
Controls and Procedures
Superfund Capital Management, the Fund’s general partner, with the participation of Superfund Capital Management’s principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of its disclosure controls and procedures with respect to the Fund as of the end of the period covered by this annual report, and, based on their evaluation, have concluded that these disclosure controls and procedures are effective. There were no significant changes in Superfund Capital Management’s internal controls with respect to the Fund or in other factors applicable to the Fund that could materially affect these controls subsequent to the date of their evaluation.
Changes in Internal Control over Financial Reporting
Section 404 of the Sarbanes-Oxley Act of 2002 requires Superfund Capital Management to evaluate annually the effectiveness of its internal controls over financial reporting as of the end of each fiscal year, and to include a management report assessing the effectiveness of its internal control over financial reporting in all annual reports. There were no changes in Superfund Capital Management’s internal control over financial reporting during the quarter ended December 31, 2009 that have materially affected, or are reasonably likely to materially affect, Superfund Capital Management’s internal control over financial reporting.
Management’s Annual Report on Internal Control over Financial Reporting
Superfund Capital Management is responsible for establishing and maintaining adequate internal control over the Fund’s financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act as a process designed by, or under the supervision of, a company’s principal executive and principal financial officers and effected by a company’s board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Superfund Capital Management’s internal control over financial reporting includes those policies and procedures that:
• pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Fund’s assets;
• provide reasonable assurance that transactions are recorded as necessary to permit preparation of the Fund’s financial statements in accordance with generally accepted accounting principles, and that the Fund’s receipts and expenditures are being made only in accordance with authorizations of Superfund Capital Management’s management and directors; and
• provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Fund’s assets that could have a material effect on the Fund’s financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The management of Superfund Capital Management assessed the effectiveness of its internal control over financial reporting with respect to the Fund as of December 31, 2009. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework. Based on its assessment, management has concluded that, as of December 31, 2009, Superfund Capital Management’s internal control over financial reporting with respect to the Fund is effective based on those criteria.
This annual report does not include an attestation report of the Fund’s registered public accounting firm regarding control over financial reporting. Management’s report was not subject to attestation by the Fund’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management’s report in this annual report.
Item 9B.
Item 9B. Other Information.
There was no information required to be disclosed in a report on Form 8-K during the fourth quarter of 2009 that was not reported on Form 8-K.
PART III
Item 10.
Item 10.
Directors, Executive Officers and Corporate Governance of the Registrant.
Identification of Directors and Executive Officers
The Fund has no directors or executive officers. The Fund has no employees. It is managed by Superfund Capital Management in its capacity as general partner. Superfund Capital Management has been registered with the CFTC as a commodity pool operator since May 2001. Its main business address is Superfund Office Building, P.O. Box 1479, Grand Anse, St. George’s, Grenada, West Indies, (473) 439-2418. Superfund Capital Management’s directors and executive officers are as follows:
NIGEL JAMES, age 29, was appointed as President of Superfund Capital Management on July 13, 2006 and was registered as a principal and associated person with Superfund Capital Management on November 28, 2006, and May 23, 2007, respectively. Mr. James has been an employee of various members of the Superfund group of affiliated companies since July 2003 when he became a software developer for Superfund Trading Management, Inc., an affiliate of Superfund Capital Management that acts as a commodity trading advisor to non-U.S. funds. In May 2005, he was promoted to the role of Intellectual Technology Project Manager for Superfund Trading Management, Inc. Mr. James graduated from the University of the West Indies in Barbados with a Bachelor’s Degree in Computer Science and Management in May 2003 and began his employment in July 2003. Mr. James is a citizen of Grenada.
