Attached files
| file | filename |
|---|---|
| EXCEL - IDEA: XBRL DOCUMENT - SENECA GLOBAL FUND, L.P. | Financial_Report.xls |
| EX-32.01 - CERTIFICATION OF CEO - SENECA GLOBAL FUND, L.P. | ex32-1.htm |
| EX-32.02 - CERTIFICATION OF CFO - SENECA GLOBAL FUND, L.P. | ex32-2.htm |
| EX-31.01 - CERTIFICATION OF CEO - SENECA GLOBAL FUND, L.P. | ex31-1.htm |
| EX-31.02 - CERTIFICATION OF CFO - SENECA GLOBAL FUND, L.P. | ex31-2.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2014
Commission file number: 000-53453
SENECA GLOBAL FUND, L.P.
| Organized in Maryland | IRS Employer Identification No.: 75-3236572 |
c/o Steben &
Company, Inc.
9711 Washingtonian Blvd., Suite 400
Gaithersburg, Maryland 20878
Telephone: (240) 631-7600
Securities to be registered pursuant to Section 12(b) of the Act: NONE
Securities to be registered pursuant to Section 12(g) of the Act: Limited Partner Interests
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes £ No T
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes £ No T
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes T No £
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes T No £
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. T
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large Accelerated Filer £ | Accelerated Filer £ |
| Non-Accelerated
Filer £ (Do not check if a smaller reporting company) |
Smaller reporting company T |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No T
Aggregate market value of the voting and non-voting common equity held by non-affiliates: N/A.
Table of Contents
| Item 1. | Business |
Seneca Global Fund, L.P. (“Fund”) is a Delaware limited partnership, formed on March 23, 2007 and began investment activity in September 2008. Using professional trading advisors, the Fund engages in the speculative trading of futures contracts, forward currency contracts and other financial instruments traded in the United States (“U.S.”) and internationally. The Fund does not currently use swaps or options as part of its trading strategy, but may employ them in the future.
The Fund uses multiple trading advisors to engage in the speculative trading of futures contracts, forward currency contracts and other financial instruments. Each trading advisor uses a proprietary, systematic trading system that deploys multiple trading strategies that seek to identify and exploit directional moves in market behavior to a broad and diversified range of global market sectors including equity indices, currencies, interest rate instruments, energy, metals and agricultural commodities.
The Fund issues units of limited partner interests (“Units”) in four Series: A, B, C and I, which represent units of fractional undivided beneficial interest in and ownership of the Fund. At December 31, 2014, the aggregate capitalization of the Fund was $23,288,493, which consisted of Series A Units of $10,103,311, Series B Units of $4,525,734, Series C Units of $2,506,469, Series I Units of $5,316,764 and General Partner Units of $836,215. At December 31, 2014, the net asset value per unit of the Series A, B, C and I Units were $71.58, $83.49, $94.46 and $98.49, respectively, and the net asset value per unit of the General Partner Units was $112.08.
The Fund maintains its margin deposits and reserves in cash, U.S. Treasury securities, U.S. and foreign government sponsored enterprise notes, registered U.S. money market funds, commercial paper, corporate notes, asset backed securities and certificates of deposit in accordance with Commodity Futures Trading Commission (“CFTC”) rules. All interest income earned by the Fund accrues to the benefit of the Fund.
The Fund’s business constitutes only one segment for financial reporting purposes. The Fund does not engage in material operations in foreign countries, although it does trade in foreign forward currency contracts and on international futures markets, nor is a material portion of its funds derived from foreign customers.
General Partner
Under the Fourth Amended and Restated Limited Partnership Agreement (“Partnership Agreement”), management of all aspects of the Fund’s business and administration is carried out exclusively by its general partner, Steben & Company, Inc. (“General Partner”), a Maryland corporation organized in February 1989. The General Partner is registered with the CFTC as a commodity pool operator and introducing broker, and is also registered with the U.S. Securities and Exchange Commission (“SEC”) as an investment adviser and a broker dealer. The General Partner is a member of the National Futures Association (“NFA”) and the Financial Industry Regulatory Authority (“FINRA”).
The General Partner manages all aspects of the Fund’s business, including selecting the Fund’s trading advisors; allocating the Fund’s assets among them; possibly investing a portion of the Fund’s assets in other investment pools; selecting the Fund’s futures broker(s), accountants and attorneys; computing the Fund’s net assets; reporting to limited partners; directing the investment of Fund excess margin monies in interest-bearing instruments and/or cash; and processing subscriptions and redemptions. The General Partner maintains office facilities for and furnishes administrative and clerical services to the Fund. There have been no material administrative, civil or criminal actions within the past five years against the General Partner or its principals, and no such actions currently are pending.
All organizational and initial offering costs were borne by the General Partner on behalf of the Fund without reimbursement. Please see the table under “Description of Current Charges” regarding compensation paid to the General Partner.
| 3 |
Trading Advisors
As of February 28, 2015, the trading advisors of the Fund and the allocation of the Fund’s trading level are reflected as follows:
| % of Total Allocations | |
| Winton Capital Management Ltd. | 45% |
| Quantitative Investment Management, LLC | 7% |
| Quantica Capital AG | 28% |
| FORT, L.P. | 20% |
These allocations are subject to change at the General Partner’s sole discretion.
FORT, L.P., Quantica Capital AG, Quantitative Investment Management, LLC and Winton Capital Management Ltd. (collectively, “Trading Advisors”) offer discretionary advisory services to institutional and high net worth investors in the speculative trading of multiple asset classes including, without limitation, futures, forwards, swaps, options and other derivative contracts, commonly referred to as “futures.”
An objective of the Fund’s multi-manager approach is to reduce the Fund’s volatility without sacrificing overall rates of return. The General Partner may, from time to time, adjust the amount of assets allocated to a Trading Advisor, add new trading advisors, terminate Trading Advisors or replace Trading Advisors without prior notice to investors. Trading Advisors are selected by the General Partner based on their performance histories and other factors.
The General Partner may cause a trading advisor to trade its allocated Fund assets at a trading level of approximately 0.9 – 1.5 times the trading level normally used by the trading advisor employing its own trading program. Thus, the Fund could experience greater or less volatility and greater or less brokerage commission expenses relative to a client who invests at the normal trading level of the trading programs depending on the amount of leverage used.
Selling Agents
The General Partner acts as a selling agent for the Fund. The General Partner has and intends to continue to appoint certain other broker-dealers registered under the Securities Exchange Act of 1934, as amended (“1934 Act”), and members of FINRA, to act as additional selling agents with respect to Series A, B and I Units. Selling agents are selected to assist in the making of offers and sales of Series A, B and I Units. The selling agents are not required to purchase any Series A, B and I Units, or sell any specific number or dollar amount of Series A, B and I Units, instead use their best efforts to sell such Units. Where the General Partner acts as the selling agent it retains the selling agent fee.
Futures Brokers and Forward Currency Counterparty
The Fund’s futures trading is currently conducted with SG Americas Securities, LLC (“SGAS”, formerly Newedge USA, LLC) and J.P. Morgan Securities LLC (“JPMS”). SGAS is a wholly-owned subsidiary of Société Générale. Société Générale is a société anonyme governed by French law. Société Générale Newedge UK Limited (formerly Newedge UK Finance Limited) is the Fund’s forward currency counterparty, is a wholly-owned subsidiary of Société Générale, and is regulated by the
Financial Services Authority for the conduct of business in the UK. JPMS is an indirect, wholly-owned subsidiary of JPMorgan Chase & Co., one of the largest bank holding companies in the U.S.
Cash Managers
The Fund has engaged J.P. Morgan Investment Management (“JPMIM”) and Principal Global Investors, LLC (“PGI” and, together with JPMIM, the “Cash Managers”) to provide cash management services to the Fund. The Cash Managers manage the Fund’s cash and excess margin through investments in fixed income instruments, pursuant to investment parameters established by the General Partner. The Fund’s objective in retaining the Cash Managers is to enhance the return on its assets not required to be held by the Fund’s futures brokers in support of the Fund’s trading.
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Description of Current Charges
| Charges | Amount |
| Trading Advisor Management Fees | Each series of Units incurs monthly
trading advisor management fees, payable in arrears, to the Trading Advisors (based on the assets under management), equal
to: § FORT, L.P.: 1/12th of 1.5% § Quantica Capital AG: 1/12th of 1.0% § Quantitative Investment Management, LLC does not charge a management fee § Winton Capital Management Ltd.: 1/12th of 1.50% |
| Trading Advisor Incentive Fees | Each series of Units incurs quarterly
trading advisor incentive fees, payable in arrears to the Trading Advisors, for any “Net New Trading Profits”
generated on the portion of the Fund the respective Trading Advisor manages, equal to: § FORT, L.P.: 20% § Quantica Capital AG: 20% § Quantitative Investment Management, LLC: 30% § Winton Capital Management Ltd.: 20% Net New Trading Profits are calculated based on formulas defined in each Trading Advisor’s trading agreement. In determining Net New Trading Profits, any trading losses generated by the respective Trading Advisor for the Fund in prior periods are carried forward, so that the incentive fee is assessed only if and to the extent the profits generated by the Trading Advisor for the period exceed any losses from prior periods. The loss carry-forward is proportionally reduced if and to the extent the Fund reduces the amount of assets allocated to the Trading Advisor. |
| Brokerage Commissions and Trading Expenses | The Fund incurs brokerage commissions and trading expenses on U.S. futures exchanges at the approximate rate of $0.74 to $12.30, with an average of $3.60 per “round-turn” futures transaction (includes NFA, execution, clearing and exchange fees). Brokerage commissions and trading expenses may be higher for trades executed on certain foreign exchanges. |
| Cash Manager Fees | Each class of Units incurs a monthly cash manager fee, payable in arrears to the Cash Managers, equal to approximately 1/12th of approximately 0.13% of the investments in securities and certificates of deposit. |
| Organizational and Initial Offering Costs | All organizational and initial offering costs were borne by the General Partner on behalf of the Fund without reimbursement. |
| General Partner Fee | Each series of Units, other than General Partner Units, incurs a monthly General Partner fee, equal to 1/12th of 1.5% of the Fund’s month-end net asset value, prorated for partial months and adjusted for weekly subscriptions and redemptions, and payable in arrears. The General Partner fee is paid to the General Partner to compensate it for its services to the Fund as general partner and commodity pool operator. |
| Administrative Expenses | Each series of Units reimburses the General Partner for actual monthly administrative expenses to various third-party service providers, including the General Partner, up to 1/12th of 0.95% of the Fund’s month-end net asset value, prorated for partial months and adjusted for weekly subscriptions and redemptions, and payable quarterly in arrears. Actual ongoing offering costs in excess of this limitation are absorbed by the General Partner. The administrative expenses include all actual accounting, audit, legal, administrative, offering and other back office expenses related to the administration of the Fund and all associated costs incurred by the Fund. |
| 5 |
| Charges | Amount |
| Offering Expenses | Each series of Units, other than Series C and General Partner Units, reimburses the General Partner for actual ongoing offering expenses, up to 1/12th of 0.75% of the Fund’s month-end net asset value, prorated for partial months and adjusted for weekly subscriptions and redemptions, and payable monthly in arrears. Actual ongoing offering costs in excess of this limitation are absorbed by the General Partner. If the Fund terminates prior to completion of payment to the General Partner for the unreimbursed offering expenses incurred through the date of such termination, the General Partner will not be entitled to any additional payments, and the Fund will have no further obligation to the General Partner for reimbursement of offering expenses. |
| Selling Agent Fees | Series A Units incur a monthly selling agent fee equal to 1/12th of 2% of the outstanding Series A Units’ month-end net asset value, prorated for partial months and adjusted for weekly subscriptions and redemptions, and subject to the Fee Limit (as defined below). The General Partner, in turn, pays the selling agents an upfront fee of 2% of the aggregate subscription amount for the sale of Series A Units. Beginning in the 13th month, the General Partner then pays the selling agents a monthly selling agent fee in arrears equal to 1/12th of 2% of the outstanding Series A Units’ month-end net asset value, prorated for partial months and adjusted for weekly subscriptions and redemptions, and subject to the Fee Limit. If the selling agent fees are not paid to the selling agents, or where the General Partner acts as the selling agent, such portions of the selling agent fees are retained by the General Partner. Series B, C and I Units do not incur selling agent fees. |
| Broker Dealer Servicing Fee | Series A Units incur a monthly broker dealer servicing fee equal to 1/12th of 0.15% of the outstanding Series A Units’ month-end net asset value, prorated for partial months and adjusted for weekly subscriptions and redemptions, and payable in arrears, subject to the Fee Limit. Series B Units that are not held by broker dealers who act as custodian for the benefit of limited partners incur a monthly broker dealer servicing fee equal to 1/12th of 0.6% of the outstanding Series B Units’ month-end net asset value, prorated for partial months and adjusted for weekly subscriptions and redemptions, and payable in arrears, subject to the Fee Limit. Where the General Partner acts as the selling agent, it retains these fees. Series C and I Units, and those Series B Units that incur a broker dealer custodial fee (as described below), do not incur a broker dealer servicing fee. |
| Broker Dealer Custodial Fee | Series B Units that are held by broker dealers who act as custodian for Series B Units for the benefit of the limited partners incur a monthly broker dealer custodial fee equal to 1/12th of 0.6% of the outstanding Series B Units’ month-end net asset value, prorated for partial months and adjusted for weekly subscriptions and redemptions, and payable in arrears, subject to the Fee Limit. Series A, C and I Units, and Series B Units that incur a broker dealer servicing fee (as described above), do not incur a broker dealer custodial fee. In no event will a limited partner holding Series B Units incur both a broker dealer servicing fee and a broker dealer custodial fee. Where the General Partner acts as the selling agent, it retains these fees. |
| 6 |
| Charges | Amount |
| Fee Limit | The Fee Limit is the total amount of selling agent commissions, broker dealer servicing fees paid to selling agents, payments for wholesalers, payments for sales conferences, and other offering expenses that are items of compensation to FINRA members (but excluding, among other items, the production and printing of prospectuses and associated envelopes, folders and printed pieces provided with the prospectuses, as well as various legal and regulatory fees), paid by particular Series A, B or I Units when they equal 10% of the original purchase price paid by holders of those particular Units. Each investor who owns Series A, B or I Units will continue to incur selling agent commissions, offering expenses and the broker dealer servicing fee, depending upon which expenses are applicable to the particular Series of Units, until the aggregate of such expenses reaches the Fee Limit. Investors in the Fund will not incur expenses subject to the Fee Limit calculation in excess of the Fee Limit. Series C Units will be issued in exchange for an investor’s Series A, B or I Units to any limited partner who owns Series A, B or I Units when the General Partner determines that the Fee Limit has been reached as of the end of any month, or it anticipates that the Fee Limit will be reached during the following month. As a result, it is possible for a limited partner to have its Series A, B or I Units exchanged for Series C Units prior to reaching the Fee Limit. If a limited partner’s Series A, B or I Units are exchanged for Series C Units prior to reaching the Fee Limit, the General Partner will not seek additional fees from such limited partner. |
| Redemption Fee | Series A Units redeemed prior to the first anniversary of the subscription date will be subject to a redemption fee equal to the product of (i) 2% of the subscription price for such Series A Units on the subscription date, divided by 52 (ii) multiplied by the number of weeks remaining before the first anniversary of the subscription date. Limited partners will not be required to pay any redemption fees if such limited partners are subject to a mandatory redemption of their Units within the first year of purchase. No other series of Units will incur the redemption fee. |
| Extraordinary Fees and Expenses | The Fund will pay all extraordinary fees and expenses incurred by the Fund, if any, as determined by the General Partner. Extraordinary fees and expenses are fees and expenses which are non-recurring and unusual in nature, such as legal claims and liabilities and litigation costs or indemnification or other unanticipated expenses. Extraordinary fees and expenses will also include material expenses which are not currently anticipated obligations of the Fund or of managed futures funds in general. Routine operational, administrative and other ordinary expenses will not be deemed to be extraordinary expenses. |
Market Sectors
The Fund trades speculatively, through the allocation of its assets to the Trading Advisors, in U.S. and international futures markets, and may trade or hold futures, forwards, swaps or options. Specifically, the Fund trades futures on interest rate instruments, equity indices, energy, currencies, metals and agricultural commodities. The Fund also trades forward currency contracts and may trade options, swaps and other forwards other than currencies in the future.
Market Types
The Fund trades on a variety of U.S. and international futures exchanges. As in the case of its market sector allocations, the Fund’s commitments to different types of markets - U.S. and non-U.S., regulated and non-regulated - differ substantially from time to time, as well as over time, and may change at any time if a trading advisor, with the approval of the General Partner, determines such change to be in the best interests of the Fund.
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Conflicts of Interest
The General Partner and its principals have organized and are involved in other business ventures, and may have incentives to favor certain of these ventures over the Fund. The Fund will not share in the risks or rewards of such other ventures. However, such other ventures will compete for the General Partner’s and its principals’ time and attention which might create other conflicts of interest. The Partnership Agreement does not require the General Partner to devote any particular amount of time to the Fund.
The General Partner or any of its affiliates or any person connected with it may invest in, directly or indirectly, or manage or advise other investment funds or accounts which invest in assets which may also be purchased or sold by the Fund. Neither the General Partner nor any of its affiliates nor any person connected with it is under any obligation to offer investment opportunities of which any of them becomes aware to the Fund or to account to the Fund in respect of (or share with the Fund or inform the Fund of) any such transaction or any benefit received by any of them from any such transaction, but will allocate such opportunities on an equitable basis between the Fund and other clients.
Incentive Fee to the Trading Advisors
The Trading Advisors are entitled to an incentive fee, therefore the Trading Advisors may have an incentive to cause the Fund to make riskier or more speculative investments than it otherwise would.
Personal Trading
The Trading Advisors, the futures brokers, the General Partner and the principals and affiliates thereof may trade commodity interests for their own account. In such trading, positions might be taken which are opposite those of the Fund, or that compete with the Fund’s trades.
Trades by Trading Advisors and their Principals
The Trading Advisors and their principals may trade for their own accounts in addition to directing trading for client accounts. Therefore, the Trading Advisors and their principals may be deemed to have a conflict of interest concerning the sequence in which orders for transactions will be transmitted for execution. Additionally, a potential conflict may occur when a trading advisor and its principals, as a result of a neutral allocation system, testing a new trading system, trading their own proprietary account(s) more aggressively, or any other actions that would not constitute a violation of fiduciary duties, take positions in their own proprietary account(s) which are opposite, or ahead of, the position(s) taken for a client. Proprietary accounts, in trading a new or experimental system, may enter the same markets earlier than (either days before or on the same day) client accounts traded at the same or other futures commission merchants. Since the principals of the Trading Advisors trade futures and foreign exchange for their own accounts, there is potentially a conflict of interest between these principals and the Trading Advisors’ clients when allocating prices on trades that are executed by a futures commission merchant at multiple prices. In such instances, a trading advisor may use a non-preferential method to fill an allocation. The clients of the Trading Advisors will not be permitted to inspect the personal trading records of the Trading Advisors, NUSA, JPMS or their respective principals, or the written policies relating to such trading. Client records are not available for inspection due to their confidential nature.
Effects of Speculative Position Limits
The CFTC and domestic exchanges have established speculative position limits on the maximum net long or net short futures position which any person, or group of persons, or group of persons acting in concert, may hold or control in particular futures contracts or options on futures traded on U.S. commodity exchanges. All commodity accounts owned or controlled by a trading advisor and its principals are combined for speculative position limits. Because speculative position limits allow a trading advisor and its principals to control only a limited number of contracts in any one commodity, the trading advisor and its principals are potentially subject to a conflict among the interests of all accounts the trading advisor and its principals control which are competing for shares of that limited number of contracts. There exists a conflict between the trading advisor’s interest in maintaining a smaller position in an individual client’s account in order to also provide positions in the specific commodity to other accounts under management and the personal accounts of the trading advisor and its principals. The General Partner does not believe, however, that the position limits are likely to impair the trading advisors’ trading for the Fund, although it is possible the issue could arise in the future.
To the extent that position limits restrict the total number of commodity positions which may be held by the Fund and those other accounts, the Trading Advisors will allocate the orders equitably between the Fund and such other accounts. Similarly, where orders for the same commodity given on behalf of both the Fund and other accounts managed by the Trading Advisors cannot be executed in full, the Trading Advisors will equitably allocate between the Fund and such other accounts that portion of the total quantity able to be executed.
