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MANAGED FUTURES PREMIER BHM L.P. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations.

August 13, 2014

Liquidity and Capital Resources

The Partnership does not engage in sales of goods or services. Its only assets are its investment in the Trading Company. The Trading Company does not engage in the sale of goods or services. Because of the low margin deposits normally required in commodity futures trading, relatively small price movements may result in substantial losses to the Partnership, through its investment in the Trading Company. While substantial losses could lead to a material decrease in liquidity, no such illiquidity occurred during the second quarter of 2014.

There are no known trends, demands, commitments, events, or uncertainties at the present time that are reasonably likely to result in the Partnership's liquidity increasing or decreasing in any material way.

The Partnership's capital consists of the capital contributions of the partners as increased or decreased by income (loss) from its investment in the Trading Company and by expenses, interest income, subscriptions, redemptions of Units and distributions of profits, if any.

For the six months ended June 30, 2014, Partnership's capital increased 10.1% from $212,072,176 to $233,534,018. This increase was attributable to the subscriptions of 22,992.461 Units totaling $17,836,939, coupled with net income of $29,311,988, which was partially offset by the redemptions of 33,190,029 Units totaling $25,687,085. Future redemptions could impact the amount of funds available for investment in the Trading Company in subsequent periods.

The Trading Company's capital consists of the capital contributions of the members as increased or decreased by realized and/or unrealized gains or losses on commodity futures trading and by expenses, interest income, redemptions of units and distributions of profits, if any.

For the six months ended June 30, 2014, the Trading Company's capital decreased 1.9% from $313,607,842 to $ 307,656,163. This decrease was attributable to the withdrawals of $52,215,520 which was partially offset by the net income of $44,822,514, coupled with the contributions of $1,441,327. Future withdrawals can impact the amount of funds available for investments in commodity contract positions in subsequent periods.

There are no known material trends, favorable or unfavorable, that would affect, nor any expected material changes to, the Partnership's capital resource arrangement at the present time.

Critical Accounting Policies

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the reporting period. The General Partner believes that the estimates and assumptions utilized in preparing the financial statements are reasonable. Actual results could differ from those estimates. The Partnership's significant accounting policies are described in detail in Note 6 of the Financial Statements.

The Trading Company records all investments at fair value in its financial statements, with changes in fair value reported as a component of net realized gains (losses) and change in net unrealized gains (losses) in the Statements of Income and Expenses and Changes in Members' Capital.

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Results of Operations

During the Partnership's second quarter of 2014, the net asset value per Unit for Class A increased 10.2% from $763.44 to $841.01, as compared to a decrease of 5.1% in the second quarter of 2013. During the Partnership's second quarter of 2014, the net asset value per Unit for Class D increased 10.5% from $739.57 to $817.19, as compared a decrease of 4.6% in the second quarter of 2013. During the Partnership's second quarter of 2014, the net asset value per Unit for Class Z increased 10.7% from $804.50 to $890.55, as compared to a decrease of 4.4% in the second quarter of 2013. The Partnership, through its investment in the Trading Company, experienced a net trading gain in the second quarter of 2014 of $24,592,198. Gains were primarily attributable to the Trading Company's trading in commodities and equities and were partially offset by losses in currencies and interest rates. The Partnership, through its investment in the Trading Company, experienced a net trading loss in the second quarter of 2013 of $9,069,558. Losses were primarily attributable to the Trading Company's trading in commodities, equities and currencies and were partially offset by gains in interest rates.

The most significant gains were experienced within the metals markets during April and May from long positions in palladium futures as prices increased after tensions between Russia and Ukraine raised concern of a possible supply disruption from Russia. Additional gains were achieved during June from long positions in copper futures as prices rallied in the second half of the month after a Purchasing Manager's Index report in China indicated a resurgence of the Asian nation's manufacturing base. Within the agricultural markets, gains were recorded primarily during May from long positions in cocoa futures as prices moved higher as speculation mounted that global chocolate demand would far outstrip supplies coming to the market. Additional gains in this sector were experienced during June from short positions in soybean futures as prices declined after favorable weather throughout much of the U.S. Midwest boosted soybean plantings to near record levels. Within the energy markets, gains were achieved primarily during June from long positions in crude oil futures as prices increased after reports from the U.S. Energy Information Agency indicated U.S. crude oil stockpiles declined during the month. Additional gains were recorded within the global stock index sector during May from long positions in European and U.S. equity index futures as prices advanced as U.S. durable goods orders climbed and investors speculated the economy is improving following a contraction in the first quarter. A portion of the Partnership's gains for the quarter was offset by losses incurred within the global interest rate markets primarily during May from short positions in U.S. Treasury note futures as prices increased amid easing investor concern the U.S. Federal Reserve would raise borrowing costs. Within the currency sector, losses were experienced during June from short positions in the euro versus the U.S. dollar as the relative value of the European currency advanced after reports indicated the U.S. economy contracted during the first quarter of the year.