ROMAN GREGORIG, age 46, is Vice President and Principal Financial Officer of Superfund Capital Management. Mr. Gregorig has been a Director of Superfund Capital Management as well as its Audit Committee Financial Expert and Principal Accounting Officer since March 3, 2006 and was registered as principal of Superfund Capital Management on June 26, 2007. Mr. Gregorig became a licensed tax advisor in July 1993 and subsequently worked as a partner at Treufinanz Wirtschaftstreuhand GmbH, an Austrian accounting firm, until November 2000. In December 2000, Mr. Gregorig became licensed to perform auditing services by the Austrian Chamber of Conventional Trustees. Also in December 2000, he founded Gregorig Consulting GmbH, specializing in providing accounting and tax consulting services to companies in the financial sector, which he sold in April 2005. Mr.Gregorig spent May 2005 preparing for his transition to the Superfund group of affiliated entities. Since June 2005, Mr. Gregorig has served in various oversight positions for multiple member companies of the Superfund group of affiliated companies. Mr. Gregorig graduated from the Academy of Commerce in Vienna, Austria, in March 1986. Mr. Gregorig is a citizen of Austria.
CHRISTIAN BAHA, age 41, is Superfund Capital Management’s founder and sole owner. By December 1991, Mr. Baha began working independently to develop software for the technical analysis of financial data in Austria. In January 1995, Mr. Baha founded the first members of the Superfund group of affiliated companies specializing in managed futures funds and began to develop a worldwide distribution network. With profit sharing rights certificates, Mr. Baha launched an alternative investment vehicle for private investors. Launched on March 8, 1996, this product is called the Superfund Unternehmens-Beteiligungs-Aktiengesellschaft (Superfund Q-AG), and was formerly known as Quadriga Beteiligungs & Vermögens AG (Quadriga AG). In March 2003, a new generation of managed futures funds was internationally launched under the brand name “Superfund” and previously existing products have since been re-branded under this name. Simultaneously with the development of the Quadriga/Superfund group of affiliated companies, Mr. Baha founded the software company TeleTrader AG, which has been listed on the Vienna Stock Exchange since March 2001. He was registered as a principal of Superfund USA, Inc., a registered broker-dealer and a CFTC registered commodity pool operator on August 13, 2009. He is also an associated person and principal of Superfund Asset Management, Inc., a CFTC registered introducing broker, positions which he has held since July 23, 1999 and June 24, 1997, respectively. He became registered as a principal of Superfund Capital Management on May 9, 2001, registered as a principal of Superfund Advisors Inc. on November 20, 2009, and was registered as an associated person of Superfund Capital Management from May 9, 2001, until February 17, 2009. He is a graduate of the police academy in Vienna, Austria and studied at the Business University of Vienna, Austria. Mr. Baha is a citizen of Austria.
Identification of Certain Significant Employees
None.
Family Relationships
None.
Business Experience
See “Identification of Directors and Executive Officers,” above.
Involvement in Certain Legal Proceedings
There has never been a material administrative, civil or criminal order, judgment, decree or finding against Superfund Capital Management or any of its directors, executive officers, promoters or control persons.
Promoters and Control Persons
Superfund Capital Management is the sole promoter and control person of the Fund.
Code of Ethics
The Fund has no employees, officers or directors and is managed by Superfund Capital Management. Superfund Capital Management has adopted a code of ethics that applies to its principal executive officer, principal financial officer and its principal accounting officer. A copy of the code of ethics may be obtained at no charge by written request to the corporate secretary of Superfund Capital Management, Superfund Office Building, P.O. Box 1479, Grand Anse, St. George’s, Grenada, West Indies.
Board of Director Nominees
Not applicable.
Audit Committee Financial Expert
The Board of Directors of Superfund Capital Management, in its capacity as the audit committee for the Fund, has determined that Roman Gregorig qualifies as an “audit committee financial expert” in accordance with the applicable rules and regulations for the SEC. He is not independent of management.