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Other Activities of the Principals of the Trading Advisors
Certain principals of the Trading Advisors are currently engaged, and expect in the future to be engaged, in other activities, some of which may involve other business activities in the futures industry. In addition, each principal of the Trading Advisors may be engaged in trading for his own personal account. The principals will have a conflict of interest between their obligations to devote all of their attention to client accounts and their interests in engaging in other activities. However, the principals of the Trading Advisors intend to devote substantial attention to the operation and activities of the Trading Advisors consistent with the division of responsibilities among them as is described herein.
Operation of Other Commodity Pools
The General Partner currently operates two other commodity pools and might have an incentive to favor those pools over the Fund.
Fiduciary Responsibility of the General Partner
The General Partner has a fiduciary duty to the Fund to exercise good faith and fairness in all dealings affecting the Fund. If a limited partner believes this duty has been violated, he/she may seek legal relief under applicable law, for himself/herself and other similarly situated partners, or on behalf of the Fund. However, it may be difficult for limited partners to obtain relief because of the changing nature of the law in this area, the vagueness of standards defining required conduct and the broad discretion given the General Partner in the Partnership Agreement and the exculpatory provisions therein.
Selling Agents
The receipt by the selling agents and their registered representatives of continued sales commissions and/or servicing fees for Units remaining in the Fund may give them an incentive to advise the limited partners to remain investors in the Fund. These payments cease to the extent the limited partners withdraw from the Fund.
The General Partner Serving as Selling Agent
The General Partner also serves as a selling agent for the Fund. As a result, the fees and other compensation received by the General Partner as selling agent have not been independently negotiated.
Futures Brokers
The futures brokers effect transactions for customers (including public and private commodity pools), including the Fund, who may compete with the Fund’s transactions including with respect to priorities or order entry. Since the identities of the purchaser and seller are not disclosed until after the trade, it is possible that the futures brokers could effect transactions for the Fund in which the other parties to the transactions are the futures brokers’ officers, directors, employees, customers or affiliates. Such persons might also compete with the Fund in making purchases or sales of commodities without knowing that the Fund is also bidding on such commodities. Since orders are filled in the order in which they are received by a particular floor broker, transactions for any of such persons might be executed when similar trades for the Fund are not executed or are executed at less favorable prices. However, in entering orders for the Fund and other customer accounts, including with respect to priorities of order entry and allocations of executed trades, CFTC regulations prohibit a futures commission merchant from utilizing its knowledge of one customer’s trades for its own or its other customer’s benefit.
Regulations
The Fund has registered its offering of Units with the SEC pursuant to the U.S. Securities Act of 1933, as amended (“1933 Act”), and is registered under the 1934 Act. As such, the Fund is subject to the regulations of the SEC and the reporting requirements of the 1933 Act and 1934 Act. As a commodity pool, the Fund is subject to the regulations of the CFTC, an agency of the U.S. Government which regulates most aspects of the commodity futures industry; rules of the NFA, an industry self-regulatory organization; and the requirements of commodity exchanges where the Fund executes transactions. Additionally, the Fund is subject to the requirements of futures commission merchants, futures brokers and Interbank market makers through which the Fund trades.
Under the Commodity Exchange Act (“CEAct”), commodity exchanges and commodity futures trading are subject to regulation by the CFTC. The NFA, a registered futures association under the CEAct, is the only non-exchange self-regulatory organization for commodity industry professionals. The CFTC has delegated to the NFA responsibility for the registration of commodity trading advisors, commodity pool operators, futures commission merchants, introducing brokers and their respective associated persons and floor brokers. The CEAct requires commodity pool operators, commodity trading advisors and futures brokers or futures commission merchants such as the Fund’s futures brokers to be registered and to comply with various reporting and recordkeeping requirements. The General Partner and the Fund’s futures brokers are members of the NFA. The CFTC may suspend a commodity pool operator’s or trading advisor’s registration if it finds that its trading practices tend to disrupt orderly market conditions, or as the result of violations of the CEAct or rules and regulations promulgated thereunder. In the event the General Partner’s registration as a commodity pool operator were terminated or suspended, the General Partner would be unable to continue to manage the business of the Fund. Should the General Partner’s registration be suspended, dissolution of the Fund might result.
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The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Reform Act”) was enacted in July 2010. The Reform Act includes provisions that comprehensively regulate the over-the-counter derivatives markets. The Reform Act will mandate that a substantial portion of over-the-counter derivatives must be executed in regulated markets and submitted for clearing to regulated clearinghouses. The mandates imposed by the Reform Act may result in the Fund bearing higher upfront and mark-to-market margin, less favorable trade pricing, and the possible imposition of new or increased fees.
The Reform Act also amended the definition of eligible contract participant, and the CFTC has interpreted that definition in such a manner that the Fund may no longer be permitted to engage in forward currency transactions by directly accessing the interbank market. Rather, if and when the Reform Act’s new definition goes into effect, the Fund may be limited to engaging in retail forex transactions which could limit the Fund’s potential forward currency counterparties to futures commission merchants and retail foreign exchange dealers. Thus, limiting the Fund’s potential forward currency counterparties could lead to the Fund bearing higher upfront and mark-to-market margin, less favorable trade pricing, and the possible imposition of new or increased fees. The retail forex markets could also be significantly less liquid than the interbank market. Moreover, the creditworthiness of the futures commission merchants and retail foreign exchange dealers with whom the Fund may be required to trade could be significantly weaker than the creditworthiness of the financial institutions with whom the Fund currently engages for its forward currency transactions. Although the impact of requiring the Fund to conduct forward currency transactions in the retail market could be substantial, the full scope is currently unknown and the ultimate effect could also be negligible.
Additionally, the CFTC and certain commodity exchanges have established limits on the maximum net long and net short positions which any person, including the Fund, may hold or control in particular commodities. Most exchanges also limit the maximum changes in futures contract prices that may occur during a single trading day. The Fund also trades in dealer markets for forward currency contracts, which are not regulated by the CFTC. Federal and state banking authorities do not regulate forward trading or forward dealers. In addition, the Fund trades on foreign commodity exchanges, which are not subject to regulation by any U.S. government agency. The CFTC adopted a separate position limits regime for 28 so-called “exempt” (i.e. metals and energy products) and agricultural futures and options contracts and their economically equivalent swap contracts, subject to a delayed implementation schedule. Position limits in spot months are 25% of the official estimated deliverable supply of the underlying commodity and in a non-spot month a percentage of the average open interest in all months for each contract. The General Partner believes that the proposed limits are sufficiently large that when implemented, they should not restrict the Fund’s trading strategy.
Competition
The Fund operates in a competitive environment in which it faces several forms of competition, including, without limitation, the following:
| · | The Fund competes with other commodity pools and other investment vehicles for investors. | |
| · | The Trading Advisors may compete with other traders in the markets in establishing or liquidating positions on behalf of the Fund. |
Available Information
The Fund files Forms 10-K, 10-Q, 8-K, 3 and 4, as required, with the SEC. The public may read and copy any materials filed with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Additional information about the Public Reference Room may be obtained by calling the SEC at (800) SEC-0330. Reports filed electronically with the SEC, including the Fund’s annual report, may be found at http://www.sec.gov.
Reports to Security Holders
None.
Enforceability of Civil Liabilities Against Foreign Persons
None.
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| Item 1A. | Risk Factors |
A smaller reporting company, as defined by Rule 12b-2 of the 1934 Act, is not required to provide the information under this Item.
| Item 1B. | Unresolved Staff Comments |
None.
| Item 2. | Properties |
The Fund does not use any physical properties in the conduct of its business. Its assets currently consist of futures and other contracts, cash and fixed income instruments.
The General Partner’s principal business office is in Gaithersburg, Maryland.
| Item 3. | Legal Proceedings |
None.
| Item 4. | Mine Safety Disclosures |
Not applicable.
| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
Market Information
There is no established public trading market for Units of the Fund.
Units of the Fund are offered continuously to the public by selling agents on a best-efforts basis. The minimum investment is $10,000. Currently, Units of each Series are issued as of the commencement of business each Wednesday and are valued at the net asset value per unit of the relevant Series at the close of business on the preceding day.
The Fund issued General Partner Units to the General Partner to memorialize its ownership interest in the Fund. The General Partner may determine and adjust the number of General Partner Units which represent the General Partner’s interest in the Fund.
Holders
As of February 28, 2015, there were 499, 175, 173 and 264 holders of Series A, B, C and I Units, respectively.
Dividends
The General Partner has sole discretion to determine what distributions, if any, the Fund will make to its limited partners. Since inception, the General Partner has not made any distributions.
Securities Authorized for Issuance under Equity Compensation Plans
None.
Recent Sales of Unregistered Securities and Use of Proceeds from Registered Securities
There were no sales of unregistered securities of the Fund during the year ended December 31, 2014.
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The Fund’s Registration Statement on Form S-1 (Registration No.: 333-148049), registering $23,054,276 Series A Units, $77,698,596 Series B Units and $92,290,714 Series I Units, was declared effective on February 13, 2015 with information with respect to the use of proceeds from the sale of Units being disclosed therein.
The proceeds from the sale of registered securities are deposited in the Fund’s bank and brokerage accounts for the purpose of engaging in trading activities in accordance with the Fund’s trading policies and each Trading Advisors’ trading programs.
Issuer Purchases of Equity Securities
The Fund offers weekly liquidity. Redemptions may be made by a limited partner as of the close of business day each Tuesday at the net asset value of the redeemed Units (or portion thereof) on that day. Partial redemptions must be for at least $1,000, unless such requirement is waived by the General Partner. In addition, the limited partner, if making a partial redemption, must maintain at least $10,000 or his original investment amount, whichever is less, in the Fund unless such requirement is waived by the General Partner. The redemption of Units has no impact on the value of Units that remain outstanding, and Units are not reissued once redeemed.
Redemptions of Units during the fourth quarter of 2014 were as follows:
| October | November | December | Total | |||||||||||||
| A Units | ||||||||||||||||
| Units redeemed | 1,780.6028 | 2,275.2646 | 860.1229 | 4,915.9903 | ||||||||||||
| Average net asset value per unit | $ | 68.49 | $ | 70.36 | $ | 71.18 | $ | 69.83 | ||||||||
| B Units | ||||||||||||||||
| Units redeemed | 514.2887 | 947.5068 | 2,576.5252 | 4,038.3207 | ||||||||||||
| Average net asset value per unit | $ | 79.69 | $ | 81.84 | $ | 83.34 | $ | 82.52 | ||||||||
| C Units | ||||||||||||||||
| Units redeemed | 919.9388 | 310.9678 | 1,244.1668 | 2,475.0734 | ||||||||||||
| Average net asset value per unit | $ | 89.80 | $ | 92.05 | $ | 93.48 | $ | 91.93 | ||||||||
| I Units | ||||||||||||||||
| Units redeemed | 12,397.8321 | 15,072.2490 | 1,576.9283 | 29,047.0094 | ||||||||||||
| Average net asset value per unit | $ | 93.77 | $ | 95.92 | $ | 97.35 | $ | 95.08 | ||||||||
| Item 6. | Selected Financial Data |
A smaller reporting company, as defined by Rule 12b-2 of the 1934 Act, is not required to provide the information under this Item.
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The Trading Advisors
The Fund’s current trading advisors are FORT, L.P., Quantica Capital AG, Quantitative Investment Management LLC and Winton Capital Management Ltd.
During 2014, the General Partner removed Blackwater Capital Management, LLC and Estlander & Partners Ltd. as trading advisors to the Fund and allocated assets to FORT, L.P. (“FORT”) and Quantica Capital AG (“Quantica”).
If a trading advisor generates losses, those losses are used to offset future gains in determining any performance fee paid to the advisor. However, if the trading level allocated to the advisor is reduced, a pro rata portion of any loss carryforward is also reduced. By terminating the agreements with Blackwater and Estlander, any loss carryforwards that existed at the time of the termination are forfeit and are not available to offset the gains of other trading advisors.
FORT is a Delaware limited partnership based in Chevy Chase, Maryland. FORT was established in 1999 and is the successor to FORT Inc., which was co-founded in 1993 by Dr. Yves Balcer and Dr. Sanjiv Kumar. FORT is registered with the CFTC and is a member of the NFA. At December 31, 2014, FORT had total assets under management of approximately $1 billion, with $772 million in the Global Contrarian Program utilized by the Fund.
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The Global Contrarian Program, FORT’s proprietary trading program, follows a systematic, technical, and trend-anticipating trading strategy that seeks to anticipate and capitalize on short to intermediate-term trends (2 to 6 weeks) by investing in a broad spectrum of financial and non-financial futures contracts traded on U.S. and non-U.S. markets. The investment objective of the Global Contrarian Program is to achieve attractive absolute rates of return and reduced volatility of returns that are generally uncorrelated with global equity indices.
FORT’s Global Contrarian Program is based on two main beliefs: (1) returns can be extracted from trends in the price movements of futures contracts; and (2) market prices are the key aggregator of information pertinent to making investment decisions. FORT’s ongoing research seeks to develop and implement adaptive, quantitative trading systems that select the optimal mix of technical indicators in each market and use them to dynamically determine optimum portfolio allocations, thereby allocating risk to markets according to a forecast of risk-adjusted profitability.
As part of its ongoing research, FORT strives to develop new strategies that it may incorporate into the Global Contrarian Program from time to time. For example, although FORT’s strategies currently do not involve trading forwards, options, swaps or security-based swaps, FORT may develop and incorporate into the Global Contrarian Program one or more strategies that trade some or all of these products. Also, in the case of a market disruption that limits or blocks trading in a product traded by one of FORT’s strategies, FORT may temporarily replace such product with any that has similar characteristics.
Quantica is a privately held share corporation, or Aktiengesellschaft, incorporated on May 26, 2003 in Switzerland. Quantica provides systematic and quantitative investment advisory and management services to individuals and institutions. Quantica is registered with the CFTC as a CTA and is a member of the NFA. At December 31, 2014, Quantica had total assets under management of approximately $623 million, with $621 million in the Managed Futures Program utilized by the Fund.
Quantica utilizes the Managed Futures Program – Futures Only in managing the Fund’s assets. The Managed Futures Program – Futures Only is a systematic investment strategy that aims to detect and take advantage of trend-following market inefficiencies in a diversified, liquid investment universe which includes more than 40 futures instruments. The investment universe is globally diversified and includes exchange traded futures contracts within the equity index, bonds, interest rates, commodities and foreign currency markets.
The investment and risk management processes of the Managed Futures Program are systematic and are purely price driven. Neither fundamental nor external data other than price movements are used as inputs for the program. Quantica’s proprietary real-time risk management systems are value-at-risk based and are an integral part of the investment process. Leverage may be utilized in connection with the investment program. The Managed Futures Program generates a rule-based, fully systematic model portfolio.
Quantica’s trade methodology relies on the assumption that market risks and market risk-premia are time-varying and can be assessed by applying sophisticated quantitative and statistical techniques. The Managed Futures Program thus seeks to take advantage of Quantica’s belief that continuing trends in global markets can be capitalized on in a diversified, risk-adjusted implementation.
At December 31, 2014, the allocation of trading levels to the Trading Advisors was as follows:
| FORT | 18% |
| Quantica | 26% |
| QIM | 12% |
| Winton | 44% |
The General Partner may cause a trading advisor to trade its allocated Fund assets at a trading level of approximately 0.90 – 1.50 times the trading level normally used by the trading advisor employing its own trading program. Thus, the Fund could experience either greater or less volatility and greater or less brokerage commission expenses relative to a client who invests at the normal trading level of the trading programs depending on the amount of leverage used.
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Liquidity
There are no known material trends, demands, commitments, events, or uncertainties at the present time that are reasonably likely to result in the Fund’s liquidity increasing or decreasing in any material way.
Capital Resources
The Fund intends to raise additional capital through the continued sale of Units offered pursuant to the offering, and does not intend to raise capital through borrowing. Due to the nature of the Fund’s business, the Fund does not contemplate making capital expenditures. The Fund does not have, nor does it expect to have, any capital assets. Redemptions, exchanges and sales of Units in the future will affect the amount of funds available for investment in futures contracts, etc. in subsequent periods. It is not possible to estimate the amount, and therefore the impact, of future inflows and outflows funds related to the sale and redemption of Units. There are no known material trends, favorable or unfavorable, that would affect, nor any expected material changes to, the Fund’s capital resource arrangements at the present time.
Contractual Obligations
The Fund does not have any contractual obligations of the type contemplated by Item 303(a)(5) of Regulation S-K. The Fund’s sole business is trading futures and forward currency contracts, both long (contracts to buy) and short (contracts to sell).
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 future obligation or loss. The Fund trades in futures and forward currency 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 risk to the Fund, market risk, that such contracts may be significantly influenced by market 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 the Trading Advisors were unable to offset futures interest positions of the Fund, the Fund could lose all of its assets and the limited partners would realize a 100% loss. The General Partner attempts to decrease market risk through maintenance of a margin-to-equity ratio that rarely exceeds 30%.
In addition to subjecting the Fund to market risk, upon entering into futures and forward currency contracts there is a risk that the counterparty will not be able to meet its obligations to the Fund. The counterparty for futures contracts traded in the U.S. 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 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.
In the case of forward currency contracts, which are traded on the interbank market rather than on exchanges, the counterparty is generally a single bank or other financial institution, rather than a group of financial institutions; thus there may be a greater counterparty risk. The General Partner utilizes only those counterparties that it believes to be creditworthy for the Fund. There can be no assurance, however, that any clearing member, clearinghouse or other counterparty will be able to meet its obligations to the Fund. All positions of the Fund are valued each day on a mark-to-market basis.
The Fund invests in U.S. Treasury securities, U.S. and foreign government sponsored enterprise notes, commercial paper, corporate notes, asset backed securities and certificates of deposit. Should an issuing entity default on its obligation to the Fund and such entity is not backed by the full faith and credit of the U.S. government, the Fund bears the risk of loss of the amount expected to be received. The Fund minimizes this risk by only investing in securities and certificates of deposit of firms with high quality debt ratings.
Results of Operations
The returns for each Series of Units for the years ended December 31, 2014 and 2013 were:
| Series of Units | 2014 | 2013 | ||||||
| Series A | 0.70 | % | (2.86 | )% | ||||
| Series B | 2.29 | % | (1.34 | )% | ||||
| Series C | 3.67 | % | 0.01 | % | ||||
| Series I | 2.94 | % | (0.74 | )% | ||||
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Results from past periods are not necessarily indicative of results that may be expected for any future period. Further analysis of the trading gains and losses is provided below.
2014
During the year ended December 31, 2014, the Fund experienced a net realized gain on futures and forwards trading of $2,531,394, a change in unrealized loss on futures and forwards trading of $381,135 and incurred brokerage commissions of $90,713, resulting in a net gain from futures and forwards trading of $2,059,546. The Fund’s expenses during the year ended December 31, 2014 consisted of $254,656 in selling agent, custodial and servicing fees, and $1,338,356 in offering and administrative expenses, of which $896,607 were waived. Additionally, the Fund incurred $354,269 in Trading Advisor management fees, $502,918 in Trading Advisor incentive fees, $21,143 in Cash Manager fees and a General Partner fee of $399,140. Interest income of $160,348 and net realized and change in unrealized loss on securities and certificates of deposit of $105,518, combined with Fund expenses resulted in net income of $140,501 for the year ended December 31, 2014.
During the year ended December 31, 2014, the Fund issued $2,271,315 of Units and redeemed $12,683,024 of Units, and when combined with the net income, resulted in a net decrease in the Fund’s net asset value for the year from $33,559,701 to $23,288,493.
Discussion of monthly performance for the year ended December 31, 2014 follows:
January
January saw a broad flight to safety, sparked by a sharp sell-off in emerging market currencies, as investors worried about the impact of Fed tapering and weak Chinese manufacturing on emerging economies. This heightened risk aversion quickly spread to developed markets, which saw declines in equity indices and rallies in bonds, gold and safe haven currencies. Meanwhile, in energy markets, natural gas prices surged due to freezing temperatures across the U.S.
January saw a reversal of many of the most profitable trends from the fourth quarter of 2013, resulting in negative performance for the Fund’s trend-following programs. In equity markets, the Fund’s long positions in the S&P 500 and Nikkei saw losses as global indices fell sharply. Although the Fund has historically been non-correlated to stocks over the long run, in the short term it can have positive or negative correlation depending on whether existing equity trends cause the Fund to be positioned long or short. In currencies, the Fund’s short Japanese yen position suffered as the exchange rate appreciated on safe haven buying. Elsewhere, choppiness in the Euro and Swiss franc also caused losses. The Fund did make gains in interest rates, where long positions in European bonds benefited from fund flows into fixed income markets. In agricultural commodities, the Fund also profited from the continued upward trend in the meat markets. Overall, the Fund finished the month with a loss of 3.36%, 3.24%, 3.13% and 3.19% for Series A, B, C and I Units, respectively.
