Dear Investor:
As communicated to you earlier today, the Amaranth Multi-Strategy Funds concluded a transaction to transfer our energy portfolio to a third party. Having achieved this important step, we wanted to share additional information on the status of the Multi-Strategy Funds.
During the week of September 11, 2006, we experienced significant mark-to-market losses in our natural gas derivatives portfolio. The resulting margin calls on these positions created serious constraints on the Funds' liquidity. In order to prevent further mark-to-market losses on the natural gas positions, and to reduce the risk of defaulting on margin calls, we transferred these positions to a third party at a price that resulted in additional significant losses. To generate the liquidity required to avoid defaults under our counterparty documents, we also sold a significant number of positions in the Funds' other portfolios.
These actions have eliminated the prospect of further significant mark-to-market losses in the natural gas portfolio and helped us avoid the termination of our credit facilities and the risk of a consequent forced liquidation by our creditors. We have continued to meet all margin calls. Our major financial counterparties have confirmed that they are now comfortable with our portfolio and overall liquidity position. We expect that, once all of the trades associated with these actions have been settled, our leverage will be approximately 1.3:1. We are now focused on communicating with our investors and defining the future of our business.
After taking into consideration the mark-to-market losses on the natural gas portfolio, the significant cost of the third-party transaction, and, to a much lesser degree, realized losses on other positions that were sold in order to generate liquidity, we estimate that, as of September 19, the Net Asset Value of the Multi-Strategy Funds had declined approximately 65% month-to-date and approximately 55% year-to-date.
Monday, September 18, was the deadline for submitting October 31 quarterly redemption requests. We are evaluating all redemption requests received to date and will report back to you when we have completed our analysis.
We are planning to hold a conference call for investors this Friday, September 22. Details for the call will follow. Next week, we intend to begin scheduling one-on-one meetings with investors. Amaranth is determined to earn back its investors' trust, and one step towards that end is to share as much information as we reasonably can. We assure you that we are eager to do so.
Nick Maounis
The preliminary performance estimate provided above was not prepared in accordance with the procedures that would typically be used at the end of a fiscal month and are substantially based on estimated information which may be inaccurate or incomplete. As a result, this information is subject to material change, is presented for informational purposes only and should not be relied upon.