The Fund has no employees, officers or directors and is managed by Superfund Capital Management. None of the directors or officers of Superfund Capital Management receive compensation from the Fund. Superfund Capital Management receives a monthly management fee of one-twelfth of 1.85% of month-end net assets (1.85% per annum), ongoing offering expenses equal to one-twelfth of 1% of month-end net assets (1% per annum), not to exceed the amount of actual expenses incurred, monthly operating expenses equal to one-twelfth of 0.15% of month-end net assets (0.15% per annum), not to exceed the amount of actual expenses incurred, and a monthly fee of 25% of the aggregate cumulative appreciation (if any) in net asset value per Unit at the end of each month, exclusive of appreciation attributable to interest income. In addition, Superfund Asset Management Inc., an affiliate of Superfund Capital Management, serves as the introducing broker for the Fund’s futures transactions and receives a portion of the brokerage commissions paid by the Fund in connection with its futures trading. An annual selling commission will be paid to Superfund USA, Inc. (“Superfund USA”), an affiliate of Superfund Capital Management. The Units pay a commission of 4% of the month-end net asset value per Unit (1/12 of 4% per month); provided, however, the maximum cumulative selling commission per Unit sold pursuant to the Prospectus is 10% of the initial public offering price for such Unit. Each Series and Superfund USA may retain additional selling agents to assist with the placement of the Units. Superfund USA will pay all or a portion of the selling commission described above which it receives in respect of the Units sold by the additional selling agents to the additional selling agents effecting the sales.
Item 12.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.
Securities Authorized for Issuance Under Equity Compensation Plans
None.
Security Ownership of Certain Beneficial Owners
The Fund knows of no person who beneficially owns more than 5% of the voting Units of any Series.
Security Ownership of Management
As of December 31, 2009, no Units were owned or held by officers of Superfund Capital Management. As of December 31, 2009, Superfund Capital Management owned 386.799 Units of Series A (non-voting), representing 1.57% of the total issued Units of Series A,
and 528.22 Units of Series B (non-voting), representing 1.48% of the total issued Units of Series B, having a combined value of $1,292,285. Christian Baha is the holder of all of the equity of Superfund Capital Management.
Changes in Control
None.
Item 13.
Item 13.
Certain Relationships and Related Transactions, and Director Independence.
See “Item 10 Directors, Executive Officers and Corporate Governance of The Registrant, “Item 11, Executive Compensation” and “Item 12, Security Ownership of Certain Beneficial Owners and Management.” In 2009, the Series A management fee totaled $642,447, the Series A selling commissions totaled $1,389,074 and the Series A brokerage commissions totaled $637,825. In 2009, the Series B management fee totaled $1,097,606, the Series B selling commissions totaled $2,373,202, the Series B incentive fee totaled $301,233, and the Series B brokerage commissions totaled $1,736,922. In 2008, the Series A management fee totaled $813,892, the Series A selling commissions totaled $1,759,767, the Series A incentive fee totaled $1,786,681 and the Series A brokerage commissions totaled $615,631. In 2008, the Series B management fee totaled $936,891, the Series B selling commissions totaled $2,025,709, the Series B incentive fee totaled $3,831,165 and the Series B brokerage commissions totaled $971,657.
Item 14.
Item 14.
Principal Accounting Fees and Services.
Audit Fees
The aggregate fees billed for professional services rendered by Deloitte & Touche LLP in connection with their audit of the Fund’s financial statements, reviews of the financial statements included in the quarterly reports on Form 10-Q and other services normally provided in connection with statutory and regulatory filings or engagements for the years ended December 31, 2009, and December 31, 2008, were approximately $116,625 and $122,940, respectively.
Audit-Related Fees
There were no audit-related fees for services rendered by Deloitte & Touche LLP for the years ended December 31, 2009, and December 31, 2008.
Tax Fees
There were no fees for tax compliance, tax advice or tax planning rendered by Deloitte & Touche LLP for the years ended December 31, 2009, and December 31, 2008.
All Other Fees
There were no other fees for products or services provided by Deloitte & Touche LLP for the years ended December 31, 2009, and December 31, 2008.
Pre-Approval Policies
The Board of Directors and Audit Committee of Superfund Capital Management approved all of the services described above. The Board of Directors and Audit Committee have determined that the payments made to its independent accountants for these services are compatible with maintaining such auditors’ independence. The Board of Directors pre-approves all audit and non-audit services and all engagement fees and terms.