February
In February, global equities rallied despite weakness in economic data caused by inclement weather. New Fed Chair Janet Yellen reassured investors that interest rate hikes would be unlikely in the current environment and that the gradual tapering of bond purchases would remain contingent on sustained labor market improvement. This relatively dovish stance raised bond prices and weakened the U.S. dollar. Energy prices surged during the month as unusually cold temperatures boosted demand in the U.S., while the escalating crisis in Ukraine threatened to disrupt European supply channels.
The Fund made its largest gains from rising energy markets through long positions in natural gas and crude oil. Additionally, the Fund profited from long positions in global bonds, which rallied on continued accommodative policy guidance from central banks. In currencies, the Fund benefited from long exposure to European exchange rates. Meanwhile, in the agricultural sector, the Fund profited from rising soybean prices due to a drought in Brazil. However, the metals sector caused losses as a rebound in gold and silver on U.S. dollar weakness hurt the Fund’s short positions. Overall, the Fund finished the month with a gain of 1.34%, 1.47%, 1.59% and 1.52% for Series A, B, C and I Units, respectively.
March
March was a choppy month in equity and energy markets, due to the Russia/Ukraine crisis and as China saw its first domestic corporate bond default in a sign of slowing growth. In the U.S., Fed Chair Yellen stirred up fixed income and currency markets by initially suggesting that interest rates hikes might come sooner than expected, then later backtracking on those comments.
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The Fund made gains in the agricultural sector, capitalizing on rising price trends in soybeans (due to poor weather in Brazil) and in lean hogs (due to a disease outbreak in the U.S.). However, uncertainty over both the health of China’s economy and the timing of Fed tightening caused whipsaw market action in global stocks, oil markets and U.S. bonds, which generated losses for trend-following strategies in those sectors. Overall, the Fund finished the month with a loss of 2.37%, 2.24%, 2.13% and 2.19% for Series A, B, C and I Units, respectively.
April
In April, equities initially sold off amid concerns over stock valuations and weak economic numbers. Optimism returned and global equities rallied mid-month with the Fed calming fears, stating that they remained committed to supportive monetary policy and noting than the recent weather-induced U.S. growth slowdown would be short-lived. Meanwhile, risks of deflation in Europe led to speculation that the ECB might resort to quantitative easing. In contrast, UK unemployment dipped below the Bank of England’s 7% threshold, prompting speculation that the BOE may begin raising interest rates. Tension surrounding Ukraine and sanctions on Russia drove many commodity markets higher on fears of supply disruptions.
The Fund recorded its largest gains in metals, specifically in nickel whose price rose to a 14-month high due to falling supply as Indonesia, the biggest nickel miner, had banned unprocessed ore exports earlier in the year. In currencies, gains were made from long positions in the British pound which rose to four year highs on speculation over interest rate hikes. However, this was offset by losses due to a reversal in the Japanese yen. The Fund saw its largest losses in equities due to an early sell off in stock indices, which then caused the Fund to cut its long positions and prevented it from fully benefiting from the market rebound going into month-end. Overall, the Fund finished the month with a loss of 1.61%, 1.48%, 1.37% and 1.43% for Series A, B, C and I Units, respectively.
May
In May, global bond markets rallied as 10-year yields fell to 1.4% in Germany and 2.5% in the U.S. In Europe, this move was driven by investor expectations of a near term interest rate cut and potential future quantitative easing by the European Central Bank to counteract weak economic growth and deflationary risks. Meanwhile in the U.S., Fed Chair Janet Yellen expressed concern over a weak housing recovery, suggesting the Fed could keep interest rates low for longer than previously anticipated. Equity markets interpreted these signals of continued easy monetary policy in a positive light, leading to gains in most developed market stock indices. Volatility in many asset classes continued to decline in May towards historic lows, as exemplified by the VIX index, which fell to the pre-crisis levels of 2007.
The Fund was well positioned to profit from the key moves in fixed income and equities during the month. The bulk of returns came from long positions in bonds, in particular the U.S. 10-year, the U.S. long bond and the Euro Bund. In equities, the largest gains came from long positions in European indices. The Fund had modest losses in currencies as the euro and British pound each saw a sell-off. Agricultural commodities also had a small giveback as upward trending grain prices reversed on improved weather and harvest prospects. Overall, the Fund finished the month with a gain of 1.65%, 1.78%, 1.89% and 1.83% for Series A, B, C and I Units, respectively.
June
In June, equity markets continued to set record highs as the Federal Reserve reiterated its dovish policy stance in light of a weaker U.S. growth outlook. Meanwhile European fixed income markets rallied as the European Central Bank imposed negative deposit rates to stem deflation and encourage bank lending. Only the Bank of England gave any indication that it could soon begin to raise interest rates, which led to further strengthening in the British pound. Violence escalated in the Middle East, as the militant ISIS group seized key regions in Iraq, pushing up oil prices on fears of a supply disruption.
The Fund recorded its largest gains for the month in long equity positions. The Fund profited in currency trading, particularly in the British pound, which rose on signals of a tightening bias at the Bank of England. The portfolio also capitalized on rising energy prices with its long oil positions. However, short positions in gold and silver lost money, as demand climbed for these safe haven assets on fears of a full-blown civil war in Iraq. Meanwhile, choppy price movements in U.S. fixed income markets whipsawed the Fund resulting in a small loss. In agricultural markets, long soybean positions were hurt as prices fell with U.S. farmers planting a record crop. These losses offset gains, leading the Fund to roughly flat performance for the month. Overall, the Fund finished the month with a loss of 0.14% for Series A, a flat 0.00% for Series B, a gain of 0.11% and 0.04% for Series C and I Units, respectively.
July
Despite small gains for U.S. equities in early July, a strong GDP report at month-end sparked fears that the Federal Reserve might tighten monetary policy sooner than expected, causing a sharp sell-off in stocks and bonds, as well as a rally in the U.S. dollar. Meanwhile, European equities were driven down by both tougher sanctions on Russia (hurting regional trade) and the collapse of a large Portuguese bank. In energy, crude oil prices fell for the month as supply disruptions due to the civil war in Iraq proved to be less than anticipated. In agricultural commodities, grain prices fell as record plantings and ideal weather in the U.S. drove expected supply levels higher.
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In July, metals and equities were the top performing sectors, as signs of a manufacturing rebound in China spurred rallies in both aluminum and the Hong Kong stock market, helping the Fund’s long positions. Trends in agricultural markets also proved profitable. In foreign exchange markets, the strong surge in the U.S. dollar against major currencies helped the Fund in its short euro position, but this was more than offset by losses from long positions in the Canadian dollar, the Australian dollar and the British pound. Bonds and energy both detracted from performance during the month, as long positions were hurt by price corrections in these two sectors. The Fund closed the month with a loss of 1.98% for Series A, 1.85% for Series B, 1.74% for Series C and 1.81% for Series I Units, respectively.
August
Global bond markets rallied strongly in August. In the U.S., weaker than expected employment numbers and a dovish speech from U.S. Federal Reserve Chairwoman Janet Yellen suggested the timing of interest rate hikes might be pushed further out. Meanwhile, Europe threatened to slip into deflation, prompting speculation that the European Central Bank might get more aggressive in its expansionary monetary policy. This fueled a rise in European debt prices and a depreciation of the Euro. In equity markets, tension between Ukraine and Russia caused an initial sell-off, but the expectation of continued support from central banks helped stock indices rebound sharply in the second half of the month.
In August, the interest rate sector was the top contributor to the Fund’s returns, as long exposures in U.S. and European bonds profited from a decline in yields. In currencies, the Fund made gains from a short position in the Euro, as expectations of further monetary easing pushed the currency to a year-to-date low. In equities, the fund benefited from a long position in the S&P 500 as equity markets rallied into month-end. The Fund closed the month with a gain of 3.11% for Series A, 3.24% for Series B, 3.36% for Series C and 3.29% for Series I Units, respectively.
September
Equity markets rose early in September but declined by month end on poor European economic data and concerns about Chinese growth. Fixed income markets sold off and the U.S. dollar rallied as the Federal Reserve Bank of San Francisco published a report suggesting that markets are underestimating the pace of future rate increases. The euro continued to weaken as the European Central Bank lowered interest rates further and introduced measures to combat low inflation.
In September, the Fund’s performance was primarily driven by a strong U.S. dollar. Short positions in the physical commodities gained as prices fell on dollar strength, particularly in crude oil and silver. In currencies, short positions in the euro and the Japanese yen against the U.S. dollar proved profitable, but gains were offset by losses on long positions in the Australian dollar which depreciated during the month. Global growth concerns weighed on equity prices which went against the Fund’s long positions. In the fixed income sector, rate increase worries hurt the fund’s long position in the U.S. 10-Year Note. The Fund closed the month with a loss of 0.43% for Series A, 0.30% for Series B, 0.20% for Series C and 0.25% for Series I Units, respectively.
October
During October, fears of a slowdown in global growth made for volatile financial markets. High unemployment and low inflation readings in Europe drove global equity markets and long-term bond yields lower. Fed meeting minutes showed a concern that the slowdown in Eurozone growth might negatively affect the U.S. economy, just as the Fed was concluding its quantitative easing program. Decreased demand expectations also brought commodity markets to multi-year lows. However, investor risk appetite was renewed mid-month following improved U.S. economic data and strong corporate earnings. Global stock markets and the U.S. dollar surged at month-end when the Bank of Japan announced an unexpected easing program, encouraging expectations for the European Central Bank to do the same.
The interest rate sector was the top contributor to performance, as long exposures in U.S. and European bonds profited from a decline in yields. In commodities, the Fund made gains from short positions in oil, which declined on fears of a global growth slowdown. In currencies, the Fund made profits in its short euro position, as expectations for monetary easing in the Eurozone pushed the currency to multi-year lows. The Fund recorded losses in its global equity positions as whipsaw markets prompted the Fund to reduce its long exposure after the initial sell-off, thus missing out on the sharp rebound going into month-end. The Fund closed the month with a gain of 1.19% for Series A, 1.32% for Series B, 1.44% for Series C and 1.42% for Series I Units, respectively.
November
In November, central banks in Europe, China and Japan signaled their intention to adopt additional stimulus measures to combat slowing economic growth, which pushed bond yields to new lows and boosted global equities. Comparatively stronger growth and tighter monetary policy in the U.S. caused the dollar to appreciate against other currencies, in particular the Japanese yen. Meanwhile, oil prices fell precipitously on low demand, growing shale supply and OPEC’s decision not to cut production.
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Fixed income trading contributed the Fund’s largest gains during the month, as long exposures in European bonds and interest rates profited from the European Central Bank’s anticipated monetary easing. The Fund recorded gains in its long equity positions as growing investor risk appetite caused indices to rally over the month. In commodities, the Fund was able to capitalize on the bear market in oil through its short positions. The Fund also took advantage of the rising U.S. dollar to make a profit in currencies and closed the month with a gain of 4.33% for Series A, 4.47% for Series B, 4.59% for Series C and 4.52% for Series I Units, respectively.
December
December began with a rise in investor risk aversion over Europe’s economic woes and Japan’s slide back into recession. Global equities sold off sharply in the first half of the month, while bonds rallied. Oil prices continued to trend downwards, as OPEC resisted production cuts despite weakening demand projections. Russia suffered collateral damage as shrinking oil revenues caused a run on the ruble, requiring an emergency interest rate hike to avoid further collapse. In contrast, U.S. economic growth remained strong, helping the U.S. dollar appreciate against most global currencies. Falling energy prices allowed the Fed to emphasize “patience” in its guidance on future interest rate increases, which improved sentiment and fueled a stock market rebound in the second half of the month.
The Fund saw gains in December from long positions in Japanese and European bonds, which rallied on expectations of further central bank easing. The Fund also profited from short positions in energy and long positions in the U.S. dollar. However, these were offset by losses in equity markets where whipsaw reversals during the month hurt trend-following programs. The Fund closed the month with a loss of 0.74% for Series A, 0.62% for Series B, 0.51% for Series C and 0.57% for Series I Units, respectively.
2013
During the year ended December 31, 2013, the Fund experienced a net realized gain on futures and forwards trading of $1,666,379, a change in unrealized gain on futures and forwards trading of $146,893 and incurred brokerage commissions of $142,559, resulting in a net gain from futures and forwards trading of $1,670,713. The Fund’s expenses during the year ended December 31, 2013 consisted of $344,179 in selling agent, custodial and servicing fees, and $1,396,340 in offering and administrative expenses, of which $715,426 were waived. Additionally, the Fund incurred $499,206 in Trading Advisor management fees, $112,352 in Trading Advisor incentive fees, $31,464 in Cash Manager fees and a General Partner fee of $613,444. Interest income of $293,986 and net realized and change in unrealized loss on securities and certificates of deposit of $160,371, combined with Fund expenses resulted in net loss of $477,231 for the year ended December 31, 2013.
During the year ended December 31, 2013, the Fund issued $5,818,965 of Units and redeemed $21,785,777 of Units, and when combined with the net loss, resulted in a net decrease in the Fund’s net asset value for the year from $50,003,744 to $33,559,701.
Discussion of monthly performance for the year ended December 31, 2013 follows:
January
Spurred on by the resolution of the U.S. “fiscal cliff” negotiations, markets began 2013 with a strong risk appetite. This led to a rally in global equities and industrial commodities and caused a sell-off in safe haven bonds. In Europe, investors gained confidence that the region’s sovereign debt crisis had been contained, helping the euro strengthen against other currencies. Meanwhile, Japan’s new government implemented a stimulus program consisting of major fiscal spending, coupled with measures to weaken the yen to help the country’s exporters.
The Fund started the year on a positive note, as it profited from long positions in stock indices and energy, as well as long positions in the euro and short positions in the Japanese yen. These gains were partially offset by losses from long fixed income positions, as bond yields and interest rates climbed during the month. Overall, the Fund finished the month with a gain of 2.59%, 2.72%, 2.84% and 2.77% for Series A, B, C and I Units, respectively.
February
Although February began with a continuation of January’s risk-seeking market trends, the second half of the month saw “risk-off” price reversals across many sectors. Weak European data signaled a region-wide economic contraction. The UK suffered a credit rating downgrade as it is on the verge of a triple-dip recession. Meanwhile, Italian voters toppled the country’s incumbent government with an election result that repudiated austerity as a means of managing Europe’s sovereign debt crisis. In the U.S., minutes from the most recent Fed meeting hinted at a sooner than expected slowdown of monetary stimulus, frightening investors who anticipated longer term quantitative easing.
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The Fund entered February with “risk-on” exposures in many of the markets it trades, including long positions in equities, industrial commodities, the euro and high-yielding currencies. February’s market reversals caused losses in a number of these positions. The largest losses came from energy, as oil prices fell late in the month on concerns over global demand as well as U.S. supply hitting a 20-year high due to shale fracking. In currencies, the decline of the euro detracted from performance. The Fund did however make gains in fixed income with long positions in Japanese bonds. In the agricultural sector, easing drought conditions in the Midwest lowered wheat prices, helping the Fund’s short position. In metals, the Fund made profits from a short position in gold, offsetting losses in base metals. Overall, the Fund finished the month with a loss of 1.05%, 0.92%, 0.81% and 0.87% for Series A, B, C and I Units, respectively.
March
In March, financial headlines were dominated by the banking crisis in Cyprus. Eurozone members led by Germany made the release of bailout funds contingent on a Cypriot financial contribution through a one-time “tax” on bank deposits. This action sparked protests over the plan’s fairness. A last minute compromise deal exempted smaller insured deposits from capital seizure. Investors feared that the Cyprus bailout might create a precedent for haircutting depositors at troubled banks in Spain and Italy. This prompted a sell-off in the euro, a slide in southern European stock markets and a rally in safe haven German bunds. Meanwhile, in the U.S., equities climbed with largely positive economic data and a statement from Fed Chairman Bernanke that he saw no evidence of a stock bubble. In Japan, monetary easing by the Abe government continued, boosting bond and equity markets and depreciating the yen.
The Fund profited in the currency sector in March, particularly from a long position in the Mexican peso. The Fund also gained from a fall in industrial metals prices, with short positions in aluminum and copper, as investors worried about the impact of a clampdown on Chinese property speculation. Profits were also made from long positions in stocks, especially in the U.S. The Fund was down slightly in fixed income as gains from being long Japanese bonds were offset by losses in the choppy U.S. bond market. The Fund finished the month with a net profit of 0.89%, 1.02%, 1.14% and 1.07% for Series A, B, C and I Units, respectively.
April
April, economic data in China confirmed a slowdown in growth, while U.S. GDP estimates for the first quarter were weaker than expected. This led to a sell-off in industrial commodities such as energy and base metals, and a rally in Treasury bonds. The price of gold tumbled mid-month, triggered by reports that Cyprus might sell part of its gold reserves to pay down the country’s debt. Furthermore, the current absence of global inflation has reduced the attractiveness of precious metals that are often used as a hedge against inflation. Meanwhile, the Japanese central bank continued its policy of monetary stimulus, further weakening the yen and boosting the Nikkei stock index.
The Fund entered the month with short positions in gold and copper, which profited on the decline in precious and base metals prices. The Fund also had a positive contribution from its long bond positions, particularly in the U.S., where the fixed income market rallied on disappointing economic growth. Partly offsetting these gains were losses from long exposures to declining oil markets, as well as from trend reversals in agricultural markets such as corn. Overall, the Fund finished the month with a profit of 2.38%, 2.51%, 2.63% and 2.56% for Series A, B, C and I Units, respectively.
May
In May, improving economic data in the U.S. drove stock indices higher, but also prompted the Fed to signal that it might soon taper its quantitative easing program. Fixed income markets reacted negatively to the prospect of a reduction in the Fed’s $85 billion in monthly purchases of Treasury bonds and mortgage-backed securities. U.S. 10-year Treasury bond yields jumped 46 basis points from 1.67% to 2.13% during the month, while international bond markets also sold off. Meanwhile in Japan, the high flying Nikkei index, which at one point was up 50% on the year, fell abruptly by 13% over the last 9 days of the month. This was caused by investors taking profits after signs of slowing Chinese growth and impending U.S. monetary tightening.
May proved to be a challenging month for the Fund’s trend-following strategies. The majority of losses were a result of sharp declines in global bond markets, particularly in the U.S. and Europe, which hurt the Fund’s long positions. The Fund’s trading systems responded by cutting back bond positions substantially, standing ready to reposition as new trends emerge, whether bullish or bearish. In energy markets, long positions in natural gas suffered as prices declined on higher than expected inventory levels. The Fund did however make a profit in equity indices through its long positions across the globe. The Fund was also positive in agricultural commodities, benefitting from a rally in soybeans. Overall, the Fund finished the month with a loss of 2.40%, 2.27%, 2.16% and 2.22% for Series A, B, C and I Units, respectively.
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June
In June, the Fed reaffirmed its desire to phase out its quantitative easing program as long as U.S. economic data continues to improve. Markets interpreted this as the beginning of the end of an era of ultra-easy monetary policy. As a result, global equities and bonds sold off sharply. Ironically, the largest stock market declines were not in the U.S. Prospective tightening by the U.S. Federal Reserve had a greater impact in Europe, where the economic recovery lags the U.S., and in Asia and emerging markets, where a slowdown in China also worried investors. Meanwhile, the Fed’s new stance caused gold prices to plummet to levels last seen in 2010, as the risk of inflation due to loose monetary conditions diminished. The market moves in June were a continuation of the sharp and sudden trend reversals that began at the end of May.
These price patterns are particularly difficult for trend-following systems to navigate. The Fund came into June with long exposure to global equities. Although these positions were reduced significantly over the month, the Fund nevertheless saw losses in this sector, particularly in Europe and Canada. In currencies, choppy price movements in the euro and British pound sterling against the U.S. dollar were also a detriment to performance. Losses in bonds and interest rates were muted in June, despite the market sell-off, as the Fund had unwound most of its long positions relatively early in the month. By the end of the month, most of the Fund’s trading advisors had systematically moved to net short positions in fixed income instruments. On the positive side, the Fund was able to profit from the downward trend in precious metals, such as gold and silver, as well as in industrial metals, such as copper. Overall, the Fund finished the month with a loss of 3.28%, 3.16%, 3.05% and 3.11% for Series A, B, C and I Units, respectively.
July
In July, global equity indices rebounded from their losses in the prior month. This was a result of central banks seeking to reassure skittish investors that they would wait to pull back on monetary easing until an economic recovery became more firmly established. In the U.S., investors came to believe that the imminent tapering of the Fed’s quantitative easing program may be more gradual than previously thought, as Bernanke softened his tone on potential tightening amid still modest economic growth and low inflation. Meanwhile, the European Central Bank announced that interest rates would stay at current levels or lower for an extended period. Gold and bond markets saw a bounce as a result. In energy markets, surprisingly high summer demand in the U.S. coupled with lower inventories caused WTI crude oil prices to jump to a 16-month high of $108/barrel.
