FINANCIAL DERIVATIVE INSTRUMENTS | NOTE 7 - FINANCIAL DERIVATIVE INSTRUMENTS The Partnership engages in the speculative trading of futures, options on futures, and forward currency 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 December 31, 2016 and 2015. 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 Statements of Financial Condition. December 31, 2016 Asset Liability Type of Derivatives Derivatives Net Derivatives Contracts Fair Value Fair Value Fair Value Futures Contracts Agriculture $ 1,111,896 $ (431,415 ) $ 680,481 Currencies 1,248,554 (5,361 ) 1,243,193 Energy 172,229 (129,016 ) 43,213 Interest Rates 708,726 (98,182 ) 610,544 Metals 787,551 (1,233,199 ) (445,648 ) Stock Indices 1,884,443 (883,651 ) 1,000,792 Treasury Rates 18,539 (77,820 ) (59,281 ) $ 5,931,938 $ (2,858,644 ) $ 3,073,294 Forward Currency Contracts $ 1,408,337 $ (1,059,246 ) $ 349,091 Total Gross Fair Value of Derivatives Contracts $ 7,340,275 $ (3,917,890 ) $ 3,422,385 December 31, 2015 Asset Liability Type of Derivatives Derivatives Net Derivatives Contracts Fair Value Fair Value Fair Value Futures Contracts Agriculture $ 826,890 $ (372,982 ) $ 453,908 Currencies 1,639,413 (118,455 ) 1,520,958 Energy 1,104,694 (610,719 ) 493,975 Interest Rates 989,590 (2,176,759 ) (1,187,169 ) Metals 1,473,464 (217,943 ) 1,255,521 Stock Indices 726,860 (599,754 ) 127,106 Treasury Rates - (225,235 ) (225,235 ) $ 6,760,911 $ (4,321,847 ) $ 2,439,064 Forward Currency Contracts $ 1,272,922 $ (1,666,973 ) $ (394,051 ) Total Gross Fair Value of Derivatives Contracts $ 8,033,833 $ (5,988,820 ) $ 2,045,013 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 years ended December 31, 2016, 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. Year ended December 31, 2016 Type of Derivatives Contracts Realized Change in Unrealized Number of Contracts Closed Futures Contracts Agricultural $ (1,822,267 ) $ 226,573 Currencies 5,094,975 (277,765 ) Energy (5,853,827 ) (450,762 ) Interest Rates 11,984,523 1,797,713 Metals (7,854,928 ) (1,701,169 ) Stock Indices (1,343,506 ) 873,686 Treasury Rates 1,865,390 165,954 $ 2,070,360 $ 634,230 79,216 (2 ) Forward Currency Contracts $ 1,502,528 $ 743,142 (1 ) Total gain (loss) from derivatives contracts $ 3,572,888 $ 1,377,372 Year ended December 31, 2015 Type of Derivatives Contracts Realized Change in Unrealized Number of Contracts Closed Futures Contracts Agricultural $ 812,738 $ 183,868 Currencies 5,240,782 (1,278,886 ) Energy 12,776,979 (1,049,791 ) Interest Rates 15,040,028 (6,136,872 ) Metals 1,552,364 1,155,648 Stock Indices (6,099,953 ) (2,416,825 ) Treasury Rates (1,523,830 ) (689,349 ) $ 27,799,108 $ (10,232,207 ) 104,004 (2 ) Forward Currency Contracts $ (7,369,968 ) $ 1,594,679 (1 ) Total gain (loss) from derivatives contracts $ 20,429,140 $ (8,637,528 ) Year ended December 31, 2014 Type of Derivatives Contracts Realized Change in Unrealized Number of Contracts Closed Futures Contracts Agricultural $ (3,622,872 ) $ (1,207,334 ) Currencies 15,721,422 (1,048,045 ) Energy 17,811,994 1,582,603 Interest Rates 34,111,784 7,009,331 Metals (213,214 ) (1,310,168 ) Stock Indices 7,647,480 (9,487,120 ) Treasury Rates 8,102,452 768,348 $ 79,559,046 $ (3,692,385 ) 138,421 (2 ) Forward Currency Contracts $ (3,186,422 ) $ (2,176,512 ) (1 ) Total gain (loss) from derivatives contracts $ 76,372,624 $ (5,868,897 ) (1) The numbers of long contracts closed using average cost for the years ended December 31, 2016, 2015, and 2014 were 576,557, 556,397, and 702,178, respectively. The numbers of short contracts closed using average cost for average cost for the years ended December 31, 2016, 2015, and 2014 were (393,444), (522,035), and (634,673), respectively. These long and short numbers are representative of the Partnership's volume of derivative activity for forward currency contracts during those years. (2) These closed contract amounts are representative of the Partnership's volume of derivative activity for futures contracts during the year. 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 December 31, 2016 Gross Amounts Not Offset in the Statement of Financial Condition Description 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 Financial Instruments Cash Collateral Received (1) Net Amount Forward contracts 1,408,337 (1,059,246 ) 349,091 - - 349,091 Commodity futures contracts 5,931,938 (2,858,644 ) 3,073,294 - - 3,073,294 Total 7,340,275 (3,917,890 ) 3,422,385 - - 3,422,385 Offsetting the Financial Liabilities and Derivative Liabilities As of December 31, 2016 Gross Amounts Not Offset in the Statement of Financial Condition Description 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 Financial Instruments Cash Collateral Pledged (1) Net Amount Forward contracts (1,059,246 ) 1,059,246 - - - - Commodity futures contracts (2,858,644 ) 2,858,644 - - - - Total (3,917,890 ) 3,917,890 - - - - Offsetting the Financial Assets and Derivative Assets As of December 31, 2015 Gross Amounts Not Offset in the Statement of Financial Condition Description 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 Financial Instruments Cash Collateral Received (1) Net Amount Forward contracts 1,272,922 (1,272,922 ) - - - - Commodity futures contracts 6,760,911 (4,321,847 ) 2,439,064 - - 2,439,064 Total 8,033,833 (5,594,769 ) 2,439,064 - - 2,439,064 Offsetting the Financial Liabilities and Derivative Liabilities As of December 31, 2015 Gross Amounts Not Offset in the Statement of Financial Condition Description 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 Financial Instruments Cash Collateral Pledged (1) Net Amount Forward contracts (1,666,973 ) 1,272,922 (394,051 ) - - (394,051 ) Commodity futures contracts (4,321,847 ) 4,321,847 - - - - Total (5,988,820 ) 5,594,769 (394,051 ) - - (394,051 ) (1) The Partnership posted additional collateral of $27,289,467 for 2016 and $32,426,370 for 2015, with the Clearing Broker. The Partnership may post collateral due to a variety of factors that may include, without limitation, initial margin or other requirements that are based on notional amounts which may exceed the fair value of the derivative contract. |