PART IV
Item 15.
Item 15.
Exhibits, Financial Statement Schedules.
(a)
The Following documents are filed as part of this report:
Financial statement schedules have been omitted because they are not required or because equivalent information has been included in the financial statements or notes thereto.
(3)
Exhibits as required by Item 601 of Regulation S-K. The following exhibits are included herewith.
The following exhibits are incorporated by reference herein from the exhibit of the same description and number filed on November 24, 2009, with Superfund Green, L.P.’s Registration Statement on Form S-1 (Reg. No. 333-162132).
10.01(g)
Administration, Accounting and Investor Services Agreement.
10.02
Form of Subscription Agreement
10.03(a)
Escrow Agreement between Series A and HSBC Bank USA.
10.03(b)
Escrow Agreement between Series B and HSBC Bank USA.
The following exhibits are incorporated by reference herein from the exhibits of the same description and number filed on January 21, 2005, with Quadriga Superfund, L.P.’s Registration Statement on Form S-1 (Reg. No. 333-122229).
3.02
Certificate of Limited Partnership.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners of Superfund Green, L.P. - Series A and Series B:
We have audited the accompanying statements of assets and liabilities of Superfund Green, L.P. - Series A and Series B (formerly Quadriga Superfund, L.P., the “Fund”), including the condensed schedules of investments, as of December 31, 2009 and 2008, and the related statements of operations, changes in net assets, and cash flows for each of the two years in the period then ended. These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Fund as of December 31, 2009 and 2008, and the results of its operations and its cash flows for each of the two years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
/S/ DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
March 31, 2010
SUPERFUND GREEN, L.P. - SERIES A
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 2009, and December 31, 2008
See accompanying notes to financial statements.
SUPERFUND GREEN, L.P. - SERIES A
CONDENSED SCHEDULE OF INVESTMENTS
December 31, 2009
See accompanying notes to financial statements.
SUPERFUND GREEN, L.P. - SERIES A
CONDENSED SCHEDULE OF INVESTMENTS
December 31, 2008
See accompanying notes to financial statements.
SUPERFUND GREEN, L.P. - SERIES A
STATEMENTS OF OPERATIONS
Years Ended December 31, 2009, and December 31, 2008
See accompanying notes to financial statements.
SUPERFUND GREEN, L.P. - SERIES A
STATEMENTS OF CHANGES IN NET ASSETS
Years Ended December 31, 2009, and December 31, 2008
See accompanying notes to financial statements.
SUPERFUND GREEN, L.P. - SERIES A
STATEMENTS OF CASH FLOWS
Years Ended December 31, 2009, and December 31, 2008
See accompanying notes to financial statements.
SUPERFUND GREEN, L.P. - SERIES B
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 2009, and December 31, 2008
See accompanying notes to financial statements.
SUPERFUND GREEN, L.P. - SERIES B
CONDENSED SCHEDULE OF INVESTMENTS
December 31, 2009
* Due to rounding
See accompanying notes to financial statements.
SUPERFUND GREEN, L.P. - SERIES B
CONDENSED SCHEDULE OF INVESTMENTS
December 31, 2008
See accompanying notes to financial statements.
SUPERFUND GREEN, L.P. - SERIES B
STATEMENTS OF OPERATIONS
Years Ended December 31, 2009, and December 31, 2008
See accompanying notes to financial statements.
SUPERFUND GREEN, L.P. - SERIES B
STATEMENTS OF CHANGES IN NET ASSETS
Years Ended December 31, 2009, and December 31, 2008
See accompanying notes to financial statements.
SUPERFUND GREEN, L.P. - SERIES B
STATEMENTS OF CASH FLOWS
Years Ended December 31, 2009, and December 31, 2008
See accompanying notes to financial statements.
SUPERFUND GREEN, L.P. - SERIES A AND SERIES B
(formerly known as QUADRIGA SUPERFUND, L.P.)
