Attached files
| file | filename |
|---|---|
| EX-32.03 - EXHIBIT 32-03 - NESTOR PARTNERS | s109393_ex32-03.htm |
| EX-32.02 - EXHIBIT 32-02 - NESTOR PARTNERS | s109393_ex32-02.htm |
| EX-32.01 - EXHIBIT 32-01 - NESTOR PARTNERS | s109393_ex32-01.htm |
| EX-31.03 - EXHIBIT 31-03 - NESTOR PARTNERS | s109393_ex31-03.htm |
| EX-31.02 - EXHIBIT 31-02 - NESTOR PARTNERS | s109393_ex31-02.htm |
| EX-31.01 - EXHIBIT 31-01 - NESTOR PARTNERS | s109393_ex31-01.htm |
| 10-K - FORM 10-K - NESTOR PARTNERS | s109393_10k.htm |
Exhibit 13.01
| Nestor Partners |
| (A New Jersey Limited Partnership) |
| Financial Statements for the Years Ended December 31, |
| 2017 and 2016, and Report of Independent Registered |
| Public Accounting Firm |
| NESTOR PARTNERS | |
| TABLE OF CONTENTS | |
| Page(s) | |
| AFFIRMATION OF MILLBURN RIDGEFIELD CORPORATION | |
| REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 1 |
| FINANCIAL STATEMENTS AS OF DECEMBER 31, 2017 AND 2016 AND FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016: | |
| Statements of Financial Condition | 2 |
| Condensed Schedules of Investments | 3–6 |
| Statements of Operations | 7 |
| Statements of Changes in Partners’ Capital | 8 |
| Statements of Financial Highlights | 9 |
| Notes to Financial Statements | 10–25 |
 |
Deloitte & Touche LLP 30 Rockefeller Plaza New York, NY 10112-0015 USA
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners of Nestor Partners:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statements of financial condition of Nestor Partners (the “Partnership”), including the condensed schedules of investments, as of December 31, 2017 and 2016, the related statements of operations and changes in partners’ capital and the financial highlights for each of the two years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Partnership as of December 31, 2017 and 2016, and the results of its operations, the changes in its partners’ capital, and the financial highlights for each of the two years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on the Partnership’s financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Partnership is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Partnership’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and brokers. We believe that our audits provide a reasonable basis for our opinion.
/s/
Deloitte & Touche LLP
March 19, 2018
We have served as the auditor of one or more Millburn Ridgefield Corporation investment companies since 2004.
See notes to financial statements
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| NESTOR PARTNERS | ||||
| CONDENSED SCHEDULE OF INVESTMENTS | ||||
| AS OF DECEMBER 31, 2017 | ||||
| Net Unrealized Appreciation/ (Depreciation) as a % of Partners’ Capital | Net Unrealized Appreciation/ (Depreciation) | |||||||
| FUTURES AND FORWARD CURRENCY CONTRACTS | ||||||||
| FUTURES CONTRACTS | ||||||||
| Long futures contracts: | ||||||||
| Energies | 1.22 | % | $ | 2,040,077 | ||||
| Grains | (0.00 | ) | (4,300 | ) | ||||
| Interest rates: | ||||||||
| 2 Year U.S. Treasury Note (467 contracts, settlement date March 2018) | 0.00 | 3,078 | ||||||
| 30 Year U.S. Treasury Bond (65 contracts, settlement date March 2018) | 0.06 | 93,844 | ||||||
| Other | (0.97 | ) | (1,615,773 | ) | ||||
| Total interest rates | (0.91 | ) | (1,518,851 | ) | ||||
| Metals | 1.23 | 2,060,486 | ||||||
| Softs | 0.04 | 70,260 | ||||||
| Stock indices | 0.25 | 419,068 | ||||||
| Total long futures contracts | 1.83 | 3,066,740 | ||||||
| Short futures contracts: | ||||||||
| Energies | (0.13 | ) | (217,090 | ) | ||||
| Grains | 0.03 | 49,145 | ||||||
| Interest rates | 0.11 | 176,326 | ||||||
| Livestock | (0.00 | ) | (5,240 | ) | ||||
| Metals | (1.33 | ) | (2,202,248 | ) | ||||
| Softs | (0.03 | ) | (48,899 | ) | ||||
| Stock indices | (0.08 | ) | (139,922 | ) | ||||
| Total short futures contracts | (1.43 | ) | (2,387,928 | ) | ||||
| TOTAL INVESTMENTS IN FUTURES CONTRACTS -- Net | 0.40 | 678,812 | ||||||
| FORWARD CURRENCY CONTRACTS | ||||||||
| Total long forward currency contracts | 0.27 | 449,153 | ||||||
| Total short forward currency contracts | (2.11 | ) | (3,535,732 | ) | ||||
| TOTAL INVESTMENTS IN FORWARD CURRENCY CONTRACTS -- Net | (1.84 | ) | (3,086,579 | ) | ||||
| TOTAL | (1.44 | )% | $ | (2,407,767 | ) | |||
(Continued)
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| NESTOR PARTNERS | ||||||
| CONDENSED SCHEDULE OF INVESTMENTS | ||||||
| AS OF DECEMBER 31, 2017 | ||||||
| U.S. TREASURY NOTES | ||||||||||||
| Face Amount | Description | Fair Value as a % of Partners’ Capital | Fair Value | |||||||||
| $ | 33,170,000 | U.S. Treasury notes, 1.000%, 02/15/2018 | 19.82 | % | $ | 33,157,043 | ||||||
| 39,170,000 | U.S. Treasury notes, 1.000%, 05/15/2018 | 23.37 | 39,120,272 | |||||||||
| 39,170,000 | U.S. Treasury notes, 1.000%, 08/15/2018 | 23.32 | 39,016,992 | |||||||||
| 39,170,000 | U.S. Treasury notes, 1.250%, 11/15/2018 | 23.31 | 38,994,041 | |||||||||
| TOTAL INVESTMENTS IN U.S. TREASURY NOTES (amortized cost $150,502,788) | 89.82 | % | $ | 150,288,348 | ||||||||
| See notes to financial statements | (Concluded) |
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| NESTOR PARTNERS | ||||||||
| CONDENSED SCHEDULE OF INVESTMENTS | ||||||||
| AS OF DECEMBER 31, 2016 | ||||||||
| Net Unrealized Appreciation/ (Depreciation) as a % of Partners’ Capital | Net Unrealized Appreciation/ (Depreciation) | |||||||
| FUTURES AND FORWARD CURRENCY CONTRACTS | ||||||||
| FUTURES CONTRACTS | ||||||||
| Long futures contracts: | ||||||||
| Energies | 0.03 | % | $ | 41,988 | ||||
| Grains | (0.00 | ) | (1,890 | ) | ||||
| Interest rates | 0.98 | 1,544,083 | ||||||
| Livestock | 0.00 | 1,000 | ||||||
| Metals | 0.06 | 90,747 | ||||||
| Softs | (0.00 | ) | (6,425 | ) | ||||
| Stock indices | 0.53 | 820,458 | ||||||
| Total long futures contracts | 1.60 | 2,489,961 | ||||||
| Short futures contracts: | ||||||||
| Energies | (0.04 | ) | (68,750 | ) | ||||
| Grains | 0.01 | 22,555 | ||||||
| Interest rates | (0.01 | ) | (21,626 | ) | ||||