The Fund profited from long equity positions, particularly in the U.S. However, the size of these gains was tempered by the fact that our trend-following managers had trimmed their exposures after stock market declines in the previous month. Offsetting these profits were losses from short positions in metals, as gold prices reversed from their downward trend. Overall, the Fund finished the month with a loss of 1.19%, 1.07%, 0.96% and 1.02% for Series A, B, C and I Units, respectively.
August
August saw continued positive economic data in the U.S. and early signs of a recovery in the Eurozone, where a positive second quarter GDP report marked the end of an 18-month recession in the region. This raised the risk of near-term monetary policy tightening, which caused bond yields to rise across developed markets and weighed on equity indices. In the latter half of the month, political tensions escalated in the Middle East. The U.S. and France threatened to intervene in Syria’s civil war, causing a sell-off in stocks and a rally in oil and gold.
In August, the Fund’s short positions in metals suffered losses, as stronger than expected Chinese industrial production caused a rebound in base metal prices, while the Syrian crisis boosted demand for precious metals. The currency sector also detracted from performance as a result of choppy movements in European exchange rates. Meanwhile, the Fund saw a negative contribution from long positions in equity indices as global stock markets fell, with the S&P 500 seeing its biggest monthly decline since May 2012. On the positive side, the Fund’s long energy positions were able to profit from the rise in oil prices. Overall, the Fund finished the month with a loss of 3.90%, 3.78%, 3.67% and 3.73% for Series A, B, C and I Units, respectively.
September
In September, the Federal Reserve surprised markets by delaying a much anticipated “tapering” of its quantitative easing program until there are more signs of a robust U.S. economic recovery. The Fed’s decision boosted stock indices, lowered bond yields and weakened the U.S. dollar. Meanwhile, oil prices fell as the U.S. backed away from military intervention in Syria, following the Assad regime’s acceptance of a chemical disarmament proposal. Towards the end of the month, a breakdown in U.S. budget and debt ceiling negotiations caused a sell-off in equities ahead of a government shutdown.
The Fund profited in September from long exposure to rising equity indices, although the political impasse over the U.S. budget led to a giveback of some of the stock gains from early in the month. The Fund’s main losses came from long positions in the energy sector, as oil prices fell from their highs with an easing of the Syrian crisis. The Fund also saw small losses in metals and agricultural commodities. In currencies, gains from long positions in the Euro and British pound were more than offset by losses from whipsawing in the Mexican peso and short positions in the Australian dollar and Canadian dollar. Overall the Fund finished the month with a loss of 1.46%, 1.33%, 1.22% and 1.28% for Series A, B, C and I Units, respectively.
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October
In October, a budget stalemate in Washington caused a government shutdown and threatened to trigger a sovereign default as the U.S. hovered at its debt ceiling. An agreement reached mid-month reopened government offices and extended the nation’s borrowing capacity until February 2014. As a result, global equities rallied, with the S&P 500 rising to all-time highs. Amid a dysfunctional fiscal policy environment with weak employment growth, the Federal Reserve decided to maintain its current level of bond purchases through its quantitative easing program and pushed out the likely start of monetary tightening further into the future. Meanwhile, in energy markets, crude oil prices fell from their highs reached during the Syrian crisis while natural gas was down on warmer temperature forecasts for the fall season.
The Fund enjoyed strong gains in its long equity positions on the back of rallies in the U.S. and European stock markets. In the fixed income sector, interest rates and bond yields fell, benefiting the Fund’s long positions, particularly in German and Japanese bonds. These gains outweighed losses sustained on trend reversals in cotton, gold and currencies including the Australian dollar and British pound, allowing the Fund to end the month with gain of 1.65%, 1.78%, 1.90% and 1.83% for Series A, B, C and I Units, respectively.
November
Global equity markets continued their broad- based rally in November, as positive economic news in the U.S. outweighed potentially bearish Fed comments that suggested it could begin to taper its quantitative easing program in future months. Meanwhile, the European Central Bank added to its monetary stimulus with a surprise cut in interest rates. Elsewhere, the Bank of Japan signaled it would continue its expansionary monetary policy, which resulted in the Japanese yen falling to new lows. In commodity markets, precious metals declined in anticipation of Fed tightening, while some energy markets rallied due to higher demand from unseasonably cold weather.
The Fund profited from the global stock rally, with the largest gains coming from long positions in the S&P 500 and DAX indices. In currencies, the Fund garnered strong returns through a short position in the depreciating Japanese yen. However, a short position in Brent crude oil saw losses as priced reversed their downward trend. The Fund closed the month with a gain of 1.17%, 1.30%, 1.42% and 1.36% for Series A, B, C and I Units, respectively.
December
In December, equities initially fell as strong U.S. economic performance heightened concerns that the Federal Reserve might unwind its quantitative easing program more sharply than previously expected. However, the Fed allayed the worst of investors’ fears by announcing a moderate $10B reduction in monthly bond purchases, while also signaling that it would keep short-term interest rates low through 2015. This prompted a relief rally in global stock indices into the year-end. Elsewhere, the European Union received a credit rating downgrade, but saw stronger than expected economic growth data. In Asia, the Japanese yen fell to multi-year lows on the belief that the Bank of Japan would continue its monetary easing program.
The Fund made its largest gains during the month in currencies, primarily through short positions in the Japanese yen, which profited from a continued depreciation of the currency. Long equity index positions also generated positive returns as stocks rebounded in the second half of the month. In metals, short gold positions led to gains as prices trended lower. However, the Fund saw losses in the fixed income sector, particularly in long positions in short and medium term instruments, which sold off as the Fed began to taper its monetary stimulus. The Fund closed the month with a gain of 1.99%, 2.13%, 2.24% and 2.18% for Series A, B, C and I Units, respectively.
Significant Accounting Estimates
A summary of the Fund’s significant accounting policies are included in Note 1 to the Financial Statements.
The Fund’s most significant accounting policy is the valuation of its assets invested in U.S. and foreign futures and forward currency contracts, and fixed income investments. The Fund’s futures contracts are exchange-traded, with the fair value of these contracts based on exchange settlement prices. The fair values of non-exchange-traded contracts, such as forward currency contracts, are based on third-party quoted dealer values on the interbank market. The fair value of money market funds is based on quoted market prices for identical shares. U.S. Treasury securities are stated at fair value based on quoted market prices for identical assets in an active market. Notes of U.S. and foreign government sponsored enterprises, as well as certificates of deposit, commercial paper, asset backed securities and corporate notes, are stated at fair value based on quoted market prices for similar assets in an active market. Given the valuation sources, there is little judgment or uncertainty involved in the valuation of these assets, and it is unlikely that materially different amounts would be reported under different valuation methodologies or assumptions.
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| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk |
A smaller reporting company, as defined by Rule 12b-2 of the 1934 Act, is not required to provide the information under this item.
| Item 8. | Financial Statements and Supplementary Data |
Financial statements meeting the requirements of Regulation S-X appear in Part IV of this report. A smaller reporting company, as defined by Rule 12b-2 of the 1934 Act, is not required to provide the supplementary data under this item.
| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosures |
None.
| Item 9A. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
The General Partner of the Fund, with the participation of its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Fund’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the 1934 Act) as of December 31, 2014 (“Evaluation Date”). Based on their evaluation, the Chief Executive Officer and Chief Financial Officer of the General Partner concluded that, as of the Evaluation Date, the Fund’s disclosure controls and procedures were effective.
Any control system, no matter how well designed and operated, can provide only reasonable (not absolute) assurance that its objectives will be met. Furthermore, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.
Management’s Annual Report on Internal Control over Financial Reporting
The management of the General Partner is responsible for establishing and maintaining adequate internal control over financial reporting by the Fund. The Fund’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the U.S. The Fund’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Fund; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the U.S., and that receipts and expenditures of the Fund are being made only in accordance with authorizations of management of the Fund; and (iii) 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 financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention of overriding controls. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Also, 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.
Management assessed the effectiveness of the Fund’s internal control over financial reporting as of December 31, 2014, based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework published in 1992. Based on that assessment, management concluded that, as of December 31, 2014, the Fund’s internal control over financial reporting is effective based on the criteria established in Internal Control-Integrated Framework published in 1992.
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Changes in Internal Control Over Financial Reporting
There has been no change in internal control over financial reporting (as defined in the Rules 13a-15(f) and 15d-15(f) of the 1934 Act) that occurred during the Fund’s last fiscal quarter that has materially affected or is reasonably likely to materially affect, the Fund’s internal control over financial reporting.
| Item 9B. | Other Information |
None.
| Item 10. | Directors, Executive Officers and Corporate Governance |
Directors and Executive Officers
The Fund itself has no directors or officers and has no employees. It is managed by the General Partner in its capacity as general partner. The Kenneth E. Steben Revocable Trust, dated January 29, 2008, (“Trust”) is the primary shareholder of the General Partner and Mr. Kenneth E. Steben is the sole trustee and beneficiary of the Trust. The principals, directors and executive officers of the General Partner are Kenneth E. Steben, Michael D. Bulley, Carl A. Serger and Francine Rosenberger. Their respective biographies are set forth below.
Kenneth E. Steben is the General Partner’s founder, President and Chief Executive Officer. Additionally, he is Chairman of the board of directors of the General Partner. Mr. Steben, born in January 1955, received his Bachelor’s Degree in Interdisciplinary Studies, with a concentration in Accounting in 1979 from Maharishi University of Management. Mr. Steben has been a licensed stockbroker since 1981 and a licensed commodities broker since 1983. Mr. Steben holds his Series 3, 5, 7, 24, 63 and 65 FINRA and NFA licenses. Mr. Steben has been a CFTC listed Principal, and registered as an Associated Person since March 15, 1989.
Michael D. Bulley is Senior Vice President of Research and Risk Management, and a Director. Mr. Bulley is a CAIASM designee and Member of the Chartered Alternative Investment Analyst Association®. Mr. Bulley, born in October 1957, received his Bachelor’s Degree in Electrical Engineering from the University of Wisconsin – Madison in 1980 and his Master’s in Business Administration with a concentration in Finance from Johns Hopkins University in 1998. Mr. Bulley joined the General Partner in November 2002, and holds Series 3, 7, 28 and 30 FINRA licenses. Mr. Bulley has been a CFTC listed Principal and registered as an Associated Person of the General Partner since January 18, 2003.
Carl A. Serger is Chief Financial Officer and a Director. Mr. Serger joined the General Partner in December of 2009 and has been listed as a CFTC Principal of the General Partner since February 2, 2010. Mr. Serger, born in March 1960, graduated cum laude from Old Dominion University with a BS in Business Administration and has a Technology Management Certification from the California Institute of Technology. Prior to joining the General Partner, Mr. Serger was the CFO and Senior Vice President of Operations of Peracon, Inc., a software platform for institutional commercial real estate transactions from November 2007 through November 2009. From July 2007 to November 2007, he acted as an independent consultant to start-up companies in the financial services and technology industries. From January 2007 to July 2007, Mr. Serger was the CFO, Senior Vice President and Treasurer of Ebix, Inc., an international software company serving the financial services and insurance industries. From October 2006 through December 2006, he was President of Finetre Corporation, a division of Ebix, Inc. From December 1999 until its October 2006 acquisition by Ebix, Inc., Mr. Serger was the CFO, Senior Vice President and Treasurer of Finetre Corporation, a financial technology platform company providing services to major brokerage firms, banks and insurance companies. Mr. Serger holds a Series 28 FINRA license.
Francine Rosenberger is General Counsel. Ms. Rosenberger, born in October 1967, earned her Bachelor of Arts from Juniata College in 1989, and graduated magna cum laude, with a J.D., from The Columbus School of Law at Catholic University in 1995. Prior to joining the General Partner, Ms. Rosenberger was in the Investment Management practice at the law firm of K&L Gates from September 1995 until January 2013. At K&L Gates, Ms. Rosenberger specialized in the formation, structuring and operation of investment companies, ETFs, and commodity pools. She has been a CFTC listed Principal of the General Partner since March 7, 2013.
Kenneth E. Steben Revocable Trust, dated January 29, 2008, has been a CFTC listed Principal of the General Partner since March 10, 2008. The Trust is the majority shareholder of the General Partner. Kenneth E. Steben is the sole beneficiary of the Trust and serves as its sole trustee. A biography of Mr. Steben is set forth above.
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Since May 11, 1989, Steben & Company, Inc. has acted as a general partner to a Maryland limited partnership, Futures Portfolio Fund, Limited Partnership, an SEC registrant under the 1934 Act whose shares are privately offered. Since August 1, 2013, the General Partner has acted as the general partner for Steben Select Multi-Strategy Partners, L.P., a privately offered investment fund. Since August 1, 2013, the General Partner has been the Investment Manager for Steben Select Multi-Strategy Master Fund, a privately offered closed-end fund. Since January 1, 2014, the General Partner acts as the investment manager for Steben Select Multi-Strategy Fund, a publicly offered closed-end fund. And, since April 2014, the General Partner acts as the investment manager for the Steben Managed Futures Strategy Fund, an open-ended mutual fund. Because Steben & Company, Inc. serves as the sole general partner or manager of all of these funds, the officers and directors of Steben & Company, Inc. effectively manage them as officers and directors of the respective funds.
Significant Employees
The General Partner is dependent on the services of Mr. Steben and key management personnel. If Mr. Steben’s services became unavailable, another principal of the firm or a new principal (whose experience cannot be known at this time) will need to take charge of the General Partner.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the 1934 Act requires that reports of beneficial ownership of limited partner interests and changes in such ownership be filed with the SEC by Section 16 “reporting persons.” The Fund is required to disclose in this Annual Report on Form 10-K each reporting person whom it knows to have failed to file any required reports under Section 16(a) on a timely basis during the fiscal year ended December 31, 2014. During the fiscal year ended December 31, 2014, all reporting persons complied with all Section 16(a) filing requirements applicable to them.
Code of Ethics
The General Partner, on behalf of the Fund, has adopted a code of ethics, as of the period covered by this report, which applies to the Fund’s principal executive officer and principal financial officer or persons performing similar functions. A copy of the code of ethics is available without charge upon request by calling 240-631-7600.
| Item 11. | Executive Compensation |
The Fund does not itself have any officers, directors or employees. The managing officers of the General Partner are remunerated by the General Partner in their respective positions. The directors and managing officers of the General Partner receive no other compensation from the Fund. The Fund does not and will not make any loans to the General Partner, its affiliates, or their respective officers, directors or employees.
As compensation for its services in managing the Fund, the General Partner earns the following compensation:
| § | General Partner Fee – each Series of Units, except for General Partner Units, incurs a monthly fee equal to 1/12th of 1.5% of the respective Series’ month-end net asset value, prorated for partial months and adjusted for weekly subscriptions and redemptions, and payable in arrears. During 2014 and 2013, the General Partner earned $399,140 and $613,444, respectively. |
| § | Selling Agent Fees – the Series A Units incur a monthly fee equal to 1/12th of 2% of their month-end net asset value, prorated for partial months and adjusted for weekly subscriptions and redemptions, and payable in arrears. The General Partner pays to the selling agents an upfront fee of 2% of the aggregate subscription amount for the Series A Units. Beginning in the 13th month, the General Partner pays the selling agents a monthly fee in arrears equal to 1/12th of 2% of the outstanding Series A Unit’s month-end net asset value. If there is no designated selling agent or the General Partner was the selling agent, such portions of the selling agent fees are retained by the General Partner. During 2014 and 2013, the General Partner earned $206,362 and $273,527, respectively. |
| § | Broker Dealer Servicing Fee – the Series A Units incur a monthly fee equal to 1/12th of 0.15% of their month-end net asset value, prorated for partial months and adjusted for weekly subscriptions and redemptions. The Series B Units which are not subject to a broker dealer custodial fee incur a monthly fee equal to 1/12th of 0.6% of their month-end net asset value, prorated for partial months and adjusted for weekly subscriptions and redemptions. These fees are payable in arrears to the selling agents by the General Partner. Where the General Partner acts as the selling agent, it retains these fees. During 2014 and 2013, the General Partner earned $21,830 and $28,442, respectively. |
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| § | Broker Dealer Custodial Fee – the Series B Units that are held by broker dealers who act as the custodian for Series B Units for the benefit of the limited partners incur a fee equal to 1/12th of 0.6% of their month-end net asset value, prorated for partial months and adjusted for weekly subscriptions and redemptions. These fees are payable to the selling agents by the General Partner. During 2014 and 2013, the General Partner earned $26,464 and $42,210, respectively. |
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
At February 28, 2015, no person or group is known to have been the beneficial owner of more than 5% of the Units.
At February 28, 2015, the General Partner had an investment in the Fund of $860,424 (7,460.6309 units), and the directors, executive officers and principals of the General Partner beneficially owned Series I Units as follows:
| Name | Units Owned | Value of Units | Percentage of Limited Partnership | |||||||||
| Carl A. Serger | 424.9689 | $ | 42,902 | 0.18 | % | |||||||
| Michael D. Bulley | 211.7543 | 21,377 | 0.09 | % | ||||||||
| 636.7232 | $ | 64,279 | 0.27 | % | ||||||||
The address of each director and officer is c/o Steben & Company, Inc., 9711 Washingtonian Blvd., Suite 400, Gaithersburg, Maryland 20878.
There has been no change of control of the Fund.
| Item 13. | Certain Relationships and Related Transactions, and Director Independence |
See “Item 1. Business” for a description of the relationships between the General Partner, the Fund, the Trading Advisors, the futures brokers and forward currency counterparty and the Cash Managers. See “Item 10. Executive Compensation” and “Item 11. Security Ownership of Certain Beneficial Owners and Management.”
| Item 14. | Principal Accountant Fees and Services |
The following table sets forth the fees billed to the Fund for professional audit services provided by McGladrey LLP, the Fund’s independent registered public accountant, for the audits of the Fund’s annual financial statements for the years ended December 31, 2014 and 2013, and fees billed for other professional services rendered by McGladrey LLP during those years.
| Fee Category | 2014 | 2013 | ||||||
| Audit fees(1) | $ | 112,200 | $ | 92,500 | ||||
| Audit-related fees | — | — | ||||||
| Tax fees(2) | 14,400 | 11,000 | ||||||
| All other fees | — | — | ||||||
| Total fees | $ | 126,600 | $ | 105,500 | ||||
| (1) | Audit fees consist of fees for professional services rendered for the audit of the Fund’s financial statements and review of financial statements included in the Fund’s quarterly reports, as well as services normally provided by the independent accountant in connection with statutory and regulatory filings or engagements. |
| (2) | Tax fees consist of fees for the preparation of original tax returns. |
The General Partner’s Board of Directors pre-approves all audit and permitted non-audit services of the Fund’s independent accountants, including all engagement fees and terms. The General Partner’s Board of Directors approved all the services provided by McGladrey LLP during 2014 and 2013 to the Fund described above. The General Partner’s Board of Directors has determined that the payments made to McGladrey LLP for these services during 2014 and 2013 are compatible with maintaining that firm’s independence.
| 25 |
| Item 15 | Exhibits and Financial Statements Schedules |
Financial Statements
Seneca Global Fund, L.P.
Report of Independent Registered Public Accounting Firm
Statements of Financial Condition as of December 31, 2014 and 2013
Condensed Schedule of Investments as of December 31, 2014
Condensed Schedule of Investments as of December 31, 2013
Statements of Operations for the Years Ended December 31, 2014 and 2013
Statements of Cash Flows for the Years Ended December 31, 2014 and 2013
Statements of Changes in Partners’ Capital (Net Asset Value) for the Years Ended December 31, 2014 and 2013
Notes to Financial Statements
Exhibits.