NOTES TO FINANCIAL STATEMENTS
December 31, 2009
(1)
Nature of Operations
Organization and Business
Superfund Green, L.P., formerly known as Quadriga Superfund, L.P. (the “Fund”), a Delaware limited partnership, commenced operations on November 5, 2002. The Fund was organized to trade speculatively in the United States of America (“U.S.”) and international commodity futures markets using a fully-automated computerized trading system. The Fund has issued two classes of Units, Series A and Series B (the “Series”). The two Series will be traded and managed the same way except for the degree of leverage.
The term of the Fund shall continue until December 31, 2050, unless terminated earlier by the Fund’s general partner, Superfund Capital Management, Inc. (“Superfund Capital Management”) or by operation of law or a decline in the aggregate net assets of such Series to less than $500,000.
(2)
Significant Accounting Policies
(a)
Valuation of Investments in Futures Contracts, Forward Contracts, and U.S Treasury Bills
All commodity interests (including derivative financial instruments and derivative commodity instruments) are used for trading purposes. The commodity interests are recorded on a trade date basis and open contracts are recorded in the statements of assets and liabilities at fair value on the last business day of the period, which represents market value for those commodity interests for which market quotes are readily available.
Exchange-traded futures contracts are valued at settlement prices published by the recognized exchange. Any spot and forward foreign currency contracts held by the Fund will be valued at published settlement prices or at dealers’ quotes. The Fund uses the amortized cost method for valuing U.S. Treasury Bills due to the short-term nature of such instrument; accordingly, the cost of securities plus accreted discount, or minus amortized premium approximates fair value (See Section (2)(g) - Fair Value Measurements).
(b)
Translation of Foreign Currency
Assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at the period end exchange rates. Purchases and sales of investments, and income and expenses that are denominated in foreign currencies are translated into U.S. dollar amounts on the transaction date. Adjustments arising from foreign currency transactions are reflected in the statements of operations.
The Fund does not isolate that portion of the results of operations arising from the effect of changes in foreign exchange rates on investments from fluctuations from changes in market prices of investments held. Such fluctuations are included in net gain (loss) on investments in the statements of operations.
(c)
Investment Transactions, Investment Income, and Expenses
Investment transactions are accounted for on a trade-date basis. Interest income and expenses are recognized on the accrual basis.
(d)
Income Taxes
The Fund does not record a provision for U.S. income taxes because the partners report their share of the Fund’s income or loss on their returns. The financial statements reflect the Fund’s transactions without adjustment, if any, required for income tax purposes.
Superfund Capital Management has evaluated the application of Accounting Standards Codification (“ASC”) 740 to the Fund, to determine whether or not there are uncertain tax positions that require financial statement recognition. Based on this evaluation, the Fund has determined no reserves for uncertain tax position are required to be recorded as a result of the application of ASC 740. The Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next twelve months. As a result, no income tax liability or expense has been recorded in the accompanying financial statements. The fund files federal and various state tax returns. The 2006 through 2009 tax years generally remain subject to examination by the U.S. federal and most state tax authorities.
(e)
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires Superfund Capital Management to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements. Actual results could differ from those estimates.
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 considered to be active or financial instruments for which all significant inputs are observable, either directly or indirectly.
Level 3
Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. In determining fair value, the Fund separates its financial instruments into two categories: U.S. government securities and derivative contracts.
U.S. Government Securities. The Fund’s only market exposure in instruments held other than for trading is in its U.S. Treasury Bill portfolio. As the Fund uses the amortized cost method for valuing its U.S. Treasury Bill portfolio, which approximates fair value, this portfolio is classified within level 2 of the fair value hierarchy.