| Metals | 0.09 | 138,538 | ||||||
| Softs | (0.00 | ) | (4,838 | ) | ||||
| Stock indices | (0.15 | ) | (213,616 | ) | ||||
| Total short futures contracts | (0.10 | ) | (147,737 | ) | ||||
| TOTAL INVESTMENTS IN FUTURES CONTRACTS -- Net | 1.50 | 2,342,224 | ||||||
| FORWARD CURRENCY CONTRACTS | ||||||||
| Total long forward currency contracts | (0.30 | ) | (471,630 | ) | ||||
| Total short forward currency contracts | 1.04 | 1,617,201 | ||||||
| TOTAL INVESTMENTS IN FORWARD CURRENCY CONTRACTS -- Net | 0.74 | 1,145,571 | ||||||
| TOTAL | 2.24 | % | $ | 3,487,795 | ||||
(Continued)
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| NESTOR PARTNERS | ||||||
| CONDENSED SCHEDULE OF INVESTMENTS | ||||||
| AS OF DECEMBER 31, 2016 | ||||||
| U.S. TREASURY NOTES | ||||||||||||
| Face
Amount | Description | Fair Value as a % of Partners’ Capital | Fair Value | |||||||||
| $ | 34,890,000 | U.S. Treasury notes, 0.625%, 02/15/2017 | 22.43 | % | $ | 34,893,407 | ||||||
| 36,040,000 | U.S. Treasury notes, 0.875%, 05/15/2017 | 23.19 | 36,077,307 | |||||||||
| 35,970,000 | U.S. Treasury notes, 0.875%, 08/15/2017 | 23.15 | 36,001,614 | |||||||||
| 33,780,000 | U.S. Treasury notes, 0.875%, 11/15/2017 | 21.72 | 33,783,299 | |||||||||
| TOTAL INVESTMENTS IN U.S. TREASURY NOTES (amortized cost $140,833,907) | 90.49 | % | $ | 140,755,627 | ||||||||
| See notes to financial statements | (Concluded) |
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| NESTOR PARTNERS | |||||
| STATEMENTS OF OPERATIONS | |||||
| YEARS ENDED DECEMBER 31, 2017 AND 2016 | |||||
| 2017 | 2016 | |||||||
| INVESTMENT INCOME -- Interest income | $ | 1,341,611 | $ | 643,835 | ||||
| EXPENSES: | ||||||||
| Brokerage fees | 4,012,950 | 3,635,886 | ||||||
| Administrative expenses | 273,353 | 389,364 | ||||||
| Custody fees and other expenses | 29,982 | 27,494 | ||||||
| Total expenses | 4,316,285 | 4,052,744 | ||||||
| NET INVESTMENT LOSS | (2,974,674 | ) | (3,408,909 | ) | ||||
| NET REALIZED AND UNREALIZED GAINS (LOSSES): | ||||||||
| Net realized gains (losses) on closed positions: | ||||||||
| Futures and forward currency contracts | 19,130,476 | 22,714,487 | ||||||
| Foreign exchange translation | 348,206 | (168,897 | ) | |||||
| Net change in unrealized: | ||||||||
| Futures and forward currency contracts | (5,895,562 | ) | 751,472 | |||||
| Foreign exchange translation | 321,168 | (70,706 | ) | |||||
| Net gains (losses) from U.S. Treasury notes: | ||||||||
| Realized | (5,742 | ) | — | |||||
| Net change in unrealized | (136,160 | ) | 33,057 | |||||
| Total net realized and unrealized gains | 13,762,386 | 23,259,413 | ||||||
| NET INCOME | 10,787,712 | 19,850,504 | ||||||
| LESS PROFIT SHARE TO GENERAL PARTNER | 926,056 | 1,753,733 | ||||||
| NET INCOME AFTER PROFIT SHARE TO GENERAL PARTNER | $ | 9,861,656 | $ | 18,096,771 | ||||
See notes to financial statements
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| NESTOR PARTNERS | ||||||||||||||
| STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL | ||||||||||||||
| YEARS ENDED DECEMBER 31, 2017 AND 2016 | ||||||||||||||
| Limited Partners | Special Limited Partners | New Profit Memo Account | General Partner | Total | ||||||||||||||||
| PARTNERS’ CAPITAL -- January 1, 2016 | $ | 73,450,219 | $ | 58,774,125 | $ | — | $ | 2,683,619 | $ | 134,907,963 | ||||||||||
| Contributions | 10,680,389 | 3,000,000 | — | — | 13,680,389 | |||||||||||||||
| Withdrawals | (5,710,224 | ) | (4,774,438 | ) | — | (2,405,884 | ) | (12,890,546 | ) | |||||||||||
| Net income | 9,411,730 | 9,977,639 | 2,150 | 458,985 | 19,850,504 | |||||||||||||||
| General Partner’s allocation -- profit share | (1,685,107 | ) | (68,626 | ) | 1,753,733 | — | — | |||||||||||||
| Transfer of New Profit Memo Account to General Partner | — | — | (1,755,883 | ) | 1,755,883 | — | ||||||||||||||
| PARTNERS’ CAPITAL -- December 31, 2016 | 86,147,007 | 66,908,700 | — | 2,492,603 | 155,548,310 | |||||||||||||||
| Contributions | 15,971,900 | 2,000,000 | — | — | 17,971,900 | |||||||||||||||
| Withdrawals | (6,712,185 | ) | (9,003,881 | ) | — | (1,276,588 | ) | (16,992,654 | ) | |||||||||||
| Net income | 4,802,253 | 5,760,370 | 532 | 224,557 | 10,787,712 | |||||||||||||||
| General Partner’s allocation -- profit share | (924,255 | ) | (1,801 | ) | 926,056 | — | — | |||||||||||||
| Transfer of New Profit Memo Account to General Partner | — | — | (926,588 | ) | 926,588 | — | ||||||||||||||
| PARTNERS’ CAPITAL -- December 31, 2017 | $ | 99,284,720 | $ | 65,663,388 | $ | — | $ | 2,367,160 | $ | 167,315,268 | ||||||||||
See notes to financial statements
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| NESTOR PARTNERS | ||||||||||||
| STATEMENTS OF FINANCIAL HIGHLIGHTS | ||||||||||||
| YEARS ENDED DECEMBER 31, 2017 AND 2016 | ||||||||||||
| Limited Partners | Special Limited Partners | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Ratios to average capital -- Net investment loss | (3.15 | )% | (3.71 | )% | (0.06 | )% | (0.50 | )% | ||||||||
| Total expenses | 3.96 | % | 4.13 | % | 0.86 | % | 0.91 | % | ||||||||
| Profit share allocation | 0.99 | % | 2.03 | % | 0.00 | % | 0.10 | % | ||||||||
| Total expenses and profit share allocation | 4.95 | % | 6.16 | % | 0.86 | % | 1.01 | % | ||||||||
| Total return before profit share allocation | 5.23 | % | 12.70 | % | 8.55 | % | 16.59 | % | ||||||||
| Less profit share allocation | 0.99 | % | 2.03 | % | 0.00 | % | 0.10 | % | ||||||||
| Total return after profit share allocation | 4.24 | % | 10.67 | % | 8.55 | % | 16.49 | % | ||||||||
See notes to financial statements
- 9 -
NESTOR PARTNERS
Years ENDED DECEMBER 31, 2017 AND 2016
| 1. | ORGANIZATION |
Nestor Partners (the “Partnership”) is a limited partnership which was organized in 1976 under the New Jersey Uniform Limited Partnership Act. The Limited Partnership Agreement (the “Agreement”) was amended and restated as of July 12, 2017. The Partnership engages in the speculative trading of futures and forward currency contracts. The instruments traded by the Partnership are volatile and involve a high degree of market risk.