The following exhibits are filed herewith or incorporated by reference.
| Exhibit No. | Description of Exhibit |
| 1.1(a) | Form of Selling Agreement |
| 4.1(d) | Fourth Amended and Restated Limited Partnership Agreement |
| 9.1(c) | Delaware Amended and Restated Certificate of Limited Partnership |
| 10.1(d) | Form of Subscription Agreement |
| 10.8(e) | Trading Advisory Agreement with Quantitative Investment Management, LLC |
| 10.9(f) | Trading Advisory Agreement with Winton Capital Management, Ltd. |
| 10.10(g) | Trading Advisory Agreements with FORT, L.P. and Quantica Capital AG |
| 31.01 | Certification of Chief Executive Officer of the General Partner in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 |
| 31.02 | Certification of Chief Financial Officer of the General Partner in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 |
| 32.01 | Certification of Chief Executive Officer of the General Partner in accordance with Section 906 of the Sarbanes-Oxley Act of 2002 |
| 32.02 | Certification of Chief Financial Officer of the General Partner in accordance with Section 906 of the Sarbanes-Oxley Act of 2002 |
| 101.INS | XBRL Instance Document |
| 101.SCH | XBRL Taxonomy Extension Schema Document |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
| (a) | Previously filed as an exhibit to Pre-Effective Amendment No. 3 to the Registration Statement on Form S-1 (SEC File No.: 333-148049) on May 23, 2008, and incorporated herein by reference. |
| (c) | Previously filed on May 3, 2011 with Form 8-K (File No. 000-53453), and incorporated herein by reference. |
| (d) | Previously filed on August 15, 2011 as an exhibit to the Post-Effective Amendment No. 1 to the Registration Statement on Form S-1 (Reg. No. 333-175052), and incorporated herein by reference. |
| (e) | Previously filed on March 28, 2013 as an exhibit to Form 10-K (File No. 000-53453), and incorporated herein by reference. |
| (f) | Previously filed on March 28, 2014 as an exhibit to Form 10-K (File No. 000-53453), and incorporated herein by reference. |
| (g) | Previously filed on Registration Statement on Form S-1 (SEC File No. 333-198439) on August 28, 2014, and incorporated herein by reference. |
| 26 |
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the General Partner of the Registrant in the capacities and on the date indicated.
| Name | Title | Date |
|
/s/ Kenneth E. Steben Kenneth E. Steben |
President, Chief Executive Officer and Director of the General Partner | March 26, 2015 |
|
/s/ Carl A. Serger Carl A. Serger |
Chief Financial Officer and Director of the General Partner | March 26, 2015 |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Dated March 26, 2015 | SENECA GLOBAL
FUND, L.P. | |
| By: | Steben & Company, Inc. | |
| General Partner | ||
| By: | /s/ Kenneth E. Steben | |
| Name: | Kenneth E. Steben | |
| Title: | President, Chief Executive Officer and | |
| Director of the General Partner | ||
| 27 |
Report of Independent Registered Public Accounting Firm
To the Partners of
Seneca Global Fund, L.P.
We have audited the accompanying statements of financial condition, including the condensed schedules of investments, of Seneca Global Fund, L.P. (the “Fund”), as of December 31, 2014 and 2013, and the related statements of operations, cash flows, and changes in partners’ capital (net asset value) for the years 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 Seneca Global Fund, L.P. as of December 31, 2014 and 2013, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.
/s/ McGladrey LLP
Chicago, Illinois
March 26, 2015
| F-1 |
Seneca Global Fund, L.P.
Statements of Financial Condition
December 31, 2014 and 2013
| 2014 | 2013 | |||||||
| Assets | ||||||||
| Equity in broker trading accounts | ||||||||
| Cash | $ | 5,200,629 | $ | 10,049,111 | ||||
| Net unrealized gain (loss) on open futures contracts | 865,785 | 1,166,626 | ||||||
| Net unrealized gain (loss) on open forward currency contracts | (74,851 | ) | 5,443 | |||||
| Total equity in broker trading accounts | 5,991,563 | 11,221,180 | ||||||
| Cash and cash equivalents | 3,479,863 | 5,265,305 | ||||||
| Investments in securities, at fair value | 14,902,985 | 18,124,799 | ||||||
| Certificates of deposit, at fair value | — | 250,730 | ||||||
| Total assets | $ | 24,374,411 | $ | 34,862,014 | ||||
| Liabilities and Partners’ Capital (Net Asset Value) | ||||||||
| Liabilities | ||||||||
| Trading Advisor management fees payable | $ | 33,513 | $ | 70,628 | ||||
| Trading Advisor incentive fees payable | 425,408 | 112,352 | ||||||
| Commissions and other trading fees payable on open contracts | 3,041 | 4,923 | ||||||
| Cash Manager fees payable | 4,976 | 5,769 | ||||||
| General Partner fee payable | 28,103 | 41,389 | ||||||
| Selling Agent fees payable – General Partner | 16,781 | 19,416 | ||||||
| Administrative expenses payable – General Partner | 18,422 | 26,737 | ||||||
| Offering expenses payable – General Partner | 12,550 | 19,163 | ||||||
| Broker dealer custodial fee payable – General Partner | 1,824 | 2,977 | ||||||
| Broker dealer servicing fee payable – General Partner | 1,768 | 2,081 | ||||||
| Redemptions payable | 442,664 | 934,506 | ||||||
| Subscriptions received in advance | 96,868 | 62,372 | ||||||
| Total liabilities | 1,085,918 | 1,302,313 | ||||||
| Partners’ Capital (Net Asset Value) | ||||||||
| General Partner Units – 7,460.6309 units outstanding at December 31, | ||||||||
| 2014 and 2013, respectively | 836,215 | 794,660 | ||||||
| Series A Units – 141,154.3626 and 164,417.4673 units outstanding | ||||||||
| at December 31, 2014 and 2013, respectively | 10,103,311 | 11,687,076 | ||||||
| Series B Units – 54,209.8546 and 86,507.9830 units outstanding | ||||||||
| at December 31, 2014 and 2013, respectively | 4,525,734 | 7,060,706 | ||||||
| Series C Units – 26,534.5412 and 27,732.4319 units outstanding at | ||||||||
| December 31, 2014 and 2013, respectively | 2,506,469 | 2,526,789 | ||||||
| Series I Units – 53,985.4271 and 120,105.4790 units outstanding | ||||||||
| at December 31, 2014 and 2013, respectively | 5,316,764 | 11,490,470 | ||||||
| Total partners’ capital (net asset value) | 23,288,493 | 33,559,701 | ||||||
| Total liabilities and partners’ capital (net asset value) | $ | 24,374,411 | $ | 34,862,014 | ||||
The accompanying notes are an integral part of these financial statements.
| F-2 |
Seneca Global Fund, L.P.
Condensed Schedule of Investments
December 31, 2014
| Description | Fair Value | % of Partners' Capital (Net Asset Value) | |||||||||||||||||||
| INVESTMENTS IN SECURITIES | |||||||||||||||||||||
| U.S. Treasury Securities | |||||||||||||||||||||
| Face Value | Maturity Date | Name | Yield1 | ||||||||||||||||||
| $ | 1,250,000 | 1/31/15 | U.S. Treasury Note | 0.25 | % | $ | 1,251,454 | 5.37 | % | ||||||||||||
| 700,000 | 3/31/15 | U.S. Treasury Note | 2.50 | % | 708,545 | 3.04 | % | ||||||||||||||
| 1,600,000 | 4/30/15 | U.S. Treasury Note | 0.13 | % | 1,600,717 | 6.88 | % | ||||||||||||||
| 750,000 | 5/31/15 | U.S. Treasury Note | 0.25 | % | 750,634 | 3.22 | % | ||||||||||||||
| 525,000 | 7/15/15 | U.S. Treasury Note | 0.25 | % | 525,953 | 2.26 | % | ||||||||||||||
| 100,000 | 8/31/15 | U.S. Treasury Note | 0.38 | % | 100,248 | 0.43 | % | ||||||||||||||
| 50,000 | 11/15/15 | U.S. Treasury Note | 0.38 | % | 50,071 | 0.22 | % | ||||||||||||||
| 500,000 | 11/30/15 | U.S. Treasury Note | 1.38 | % | 505,604 | 2.17 | % | ||||||||||||||
| 500,000 | 1/15/16 | U.S. Treasury Note | 0.38 | % | 501,179 | 2.15 | % | ||||||||||||||
| 500,000 | 3/15/16 | U.S. Treasury Note | 0.38 | % | 500,598 | 2.15 | % | ||||||||||||||
| 500,000 | 3/31/16 | U.S. Treasury Note | 0.38 | % | 500,401 | 2.15 | % | ||||||||||||||
| 500,000 | 4/15/16 | U.S. Treasury Note | 0.25 | % | 499,487 | 2.14 | % | ||||||||||||||
| Total U.S. Treasury securities (cost: $7,514,195) | 7,494,891 | 32.18 | % | ||||||||||||||||||
| U.S. Commercial Paper | |||||||||||||||||||||
| Face Value | Maturity Date | Name | Yield1 | ||||||||||||||||||
| Banks and Diversified Financial Services | |||||||||||||||||||||
| $ | 150,000 | 1/23/15 | Credit Suisse (USA), Inc. | 0.18 | % | 149,984 | 0.65 | % | |||||||||||||
| 230,000 | 2/2/15 | DCAT, LLC | 0.26 | % | 229,947 | 0.99 | % | ||||||||||||||
| 250,000 | 1/13/15 | Liberty Street Funding LLC | 0.17 | % | 249,986 | 1.07 | % | ||||||||||||||
| 150,000 | 1/20/15 | Rabobank USA Financial Corporation | 0.12 | % | 149,991 | 0.65 | % | ||||||||||||||
| Energy | |||||||||||||||||||||
| 250,000 | 1/8/15 | Apache Corporation | 0.40 | % | 249,981 | 1.07 | % | ||||||||||||||
| 250,000 | 1/9/15 | ONEOK Partners, L.P. | 0.43 | % | 249,976 | 1.07 | % | ||||||||||||||
| Total U.S. commercial paper (cost: $1,279,560) | 1,279,865 | 5.50 | % | ||||||||||||||||||
| Foreign Commercial Paper | |||||||||||||||||||||
| Face Value | Maturity Date | Name | Yield1 | ||||||||||||||||||
| Banks | |||||||||||||||||||||
| $ | 250,000 | 1/30/15 | Bank of Tokyo-Mitsubishi UFJ, Ltd. | 0.17 | % | 249,966 | 1.07 | % | |||||||||||||
| Total foreign commercial paper (cost: $249,947) | 249,966 | 1.07 | % | ||||||||||||||||||
| Total commercial paper (cost: $1,529,507) | 1,529,831 | 6.57 | % | ||||||||||||||||||
| U.S. Corporate Notes | |||||||||||||||||||||
| Face Value | Maturity Date | Name | Yield1 | ||||||||||||||||||
| Aerospace | |||||||||||||||||||||
| $ | 200,000 | 12/15/16 | Rockwell Collins, Inc. | 0.59 | % | 200,316 | 0.86 | % | |||||||||||||
| Automotive | |||||||||||||||||||||
| 200,000 | 8/11/15 | American Honda Finance Corporation | 1.00 | % | 201,500 | 0.87 | % | ||||||||||||||
The accompanying notes are an integral part of these financial statements.
| F-3 |
Seneca Global Fund, L.P.
Condensed Schedule of Investments (continued)
December 31, 2014
|
Description | Fair Value | % of Partners' Capital (Net Asset Value) | |||||||||||||||||||
| U.S. Corporate Notes (continued) | |||||||||||||||||||||
| Face Value | Maturity Date | Name | Yield1 | ||||||||||||||||||
| Banks | |||||||||||||||||||||
| $ | 150,000 | 4/1/15 | Bank of America Corporation | 4.50 | % | $ | 153,116 | 0.66 | % | ||||||||||||
| 150,000 | 3/22/16 | Bank of America Corporation | 1.07 | % | 150,869 | 0.65 | % | ||||||||||||||
| 350,000 | 4/1/16 | Citigroup Inc. | 1.30 | % | 351,918 | 1.51 | % | ||||||||||||||
| 150,000 | 7/22/15 | Goldman Sachs Group, Inc. | 0.63 | % | 150,202 | 0.64 | % | ||||||||||||||
| 200,000 | 2/26/16 | JPMorgan Chase & Co. | 0.85 | % | 201,031 | 0.86 | % | ||||||||||||||
| 100,000 | 10/15/15 | Morgan Stanley | 0.71 | % | 100,234 | 0.43 | % | ||||||||||||||
| 100,000 | 4/29/16 | Morgan Stanley | 3.80 | % | 104,182 | 0.45 | % | ||||||||||||||
| Beverages | |||||||||||||||||||||
| 275,000 | 1/27/17 | Anheuser-Busch Inbev Finance Inc. | 1.13 | % | 276,915 | 1.18 | % | ||||||||||||||
| Biomedical | |||||||||||||||||||||
| 220,000 | 2/1/17 | Thermo Fisher Scientific Inc. | 1.30 | % | 220,111 | 0.95 | % | ||||||||||||||
| Energy | |||||||||||||||||||||
| 150,000 | 12/1/17 | Kinder Morgan, Inc. | 2.00 | % | 149,573 | 0.64 | % | ||||||||||||||
| 150,000 | 2/1/16 | ONEOK Partners, L.P. | 3.25 | % | 155,208 | 0.67 | % | ||||||||||||||
| 250,000 | 7/15/16 | Pioneer Natural Resources Company | 5.88 | % | 270,523 | 1.16 | % | ||||||||||||||
| Healthcare | |||||||||||||||||||||
| 100,000 | 6/15/16 | Becton, Dickinson and Company | 0.69 | % | 100,043 | 0.43 | % | ||||||||||||||
| 230,000 | 9/26/16 | Ventas Realty, Limited Partnership | 1.55 | % | 231,845 | 1.00 | % | ||||||||||||||
| Insurance | |||||||||||||||||||||
| 100,000 | 10/18/16 | American International Group, Inc. | 5.60 | % | 108,444 | 0.47 | % | ||||||||||||||
| 200,000 | 9/30/15 | Jackson National Life Global Funding | 0.61 | % | 200,294 | 0.86 | % | ||||||||||||||
| Manufacturing | |||||||||||||||||||||
| 345,000 | 3/3/17 | Caterpillar Financial Services Corporation | 0.46 | % | 344,612 | 1.48 | % | ||||||||||||||
| 275,000 | 10/9/15 | General Electric Company | 0.85 | % | 275,915 | 1.17 | % | ||||||||||||||
| Media | |||||||||||||||||||||
| 100,000 | 4/30/15 | NBCUniversal Media, LLC | 3.65 | % | 101,658 | 0.44 | % | ||||||||||||||
| 100,000 | 4/15/16 | NBCUniversal Media, LLC | 0.77 | % | 100,036 | 0.43 | % | ||||||||||||||
| Telecommunications | |||||||||||||||||||||
| 175,000 | 9/15/16 | Verizon Communications Inc. | 1.77 | % | 178,979 | 0.77 | % | ||||||||||||||
| Total U.S. corporate notes (cost: $4,342,045) | 4,327,524 | 18.58 | % | ||||||||||||||||||
| Foreign Corporate Notes | |||||||||||||||||||||
| Face Value | Maturity Date | Name | Yield1 | ||||||||||||||||||
| Banks | |||||||||||||||||||||
| $ | 200,000 | 9/25/15 | ING Bank N.V. | 1.89 | % | 201,812 | 0.88 | % | |||||||||||||
| 150,000 | 9/25/15 | ING Bank N.V. | 2.00 | % | 152,117 | 0.65 | % | ||||||||||||||
| Energy | |||||||||||||||||||||
| 200,000 | 5/9/16 | CNOOC Finance (2013) Limited | 1.13 | % | 199,587 | 0.86 | % | ||||||||||||||
| 200,000 | 6/2/17 | Enbridge Inc. | 0.68 | % | 198,774 | 0.85 | % | ||||||||||||||
| Telecommunications | |||||||||||||||||||||
| 150,000 | 4/27/15 | Telefonica Emisiones, S.A.U. | 3.73 | % | 152,257 | 0.65 | % | ||||||||||||||
The accompanying notes are an integral part of these financial statements.
| F-4 |
Seneca Global Fund, L.P.
Condensed Schedule of Investments (continued)
December 31, 2014
| Description | Fair Value | % of Partners' Capital (Net Asset Value) | ||||||||||||||||||
| Foreign Corporate Notes (continued) | ||||||||||||||||||||
| Face Value | Maturity Date | Name | Yield1 | |||||||||||||||||
| Transporation | ||||||||||||||||||||
| $ | 200,000 | 10/28/16 | Kansas City Southern de Mexico, S.A. de C.V. | 0.93 | % | $ | 200,797 | 0.86 | % | |||||||||||
| Total foreign corporate notes (cost: $1,115,180) | 1,105,344 | 4.75 | % | |||||||||||||||||
| Total corporate notes (cost: $5,457,225) | 5,432,868 | 23.33 | % | |||||||||||||||||
| Asset Backed Securities | ||||||||||||||||||||
| Face Value | Maturity Date | Name | Yield1 | |||||||||||||||||
| Automotive | ||||||||||||||||||||
| $ | 39,789 | 10/20/16 | Ally Auto Receivables Trust 2014-SN1 | 0.52 | % | 39,793 | 0.17 | % | ||||||||||||
| 50,000 | 6/20/17 | Capital Auto Receivables Asset Trust 2013-1 | 0.79 | % | 50,028 | 0.21 | % | |||||||||||||
| 15,000 | 4/16/18 | Santander Drive Auto Receivables Trust 2014-5 | 0.56 | % | 15,004 | 0.06 | % | |||||||||||||
| Credit Card | ||||||||||||||||||||
| 50,000 | 1/15/20 | BA Credit Card Trust | 0.45 | % | 49,949 | 0.21 | % | |||||||||||||
| 100,000 | 10/16/17 | Chase Issuance Trust | 0.31 | % | 99,910 | 0.44 | % | |||||||||||||
| Other | ||||||||||||||||||||
| 50,000 | 7/20/19 | GE Dealer Floorplan Master Not | 0.55 | % | 49,911 | 0.21 | % | |||||||||||||
| 55,000 | 8/15/17 | VOLVO FINL EQUIP LLC SER2012-1 | 1.51 | % | 55,273 | 0.24 | % | |||||||||||||
| Student Loan | ||||||||||||||||||||
| 85,218 | 8/15/23 | SLM PRIVATE ED LN TR 2012-C | 1.26 | % | 85,527 | 0.37 | % | |||||||||||||
| Total asset backed securities (cost: $445,962) | 445,395 | 1.91 | % | |||||||||||||||||
| Total investments in securities (cost: $14,946,889) | $ | 14,902,985 | 63.99 | % | ||||||||||||||||
| OPEN FUTURE CONTRACTS | ||||||||||||||||||||
| Long U.S. Futures Contracts | ||||||||||||||||||||
| Agricultural commodities | $ | (11,462) | (0.05 | )% | ||||||||||||||||
| Currencies | (7,530) | (0.03 | )% | |||||||||||||||||
| Energy | (51,681) | (0.22 | )% | |||||||||||||||||
| Equity indices | 97,975 | 0.42 | % | |||||||||||||||||
| Interest rate instruments | (4,299) | (0.02 | )% | |||||||||||||||||
| Metals | (46,499) | (0.20 | )% | |||||||||||||||||
| Net unrealized gain (loss) on open long U.S. futures contracts | (23,496) | (0.10 | )% | |||||||||||||||||
The accompanying notes are an integral part of these financial statements.
| F-5 |
Seneca Global Fund, L.P.
Condensed Schedule of Investments (continued)
December 31, 2014
| Description | Fair Value | % of Partners' Capital (Net Asset Value) | |||||||
| Short U.S. Futures Contracts | |||||||||
| Agricultural commodities | $ | 17,616 | 0.08 | % | |||||
| Currencies | 144,438 | 0.62 | % | ||||||
| Energy2 | 240,451 | 1.02 | % | ||||||
| Equity indices | (21,599 | ) | (0.09 | )% | |||||
| Interest rate instruments | (3,428 | ) | (0.01 | )% | |||||
| Metals | 54,383 | 0.23 | % | ||||||
| Net unrealized gain (loss) on open short U.S. futures contracts | 431,861 | 1.85 | % | ||||||
| Total U.S. futures contracts - net unrealized gain (loss) on open U.S. futures contracts | 408,365 | 1.75 | % | ||||||
| Long Foreign Futures Contracts | |||||||||
| Agricultural commodities | 639 | 0.00 | % | ||||||
| Equity indices | 52,394 | 0.22 | % | ||||||
| Interest rate instruments2 | 440,422 | 1.90 | % | ||||||
| Net unrealized gain (loss) on open long foreign futures contracts | 493,455 | 2.12 | % | ||||||
| Short Foreign Futures Contracts | |||||||||
| Equity indices | 7,583 | 0.03 | % | ||||||
| Interest rate instruments | (43,618 | ) | (0.18 | )% | |||||
| Net unrealized gain (loss) on open short foreign futures contracts | (36,035 | ) | (0.15 | )% | |||||
| Total foreign futures contracts - net unrealized gain (loss) on open foreign futures contracts | 457,420 | 1.97 | % | ||||||
| Net unrealized gain (loss) on open futures contracts | $ | 865,785 | 3.72 | % | |||||
| OPEN FORWARD CURRENCY CONTRACT | |||||||||
| U.S. Forward Currency Contracts | |||||||||
| Long | $ | (108 | ) | (0.00 | )% | ||||
| Short | 106 | 0.00 | % | ||||||
| Net unrealized gain (loss) on open U.S. forward currency contracts | (2 | ) | (0.00 | )% | |||||
| Foreign Forward Currency Contracts | |||||||||
| Long | 29,476 | 0.13 | % | ||||||
| Short | (104,325 | ) | (0.45 | )% | |||||
| Net unrealized gain (loss) on open foreign forward currency contracts | (74,849 | ) | (0.32 | )% | |||||
| Net unrealized gain (loss) on open forward currency contracts | $ | (74,851 | ) | (0.32 | )% | ||||
1 Represents the annualized yield at date of purchase for discount securities, the stated coupon rate for coupon-bearing securities, or the stated interest rate for certificates of deposit.