Derivative Contracts. Derivative contracts can be exchange-traded or over-the-counter (“OTC”). Exchange-traded derivatives typically fall within level 1 or level 2 of the fair value hierarchy depending on whether they are deemed to be actively traded or not. The Fund has exposure to exchange-traded derivative contracts through the Fund’s trading of exchange-traded futures contracts. The Fund’s exchange-traded futures contract positions are valued daily at settlement prices published by the applicable exchanges. In such cases, provided they are deemed to be actively traded, exchange-traded derivatives are classified within level 1 of the fair value hierarchy. Less actively traded exchange-traded derivatives fall within level 2 of the fair value hierarchy.
OTC derivatives are valued using market transactions and other market evidence whenever possible, including market-based inputs to models, model calibration to market-clearing transactions, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. Where models are used, the selection of a particular model to value an OTC derivative depends upon the contractual terms of, and specific risks inherent in, the instrument as well as the availability of pricing information in the market. For OTC derivatives that trade in liquid markets, such as generic forwards and swaps,
model inputs can generally be verified and model selection does not involve significant management judgment. The OTC derivatives held by the Fund may include forwards and swaps. Spot and forward foreign currency contracts held by the Fund are valued at published daily settlement prices or at dealers’ quotes. The Fund’s forward and swap positions are typically classified within level 2 of the fair value hierarchy.
Certain OTC derivatives traded in less liquid markets with limited pricing information, and the determination of fair value for these derivatives is inherently more difficult. Such instruments are classified within level 3 of the fair value hierarchy. Where the Fund does not have corroborating market evidence to support significant model inputs and cannot verify the model to market transactions, transaction price is initially used as the best estimate of fair value. Accordingly, when a pricing model is used to value such an instrument, the model is adjusted so that the model value at inception equals the transaction price. The valuations of these less liquid OTC derivatives are typically based on level 1 and/or level 2 inputs that can be observed in the market, as well as unobservable level 3 inputs. Subsequent to initial recognition, the Fund updates the level 1 and level 2 inputs to reflect observable market changes, with resulting gains and losses reflected within level 3. Level 3 inputs are only changed when corroborated by evidence such as similar market transactions, third-party pricing services and/or broker or dealer quotations, or other empirical market data. In circumstances where the Fund cannot verify the model value to market transactions, it is possible that a different valuation model could produce a materially different estimate of fair value. The Fund attempts to avoid holding less liquid OTC derivatives. However, once held, the market for any particular derivative contract could become less liquid during the holding period. As of and during the year ended December 31, 2009, the Fund held no derivative contracts valued using level 3 inputs.
The following table summarizes the valuation of the Fund’s assets and liabilities by the ASC 820 fair value hierarchy as of December 31, 2009:
Series A.
Series B.
Series A:
Series B:
(3)
Disclosure of derivative instruments and hedging activities
The Fund follows ASC 815, Disclosures about Derivative Instruments and Hedging Activities (“ASC 815”). ASC 815 is intended to improve financial reporting for derivative instruments by requiring enhanced disclosure that enables investors to understand how and why an entity uses derivatives, how derivatives are accounted for, and how derivative instruments affect an entity’s results of operations and financial position.
Derivative instruments held by the Fund do not qualify as derivative instruments held as hedging instruments, as defined in ASC 815. Instead, the Fund includes derivative instruments in its trading activity. Per the requirements of ASC 815, the Fund discloses the gains and losses on its trading activities for both derivative and nonderivative instruments in the Statement of Operations for each Series.
The Fund engages in the speculative trading of forward contracts in currency and futures contracts in a wide range of commodities, including equity markets, interest rates, food and fiber, energy, livestock and metals. ASC 815 requires entities to recognize all derivatives instruments as either assets or liabilities at fair value in the statement of financial position. Investments in forward
contracts and commodity futures contracts are recorded in the Statements of Assets and Liabilities as “unrealized appreciation or depreciation on open forward contracts and futures contracts purchased and futures contracts sold.” Since the derivatives held or sold by the Fund are for speculative trading purposes, the derivative instruments are not designated as hedging instruments under the provisions of ASC 815. 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 Fund’s trading profits and losses in the Statements of Operations.