The General Partner of the Partnership is Millburn Ridgefield Corporation (the “General Partner”). Principals, employees, former employees and other affiliates of the General Partner have invested in the Partnership as special limited partners.
The Agreement provides that subject to certain limitations, the General Partner shall conduct and manage the business of the Partnership. The General Partner has the right to make all investment decisions regarding the Partnership, authorize the payments of distributions to partners, enter into customer agreements with brokers and take such other actions as it deems necessary or desirable to manage the business of the Partnership.
The limited partners, special limited partners, New Profit Memo Account (see Note 3) and the General Partner share in the profits and losses of the Partnership which are determined before brokerage fees (Note 2) and profit share allocations on the basis of their proportionate interests of Partnership capital (Note 3). The General Partner and special limited partners are charged lower brokerage fees than limited partners in accordance with the Agreement. No limited partner or special limited partner shall be liable for Partnership obligations in excess of their capital contribution plus profits allocated to their capital accounts, if any.
Subject to certain conditions, a partner has the right to redeem all or a portion of its partnership capital as of any month-end upon fifteen days’ prior written notice to the General Partner. In its sole discretion, the General Partner may permit redemptions on shorter notice or as of a date other than month-end. Partners who purchased their interests through certain selling agents and redeem their partnership capital prior to the one-year anniversary of their subscription will pay the applicable early redemption fee. Redemptions will be made as of the last day of the month for an amount equal to the net asset value of the portion of a partner’s capital being redeemed; a redeeming partner shall receive such redeemed capital less the redemption fee, if any.
The General Partner, subject to Commodity Futures Trading Commission requirements, may (at its discretion) sell additional Limited Partnership Interests to persons desiring to become limited partners.
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of Presentation — The financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) as detailed in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“Codification”).
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Investment Company Status: The Partnership is an investment company following the accounting and reporting guidance put forth in Accounting Standard Update (“ASU”) 2013-08, “Financial Services — Investment Companies (Topic 946): Amendments to the Scope, Measurement and Disclosure Requirements”.
Investments — The Partnership records its transactions in futures and forward currency contracts and United States (“U.S.”) Treasury notes, including related income and expenses, on a trade-date basis.
Open futures contracts are valued at quoted market values. Open forward currency contracts are valued at fair value which is based on pricing models that consider the time value of money and the current market and contractual prices of the underlying financial instruments. Brokerage commissions on open futures contracts are expensed when contracts are opened. Realized gains (losses) and changes in unrealized appreciation (depreciation) on futures and forward currency contracts are recognized in the periods in which the contracts are closed or the changes in the value of open contracts occur and are included in net realized and unrealized gains (losses) in the Statements of Operations.
Investments in U.S. Treasury notes are valued at fair value based on the midpoint of bid/ask quotations reported daily at 3 pm EST by Bloomberg. The Partnership amortizes premiums and accretes discounts on U.S. Treasury notes. Such securities are normally on deposit with financial institutions (see Note 6) as collateral for performance of the Partnership’s trading obligations with respect to derivative contracts or are held for safekeeping in a custody account at HSBC Bank USA, N.A.
Cash and Cash Equivalents — Cash and cash equivalents includes cash and investments in Dreyfus Treasury Prime Cash Management, a short term U.S. government securities money market fund, that is readily convertible to cash and has an original maturity of 90 days or less.
Cash Denominated in Foreign Currencies — Includes foreign currency cash held at the Partnership’s trading counterparties. Foreign cash deficits, if applicable, are presented in the liabilities section of the Statements of Financial Condition.
Foreign Currency Translation — Assets and liabilities denominated in foreign currencies are translated to U.S. Dollars at prevailing exchange rates of such currencies. Purchases and sales of investments are translated to U.S. Dollars at the exchange rate prevailing when such transactions occurred.
Brokerage Fees — The Agreement provides that the Partnership shall charge the limited partners’ capital accounts and pay the General Partner brokerage fees. During 2016 and through July 31, 2017, the General Partner charged 0.417% per month of net asset value (5.0% per annum) of limited partnership interest. As of August 1, 2017, the General Partner reduced the fee rate to 0.375% per month of net asset value (4.5% per annum) of limited partnership interest. The General Partner retains the right to charge less than the annual brokerage rate except as specified in the Agreement.
Administrative Expenses — The Partnership bears expenses, including periodic legal, accounting and filing fees, up to an amount equal to 1/4 of 1% per annum of the average net assets of the Partnership. The General Partner bears any excess over such amounts. The Partnership will pay any extraordinary expenses applicable to it.
The Partnership’s administrative expenses included $0 and $109,142 in 2017 and 2016, respectively, which relates to legal and accounting services provided to the Partnership by The Millburn Corporation, an affiliate of the General Partner. These amounts are included on the Statement of Operations under Administrative expenses.
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As of January 1, 2017, The Millburn Corporation no longer charges the Partnership for providing legal and accounting services.
Income Taxes — The Partnership is treated as a limited partnership for federal and state income tax reporting purposes. Accordingly, the Partnership prepares calendar year U.S. federal and applicable state tax returns and reports to the partners their allocable shares of the Partnership’s income, expenses and trading gains or losses. No provision for income taxes has been made in the accompanying financial statements as the partners are responsible for the payment of taxes.