2 No individual futures or forward currency contract position constituted one percent or greater of partners’ capital (net asset value). Accordingly, the number of contracts and expiration dates are not presented.
The accompanying notes are an integral part of these financial statements.
| F-6 |
Seneca Global Fund, L.P.
Condensed Schedule of Investments
December 31, 2013
| Description | Fair Value | % of Partners' Capital (Net Asset Value) | ||||||||||||||||||
| INVESTMENTS IN SECURITIES | ||||||||||||||||||||
| U.S. Treasury Securities | ||||||||||||||||||||
| Face Value | Maturity Date | Name | Yield1 | |||||||||||||||||
| $ | 750,000 | 2/28/14 | U.S. Treasury Note | 1.88 | % | $ | 756,888 | 2.26 | % | |||||||||||
| 500,000 | 5/15/14 | U.S. Treasury Note | 1.00 | % | 502,309 | 1.50 | % | |||||||||||||
| 500,000 | 5/31/14 | U.S. Treasury Note | 0.25 | % | 500,403 | 1.49 | % | |||||||||||||
| 500,000 | 6/30/14 | U.S. Treasury Note | 2.63 | % | 506,247 | 1.51 | % | |||||||||||||
| 250,000 | 7/15/14 | U.S. Treasury Note | 0.63 | % | 251,415 | 0.75 | % | |||||||||||||
| 500,000 | 7/31/14 | U.S. Treasury Note | 2.63 | % | 512,758 | 1.53 | % | |||||||||||||
| 250,000 | 8/31/14 | U.S. Treasury Note | 2.38 | % | 255,699 | 0.76 | % | |||||||||||||
| 400,000 | 9/15/14 | U.S. Treasury Note | 0.25 | % | 400,642 | 1.19 | % | |||||||||||||
| 1,000,000 | 9/30/14 | U.S. Treasury Note | 0.25 | % | 1,001,459 | 2.98 | % | |||||||||||||
| 400,000 | 10/15/14 | U.S. Treasury Note | 0.50 | % | 401,553 | 1.20 | % | |||||||||||||
| 700,000 | 11/30/14 | U.S. Treasury Note | 2.13 | % | 713,698 | 2.13 | % | |||||||||||||
| 40,000 | 12/15/14 | U.S. Treasury Note | 0.25 | % | 40,037 | 0.12 | % | |||||||||||||
| 600,000 | 12/31/14 | U.S. Treasury Note | 0.13 | % | 599,815 | 1.79 | % | |||||||||||||
| 1,250,000 | 1/31/15 | U.S. Treasury Note | 0.25 | % | 1,252,333 | 3.72 | % | |||||||||||||
| 600,000 | 4/30/15 | U.S. Treasury Note | 0.13 | % | 599,425 | 1.79 | % | |||||||||||||
| 101,000 | 12/31/15 | U.S. Treasury Note | 0.25 | % | 100,732 | 0.30 | % | |||||||||||||
| Total U.S. Treasury securities (cost: $8,430,578) | 8,395,413 | 25.02 | % | |||||||||||||||||
| U.S. Commercial Paper | ||||||||||||||||||||
| Face Value | Maturity Date | Name | Yield1 | |||||||||||||||||
| Banks | ||||||||||||||||||||
| $ | 250,000 | 1/14/14 | Mizuho Funding LLC | 0.22 | % | 249,979 | 0.74 | % | ||||||||||||
| Beverages | ||||||||||||||||||||
| 250,000 | 1/8/14 | Bacardi Corporation | 0.24 | % | 249,988 | 0.75 | % | |||||||||||||
| Diversified Financial Services | ||||||||||||||||||||
| 250,000 | 1/30/14 | AXA Financial, Inc. | 0.25 | % | 249,950 | 0.74 | % | |||||||||||||
| 250,000 | 1/27/14 | VNA Holding Inc. | 0.30 | % | 249,946 | 0.74 | % | |||||||||||||
| Energy | ||||||||||||||||||||
| 250,000 | 1/13/14 | Oglethorpe Power Corporation | 0.15 | % | 249,988 | 0.75 | % | |||||||||||||
| 250,000 | 1/7/14 | Southern Company Funding Corp. | 0.17 | % | 249,993 | 0.75 | % | |||||||||||||
| Total U.S. commercial paper (cost: $1,499,532) | 1,499,844 | 4.47 | % | |||||||||||||||||
| Foreign Commercial Paper | ||||||||||||||||||||
| Face Value | Maturity Date | Name | Yield1 | |||||||||||||||||
| Banks | ||||||||||||||||||||
| $ | 200,000 | 1/30/14 | Bank of Tokyo-Mitsubishi UFJ, Ltd. | 0.19 | % | 199,969 | 0.60 | % | ||||||||||||
| 100,000 | 1/3/14 | Oversea-Chinese Banking Corp. Ltd | 0.18 | % | 99,999 | 0.30 | % | |||||||||||||
| 250,000 | 3/10/14 | Sumitomo Mitsui Bank | 0.21 | % | 249,901 | 0.74 | % | |||||||||||||
The accompanying notes are an integral part of these financial statements.
| F-7 |
Seneca Global Fund, L.P.
Condensed Schedule of Investments (continued)
December 31, 2013
| Description | Fair Value | % of Partners' Capital (Net Asset Value) | ||||||||||||||||||
| Foreign Commercial Paper (continued) | ||||||||||||||||||||
| Face Value | Maturity Date | Name | Yield1 | |||||||||||||||||
| Energy | ||||||||||||||||||||
| $ | 250,000 | 1/30/14 | GDF Suez | 0.20 | % | $ | 249,960 | 0.74 | % | |||||||||||
| Total foreign commercial paper (cost: $799,677) | 799,829 | 2.38 | % | |||||||||||||||||
| Total commercial paper (cost: $2,299,209) | 2,299,673 | 6.85 | % | |||||||||||||||||
| U.S. Corporate Notes | ||||||||||||||||||||
| Face Value | Maturity Date | Name | Yield1 | |||||||||||||||||
| Aerospace | ||||||||||||||||||||
| $ | 200,000 | 12/15/16 | Rockwell Collins, Inc. | 0.59 | % | 200,384 | 0.60 | % | ||||||||||||
| Automotive | ||||||||||||||||||||
| 200,000 | 7/31/15 | Daimler Finance North America LLC | 1.30 | % | 202,597 | 0.60 | % | |||||||||||||
| Banks | ||||||||||||||||||||
| 150,000 | 4/1/15 | Bank of America Corporation | 4.50 | % | 158,571 | 0.47 | % | |||||||||||||
| 150,000 | 3/22/16 | Bank of America Corporation | 1.07 | % | 151,255 | 0.45 | % | |||||||||||||
| 9,000 | 4/1/14 | Citigroup Inc. | 1.18 | % | 9,027 | 0.03 | % | |||||||||||||
| 250,000 | 4/1/16 | Citigroup Inc. | 1.30 | % | 251,643 | 0.75 | % | |||||||||||||
| 150,000 | 7/22/15 | Goldman Sachs | 0.64 | % | 149,717 | 0.45 | % | |||||||||||||
| 200,000 | 2/26/16 | JPMorgan Chase & Co. | 0.86 | % | 200,869 | 0.60 | % | |||||||||||||
| 200,000 | 10/15/15 | Morgan Stanley | 0.72 | % | 200,186 | 0.60 | % | |||||||||||||
| 225,000 | 4/14/14 | SSIF Nevada, Limited Partnership | 0.94 | % | 225,747 | 0.67 | % | |||||||||||||
| Beverages | ||||||||||||||||||||
| 200,000 | 7/15/15 | Anheuser-Busch InBev Worldwide Inc. | 0.80 | % | 201,658 | 0.60 | % | |||||||||||||
| Computers | ||||||||||||||||||||
| 225,000 | 5/30/14 | Hewlett-Packard Company | 0.64 | % | 224,841 | 0.67 | % | |||||||||||||
| 100,000 | 9/19/14 | Hewlett-Packard Company | 1.79 | % | 100,896 | 0.30 | % | |||||||||||||
| Diversified Financial Services | ||||||||||||||||||||
| 200,000 | 8/11/15 | American Honda Finance Corporation | 1.00 | % | 201,610 | 0.60 | % | |||||||||||||
| 200,000 | 6/9/14 | General Electric Capital Corporation | 5.65 | % | 205,219 | 0.61 | % | |||||||||||||
| Energy | ||||||||||||||||||||
| 200,000 | 6/30/14 | Arizona Public Service Company | 5.80 | % | 204,916 | 0.61 | % | |||||||||||||
| 150,000 | 8/15/14 | Public Service Electric and Gas Co, | 0.85 | % | 150,911 | 0.45 | % | |||||||||||||
| Food | ||||||||||||||||||||
| 300,000 | 10/17/16 | Kroger Co. | 0.80 | % | 299,985 | 0.89 | % | |||||||||||||
| Insurance | ||||||||||||||||||||
| 450,000 | 3/20/15 | American International Group, Inc. | 3.00 | % | 466,469 | 1.39 | % | |||||||||||||
| 200,000 | 9/30/15 | Jackson National Life Global Funding | 0.60 | % | 200,593 | 0.60 | % | |||||||||||||
| 200,000 | 4/4/14 | MetLife Institutional Funding II | 1.14 | % | 200,998 | 0.60 | % | |||||||||||||
| Manufacturing | ||||||||||||||||||||
| 275,000 | 10/9/15 | General Electric Company | 0.85 | % | 276,938 | 0.83 | % | |||||||||||||
| Media | ||||||||||||||||||||
| 100,000 | 4/30/15 | NBCUniversal Media, LLC | 3.65 | % | 104,730 | 0.31 | % | |||||||||||||
| 100,000 | 4/15/16 | NBCUniversal Media, LLC | 0.78 | % | 100,221 | 0.30 | % | |||||||||||||
The accompanying notes are an integral part of these financial statements.
| F-8 |
Seneca Global Fund, L.P.
Condensed Schedule of Investments (continued)
December 31, 2013
| Description | Fair Value | % of Partners' Capital (Net Asset Value) | ||||||||||||||||||
| U.S. Corporate Notes (continued) | ||||||||||||||||||||
| Face Value | Maturity Date | Name | Yield1 | |||||||||||||||||
| Pharmaceuticals | ||||||||||||||||||||
| $ | 200,000 | 11/6/15 | AbbVie Inc. | 1.00 | % | $ | 201,863 | 0.60 | % | |||||||||||
| 150,000 | 2/12/15 | Express Scripts Holding Company | 2.10 | % | 153,447 | 0.46 | % | |||||||||||||
| 225,000 | 2/10/14 | Novartis Capital Corporation | 4.13 | % | 229,596 | 0.68 | % | |||||||||||||
| Telecommunications | ||||||||||||||||||||
| 225,000 | 2/13/15 | AT&T Inc. | 0.88 | % | 227,377 | 0.68 | % | |||||||||||||
| 175,000 | 3/6/15 | Verizon Communications Inc. | 0.44 | % | 174,828 | 0.52 | % | |||||||||||||
| Total U.S. corporate notes (cost: $5,698,950) | 5,677,092 | 16.92 | % | |||||||||||||||||
| Foreign Corporate Notes | ||||||||||||||||||||
| Face Value | Maturity Date | Name | Yield1 | |||||||||||||||||
| Banks | ||||||||||||||||||||
| $ | 225,000 | 4/14/14 | Danske Bank A/S | 1.29 | % | 225,905 | 0.67 | % | ||||||||||||
| 150,000 | 9/25/15 | ING Bank N.V. | 2.00 | % | 153,037 | 0.46 | % | |||||||||||||
| 200,000 | 9/25/15 | ING Bank N.V. | 1.89 | % | 204,004 | 0.61 | % | |||||||||||||
| 350,000 | 3/18/16 | Rabobank Nederland | 0.72 | % | 351,351 | 1.04 | % | |||||||||||||
| Energy | ||||||||||||||||||||
| 300,000 | 10/1/15 | BP Capital Markets P.L.C. | 3.13 | % | 315,637 | 0.94 | % | |||||||||||||
| 300,000 | 11/14/14 | Canadian Natural Resources Ltd | 1.45 | % | 302,572 | 0.90 | % | |||||||||||||
| 200,000 | 5/9/16 | CNOOC Finance (2013) Limited | 1.13 | % | 200,115 | 0.60 | % | |||||||||||||
| Total foreign corporate notes (cost: $1,756,036) | 1,752,621 | 5.22 | % | |||||||||||||||||
| Total corporate notes (cost: $7,454,986) | 7,429,713 | 22.14 | % | |||||||||||||||||
| Total investments in securities (cost: $18,184,773) | $ | 18,124,799 | 54.01 | % | ||||||||||||||||
| CERTIFICATES OF DEPOSIT | ||||||||||||||||||||
| U.S. Certificates of Deposit | ||||||||||||||||||||
| Face Value | Maturity Date | Name | Yield1 | |||||||||||||||||
| Banks | ||||||||||||||||||||
| $ | 250,000 | 5/9/14 | Sumitomo Mitsui Bank (NY) | 0.38 | % | $ | 250,730 | 0.75 | % | |||||||||||
| Total U.S. certificates of deposit (cost: $250,000) | $ | 250,730 | 0.75 | % | ||||||||||||||||
The accompanying notes are an integral part of these financial statements.
| F-9 |
Seneca Global Fund, L.P.
Condensed Schedule of Investments (continued)
December 31, 2013
| Description | Fair Value | % of Partners' Capital (Net Asset Value) | |||||||||
| OPEN FUTURES CONTRACTS | |||||||||||
| Long U.S. Futures Contracts | |||||||||||
| Agricultural commodities | $ | (4,198 | ) | (0.03 | )% | ||||||
| Currencies | 86,494 | 0.26 | % | ||||||||
| Energy | 5,420 | 0.02 | % | ||||||||
| Equity indices | 220,650 | 0.66 | % | ||||||||
| Interest rate instruments | (10,989 | ) | (0.03 | )% | |||||||
| Metals | 115,819 | 0.35 | % | ||||||||
| Net unrealized gain (loss) on open long U.S. futures contracts | 413,196 | 1.23 | % | ||||||||
| Short U.S. Futures Contracts | |||||||||||
| Agricultural commodities | 176,548 | 0.54 | % | ||||||||
| Currencies | 192,279 | 0.57 | % | ||||||||
| Energy | (8,832 | ) | (0.03 | )% | |||||||
| Equity indices | 1,095 | 0.00 | % | ||||||||
| Interest rate instruments | 37,027 | 0.11 | % | ||||||||
| Metals | (103,082 | ) | (0.31 | )% | |||||||
| Net unrealized gain (loss) on open short U.S. futures contracts | 295,035 | 0.88 | % | ||||||||
| Total U.S. futures contracts - net unrealized gain (loss) on open U.S. futures contracts | 708,231 | 2.11 | % | ||||||||
| Long Foreign Futures Contracts | |||||||||||
| Agricultural commodities | (822 | ) | (0.00 | )% | |||||||
| Currencies | 33,774 | 0.10 | % | ||||||||
| Equity indices2 | 395,105 | 1.18 | % | ||||||||
| Interest rate instruments | (107,083 | ) | (0.32 | )% | |||||||
| Net unrealized gain (loss) on open long foreign futures contracts | 320,974 | 0.96 | % | ||||||||
| Short Foreign Futures Contracts | |||||||||||
| Agricultural commodities | 17,594 | 0.05 | % | ||||||||
| Interest rate instruments | 119,827 | 0.36 | % | ||||||||
| Net unrealized gain (loss) on open short foreign futures contracts | 137,421 | 0.41 | % | ||||||||
| Total foreign futures contracts - net unrealized gain (loss) on open foreign futures contracts | 458,395 | 1.37 | % | ||||||||
| Net unrealized gain (loss) on open futures contracts | $ | 1,166,626 | 3.48 | % | |||||||
The accompanying notes are an integral part of these financial statements.
| F-10 |
Seneca Global Fund, L.P.
Condensed Schedule of Investments (continued)
December 31, 2013
| Description | Fair Value | % of Partners' Capital (Net Asset Value) | |||||||
| OPEN FORWARD CURRENCY CONTRACTS | |||||||||
| Foreign Forward Currency Contracts | |||||||||
| Long | $ | (5,969 | ) | (0.01 | )% | ||||
| Short | 11,412 | 0.03 | % | ||||||
| Net unrealized gain (loss) on open foreign forward currency contracts | 5,443 | 0.02 | % | ||||||
| Net unrealized gain (loss) on open forward currency contracts | $ | 5,443 | 0.02 | % | |||||
1 Represents the annualized yield at date of purchase for discount securities, the stated coupon rate for coupon-bearing securities, or the stated interest rate for certificates of deposit.
2 No individual futures or forward currency contract position constituted one percent or greater of partners’ capital (net asset value). Accordingly, the number of contracts and expiration dates are not presented.
The accompanying notes are an integral part of these financial statements.
| F-11 |
Seneca Global Fund, L.P.
Statements of Operations
Years Ended December 31, 2014 and 2013
| 2014 | 2013 | |||||||
| Trading Gain (Loss) from Futures and Forwards Trading | ||||||||
| Net realized gain (loss) | $ | 2,531,394 | $ | 1,666,379 | ||||
| Net change in unrealized gain (loss) | (381,135 | ) | 146,893 | |||||
| Brokerage commissions and trading expenses | (90,713 | ) | (142,559 | ) | ||||
| Net gain (loss) from futures and forwards trading | 2,059,546 | 1,670,713 | ||||||
| Net Investment Income (Loss) | ||||||||
| Income (loss) | ||||||||
| Interest income | 160,348 | 293,986 | ||||||
| Net realized and change in unrealized gain (loss) on securities and certificates of deposit | (105,518 | ) | (160,371 | ) | ||||
| Total income (loss) | 54,830 | 133,615 | ||||||
| Expenses | ||||||||
| Trading Advisor management fees | 354,269 | 499,206 | ||||||
| Trading Advisor incentive fees | 502,918 | 112,352 | ||||||
| Cash Manager fees | 21,143 | 31,464 | ||||||
| General Partner fee | 399,140 | 613,444 | ||||||
| Selling Agent fees – General Partner | 206,362 | 273,527 | ||||||
| Broker dealer custodial fee – General Partner | 26,464 | 42,210 | ||||||
| Broker dealer servicing fee – General Partner | 21,830 | 28,442 | ||||||
| Administrative expenses – General Partner | 997,724 | 909,095 | ||||||
| Offering expenses – General Partner | 340,632 | 487,245 | ||||||
| Total expenses | 2,870,482 | 2,996,985 | ||||||
| Administrative and offering expenses waived | (896,607 | ) | (715,426 | ) | ||||
| Net total expenses | 1,973,875 | 2,281,559 | ||||||
| Net investment income (loss) | (1,919,045 | ) | (2,147,944 | ) | ||||
| Net Income (Loss) | $ | 140,501 | $ | (477,231 | ) | |||
| Series A | Series B | Series C | Series I | General
Partner | ||||||||||||||||
| Year Ended December 31, 2014 | ||||||||||||||||||||
| Increase (decrease) in net asset value per unit for the year | $ | 0.50 | $ | 1.87 | $ | 3.35 | $ | 2.82 | $ | 5.57 | ||||||||||
| Net income (loss) per unit† | $ | 0.11 | $ | 0.15 | $ | 2.53 | $ | 0.04 | $ | 5.57 | ||||||||||
| Weighted average number of units outstanding | 150,976.4482 | 69,032.6880 | 26,980.4448 | 89,855.8252 | 7,460.6308 | |||||||||||||||
| Year Ended December 31, 2013 | ||||||||||||||||||||
| Increase (decrease) in net asset value per unit for the year | $ | (2.10 | ) | $ | (1.11 | ) | $ | — | $ | (0.71 | ) | $ | 1.57 | |||||||
| Net income (loss) per unit† | $ | (1.70 | ) | $ | (1.24 | ) | $ | (2.40 | ) | $ | 0.20 | $ | 1.58 | |||||||
| Weighted average number of units outstanding | 188,865.8719 | 100,732.7325 | 30,964.3417 | 164,370.3383 | 7,460.6308 | |||||||||||||||
† Based on weighted average number of units outstanding during the year.
