FINANCIAL DERIVATIVE INSTRUMENTS | NOTE 7 - FINANCIAL DERIVATIVE INSTRUMENTS The Partnership engages in the speculative trading of futures, options on futures, and forward contracts for the purpose of achieving capital appreciation. None of the Partnership’s derivative instruments are designated as hedging instruments, as defined in the Derivatives and Hedging The following presents the fair value of derivative contracts at September 30, 2015 and December 31, 2014. The fair value of derivative contracts is presented as an asset if in a gain position and a liability if in a loss position. Fair value is presented on a gross basis in the table below even though the futures and forward contracts qualify for net presentation in the Statement of Financial Condition. September 30, 2015 Type of Derivatives Contracts Asset Derivatives Fair Value Liability Derivatives Fair Value Net Fair Value Futures Contracts Agriculture $ 790,425 $ (1,007,410 ) $ (216,985 ) Currencies 241,690 (144,503 ) 97,187 Energy 917,725 (18,527 ) 899,198 Interest Rates 8,782,982 (64,724 ) 8,718,258 Metals 402,824 (472,180 ) (69,356 ) Stock Indices 862,615 (396,657 ) 465,958 Treasury Rates 698,719 — 698,719 $ 12,696,980 $ (2,104,001 ) $ 10,592,979 Forward Currency Contracts $ 1,933,600 $ (3,471,968 ) $ (1,538,368 ) Total Gross Fair Value of Derivatives Contracts $ 14,630,580 $ (5,575,969 ) $ 9,054,611 December 31, 2014 Type of Derivatives Contracts Asset Derivatives Fair Value Liability Derivatives Fair Value Net Fair Value Futures Contracts Agriculture $ 717,593 $ (447,553 ) $ 270,040 Currencies 2,814,919 (15,075 ) 2,799,844 Energy 2,780,157 (1,236,391 ) 1,543,766 Interest Rates 5,942,063 (992,360 ) 4,949,703 Metals 1,322,342 (1,222,469 ) 99,873 Stock Indices 3,282,258 (738,327 ) 2,543,931 Treasury Rates 531,562 (67,448 ) 464,114 $ 17,390,894 $ (4,719,623 ) $ 12,671,271 Forward Currency Contracts $ 2,167,485 $ (4,156,215 ) $ (1,988,730 ) Total Gross Fair Value of Derivatives Contracts $ 19,558,379 $ (8,875,838 ) $ 10,682,541 The following presents the trading results of the Partnership’s derivative trading and information related to the volume of the Partnership’s derivative activity for the three and nine months ended September 30, 2015 and 2014. The below captions of “Realized” and “Change in Unrealized” correspond to the captions in the Statements of Income (Loss) for gain (loss) on trading of derivatives contracts. Three Months ended September 30, 2015 Type of Derivatives Contracts Realized Change in Unrealized Number of Contracts Closed Futures Contracts Agricultural $ (293,505 ) $ 923,020 Currencies 1,016,228 (836,318 ) Energy 6,453,468 773,496 Interest Rates 1 ,847,476 8,274,477 Metals 4,687,522 (747,978 ) Stock Indices (9,865,684 ) 2,774,057 Treasury Rates (1,207,461 ) 945,727 $ 2,638,044 $ 12,106,481 24,553 Forward Currency Contracts $ (2,000,671 ) $ (1,971,661 ) $ 105,294,581,315 (1) Total gain (loss) from derivatives contracts $ 637,373 $ 10,134,820 Nine Months ended September 30, 2015 Type of Derivatives Contracts Realized Change in Unrealized Number of Contracts Closed Futures Contracts Agricultural $ 588,817 $ (487,025 ) Currencies 5,937,035 (2,702,657 ) Energy 3,436,144 (644,568 ) Interest Rates 7 ,739,775 3,768,555 Metals 1,986,386 (169,229 ) Stock Indices (1,643,731 ) (2,077,973 ) Treasury Rates (281,517 ) 234,605 $ 17,762,909 $ (2,078,292 ) 79,510 Forward Currency Contracts $ (6,127,976 ) $ 450,362 $ 463,151,912,297 (1) Total gain (loss) from derivatives contracts $ 11,634,933 $ (1,627,930 ) (1) Represents the notional amount bought or sold during the three and nine months ended September 30, 2015. The number of contracts closed using average cost for long contracts of 510,804 and 542,034 and short contracts of (537,566) and (515,557) for the three and nine months ended September 30, 2015. Three Months ended September 30, 2014 Type of Derivatives Contracts Realized Change in Unrealized Number of Contracts Closed Futures Contracts Agricultural $ (1,511,737 ) $ (3,243,901 ) Currencies 1,508,164 2,237,165 Energy (1,428,084 ) 2,907,362 Interest Rates 10,573,296 (3,550,670 ) Metals (735,961 ) 4,114,999 Stock Indices 1 ,804,369 (2,561,720 ) Treasury Rates 1,890,883 (2,093,703 ) $ 12,100,930 $ (2,190,468 ) 33,528 Forward Currency Contracts $ (1,450,712 ) $ (3,412,003 ) $ 203,770,754,337 (1) Total gain (loss) from derivatives contracts $ 10,650,218 $ (5,602,471 ) Nine Months ended September 30, 2014 Type of Derivatives Contracts Realized Change in Unrealized Number of Contracts Closed Futures Contracts Agricultural $ (331,143 ) $ (5,768,462 ) Currencies 3,148,069 