The Income Taxes topic of the Codification clarifies the accounting for uncertainty in tax positions. This requires that the Partnership recognize in its financial statements the impact of any uncertain tax positions. Based on a review of the Partnership’s open tax years, 2014 to 2017, the General Partner has determined that no reserves for uncertain tax positions were required.
Estimates — The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts and disclosures reported in the financial statements. Actual results could differ from these estimates.
Right of Offset — The customer agreements between the Partnership and its brokers give the Partnership the legal right to net unrealized gains and losses with each broker. Unrealized gains and losses related to offsetting transactions with these brokers are reflected on a net basis in the equity in trading accounts in the Statements of Financial Condition.
Fair Value of Financial Instruments — The fair value of the Partnership’s assets and liabilities, which qualify as financial instruments under the Fair Value Measurements and Disclosures topic of the Codification, approximates the carrying amounts presented in the Statements of Financial Condition. The topic defines fair value, establishes a framework for measurement of fair value and expands disclosures about fair value measurements. The three levels of the fair value hierarchy are described below:
Level 1 — Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2 — Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly;
Level 3 — Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
In determining fair value, the Partnership separates its investments into two categories: cash instruments and derivative contracts.
Cash Instruments — The Partnership’s cash instruments are generally classified within Level 1 of the fair value hierarchy because they are typically valued using quoted market prices. The types of instruments valued based on quoted market prices in active markets include U.S. government obligations and an investment in a quoted short-term U.S. government securities money market fund. The General Partner of the Partnership does not adjust the quoted price for such instruments even in situations where the Partnership holds a large position and a sale could reasonably impact the quoted price.
Derivative Contracts — Derivative contracts can be exchange-traded or over-the-counter (“OTC”). Exchange-traded futures contracts are valued based on quoted closing settlement prices and typically fall within Level 1 of the fair value hierarchy.
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Spot currency contracts are valued based on current market prices (“Spot Price”). Forward currency contracts are valued based on pricing models that consider the Spot Price plus the financing cost or benefit (“Forward Point”). Forward Points from the quotation service providers are generally in periods of one month, two months, three months, six months, nine months and twelve months forward while the contractual forward delivery dates for the forward currency contracts traded by the Partnership may be in between these periods. The General Partner’s policy to determine fair value for forward currency contracts involves first calculating the number of months from the date the forward currency contract is being valued to its maturity date (“Months to Maturity”), then identifying the forward currency contracts for the two forward months that are closest to the Months to Maturity (“Forward Month Contracts”). Linear interpolation is then performed between the dates of these two Forward Month Contracts to calculate the interpolated forward point. Model inputs can generally be verified and model selection does not involve significant management judgment. Such instruments are typically classified within Level 2 of the fair value hierarchy.
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During the years ended December 31, 2017 and 2016 there were no transfers of assets or liabilities between Level 1 and Level 2. The following table represents the Partnership’s investments by hierarchical level as of December 31, 2017 and 2016 in valuing the Partnership’s investments at fair value. At December 31, 2017 and 2016, the Partnership held no assets or liabilities classified in Level 3.
| Financial assets and liabilities at fair value as of December 31, 2017 | ||||||||||||
| Level 1 | Level 2 | Total | ||||||||||
| U.S. Treasury Notes (1) | $ | 150,288,348 | $ | — | $ | 150,288,348 | ||||||
| Short-Term Money Market Fund* | 19,221,076 | — | 19,221,076 | |||||||||
| Exchange-Traded Futures Contracts | ||||||||||||
| Energies | 1,822,987 | — | 1,822,987 | |||||||||
| Grains | 44,845 | — | 44,845 | |||||||||
| Interest rates | (1,342,525 | ) | — | (1,342,525 | ) | |||||||
| Livestock | (5,240 | ) | — | (5,240 | ) | |||||||
| Metals | (141,762 | ) | — | (141,762 | ) | |||||||
| Softs | 21,361 | — | 21,361 | |||||||||
| Stock indices | 279,146 | — | 279,146 | |||||||||
| Total exchange-traded futures contracts | 678,812 | — | 678,812 | |||||||||
| Over-the-Counter Forward Currency Contracts | — | (3,086,579 | ) | (3,086,579 | ) | |||||||
| Total futures and forward currency contracts (2) | 678,812 | (3,086,579 | ) | (2,407,767 | ) | |||||||
| Total financial assets at fair value | $ | 170,188,236 | $ | (3,086,579 | ) | $ | 167,101,657 | |||||
| Per line item in Statements of Financial Condition | ||||||||||||
| (1) | ||||||||||||
| Investments in U.S. Treasury notes held in equity trading accounts as collateral | $ | 35,088,064 | ||||||||||
| Investments in U.S. Treasury notes | 115,200,284 | |||||||||||
| Total investments in U.S. Treasury notes | $ | 150,288,348 | ||||||||||
| (2) | ||||||||||||
| Net unrealized appreciation on open futures and forward currency contracts | $ | 699,718 | ||||||||||
| Net unrealized depreciation on open futures and forward currency contracts | (3,107,485 | ) | ||||||||||
| Total net unrealized depreciation on open futures and forward currency contracts | $ | (2,407,767 | ) | |||||||||
*The short-term money market fund is included in Cash and Cash Equivalents on the Statements of Financial Condition.
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| Financial assets and liabilities at fair value as of December 31, 2016 |
| Level 1 | Level 2 | Total | ||||||||||
| U.S. Treasury Notes (1) | $ | 140,755,627 | $ | — | $ | 140,755,627 | ||||||
| Short-Term Money Market Fund* | 11,064,010 | — | 11,064,010 | |||||||||
| Exchange-Traded Futures Contracts | ||||||||||||
| Energies | (26,762 | ) | — | (26,762 | ) | |||||||
| Grains | 20,665 | — | 20,665 | |||||||||
| Interest rates | 1,522,457 | — | 1,522,457 | |||||||||
| Livestock | 1,000 | — | 1,000 | |||||||||
| Metals | 229,285 | — | 229,285 | |||||||||
| Softs | (11,263 | ) | — | (11,263 | ) | |||||||
| Stock indices | 606,842 | — | 606,842 | |||||||||
| Total exchange-traded futures contracts | 2,342,224 | — | 2,342,224 | |||||||||
| Over-the-Counter Forward Currency Contracts | — | 1,145,571 | 1,145,571 | |||||||||
| Total futures and forward currency contracts (2) | 2,342,224 | 1,145,571 | 3,487,795 | |||||||||
| Total financial assets at fair value | $ | 154,161,861 | $ | 1,145,571 | $ | 155,307,432 | ||||||
| Per line item in Statements of Financial Condition | ||||||||||||
| (1) | ||||||||||||
| Investments in U.S. Treasury notes held in equity trading accounts as collateral | $ | 17,809,582 | ||||||||||
| Investments in U.S. Treasury notes | 122,946,045 | |||||||||||
| Total investments in U.S. Treasury notes | $ | 140,755,627 | ||||||||||
| (2) | ||||||||||||
| Net unrealized appreciation on open futures and forward currency contracts | $ | 3,487,795 | ||||||||||
| Net unrealized depreciation on open futures and forward currency contracts | — | |||||||||||
| Total net unrealized appreciation on open futures and forward currency contracts | $ | 3,487,795 | ||||||||||
*The short-term money market fund is included in Cash and Cash Equivalents on the Statements of Financial Condition.