During the six months ended June 30, 2014, the net asset value per Unit for Class A increased 14.1% from $736.95 to $841.01, as compared to a decrease of 5.2% in the same period of 2013. During the six months ended June 30, 2014, the net asset value per Unit for Class D increased 15.1% from $709.96 to $817.19, as compared a decrease of 4.1% in the same period of 2013. During the six months ended June 30, 2014, the net asset value per Unit for Class Z increased 15.5% from $770.87 to $890.55, as compared to a decrease of 3.8% in the same period of 2013. The Partnership, through its investment in the Trading Company experienced a net trading gain in the six months ended June 30, 2014 of $35,652,880. Gains were primarily attributable to the Trading Company's trading in commodities and equities and were partially offset by losses in currencies and interest rates. The Partnership, through its investment in the Trading Company experienced a net trading loss in the six months ended June 30, 2013 of $4,857,503. Losses were primarily attributable to the Trading Company's trading in commodities, currencies, interest rates and equities.

The most significant gains were achieved within the metals sector during February, March, April, and May from long positions in palladium futures as prices advanced on concern that sanctions against Russia, the world's biggest supplier of the metal, would trim supplies. This supply threat coincided with a miners strike in South Africa, the world's second-biggest palladium producer. Within the energy sector, gains were experienced during June from long positions in crude oil futures as prices rallied on reports of declining U.S. crude oil stockpiles. Additional gains in the energy markets were recorded during February from long positions in crude oil and its related products as prices rose following signs of increased demand spurred by an improving U.S. economy. Within the agricultural sector, gains were experienced during January from long positions in cocoa futures as prices advanced to the highest level in more than 28 months after crop threats in Indonesia added to supply concerns. Gains were also recorded in the agricultural sector during May from long positions in cocoa futures as prices rallied after industry reports indicated that the global supply shortfall would continue for the foreseeable future. Within the global stock index sector, gains were experienced during February from long positions in U.S. and European equity index futures as prices advanced amid improving U.S. consumer confidence and speculation the Federal Reserve would continue to support the U.S. economy. The Partnership's trading gains for the first six months of the year were partially offset by trading losses within the currency sector during February from long positions in the euro versus the U.S. dollar as the value of the euro declined after reports showed German industrial confidence declined during the previous quarter. Within the global interest rate sector, losses were incurred during May from short positions in U.S. Treasury note futures as prices increased amid easing investor concern the U.S. Federal Reserve would raise borrowing costs. Additional losses were recorded during January from short positions in U.S. fixed income futures as prices advanced amid increasing demand for the relative "safety" of U.S. government debt.

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Commodity futures markets are highly volatile. The potential for broad and rapid price fluctuations increases the risks involved in commodity trading, but also increases the possibility of profit. The profitability of the Partnership (and the Trading Company) depends on the Advisor's ability to forecast price changes in energy and energy-related commodities. Such price changes are influenced by, among other things, changing supply and demand relationships, weather, governmental, agricultural, commercial and trade programs and policies, national and international political and economic events and changes in interest rates. To the extent that the Advisor correctly makes such forecasts, the Partnership (and the Trading Company) expects to increase capital through operations.

Effective July 1, 2012, MS&Co. credits the Trading Company on 100% of the average daily equity maintained in cash in the Trading Company's account during each month at the rate equal to the monthly average of the 4-week U.S. Treasury bill discount less 0.15% during such month. There was no interest income earned allocated from the Trading Company for the three and six months ended June 30, 2014 and 2013. The amount of interest income earned by the Partnership depends on the average daily equity in the Trading Company over which neither the Partnership/Trading Company nor MS&Co. has control.

Placement agent fees are calculated on a monthly basis as a percentage of the net assets (as defined in the Limited Partnership Agreement) of the Partnership as of the beginning of each month. The placement agent fees for the three and six months ended June 30, 2014 decreased $799,923 and $1,196,796, as compared to the corresponding periods in 2013. The decrease in placement agent fees is due to lower average net assets and a reduction of the placement agent fee for Class A Units during the three and six months ended June 30, 2014, as compared to the corresponding periods in 2013.

The Partnership pays the ongoing administrative, operating, offering and organizational expenses of the Partnership and the Trading Company as such expenses are incurred, not to exceed 0.25% annually of the net assets of the Partnership. Administrative expenses for the three and six months ended June 30, 2014 decreased $97,670 and $237,925, as compared to the corresponding periods in 2013.

Management and incentive fees are borne by the Trading Company.

In allocating substantially all of the assets of the Partnership to the Trading Company, the General Partner considers the Advisor's past performance, trading style, volatility of markets traded and fee requirements. The General Partner may modify or terminate the allocation of assets to the Advisor at any time and allocate assets to additional advisors at any time.

Off-Balance Sheet Arrangements and Contractual Obligations

The Partnership does not have any off-balance sheet arrangements, nor does it have contractual obligations or commercial commitments to make future payments, that would affect its liquidity or capital resources.

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Source: Edgar Glimpses


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