Superfund Capital Management believes futures and forwards trading activity expressed as a percentage of net assets is indicative of trading activity. Information concerning the fair value of the Fund’s derivatives held long or sold short, as well as information related to the annual average volume of the Fund’s derivative activity, is as follows:
Series A:
Series A trading results by market sector:
Series B trading results by market sector:
(4)
Due from/to Brokers
Due from brokers consist of proceeds from securities sold. Amounts due from brokers may be restricted to the extent that they serve as deposits for securities sold short. Amounts due to brokers represent margin borrowings that are collateralized by certain securities. As of December 31, 2009, there were no amounts due to brokers.
In the normal course of business, all of the Fund’s marketable securities transactions, money balances and marketable security positions are transacted with brokers. The Fund is subject to credit risk to the extent any broker with whom it conducts business is unable to fulfill contractual obligations on its behalf. Superfund Capital Management monitors the financial condition of such brokers and does not anticipate any losses from these counterparties.
(5)
Allocation of Net Profits and Losses
In accordance with the Fifth Amended and Restated Limited Partnership Agreement (the “Limited Partnership Agreement”), net profits and losses of the Fund are allocated to partners according to their respective interests in the Fund as of the beginning of each month.
Advance subscriptions, if any, represent cash received prior to December 31 for contributions of the subsequent month and do not participate in the earnings of the Fund until the following January.
(7)
Financial Highlights
Financial highlights for the period January 1, 2009, through December 31, 2009, are as follows:
(8)
Financial Instrument Risk
In the normal course of its business, the Fund is party to financial instruments with off-balance sheet risk, including derivative financial instruments and derivative commodity instruments. The term “off-balance sheet risk” refers to an unrecorded potential liability that, even though it does not appear on the balance sheet, may result in a future obligation or loss. These financial instruments may include forwards, futures, and options, whose values are based upon an underlying asset, index, or reference rate, and generally represent future commitments to exchange currencies or cash flows, to purchase or sell other financial instruments at specific terms at specific future dates, or, in the case of derivative commodity instruments, to have a reasonable possibility to be settled in cash, through physical delivery or with another financial instrument. These instruments may be traded on an exchange or over-the-counter (“OTC”). Exchange traded instruments are standardized and include futures and certain option contracts. OTC contracts are negotiated between contracting parties and include forwards and certain options. Each of these instruments is subject
to various risks similar to those related to the underlying financial instruments including market and credit risk. In general, the risks associated with OTC contracts are greater than those associated with exchange traded instruments because of the greater risk of default by the counter party to an OTC contract.
For Series A, gross unrealized gains and losses related to exchange traded futures were $1,782,415 and $1,327,626, respectively, and gross unrealized gains and losses related to non-exchange traded forwards were $187,448 and $421,267, respectively, at December 31, 2009.
For Series B, gross unrealized gains and losses related to exchange traded futures were $4,522,130 and $3,438,790, respectively, and gross unrealized gains and losses related to non-exchange traded forwards were $509,064 and $1,130,981, respectively, at December 31, 2009.
Market risk is the potential for changes in the value of the financial instruments traded by the Fund due to market changes, including interest and foreign exchange rate movements and fluctuations in commodity prices. In entering into these contracts, there exists a market risk that such contracts may be significantly influenced by conditions, such as interest rate volatility, resulting in such contracts being less valuable. If the markets should move against all of the futures interest positions at the same time, and Superfund Capital Management is unable to offset such positions, the Fund could experience substantial losses.
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 with respect to exchange-traded instruments is reduced to the extent that an exchange or clearing organization acts as a counterparty to the transactions. The Fund’s risk of loss in the event of counterparty default is typically limited to the amounts recognized in the statements of assets and liabilities and not represented by the contract or notional amounts of the instruments. As the Fund’s assets are held in segregated accounts with futures commission merchants, the Fund has credit risk and concentration risk. The Fund’s futures commission merchants are currently ADM Investor Services, Inc., Barclays Capital Inc., and Rosenthal Collins Group, L.L.C.