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| 3. | PROFIT SHARE ALLOCATION |
The Agreement provides the General Partner’s profit share equal to 20% of Trading Profits, as defined, at the end of each year is charged to the limited partners’ capital accounts. New Trading Profits includes realized and unrealized trading profits (losses), interest income, brokerage fees, trading-related expenses and administrative expenses. For limited partners’ withdrawals during the year, the profit share calculation shall be computed as though the withdrawal date was at year-end. Profit share attributable to interests redeemed during a year is tentatively credited to an account maintained for bookkeeping purposes called New Profit Memo Account. Because limited partners may purchase their partnership interests at different times, they may recognize different amounts of Trading Profits. Each limited partner pays a profit share only on Trading Profits applicable to its partnership interest. Limited partners who make multiple investments in the Partnership receive separate partnership interests for purposes of tracking the profit share. Accordingly, in any given year some limited partners may experience net gains and be charged the 20% profit share allocation for all or a portion of their interests where limited partners in the aggregate experienced net losses.
Any profit share charged is added to the General Partner’s capital account to the extent net taxable capital gains are allocated to the General Partner and the remainder, if any, of such profit share is added to the New Profit Memo Account. The General Partner may not make any withdrawal from the balance in the New Profit Memo Account. If, at the end of a subsequent year, net taxable gains are allocated to the General Partner in excess of such year’s profit share, a corresponding amount is transferred from the New Profit Memo Account to the General Partner’s capital account.
| 4. | DUE FROM/TO BROKERS |
At December 31, 2017 and 2016, due from and due to brokers balances, if applicable, in the Statements of Financial Condition include net cash receivable from each broker and net cash payable to each broker, respectively.
| 5. | TRADING ACTIVITIES |
The Partnership conducts its futures trading with various futures commission merchants (“FCMs”) on futures exchanges and its forward currency trading with various banks or dealers (“Dealers”) in the interbank markets. Substantially all assets included in the Partnership’s equity in trading accounts and certain liability accounts, as discussed below, were held as collateral by such FCMs in either U.S. regulated segregated accounts (for futures contracts traded on U.S. exchanges) or non-U.S. secured accounts (for futures contracts traded on non-U.S. exchanges) as required by U.S. Commodity Futures Trading Commission’s regulations, or held as collateral by the Dealers.
Liabilities in the Statements of Financial Condition that are components of equity in trading accounts include net unrealized depreciation on open futures and forward currency contracts, cash denominated in foreign currencies and due to brokers, if any.
The Partnership enters into contracts with various institutions that contain a variety of indemnifications. The Partnership’s maximum exposure under these arrangements is unknown. However, the Partnership has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
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| 6. | DERIVATIVE INSTRUMENTS |
The Partnership is party to derivative financial instruments in the normal course of its business. These financial instruments include futures and forward currency contracts which may be traded on an exchange or OTC.
The Partnership records its derivative activities on a mark-to-market basis as described in Note 2. For OTC contracts, the Partnership enters into master netting agreements with its counterparties. Therefore, assets represent the Partnership’s unrealized gains less unrealized losses for OTC contracts in which the Partnership has a master netting agreement. Similarly, liabilities represent net amounts owed to counterparties on OTC contracts.
Futures contracts are agreements to buy or sell an underlying asset or index for a set price in the future. Initial margin deposits are made upon entering into futures contracts and can be either in cash or treasury securities. Open futures contracts are revalued on a daily basis to reflect the market value of the contracts at the end of each trading day. Variation margin payments are received or made depending upon whether unrealized gains or losses are incurred. When the contract is closed, the Partnership records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed. The Partnership bears the market risk that arises from changes in the value of these financial instruments.
Forward currency contracts entered into by the Partnership represent a firm commitment to buy or sell an underlying currency at a specified value and point in time based upon an agreed or contracted quantity. The ultimate gain or loss is equal to the difference between the value of the contract at the onset and the value of the contract at settlement date.
Each of these financial instruments is subject to various risks similar to those related to the underlying financial instruments including market risk, credit risk and sovereign risk.
Market risk is the potential change in the value of the instruments traded by the Partnership due to market changes including interest and foreign exchange rate movements and fluctuations in futures or security prices. Market risk is directly impacted by the volatility and liquidity in the markets in which the related underlying assets are traded. The financial instruments traded by the Partnership contain varying degrees of off-balance sheet risk whereby changes in the market values of the futures and forward currency contracts and the Partnership’s satisfaction of its obligations related to such market value changes may exceed the amount recognized in the Statements of Financial Condition.
Credit risk is the possibility that a loss may occur due to the failure of a counterparty to perform according to the terms of a contract. Credit risk is normally reduced to the extent that an exchange or clearing organization acts as a counterparty to futures transactions since typically the collective credit of the members of the exchange is pledged to support the financial integrity of the exchange. In the case of OTC transactions, the Partnership must rely solely on the credit of the individual counterparties. The contract amounts of the forward currency and futures contracts do not represent the Partnership’s risk of loss due to counterparty nonperformance. The Partnership’s exposure to credit risk associated with counterparty nonperformance of these forward currency contracts is limited to the unrealized gains inherent in such contracts, which are recognized in the Statements of Financial Condition, plus the value of margin or collateral held in cash and U.S. Treasury Notes by the counterparty. The amount of such credit risk was $13,205,797 and $8,508,598 at December 31, 2017 and 2016, respectively.
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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 General Partner’s market risk control procedures include diversification of the Partnership’s portfolio and continuously monitoring the portfolio’s open positions, historical volatility and maximum historical loss. The General Partner seeks to minimize credit risk primarily by depositing and maintaining the Partnership’s assets at financial institutions and brokers which the General Partner believes to be creditworthy. The Partnership’s trading activities are primarily with brokers and other financial institutions located in North America, Europe and Asia. All futures transactions of the Partnership are cleared by major securities firms, pursuant to customer agreements, including Deutsche Bank Securities Inc. (a wholly owned subsidiary of Deutsche Bank AG), and SG Americas Securities, LLC., collectively the “Futures Clearing Brokers.” For all forward currency transactions, the Partnership utilizes one prime broker, Deutsche Bank AG. In addition, the Partnership clears trades through Morgan Stanley & Co., LLC (“MS”), utilizing MS as a swap dealer.