The accompanying notes are an integral part of these financial statements.
| F-12 |
Seneca Global Fund, L.P.
Statements of Cash Flows
Years Ended December 31, 2014 and 2013
| 2014 | 2013 | |||||||
| Cash flows from operating activities | ||||||||
| Net income (loss) | $ | 140,501 | $ | (477,231 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities | ||||||||
| Net change in unrealized (gain) loss from futures and forwards trading | 381,135 | (146,893 | ) | |||||
| Purchases of securities and certificates of deposit | (32,535,604 | ) | (43,044,237 | ) | ||||
| Proceeds from disposition of securities and certificates of deposit | 35,902,630 | 52,486,264 | ||||||
| Net realized and change in unrealized (gain) loss in securities and certificates of deposit | 105,518 | 160,371 | ||||||
| Changes in | ||||||||
| Trading Advisor management fees payable | (37,115 | ) | 14,004 | |||||
| Trading Advisor incentive fees payable | 313,056 | 112,352 | ||||||
| Commissions and other trading expenses payable on open contracts | (1,882 | ) | (3,746 | ) | ||||
| Cash Manager fees payable | (793 | ) | (7,805 | ) | ||||
| General Partner fee payable | (13,286 | ) | (21,050 | ) | ||||
| Selling Agent fees payable – General Partner | (2,635 | ) | (10,035 | ) | ||||
| Administrative expenses payable – General Partner | (8,315 | ) | (13,352 | ) | ||||
| Offering expenses payable – General Partner | (6,613 | ) | (11,043 | ) | ||||
| Broker dealer custodial fee payable – General Partner | (1,153 | ) | (908 | ) | ||||
| Broker dealer servicing fee payable – General Partner | (313 | ) | (846 | ) | ||||
| Net cash provided by (used in) operating activities | 4,235,131 | 9,035,845 | ||||||
| Cash flows from financing activities | ||||||||
| Subscriptions | 2,208,943 | 5,582,697 | ||||||
| Subscriptions received in advance | 96,868 | 62,372 | ||||||
| Redemptions | (13,174,866 | ) | (21,485,308 | ) | ||||
| Net cash provided by (used in) financing activities | (10,869,055 | ) | (15,840,239 | ) | ||||
| Net increase (decrease) in cash and cash equivalents | (6,633,924 | ) | (6,804,394 | ) | ||||
| Cash and cash equivalents, beginning of year | 15,314,416 | 22,118,810 | ||||||
| Cash and cash equivalents, end of year | $ | 8,680,492 | $ | 15,314,416 | ||||
| End of year cash and cash equivalents consists of | ||||||||
| Cash in broker trading accounts | $ | 5,200,629 | $ | 10,049,111 | ||||
| Cash and cash equivalents | 3,479,863 | 5,265,305 | ||||||
| Total end of year cash and cash equivalents | $ | 8,680,492 | $ | 15,314,416 | ||||
| Supplemental disclosure of cash flow information | ||||||||
| Prior year redemptions paid | $ | 934,506 | $ | 634,037 | ||||
| Prior year subscriptions received in advance | $ | 62,372 | $ | 236,268 | ||||
| Supplemental schedule of non-cash financing activities | ||||||||
| Redemptions payable | $ | 442,664 | $ | 934,506 | ||||
The accompanying notes are an integral part of these financial statements.
| F-13 |
Seneca Global Fund, L.P.
Statements of Changes in Partners’ Capital (Net Asset Value)
Years Ended December 31, 2014 and 2013
| Series A | Series B | Series C | Series I | General Partner | ||||||||||||||||||||||||||||||||||||||||
| Units | Amount | Units | Amount | Units | Amount | Units | Amount | Units | Amount | Total | ||||||||||||||||||||||||||||||||||
| Balance at December 31, 2012 | 236,423.1119 | $ | 17,300,439 | 110,409.9497 | $ | 9,133,773 | 17,608.2983 | $ | 1,604,266 | 219,781.2927 | $ | 21,182,358 | 7,460.6309 | $ | 782,908 | $ | 50,003,744 | |||||||||||||||||||||||||||
| Net income (loss) | (321,815 | ) | (125,032 | ) | (74,373 | ) | 32,237 | 11,752 | (477,231 | ) | ||||||||||||||||||||||||||||||||||
| Subscriptions | 39,614.0191 | 2,886,090 | 18,448.5100 | 1,541,314 | — | — | 14,370.6393 | 1,391,561 | — | — | 5,818,965 | |||||||||||||||||||||||||||||||||
| Redemptions | (63,110.2364 | ) | (4,571,413 | ) | (43,213.3747 | ) | (3,558,580 | ) | (27,754.6248 | ) | (2,541,152 | ) | (114,046.4530 | ) | (11,114,632 | ) | — | — | (21,785,777 | ) | ||||||||||||||||||||||||
| Transfers | (48,509.4273 | ) | (3,606,225 | ) | 862.8980 | 69,231 | 37,878.7584 | 3,538,048 | — | (1,054 | ) | — | — | — | ||||||||||||||||||||||||||||||
| Balance at December 31, 2013 | 164,417.4673 | 11,687,076 | 86,507.9830 | 7,060,706 | 27,732.4319 | 2,526,789 | 120,105.4790 | 11,490,470 | 7,460.6309 | 794,660 | 33,559,701 | |||||||||||||||||||||||||||||||||
| Net income (loss) | 16,549 | 10,409 | 68,339 | 3,649 | 41,555 | 140,501 | ||||||||||||||||||||||||||||||||||||||
| Subscriptions | 26,332.0806 | 1,800,940 | 3,879.6562 | 304,400 | — | — | 1,808.7319 | 165,975 | — | — | 2,271,315 | |||||||||||||||||||||||||||||||||
| Redemptions | (35,168.7584 | ) | (2,401,024 | ) | (35,664.1642 | ) | (2,809,300 | ) | (12,129.6015 | ) | (1,074,018 | ) | (68,530.6449 | ) | (6,398,682 | ) | — | — | (12,683,024 | ) | ||||||||||||||||||||||||
| Transfers | (14,426.4269 | ) | (1,000,230 | ) | (513.6204 | ) | (40,481 | ) | 10,931.7108 | 985,359 | 601.8611 | 55,352 | — | — | — | |||||||||||||||||||||||||||||
| Balance at December 31, 2014 | 141,154.3626 | $ | 10,103,311 | 54,209.8546 | $ | 4,525,734 | 26,534.5412 | $ | 2,506,469 | 53,985.4271 | $ | 5,316,764 | 7,460.6309 | $ | 836,215 | $ | 23,288,493 | |||||||||||||||||||||||||||
| Series A | Series B | Series C | Series I | General Partner | ||||||||||||||||||
| December 31, 2014 | $ | 71.58 | $ | 83.49 | $ | 94.46 | $ | 98.49 | $ | 112.08 | ||||||||||||
| December 31, 2013 | 71.08 | 81.62 | 91.11 | 95.67 | 106.51 | |||||||||||||||||
| December 31, 2012 | 73.18 | 82.73 | 91.11 | 96.38 | 104.94 | |||||||||||||||||
The accompanying notes are an integral part of these financial statements.
| F-14 |
Seneca Global Fund, L.P.
Notes to Financial Statements
| 1. | Organization and Summary of Significant Accounting Policies |
Description of the Fund
Seneca Global Fund, L.P. (“Fund”) is a Delaware limited partnership, which was formed in 2007. The Fund, which operates as a commodity investment pool, commenced investment operations on September 1, 2008. The Fund issues units of limited partner interests (“Units”) in four series: Series A, Series B, Series C and Series I, which represent units of fractional undivided beneficial interest in and ownership of the Fund.
The Fund uses multiple commodity trading advisors to engage in the speculative trading of futures contracts, forward currency contracts and other financial instruments traded in the United States (“U.S.”) and internationally. The Fund does not currently use options or swaps as part of its trading system, but may employ them in the future. Each trading advisor uses a proprietary, systematic trading system that deploys multiple trading strategies utilizing derivatives that seeks to identify and exploit directional moves in market behavior to a broad and diversified range of global market sectors including stock indices, currencies, interest rate instruments, energy products, metals and agricultural commodities.
Only Series A, B and I Units are offered by the fund. Series A, B and I Units will be re-designated as Series C Units after the Fee Limit has been reached. The Series C Units are identical to the other Units except that the Series C Units only incur the Trading Advisor management fee, Trading Advisor incentive fee, brokerage expenses, Cash Manager fees, General Partner management fee and administrative expenses. The Fee Limit is the total amount of selling agent commissions, broker dealer servicing fees paid to the selling agents, payments for wholesalers, payments for sales conferences, and other offering expenses that are items of compensation to Financial Industry Regulatory Authority (“FINRA”) members (but excluding among other items, the production and printing of prospectuses and related collateral material, as well as various legal and regulatory fees) paid by particular Series A, B or I Units when it is equal to 10% of the original purchase price paid by holders of those particular Units.
The Fund is a registrant with the U.S. Securities and Exchange Commission (“SEC”) pursuant to the U.S. Securities Exchange Act of 1933, as amended, (“1933 Act”) and the U.S. Securities Exchange Act of 1934, as amended, (“1934 Act”). As a registrant, the Fund is subject to the regulations of the SEC and the disclosure requirements of the 1933 Act and the 1934 Act. As a commodity pool, the Fund is subject to the regulations of the U.S. Commodity Futures Trading Commission (“CFTC”), an agency of the U.S. government, which regulates most aspects of the commodity futures industry; rules of the National Futures Association (“NFA”), an industry self-regulatory organization; rules of FINRA, an industry self-regulatory organization; and the requirements of commodity exchanges where the Fund executes transactions. Additionally, the Fund is subject to the requirements of its futures brokers and interbank market makers through which the Fund trades.
Under its Fourth Amended and Restated Limited Partnership Agreement (“Partnership Agreement”), the Fund’s business and affairs are managed and conducted by the Fund’s general partner, Steben & Company, Inc. (“General Partner”), a Maryland corporation. The General Partner is registered with the CFTC as a commodity pool operator and a commodities introducing broker, and is registered with the SEC as an investment adviser and a broker dealer. Additionally, the General Partner is a member of the NFA and FINRA. The General Partner manages all aspects of the Fund’s business and serves as one of the Fund’s selling agents.
Significant Accounting Policies
Accounting Principles
The Fund’s financial statements are prepared in conformity with U.S. generally accepted accounting principles (“GAAP”).
Use of Estimates
Preparing financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
| F-15 |
Revenue Recognition
Futures, options on futures, forward currency contracts, investments in securities, and certificates of deposit are recorded on a trade date basis, and gains or losses are realized when contracts/positions are liquidated. Realized gains and losses on investments in securities and certificates of deposit are determined on a specific identification basis and are included in net realized and change in unrealized gain (loss) in the statements of operations. Unrealized gains and losses on open contracts (the difference between contract trade price and fair value) are reported in the statements of financial condition as net unrealized gain or loss, as there exists a right of offset of any unrealized gains or losses. The difference between cost and the fair value of open investments in securities and certificates of deposit is reflected as unrealized gain or loss on investments in securities and certificates of deposit. Any change in net unrealized gain or loss on from the preceding period is reported in the statements of operations. Interest income earned on investments in securities, certificates of deposit and other cash and cash equivalent balances is recorded on an accrual basis.
Fair Value of Financial Instruments
Financial instruments are recorded at fair value, the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Assets and liabilities recorded at fair value are classified within the fair value hierarchy based upon the level of judgment associated with the inputs used to measure their value. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
| Level 1 – | Fair value is based on unadjusted quoted prices for identical instruments in active markets. Financial instruments utilizing Level 1 inputs include futures contracts, money market funds and U.S. Treasury securities. |
| Level 2 – | Fair value is based on quoted prices for similar instruments in active markets and inputs other than quoted prices that are observable for the financial instrument, such as interest rates and yield curves that are observable at commonly quoted intervals using a market approach. Financial instruments utilizing Level 2 inputs include forward currency contracts, certificates of deposit, commercial paper, corporate notes and asset backed securities. |
| Level 3 – | Fair value is based on valuation techniques in which one or more significant inputs are unobservable. The Fund has no financial instruments utilizing Level 3 inputs. |
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment.
The Fund assesses the classification of the instruments at each measurement date, and any transfers between levels are recognized on the actual date of the event or change in circumstances that caused the transfer in accordance with the Fund’s accounting policy regarding the recognition of transfers between levels of the fair value hierarchy. For the years ended December 31, 2014 and 2013, there were no such transfers between levels.
A description of the valuation techniques applied to the Fund’s major categories of assets and liabilities measured at fair value on a recurring basis follows.
The investment in money market fund, included in cash and cash equivalents in the statements of financial condition, and futures contracts, all of which are exchange-traded, are valued using quoted market prices for identical assets and are classified within Level 1. The fair values of forward currency contracts are based upon third-party quoted dealer values on the interbank market and are classified within Level 2.
U.S. Treasury securities are recorded at fair value based on bid and ask quotes for identical instruments. Commercial paper, certificates of deposit, corporate notes and asset backed securities are recorded at fair value based on bid and ask quotes for similar, but not identical, instruments. Accordingly, U.S. Treasury securities are classified within Level 1, and commercial paper, certificate of deposits, corporate notes and asset backed securities are classified within Level 2.
| F-16 |
Cash and Cash Equivalents
Cash and cash equivalents include investments with original maturities of three months or less at the date of acquisition that are not held for sale in the ordinary course of business. The Fund maintains deposits with financial institutions in amounts that are in excess of federally insured limits; however, the Fund does not believe it is exposed to any significant credit risk.
Brokerage Commissions and Trading Expenses
Brokerage commissions and trading expenses include brokerage and other trading fees, and are charged to expense when contracts are opened and closed.
Redemptions Payable
Redemptions payable represent redemptions that meet the requirements of the Fund and have been approved by the General Partner prior to period-end. These redemptions have been recorded using the period-end net asset value per Unit.
Income Taxes
The Fund prepares calendar year U.S. and applicable state and local tax returns. The Fund is not subject to federal income taxes as each partner is individually liable for his or her allocable share of the Fund’s income, expenses and trading gains or losses. The Fund evaluates the tax positions taken or expected to be taken in the course of preparing the Fund’s tax returns to determine whether the tax positions are more-likely-than-not to be sustained when examined by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense and asset or liability in the current year. Management has determined there are no material uncertain income tax positions through December 31, 2014. With few exceptions, the Fund is no longer subject to U.S. or state and local income tax examinations by tax authorities for years before 2011.
Foreign Currency Transactions
The Fund has certain investments denominated in foreign currencies. The purchase and sale of investments, and income and expenses are translated at the rates of exchange prevailing on the respective dates of such transactions. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of investments held. Such fluctuations are included with the net realized and change in unrealized gain or loss on such investments in the statement of operations.
Reclassification
Certain amounts in the 2013 financial statements have been reclassified to conform to the 2014 presentation without affecting previously reported partners’ capital (net asset value).
New Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (the “FASB”) issued guidance that replaces the existing accounting standards for revenue recognition. The guidance requires a company to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration it expects to be entitled to receive in exchange for those goods or services. The standard is effective beginning the first quarter of the Fund's 2018 fiscal year (with limited early adoption options). The Fund does not expect any material change as a result of implanting this new standard.
| 2. | Fair Value Disclosures |
The Fund’s assets and liabilities, measured at fair value on a recurring basis, are summarized in the following tables by the type of inputs applicable to the fair value measurements:
| At December 31, 2014 | ||||||||||||
| Level 1 | Level 2 | Total | ||||||||||
| Equity in broker trading accounts: | ||||||||||||
| Net unrealized gain (loss) on open futures contracts* | $ | 865,785 | $ | — | $ | 865,785 | ||||||
| Net unrealized gain (loss) on open forward currency contracts* | — | (74,851 | ) | (74,851 | ) | |||||||
| Cash and cash equivalents: | ||||||||||||
| Money market fund | 851,036 | — | 851,036 | |||||||||
| Investments in securities: | ||||||||||||
| U.S. Treasury securities* | 7,494,891 | — | 7,494,891 | |||||||||
| Asset backed securities* | — | 445,395 | 445,395 | |||||||||
| Commercial paper* | — | 1,529,831 | 1,529,831 | |||||||||
| Corporate notes* | — | 5,432,868 | 5,432,868 | |||||||||
| Total | $ | 9,211,712 | $ | 7,333,243 | $ | 16,544,955 | ||||||
*See the condensed schedule of investments for further description.
| F-17 |
| At December 31, 2013 | ||||||||||||
| Level 1 | Level 2 | Total | ||||||||||
| Equity in broker trading accounts: | ||||||||||||
| Net unrealized gain (loss) on open futures contracts* | $ | 1,166,626 | $ | — | $ | 1,166,626 | ||||||
| Net unrealized gain (loss) on open forward currency contracts* | — | 5,443 | 5,443 | |||||||||
| Cash and cash equivalents: | ||||||||||||
| Money market fund | 556,060 | — | 556,060 | |||||||||
| Investments in securities: | ||||||||||||
| U.S. Treasury securities* | 8,395,413 | — | 8,395,413 | |||||||||
| Commercial paper* | — | 2,299,673 | 2,299,673 | |||||||||
| Corporate notes* | — | 7,429,713 | 7,429,713 | |||||||||
| Certificates of deposit* | — | 250,730 | 250,730 | |||||||||
| Total | $ | 10,118,099 | $ | 9,985,559 | $ | 20,103,658 | ||||||
*See the condensed schedule of investments for further description.
There were no Level 3 holdings at December 31, 2014 and 2013, or during the years then ended.
In addition to the financial instruments listed above, substantially all of the Fund’s other assets and liabilities are considered financial instruments and are reflected at fair value, or at carrying amounts that approximate fair value because of the short maturity of the instruments.
| 3. | Derivative Instruments Disclosures |
The Fund’s derivative contracts are comprised of futures and forward currency contracts, none of which are designated as hedging instruments. At December 31, 2014, the Fund’s derivative contracts had the following impact on the statements of financial condition:
| Derivative Assets and Liabilities at fair value | ||||||||||||
| Statements of Financial Condition Location | Gross Amounts of Recognized Assets | Gross Amounts Offset in the Statements of Financial Condition | Net Amount of Assets Presented in the Statements of Financial Condition | |||||||||
| Equity in broker trading accounts: Net unrealized gain (loss) on open futures contracts | ||||||||||||
| Agricultural commodities | $ | 38,591 | $ | (31,798 | ) | $ | 6,793 | |||||
| Currencies | 159,626 | (22,718 | ) | 136,908 | ||||||||
| Energy | 242,155 | (53,385 | ) | 188,770 | ||||||||
| Equity indices | 208,401 | (72,048 | ) | 136,353 | ||||||||
| Interest rate instruments | 495,632 | (106,555 | ) | 389,077 | ||||||||
| Metals | 56,467 | (48,583 | ) | 7,884 | ||||||||
| Net unrealized gain (loss) on open futures contracts | $ | 1,200,872 | $ | (335,087 | ) | $ | 865,785 | |||||
| Net unrealized gain (loss) on open forward currency contracts | $ | 40,419 | $ | (115,270 | ) | $ | (74,851 | ) | ||||
At December 31, 2014, there were 1,210 open futures contracts and 54 open forward currency contracts.
The Fund’s financial assets, derivative assets, and cash collateral held by counterparties at December 31, 2014 were:
| F-18 |
| Gross Amounts Not
Offset in the Statements of Financial Condition | ||||||||||||||||
| Counterparty | Net Amount of Assets in the Statements of Financial Condition | Financial Instruments | Cash Collateral Received | Net Amount | ||||||||||||
JP Morgan Securities, LLC | $ | (21,199 | ) | $ | — | $ | — | $ | (21,199 | ) | ||||||
| Société Générale Newedge UK Limited* | (74,851 | ) | — | — | (74,851 | ) | ||||||||||
| SG Americas Securities, LLC** | 886,984 | — | — | 886,984 | ||||||||||||
| Total | $ | 790,934 | $ | — | $ | — | $ | 790,934 | ||||||||
* formerly Newedge UK Financial Ltd
** formerly Newedge USA, LLC
At December 31, 2013, the Fund’s derivative contracts had the following impact on the statements of financial condition:
| Derivative Assets and Liabilities, at fair value | ||||||||||||
| Statements of Financial Condition Location | Gross Amounts of Recognized Assets | Gross Amounts Offset in the Statements of Financial Condition | Net Amount of Assets Presented in the Statements of Financial Condition | |||||||||
| Equity in broker trading accounts: Net unrealized gain (loss) on open futures contracts | ||||||||||||
| Agricultural commodities | $ | 250,715 | $ | (61,593 | ) | $ | 189,122 | |||||
| Currencies | 366,335 | (53,788 | ) | 312,547 | ||||||||
| Energy | 48,136 | (51,548 | ) | (3,412 | ) | |||||||
| Equity indices | 618,040 | (1,190 | ) | 616,850 | ||||||||
| Interest rate instruments | 220,687 | (181,905 | ) | 38,782 | ||||||||
| Metals | 370,438 | (357,701 | ) | 12,737 | ||||||||
| Net unrealized gain (loss) on open futures contracts | $ | 1,874,351 | $ | (707,725 | ) | $ | 1,166,626 | |||||
| Net unrealized gain (loss) on open
forward currency contracts | $ | 49,606 | $ | (44,163 | ) | $ | 5,443 | |||||
At December 31, 2013, there were 2,186 open futures contracts and 68 open forward currency contracts.