662,109 Energy (1,025,231 ) 3,038,477 Interest Rates 23,420,054 5,540,182 Metals (3,771,437 ) 1,026,965 Stock Indices 15,151,186 (13,690,640 ) Treasury Rates 3,574,476 (1,381,596 ) $ 40,165,974 $ (10,572,965 ) 104,713 Forward Currency Contracts $ 652,417 $ (3,567,915 ) $ 825,880,991,115 (1) Total gain (loss) from derivatives contracts $ 40,818,391 $ (14,140,880 ) (1) Represents the notional amount bought or sold during the three and nine months ended September 30, 2014. The number of contracts closed using average cost for long contracts of 805,559 and 763,401 and short contracts of (795,255) and (749,680) for the three and nine months ended September 30, 2014. With respect to futures contracts and options on futures contracts, the Partnership has entered into an agreement with the Clearing Broker which grants the Clearing Broker the right to offset recognized derivative assets and derivative liabilities if certain conditions exist, which would require the Clearing Broker to liquidate the Partnership’s positions. These events include the following: (i) the Clearing Broker is directed or required by a regulatory or self-regulatory organization, (ii) the Clearing Broker determines, at its discretion, that the risk in the Partnership’s account must be reduced for protection of the Clearing Broker, (iii) upon the Partnership’s breach or failure to perform on its contractual agreements with the Clearing Broker, (iv) upon the commencement of bankruptcy, insolvency or similar proceeding for the protection of creditors against the Partnership, or (v) upon the dissolution, winding up, liquidation or merger of the Partnership. With respect to foreign currency forward contracts, the Partnership has entered into an agreement with the Clearing Broker, whereby the party having the greater obligation (either the Partnership or the Clearing Broker) shall deliver to the other party at the settlement date the net amount of recognized derivative assets and liabilities. The following table summarizes the disclosure requirements for offsetting assets and liabilities: Offsetting the Financial Assets and Derivative Assets As of September 30, 2015 Gross Amounts Not Offset in the Statement of Financial Condition Description Gross Amounts of Recognized Assets Gross Amounts of Recognized Liabilities Available to Offset Net Amounts of Assets Presented in the Statement of Financial Condition Financial Instruments Cash Collateral Received (1) Net Amount Forward contracts $ 1,933,600 $ (1,933,600 ) $ - $ - $ - $ - Commodity futures contracts 12,696,980 (2,104,001 ) 10,592,979 - - 10,592,979 Total $ 14,630,580 $ (4,037,601 ) $ 10,592,979 $ - $ - $ 10,592,979 Offsetting the Financial Liabilities and Derivative Liabilities As of September 30, 2015 Gross Amounts Not Offset in the Statement of Financial Condition Description Gross Amounts of Recognized Liabilities Gross Amounts of Recognized Assets Available to Offset Net Amounts of Liabilities Presented in the Statement of Financial Condition Financial Instruments Cash Collateral Pledged (1) Net Amount Forward contracts $ (3,471,968 ) $ 1,933,600 $ (1,538,368 ) $ - $ - $ (1,538,368 ) Commodity futures contracts (2,104,001 ) 2,104,001 - - - - Total $ (5,575,969 ) $ 4,037,601 $ (1,538,368 ) $ - $ - $ (1,538,368 ) Offsetting the Financial Assets and Derivative Assets As of December 31, 2014 Gross Amounts Not Offset in the Statement of Financial Condition Description Gross Amounts of Recognized Assets Gross Amounts of Recognized Liabilities Available to Offset Net Amounts of Assets Presented in the Statement of Financial Condition Financial Instruments Cash Collateral Received (1) Net Amount Forward contracts $ 2,167,485 $ (2,167,485 ) $ - $ - $ - $ - Commodity futures contracts 17,390,894 (4,719,623 ) 12,671,271 - - 12,671,271 Total $ 19,558,379 $ (6,887,108 ) $ 12,671,271 $ - $ - $ 12,671,271 Offsetting the Financial Liabilities and Derivative Liabilities As of December 31, 2014 Gross Amounts Not Offset in the Statement of Financial Condition Description Gross Amounts of Recognized Liabilities Gross Amounts of Recognized Assets Available to Offset Net Amounts of Liabilities Presented in the Statement of Financial Condition Financial Instruments Cash Collateral Pledged (1) Net Amount Forward contracts $ (4,156,215 ) $ 2,167,485 $ (1,988,730 ) $ - $ - $ (1,988,730 ) Commodity futures contracts (4,719,623 ) 4,719,623 - - - - Total $ (8,875,838 ) $ 6,887,108 $ (1,988,730 ) $ - $ - $ (1,988,730 ) (1) Does not include maintenance margin deposits held at the Clearing Broker of $29,341,966 for 2015 and $30,202,135 for 2014, respectively. |