The Partnership is subject to sovereign risk such as the risk of restrictions being imposed by foreign governments on the repatriation of cash and the effects of political or economic uncertainties. Net unrealized appreciation (depreciation) on futures and forward currency contracts are denominated in the Partnership’s functional currency (U.S. Dollar). Cash settlement of futures and forward currency contracts is made in the local currency (settlement currency) and then translated to U.S. Dollars.
Net unrealized appreciation (depreciation) on futures and forward currency contracts by settlement currency type, denominated in U.S. Dollars, is detailed below:
| As of December 31, | ||||||||||||||||
| 2017 | 2016 | |||||||||||||||
| Total Net | Total Net | |||||||||||||||
| Unrealized | Unrealized | |||||||||||||||
| Appreciation | Percent of | Appreciation | Percent of | |||||||||||||
| Currency type | (Depreciation) | Total | (Depreciation) | Total | ||||||||||||
| Australian dollar | $ | (183,244 | ) | 7.61 | % | $ | 105,762 | 3.03 | % | |||||||
| British pound | 697,560 | (28.97 | ) | 342,757 | 9.83 | |||||||||||
| Canadian dollar | 32,963 | (1.37 | ) | 18,172 | 0.52 | |||||||||||
| Euro | (2,546,180 | ) | 105.75 | 1,804,081 | 51.73 | |||||||||||
| Hong Kong dollar | 44,286 | (1.84 | ) | 25,696 | 0.74 | |||||||||||
| Japanese yen | 423,509 | (17.59 | ) | 328,773 | 9.43 | |||||||||||
| Korean won | 128,550 | (5.34 | ) | 178,170 | 5.11 | |||||||||||
| Norwegian krone | (149,119 | ) | 6.19 | (62,154 | ) | (1.78 | ) | |||||||||
| Polish zloty | 41,937 | (1.74 | ) | (29,479 | ) | (0.85 | ) | |||||||||
| Singapore dollar | 6,722 | (0.28 | ) | (3,172 | ) | (0.09 | ) | |||||||||
| South African rand | 12,332 | (0.51 | ) | 11,387 | 0.33 | |||||||||||
| Swedish krona | (134,531 | ) | 5.59 | (80,833 | ) | (2.32 | ) | |||||||||
| Turkish lira | (152,275 | ) | 6.32 | (25,346 | ) | (0.73 | ) | |||||||||
| U.S. dollar | (630,277 | ) | 26.18 | 873,981 | 25.05 | |||||||||||
| Total | $ | (2,407,767 | ) | 100.00 | % | $ | 3,487,795 | 100.00 | % | |||||||
The Derivatives and Hedging topic of the Codification requires qualitative disclosure about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements.
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The Partnership’s market risk is influenced by a wide variety of factors including the level and volatility of interest rates, exchange rates, equity price levels, the market value of financial instruments and contracts, the diversification effects among the Partnership’s open positions and the liquidity of the markets in which it trades.
The Partnership engages in the speculative trading of futures and forward contracts on agricultural commodities, currencies, energies, interest rates, metals and stock indices. The following were the primary trading risk exposures of the Partnership at December 31, 2017 and 2016 by market sector:
Agricultural (grains, livestock and softs) — The Partnership’s primary exposure is to agricultural price movements which are often directly affected by severe or unexpected weather conditions as well as supply and demand factors.
Currencies — Exchange rate risk is a principal market exposure of the Partnership. The Partnership’s currency exposure is to exchange rate fluctuations, primarily fluctuations which disrupt the historical pricing relationships between different currencies and currency pairs. The fluctuations are influenced by interest rate changes as well as political and general economic conditions. The Partnership trades in a large number of currencies including cross-rates — for example, positions between two currencies other than the U.S. dollar.
Energies — The Partnership’s primary energy market exposure is to gas and oil price movements often resulting from political developments in the Middle East and economic conditions worldwide. Energy prices are volatile and substantial profits and losses have been and are expected to continue to be experienced in this market.
Interest Rates — Interest rate movements directly affect the price of the sovereign bond futures positions held by the Partnership and indirectly the value of its stock index and currency positions. Interest rate movements in one country as well as relative interest rate movements between countries may materially impact the Partnership’s profitability. The Partnership’s primary interest rate exposure is to interest rate fluctuations in countries or regions including Australia, Canada, Japan, Switzerland, the United Kingdom, the U.S. and the Eurozone. However, the Partnership also may take positions in futures contracts on the government debt of other nations. The General Partner anticipates that interest rates in these industrialized countries, both long-term and short-term, will remain the primary interest rate market exposure of the Partnership for the foreseeable future.
Metals — The Partnership’s metals market exposure is to fluctuations in the price of aluminum, copper, gold, lead, nickel, palladium, platinum, silver, tin and zinc.
Stock Indices — The Partnership’s equity exposure, through stock index futures, is to equity price risk in the major industrialized countries as well as other countries.
The Derivatives and Hedging topic of the Codification requires entities to recognize in the Statements of Financial Condition all derivative contracts as assets or liabilities. Fair values of futures and forward currency contracts in a net asset position are recorded in the Statements of Financial Condition as “Net unrealized appreciation on open futures and forward currency contracts.” Fair value of futures and forward currency contracts in a liability position are recorded in the Statements of Financial Condition as “Net unrealized depreciation on open futures and forward currency contracts.”
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Since the derivatives held or sold by the Partnership are for speculative trading purposes, the derivative instruments are not designated as hedging instruments under the provisions of the Codification. Accordingly, all realized gains and losses, as well as any change in net unrealized gains or losses on open positions from the preceding period, are recognized as part of the Partnership’s trading gains and losses in the Statements of Operations.
The following tables present the fair value of open futures and forward currency contracts, held long or sold short, at December 31, 2017 and 2016. Fair value, below, is presented on a gross basis even though the contracts are subject to master netting agreements and qualify for net presentation in the Statements of Financial Condition.