The Fund’s financial assets, derivative assets, and cash collateral held by counterparties at December 31, 2013 were:
| Gross Amounts Not
Offset in the Statements of Financial Condition | ||||||||||||||||
| Counterparty | Net Amount of Assets in the Statements of Financial Condition | Financial Instruments | Cash Collateral Received | Net Amount | ||||||||||||
JP Morgan Securities, LLC | $ | 732,303 | $ | — | $ | — | $ | 732,303 | ||||||||
| Société Générale Newedge UK Limited* | 5,443 | — | — | 5,443 | ||||||||||||
| SG Americas Securities, LLC** | 434,323 | — | — | 434,323 | ||||||||||||
| Total | $ | 1,172,069 | $ | — | $ | — | $ | 1,172,069 | ||||||||
* formerly Newedge UK Financial Ltd
** formerly Newedge USA, LLC
| F-19 |
For the years ended December 31, 2014 and 2013, the Fund’s futures and forward currency contracts had the following impact on the statements of operations:
| 2014 | 2013 | |||||||||||||||
| Types of Exposure | Net realized gain (loss) | Net change in unrealized gain (loss) | Net realized gain (loss) | Net change in unrealized gain (loss) | ||||||||||||
| Futures contracts | ||||||||||||||||
| Agricultural commodities
| $ | 662,470 | $ | (182,329 | ) | $ | (1,109 | ) | $ | (101,906 | ) | |||||
| Currencies | 851,601 | (175,639 | ) | 44,526 | (93,086 | ) | ||||||||||
| Energy | 234,186 | 192,182 | (1,837,757 | ) | (18,885 | ) | ||||||||||
| Equity indices | (987,864 | ) | (480,497 | ) | 3,692,773 | 239,702 | ||||||||||
| Interest rate instruments | 1,967,705 | 350,295 | (1,328,145 | ) | (6,719 | ) | ||||||||||
| Metals | (73,026 | ) | (4,853 | ) | 1,422,194 | 170,558 | ||||||||||
| Total futures contracts | 2,655,072 | (300,841 | ) | 1,992,482 | 189,664 | |||||||||||
| Forward currency contracts | (117,334 | ) | (80,294 | ) | (358,113 | ) | (42,771 | ) | ||||||||
| Total futures and forward currency contracts | $ | 2,537,738 | $ | (381,135 | ) | $ | 1,634,369 | $ | 146,893 | |||||||
For the years ended December 31, 2014 and 2013, the number of futures contracts closed was 25,090 and 37,659, respectively, and the number of forward currency contracts closed was 463 and 2,104, respectively.
| 4. | General Partner |
In accordance with the Partnership Agreement, the General Partner must maintain its interest in the capital of the Fund at no less than the greater of: (i) 1% of aggregate capital contributions to the Fund by all partners (including the General Partner’s contributions) or (ii) $25,000. The General Partner shares in the profits and losses of the Fund in proportion to its respective ownership interest.
At December 31, 2014 and 2013, the General Partner had an investment of 7,460.6309 units valued at $836,215 and $794,660, respectively.
The General Partner earns the following compensation:
| § | General Partner Fee – each Series of Units, other than General Partner Units, incurs a monthly fee equal to 1/12th of 1.5% of the respective Series’ month-end net asset value, prorated for partial months and adjusted for weekly subscriptions and redemptions, and payable in arrears. |
| § | Selling Agent Fees – the General Partner charges Series A Units a monthly fee equal to 1/12th of 2% of the outstanding Series A Units’ month-end net asset value, prorated for partial months and adjusted for weekly subscriptions and redemptions, and payable in arrears. The General Partner pays to the selling agents an upfront fee of 2% of the aggregate subscription amount for the sale of Series A Units. Beginning in the 13th month, the General Partner pays the selling agents a monthly fee in arrears equal to 1/12th of 2.00% of the outstanding Series A Units’ month-end net asset value, prorated for partial months and adjusted for weekly subscriptions and redemptions. If there is no designated selling agent or the General Partner was the selling agent, such portions of the selling agent fee are retained by the General Partner. |
| § | Broker Dealer Servicing Fee – the General Partner charges Series A Units a monthly fee equal to 1/12th of 0.15% of their month-end net asset value, prorated for partial months and adjusted for weekly subscriptions and redemptions. The Series B Units which are not subject to a broker dealer custodial fee incur a monthly fee equal to 1/12th of 0.6% of their month-end net asset value, prorated for partial months and adjusted for weekly subscriptions and redemptions. These fees are payable in arrears to the selling agents by the General Partner. If there is no designated selling agent or the General Partner was the selling agent, such portions of the broker dealer servicing fee are retained by the General Partner. |
| § | Broker Dealer Custodial Fee – the General Partner charges Series B Units that are held by broker dealers who act as custodian for Series B Units for the benefit of the limited partners, a monthly fee to such broker dealers equal to 1/12th of 0.6% of the outstanding Series B Units’ month-end net asset value, prorated for partial months and adjusted for weekly subscriptions and redemptions. These fees are payable in arrears to the selling agents by the General Partner. |
| F-20 |
| 5. | Trading Advisors and Cash Managers |
Trading advisor management fees range from 0% to 1.5% per annum of each trading advisors’ respective trading level (as defined in each respective advisory agreement) and trading advisor incentive fees equal to 20% to 30% of net new trading profits (as defined in each respective advisory agreement).
The Fund has engaged J.P. Morgan Investment Management, Inc. and Principal Global Investors, LLC (collectively, the “Cash Managers”) to provide cash management services to the Fund. The Fund incurs monthly fees, payable in arrears to the Cash Managers, equal to approximately 1/12th of 0.13% of the investments in securities and certificates of deposit.
| 6. | Deposits with Brokers |
To meet margin requirements, the Fund deposits funds with its brokers, subject to CFTC regulations and various exchange and broker requirements. The Fund earns interest income on its assets deposited with its brokers. At December 31, 2014 and 2013, the Fund had margin deposit requirements of $2,007,712 and $4,038,995, respectively.
| 7. | Administrative and Offering Expenses |
The Fund reimburses the General Partner for actual monthly administrative expenses paid to various third-party service providers, including the General Partner, up to 1/12th of 0.95% of the Fund’s month-end net asset value, payable in arrears. Actual administrative expenses may vary; however, such administrative expenses will not exceed 0.95% of the Fund’s month-end net asset value per annum. The administrative expenses include legal, accounting, clerical and other back office related expenses related to the administration of the Fund and all other associated costs incurred by the Fund. For the years ended December 31, 2014 and 2013, actual administrative expenses were $997,724 and $909,095, respectively. Such amounts are presented as administrative expenses in the statements of operations.
During the years ended December 31, 2014 and 2013, the General Partner absorbed administrative expenses in excess of the 0.95% limitation of $737,496 and $513,063, respectively. Such amounts are included in administrative and offering expenses waived in the statements of operations.
At December 31, 2014 and 2013, $18,422 and $26,737, respectively, were payable to the General Partner for administrative expenses incurred on behalf of the Fund and not waived by the General Partner. Such amounts are presented as administrative expenses payable – General Partner in the statements of financial condition.
The Fund reimburses the General Partner for actual ongoing offering expenses, up to 1/12th of 0.75% of the Fund’s month-end net asset value pro rata for each Series of Units except for the General Partner and Series C Units, payable monthly in arrears. Actual ongoing offering expenses in excess of this limitation are absorbed by the General Partner. For the years ended December 31, 2014 and 2013, actual offering expenses were $340,632 and $487,245, respectively. Such amounts are presented as offering expenses in the statements of operations.
During the years ended December 31, 2014 and 2013, the General Partner absorbed offering expenses in excess of the 0.75% limitation of $159,111 and $202,363, respectively. Such amounts are included in administrative and offering expenses waived in the statements of operations. At December 31, 2014 and 2013, $12,550 and $19,163, respectively, were payable to the General Partner for offering expenses incurred on behalf of the Fund and not waived by the General Partner. Such amounts are presented as offering expenses payable – General Partner in the statements of financial condition.
| F-21 |
| 8. | Subscriptions, Distributions and Redemptions |
Investments in the Fund are made by subscription agreement, subject to a minimum investment of $10,000. Subscriptions into and redemptions out of the Fund occur weekly. Each series of units will be offered to the public as of the open of business on each Wednesday at the net asset value per Unit of the relevant series at the close of the preceding business day. At December 31, 2014 and 2013, the Fund received advance subscriptions of $96,868 and $62,372, respectively, which were recognized as subscriptions to the Fund or returned, if applicable, subsequent to year-end.
The Fund is not required to make distributions, but may do so at the sole discretion of the General Partner. Redemptions may be made by a limited partner as of the close of business day each Tuesday at the net asset value of the redeemed Units (or portion thereof) on that day.
Series A Units redeemed prior to the first anniversary of the subscription date are subject to a redemption fee equal to the product of (i) 2% of the subscription price for such Series A Units on the subscription date, divided by 52 (ii) multiplied by the number of weeks remaining before the first anniversary of the subscription date. Series B, C and I Units are not subject to the redemption fee. During 2014 and 2013, these redemption fees were negligible.
The General Partner may require a limited partner to redeem from the Fund if the General Partner deems the redemption (a) necessary to prevent or correct the occurrence of a non-exempt prohibited transaction under the Employee Retirement Income Security Act of 1974, as amended, or the Internal Revenue Code of 1986, as amended, (b) beneficial to the Fund, or (c) necessary to comply with any applicable government or self-regulatory agency regulations. Limited partners will not be required to pay any redemption fees if such limited partners are subject to a mandatory redemption of their Units within the first year of purchase.
| 9. | Trading Activities and Related Risks |
The Fund engages in the speculative trading of futures and forward currency contracts traded in the U.S. and internationally. Trading in derivatives exposes the fund to both market risk, the risk arising from a change in the fair value of a contract and credit risk, the risk of failure by another party to perform according to the terms of a contract.
Purchase and sale of futures contracts requires margin deposits with futures brokers. Additional deposits may be necessary for any loss of contract value. The Commodity Exchange Act (“CEAct”) requires a broker to segregate all customer transactions and assets from such broker’s proprietary activities. A customer’s cash and other property (for example, U.S. Treasury securities) deposited with a broker are considered commingled with all other customer funds subject to the broker’s segregation requirements. In the event of a broker’s insolvency, recovery may be limited to a pro rata share of segregated funds available. It is possible that the recovered amount could be less than (or none of) the total cash and other property deposited. The Fund uses SG Americas Securities, LLC (formerly Newedge USA, LLC) and J. P. Morgan Securities, LLC as its futures brokers and Société Générale Newedge UK Limited (formerly Newedge UK Finance Limited) as its forward currency counterparty.
For futures contracts, risks arise from changes in the fair value of the contracts. Theoretically, the Fund is exposed to a market risk equal to the value of futures and forward contracts purchased and unlimited liability on such contracts sold short. In addition to market risk, upon entering into commodity interest contracts there is a credit risk that the counterparty will not be able to meet its obligations to the Fund. The counterparty for futures and options on futures contracts traded in the U.S. and on most non-U.S. futures exchanges is the clearinghouse associated with such exchanges. 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 non-U.S. exchanges, it is normally backed by a consortium of banks or other financial institutions.
In the case of forward currency contracts, which are traded on the interbank or other institutional market rather than on exchanges, the counterparty is generally a single bank or other financial institution, rather than a clearinghouse backed by a group of financial institutions; thus, there likely will be greater counterparty credit risk. While the Fund trades only with those counterparties that it believes to be creditworthy, there can be no assurance that any clearing member, clearinghouse or other counterparty will be able to meet its obligations to the Fund. The Fund trades forward currency contracts in unregulated markets between principals and assumes the risk of loss from counterparty non-performance. Accordingly, the risks associated with forward currency contracts are generally greater than those associated with exchange-traded contracts because of the greater risk of counterparty default. Additionally, the trading of forward currency contracts typically involves delayed cash settlement.
| F-22 |
The Cash Managers manage the Fund’s cash and excess margin through investments in fixed income instruments, pursuant to investment parameters established by the General Partner. The Fund’s objective in retaining the Cash Managers is to enhance the return on its assets not required to be held by the Fund’s brokers to support the Fund’s trading. There is no guarantee that the Cash Managers will achieve returns for the Fund, net of fees payable to the Cash Managers, in excess of the returns previously achieved through the General Partner’s efforts and/or available through the Fund’s brokers, or that the Cash Managers will avoid a loss of principal on amounts placed under their management.
The General Partner has established procedures to actively monitor market risk and minimize credit risk, although there can be no assurance that it will, in fact, succeed in doing so. The limited partners bear the risk of loss only to the extent of the fair value of their respective investments and, in certain circumstances, distributions and redemptions received.
Through its investments in debt securities and certificates of deposit, the Fund has exposure to U.S. and foreign enterprises. The following table presents the exposure at December 31, 2014.
| Country or Region | U.S. Treasury Securities | Asset Backed Securities | Commercial Paper | Corporate Notes | Total | % of Partners' Capital (Net Asset Value) | ||||||||||||||||||
| United States | $ | 7,494,891 | $ | 445,395 | $ | 1,279,865 | $ | 4,327,524 | $ | 13,547,675 | 58.18 | % | ||||||||||||
| Netherlands | — | — | — | 353,929 | 353,929 | 1.52 | % | |||||||||||||||||
| Japan | — | — | 249,966 | — | 249,966 | 1.07 | % | |||||||||||||||||
| Mexico | — | — | — | 200,797 | 200,797 | 0.86 | % | |||||||||||||||||
| British Virgin Islands | — | — | — | 199,587 | 199,587 | 0.86 | % | |||||||||||||||||
| Canada | — | — | — | 198,774 | 198,774 | 0.85 | % | |||||||||||||||||
| Spain | — | — | — | 152,257 | 152,257 | 0.65 | % | |||||||||||||||||
| Total | $ | 7,494,891 | $ | 445,395 | $ | 1,529,831 | $ | 5,432,868 | $ | 14,902,985 | 63.99 | % | ||||||||||||
The following table presents the exposure at December 31, 2013.
| Country or Region | U.S. Treasury Securities | Commercial Paper | Corporate Notes | Certificates of Deposit | Total | % of Partners' Capital (Net Asset Value) | ||||||||||||||||||
| United States | $ | 8,395,413 | $ | 1,499,844 | $ | 5,677,092 | $ | 250,730 | $ | 15,823,079 | 47.15 | % | ||||||||||||
| Netherlands | — | — | 708,392 | — | 708,392 | 2.11 | % | |||||||||||||||||
| Japan | — | 449,870 | — | — | 449,870 | 1.34 | % | |||||||||||||||||
| United Kingdom | — | — | 315,637 | — | 315,637 | 0.94 | % | |||||||||||||||||
| Canada | — | — | 302,572 | — | 302,572 | 0.90 | % | |||||||||||||||||
| France | — | 249,960 | — | — | 249,960 | 0.74 | % | |||||||||||||||||
| Denmark | — | — | 225,905 | — | 225,905 | 0.67 | % | |||||||||||||||||
| British Virgin Islands | — | — | 200,115 | — | 200,115 | 0.60 | % | |||||||||||||||||
| Singapore | — | 99,999 | — | — | 99,999 | 0.30 | % | |||||||||||||||||
| Total | $ | 8,395,413 | $ | 2,299,673 | $ | 7,429,713 | $ | 250,730 | $ | 18,375,529 | 54.75 | % | ||||||||||||
| 10. | Indemnifications |
In the normal course of business, the Fund may enter into contracts and agreements that contain a variety of representations and warranties, and which provide general indemnifications. The Fund’s maximum exposure under these arrangements cannot be estimated. However, the Fund believes that it is unlikely it will have to make material payments under these arrangements and has not recorded any contingent liability in the financial statements for such indemnifications.
| F-23 |
| 11. | Financial Highlights |
The following information presents per Unit operating performance results and other supplemental financial ratios for the years ended December 31, 2014 and 2013. This information has been derived from information presented in the financial statements for limited partner Units and assumes that a Unit is outstanding throughout the entire year:
| 2014 | 2013 | |||||||||||||||||||||||||||||||
| Series
A Units | Series
B Units | Series
C Units | Series
I Units | Series
A Units | Series
B Units | Series C Units | Series
I Units | |||||||||||||||||||||||||
| Per Unit Operating Performance | ||||||||||||||||||||||||||||||||
| Net asset value per Unit at beginning of year | $ | 71.08 | $ | 81.62 | $ | 91.11 | $ | 95.67 | $ | 73.18 | $ | 82.73 | $ | 91.11 | $ | 96.38 | ||||||||||||||||
| Gain (loss) from trading (1) | 6.35 | 7.24 | 8.39 | 8.34 | 2.67 | 3.07 | 3.47 | 3.56 | ||||||||||||||||||||||||
| Net investment income (loss) (1) | (5.85 | ) | (5.37 | ) | (5.04 | ) | (5.52 | ) | (4.77 | ) | (4.18 | ) | (3.47 | ) | (4.27 | ) | ||||||||||||||||
| Total gain (loss) from operations | 0.50 | 1.87 | 3.35 | 2.82 | (2.10 | ) | (1.11 | ) | — | (0.71 | ) | |||||||||||||||||||||
| Net asset value per Unit at end of year | $ | 71.58 | $ | 83.49 | $ | 94.46 | $ | 98.49 | $ | 71.08 | $ | 81.62 | $ | 91.11 | $ | 95.67 | ||||||||||||||||
| Total return | 0.70 | % | 2.29 | % | 3.67 | % | 2.94 | % | (2.86 | )% | (1.34 | )% | 0.01 | % | (0.74 | )% | ||||||||||||||||
| Other Financial Ratios | ||||||||||||||||||||||||||||||||
| Ratios to average net asset value | ||||||||||||||||||||||||||||||||
| Net total expenses | 8.67 | % | 6.93 | % | 5.81 | % | 6.13 | % | 6.90 | % | 5.40 | % | 4.13 | % | 4.75 | % | ||||||||||||||||
| Net investment loss (2) (3) | (8.48 | )% | (6.73 | )% | (5.62 | )% | (5.91 | )% | (6.58 | )% | (5.07 | )% | (3.81 | )% | (4.42 | )% | ||||||||||||||||
Total returns are calculated based on the change in value of a Series A, Series B, Series C or Series I Units during the year. An individual limited partner’s total returns and ratios may vary from the above total returns and ratios based on the timing of subscriptions and redemptions.
| (1) | The net investment income (loss) per unit is calculated by dividing the net investment income (loss) by the average number of Series A, B, C or I Units outstanding during the year/period. Gain (loss) from futures and forwards trading is a balancing amount necessary to reconcile the change in net asset value per unit with the other per unit information. Such balancing amount may differ from the calculation of gain (loss) from futures and forwards trading per unit due to the timing of trading gains and losses during the year relative to the number of units outstanding. |
| (2) | All of the ratios under Other Financial Ratios are computed net of involuntary waivers of administrative and offering expenses. For the years ended December 31, 2014 and 2013, the ratios are net of 2.68% and 1.24% effect of waived administrative expenses, respectively. For the years ended December 31, 2014 and 2013, the ratios are net of 0.65% and 0.53% effect of waived offering expenses, respectively. |
| (3) | The net investment income (loss) includes interest income and excludes realized and change in unrealized gain (loss) from futures and forwards trading activities as shown on the statements of operations. The total amount is then reduced by all expenses, excluding brokerage commissions, which are included in net gain (loss) from futures and forwards trading on the statements of operations. The resulting amount is divided by the average net asset value for the year. |
| 12. | Subsequent Events |
From January 1 to February 28, 2015, there were $232,211 of contributions and $715,238 of redemptions from the Fund.
| F-24 |