Superfund Capital Management monitors and controls the Fund’s risk exposure on a daily basis through financial, credit and risk management monitoring systems, and accordingly believes that it has effective procedures for evaluating and limiting the credit and market risks to which the Fund is subject. These monitoring systems allow Superfund Capital Management to statistically analyze actual trading results with risk adjusted performance indicators and correlation statistics. In addition, on-line monitoring systems provide account analysis of futures and forward positions by sector, margin requirements, gain and loss transactions, and collateral positions.
The majority of these instruments mature within one year of December 31, 2009. However, due to the nature of the Fund’s business, these instruments may not be held to maturity.
(9)
Subscriptions and Redemptions
Investors must submit subscriptions at least five business days prior to the applicable month-end closing date and they will be accepted once payments are received and cleared. All subscriptions funds are required to be promptly transmitted to the escrow agent, HSBC Bank USA. Subscriptions must be accepted or rejected by Superfund Capital Management within five business days of receipt, and the settlement date for the deposit of subscription funds in escrow must be within five business days of acceptance. No fees or costs will be assessed on any subscription while held in escrow, irrespective of whether the subscription is accepted or the subscription funds are returned.
A limited partner of a Series may request any or all of his investment in such Series be redeemed by such Series at the net asset value of a Unit within such Series as of the end of each month, subject to a minimum redemption of $1,000 and subject further to such limited partner having an investment in such Series, after giving effect to the requested redemption, at least equal to the minimum initial investment amount of $5,000. Limited partners must transmit a written request of such withdrawal to Superfund Capital Management not less than five business days prior to the end of the month (or such shorter period as permitted by Superfund Capital Management) as of which redemption is to be effective. Redemptions will generally be paid within twenty days after the date of redemption. However, in special circumstances, including, but not limited to, inability to liquidate dealers’ positions as of a redemption date or default or delay in payments due to each Series from clearing brokers, banks or other persons or entities, each Series may in turn delay payment to persons requesting redemption of the proportionate part of the net assets of each Series represented by the sums that are subject of such default or delay. The Fund’s prospectus provides “if the net asset value per Unit within a Series as of the end of any business day declines by 50% or more from either the prior year-end or the prior month-end Unit value of such Series, Superfund Capital Management will suspend trading activities, notify all Limited Partners within such Series of the relevant facts within seven business days and declare a special redemption period.”
Superfund Capital Management has evaluated the impact of all subsequent events on the Fund through the date the financial statements were issued and has determined that there were no subsequent events requiring recognition or disclosure in the financial statements.
SIGNATURES
Pursuant to the requirements of Section 13 or Section 15(d) 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 on March 31, 2010.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Superfund Capital Management, the general partner of the registrant, and in the capacities and on the dates indicated.
Title with
Signature
Superfund Capital Management
Date
/s/ Nigel James
Nigel James
President
(Principal Executive Officer)
March 31, 2010
/s/ Roman Gregorig
Roman Gregorig
Director, Vice President and Audit Committee Financial Expert (Principal Financial Officer & Principal Accounting Officer)
March 31, 2010
(Being the principal executive officer, the principal financial officer and principal accounting officer, and a majority of the board of directors of Superfund Capital Management)
EXHIBIT INDEX
The following exhibits are incorporated by reference herein from the exhibit of the same description and number filed on November 24, 2009, with Superfund Green, L.P.’s Registration Statement on Form S-1 (Reg. No. 333-162132).
10.01(g)
Administration, Accounting and Investor Services Agreement.
10.02
Form of Subscription Agreement
10.03(a)
Escrow Agreement between Series A and HSBC Bank USA.
10.03(b)
Escrow Agreement between Series B and HSBC Bank USA.
The following exhibits are incorporated by reference herein from the exhibits of the same description and number filed on January 21, 2005, with Quadriga Superfund, L.P.’s Registration Statement on Form S-1 (Reg. No. 333-122229).
3.02
Certificate of Limited Partnership.