Fair Value of Futures and Forward Currency Contracts at December 31, 2017
| Fair Value - Long Positions | Fair Value - Short Positions | Net Unrealized Gain (Loss) on | ||||||||||||||||||
| Sector | Gains | Losses | Gains | Losses | Open Positions | |||||||||||||||
| Futures contracts: | ||||||||||||||||||||
| Energies | $ | 2,044,382 | $ | (4,305 | ) | $ | 62,040 | $ | (279,130 | ) | $ | 1,822,987 | ||||||||
| Grains | — | (4,300 | ) | 91,250 | (42,105 | ) | 44,845 | |||||||||||||
| Interest rates | 299,972 | (1,818,823 | ) | 223,213 | (46,887 | ) | (1,342,525 | ) | ||||||||||||
| Livestock | — | — | 1,010 | (6,250 | ) | (5,240 | ) | |||||||||||||
| Metals | 2,071,113 | (10,627 | ) | 4,289 | (2,206,537 | ) | (141,762 | ) | ||||||||||||
| Softs | 71,420 | (1,160 | ) | 10,163 | (59,062 | ) | 21,361 | |||||||||||||
| Stock indices | 1,468,203 | (1,049,135 | ) | 187,975 | (327,897 | ) | 279,146 | |||||||||||||
| Total futures contracts | 5,955,090 | (2,888,350 | ) | 579,940 | (2,967,868 | ) | 678,812 | |||||||||||||
| Forward currency contracts | 1,488,604 | (1,039,451 | ) | 570,004 | (4,105,736 | ) | (3,086,579 | ) | ||||||||||||
| Total futures and forward currency contracts | $ | 7,443,694 | $ | (3,927,801 | ) | $ | 1,149,944 | $ | (7,073,604 | ) | $ | (2,407,767 | ) | |||||||
Fair Value of Futures and Forward Currency Contracts at December 31, 2016
| Fair Value - Long Positions | Fair Value - Short Positions | Net Unrealized Gain (Loss) on | ||||||||||||||||||
| Sector | Gains | Losses | Gains | Losses | Open Positions | |||||||||||||||
| Futures contracts: | ||||||||||||||||||||
| Energies | $ | 53,954 | $ | (11,966 | ) | $ | 16,170 | $ | (84,920 | ) | $ | (26,762 | ) | |||||||
| Grains | — | (1,890 | ) | 62,693 | (40,138 | ) | 20,665 | |||||||||||||
| Interest rates | 1,791,090 | (247,007 | ) | 60 | (21,686 | ) | 1,522,457 | |||||||||||||
| Livestock | 1,000 | — | — | — | 1,000 | |||||||||||||||
| Metals | 450,329 | (359,582 | ) | 298,763 | (160,225 | ) | 229,285 | |||||||||||||
| Softs | 10 | (6,435 | ) | 49,155 | (53,993 | ) | (11,263 | ) | ||||||||||||
| Stock indices | 1,255,987 | (435,529 | ) | 14,600 | (228,216 | ) | 606,842 | |||||||||||||
| Total futures contracts | 3,552,370 | (1,062,409 | ) | 441,441 | (589,178 | ) | 2,342,224 | |||||||||||||
| Forward currency contracts | 321,028 | (792,658 | ) | 1,965,153 | (347,952 | ) | 1,145,571 | |||||||||||||
| Total futures and forward currency contracts | $ | 3,873,398 | $ | (1,855,067 | ) | $ | 2,406,594 | $ | (937,130 | ) | $ | 3,487,795 | ||||||||
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The effect of trading futures and forward currency contracts is represented on the Statements of Operations for the years ended December 31, 2017 and 2016, as “Net realized gains (losses) on closed positions: Futures and forward currency contracts” and “Net change in unrealized: Futures and forward currency contracts.” These trading gains and losses are detailed below:
Trading gains (losses) of futures and forward currency contracts for the years ended December 31, 2017 and 2016
| Sector | 2017 | 2016 | ||||||
| Futures contracts: | ||||||||
| Energies | $ | (1,738,009 | ) | $ | (4,760,581 | ) | ||
| Grains | (1,479,008 | ) | 1,911,714 | |||||
| Interest rates | (1,083,060 | ) | 9,847,702 | |||||
| Livestock | (68,880 | ) | 36,620 | |||||
| Metals | (185,467 | ) | (764,495 | ) | ||||
| Softs | 627,314 | (624,741 | ) | |||||
| Stock indices | 26,053,277 | 11,822,774 | ||||||
| Total futures contracts | 22,126,167 | 17,468,993 | ||||||
| Forward currency contracts | (8,891,253 | ) | 5,996,966 | |||||
| Total futures and forward currency contracts | $ | 13,234,914 | $ | 23,465,959 | ||||
The following table presents the average notional value by sector of open futures and forward currency contracts in U.S. dollars for the years ended December 31, 2017 and 2016. The Partnership’s average net asset value during 2017 and 2016 was approximately $167,000,000 and $154,000,000, respectively.
| 2017 | 2016 | |||||||||||||||
| Sector | Long positions | Short positions | Long positions | Short positions | ||||||||||||
| Futures contracts: | ||||||||||||||||
| Energies | $ | 16,978,548 | $ | 14,610,302 | $ | 6,933,073 | $ | 7,110,258 | ||||||||
| Grains | 126,692 | 17,716,023 | 2,424,926 | 10,970,125 | ||||||||||||
| Interest rates | 329,513,189 | 16,609,884 | 317,933,089 | 4,975,488 | ||||||||||||
| Livestock | 234,496 | 640,610 | 37,632 | 918,578 | ||||||||||||
| Metals | 11,723,296 | 7,793,547 | 5,709,509 | 9,853,000 | ||||||||||||
| Softs | 646,820 | 3,414,208 | 1,685,268 | 1,264,396 | ||||||||||||
| Stock indices | 141,294,029 | 13,167,165 | 91,983,101 | 7,974,171 | ||||||||||||
| Total futures contracts | 500,517,070 | 73,951,739 | 426,706,598 | 43,066,016 | ||||||||||||
| Forward currency contracts | 65,013,107 | 90,437,129 | 60,771,490 | 69,689,041 | ||||||||||||
| Total futures and forward currency contracts | $ | 565,530,177 | $ | 164,388,868 | $ | 487,478,088 | $ | 112,755,057 | ||||||||
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Notional values in the interest rate sector were calculated by converting the notional value in local currency of all open interest rate futures positions to 10-year equivalent fixed income instruments, translated to U.S. Dollars at each quarter end during 2017 and 2016. The 10-year note is often used as a benchmark for many types of fixed-income instruments and the General Partner believes it is a more meaningful representation of notional values of the Partnership’s open interest rate positions.
The customer agreements between the Partnership, the Futures Clearing Brokers and the FX Prime Broker gives the Partnership the legal right to net unrealized gains and losses on open futures and foreign currency contracts. The Partnership netted, for financial reporting purposes, the unrealized gains and losses on open futures and forward currency contracts on the Statements of Financial Condition as the criteria under ASC 210-20, “Balance Sheet,” were met.
The following tables summarize the valuation of the Partnership’s investments as December 31, 2017 and 2016.
| Offsetting derivative assets and liabilities at December 31, 2017 | ||||||||||||
| Assets | Gross amounts of recognized assets | Gross amounts offset in the Statement of Financial Condition | Net amounts of assets presented in the Statement of Financial Condition | |||||||||
| Futures contracts | ||||||||||||
| Counterparty C | $ | 2,264,296 | $ | (1,564,578 | ) | $ | 699,718 | |||||
| Total assets | $ | 2,264,296 | $ | (1,564,578 | ) | $ | 699,718 | |||||
| Liabilities | Gross amounts of recognized liabilities | Gross amounts offset in the Statement of Financial Condition | Net amounts of liabilities presented in the Statement of Financial Condition | |||||||||
| Futures contracts | ||||||||||||
| Counterparty I | $ | 4,291,640 | $ | (4,270,734 | ) | $ | 20,906 | |||||
| Total futures contracts | 4,291,640 | (4,270,734 | ) | 20,906 | ||||||||
| Forward currency contracts | ||||||||||||
| Counterparty G | 2,184,442 | (834,415 | ) | 1,350,027 | ||||||||
| Counterparty H | 2,960,745 | (1,224,193 | ) | 1,736,552 | ||||||||
| Total forward currency contracts | 5,145,187 | (2,058,608 | ) | 3,086,579 | ||||||||
| Total liabilities | $ | 9,436,827 | $ | (6,329,342 | ) | $ | 3,107,485 |
(Continued)
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| Amounts Not Offset in the Statement of Financial Condition | ||||||||||||||||
| Counterparty | Net amounts of Assets presented in the Statement of Financial Condition | Financial Instruments | Collateral Received(1)(2) | Net Amount(3) | ||||||||||||
| Counterparty C | $ | 699,718 | $ | — | $ | (699,718 | ) | $ | — | |||||||
| Total | $ | 699,718 | $ | — | $ | (699,718 | ) | $ | — | |||||||
| Amounts Not Offset in the Statement of Financial Condition | ||||||||||||||||
| Counterparty | Net amounts of Liabilities presented in the Statement of Financial Condition | Financial Instruments | Collateral Pledged(1)(2) | Net Amount(4) | ||||||||||||
| Counterparty G | $ | 1,350,027 | $ | — | $ | (1,350,027 | ) | $ | — | |||||||
| Counterparty H | 1,736,552 | — | (1,736,552 | ) | — | |||||||||||
| Counterparty I | 20,906 | — | (20,906 | ) | — | |||||||||||
| Total | $ | 3,107,485 | $ | — | $ | (3,107,485 | ) | $ | — | |||||||
(1) Collateral received includes trades made on exchanges. These trades are subject to central counterparty clearing where settlement is guaranteed by the exchange. Collateral pledged includes both cash and U.S. Treasury notes held at each respective counterparty.
(2) Collateral disclosed is limited to an amount not to exceed 100% of the net amount of assets presented in the Statements of Financial Condition, for each respective counterparty.
(3) Net amount represents the amount that is subject to loss in the event of a counterparty failure as of December 31, 2017.
(4) Net amount represents the amounts owed by the Partnership to each counterparty as of December 31, 2017.
(Concluded)
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| Offsetting derivative assets and liabilities at December 31, 2016 | ||||||||||||
| Assets | Gross amounts of recognized assets | Gross amounts offset in the Statement of Financial Condition | Net amounts of assets presented in the Statement of Financial Condition | |||||||||
| Futures contracts | ||||||||||||
| Counterparty C | $ | 2,601,420 | $ | (830,682 | ) | $ | 1,770,738 | |||||
| Counterparty I | 1,392,391 | (820,905 | ) | 571,486 | ||||||||
| Total futures contracts | 3,993,811 | (1,651,587 | ) | 2,342,224 | ||||||||
| Forward currency contracts | ||||||||||||
| Counterparty G | 1,084,114 | (470,463 | ) | 613,651 | ||||||||
| Counterparty H | 1,202,067 | (670,147 | ) | 531,920 | ||||||||
| Total forward currency contracts | 2,286,181 | (1,140,610 | ) | 1,145,571 | ||||||||
| Total assets | $ | 6,279,992 | $ | (2,792,197 | ) | $ | 3,487,795 | |||||
| Amounts Not Offset in the Statement of Financial Condition | ||||||||||||||||
| Counterparty | Net amounts of Assets presented in the Statement of Financial Condition | Financial Instruments | Collateral Received(1)(2) | Net Amount(3) | ||||||||||||
| Counterparty C | $ | 1,770,738 | $ | — | $ | (1,770,738 | ) | $ | — | |||||||
| Counterparty G | 613,651 | — | — | 613,651 | ||||||||||||
| Counterparty H | 531,920 | — | — | 531,920 | ||||||||||||
| Counterparty I | 571,486 | — | (571,486 | ) | — | |||||||||||
| Total | $ | 3,487,795 | $ | — | $ | (2,342,224 | ) | $ | 1,145,571 | |||||||
(1) Collateral received includes trades made on exchanges. These trades are subject to central counterparty clearing where settlement is guaranteed by the exchange. Collateral pledged includes both cash and U.S. Treasury notes held at each respective counterparty.
(2) Collateral disclosed is limited to an amount not to exceed 100% of the net amount of assets presented in the Statements of Financial Condition, for each respective counterparty.
(3) Net amount represents the amount that is subject to loss in the event of a counterparty failure as of December 31, 2016.
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| 7. | FINANCIAL HIGHLIGHTS |
The ratios are calculated based on limited partners’ capital and special limited partners’ capital taken as a whole. The computation of such ratios based on the amount of expenses and profit share allocation assessed to an individual partner’s capital account may vary from these ratios based on the timing of capital transactions and differences in individual partner’s brokerage fees and profit share allocation arrangements.
Returns are calculated for limited partners and special limited partners taken as a whole. An individual partner’s returns may vary from these returns based on the timing of capital transactions and differences in individual partner’s brokerage fees and profit share allocation arrangements.
| 8. | CAPITAL WITHDRAWAL PAYABLE TO GENERAL PARTNER |
At December 31, 2017 and 2016, capital withdrawals payable were $1,276,588 and $2,405,883, respectively. At December 31, 2017, the capital withdrawal payable included profit share allocated to the General Partner of $926,588 and withdrawal payable to the General Partner of $350,000, respectively. At December 31, 2016, the capital withdrawal payable included profit share allocated to the General Partner of $1,755,883 and withdrawal payable to the General Partner of $650,000, respectively.
| 9. | SUBSEQUENT EVENTS |
During the period from January 1, 2018 to March 19, 2018, contributions of $3,672,750 were made to the Partnership and withdrawals of $2,711,277 were made from the Partnership. The General Partner has performed its evaluation of subsequent events through March 19, 2018, the date the financial statements were issued. Based on such evaluation, no further events were discovered that required disclosure or adjustment to or disclosure in the financial statements.
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