| TRADING ACTIVITIES AND RELATED RISKS | Note 9. TRADING ACTIVITIES AND RELATED RISKS The Fund engages in the speculative trading of U.S. and foreign futures contracts and forward currency contracts (collectively, "derivatives"). Specifically, the Fund trades a portfolio focused on financial futures, which are instruments designed to hedge changes in interest rates, currency exchange rates, stock index values, metals, energy and agriculture values. The Fund is exposed to both market risk, the risk arising from changes in the fair value of the contracts, and credit risk, the risk of failure by another party to perform according to the terms of a contract. Market Risk For derivatives, risks arise from changes in the fair value of the contracts. Market movements result in frequent changes in the fair value of the Fund's open positions and, consequently, in its earnings and cash flow. The Fund's market risk is influenced by a wide variety of factors, including the level and volatility of exchange rates, interest rates, equity price levels, the fair value of financial instruments and contracts, the diversification effects among the Fund's open positions and the liquidity of the markets in which it trades. Theoretically, the Fund is exposed to a market risk equal to the notional contract value of futures and forward currency contracts purchased and unlimited liability on such contracts sold short. See Note 1.C. for an explanation of how the Fund determines its valuation for derivatives as well as the netting of derivatives. The Fund adopted the provisions of ASC 815, Derivatives and Hedging, ("ASC 815"). ASC 815 provides enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments are accounted for, and how derivative instruments affect an entity's financial position, financial performance and cash flows. The following tables summarize quantitative information required by ASC 815. The fair value of the Fund's derivatives by instrument type, as well as the location of those instruments on the Statements of Financial Condition, as of September 30, 2015 and December 31, 2014 is as follows: Type of Instrument * Statements of Financial Condition Location Asset Derivatives at September 30, 2015 Fair Value Liability Derivatives at September 30, 2015 Fair Value Net Agriculture Contracts Net unrealized gain (loss) on open futures contracts $ 2,613,973 $ (1,409,851 ) $ 1,204,122 Energy Contracts Net unrealized gain (loss) on open futures contracts 2,147,526 (178,026 ) 1,969,500 Metal Contracts Net unrealized gain (loss) on open futures contracts 5,150,538 (3,483,172 ) 1,667,366 Stock Indices Contracts Net unrealized gain (loss) on open futures contracts 667,173 (1,537,527 ) (870,354 ) Short-Term Interest Rate Contracts Net unrealized gain (loss) on open futures contracts 1,176,917 (5,615 ) 1,171,302 Long-Term Interest Rate Contracts Net unrealized gain (loss) on open futures contracts 3,054,747 (291,345 ) 2,763,402 Forward Currency Contracts Net unrealized gain (loss) on open forward currency contracts 20,931,673 (19,950,190 ) 981,483 Totals $ 35,742,547 $ (26,855,726 ) $ 8,886,821 * Derivatives not designated as hedging instruments under ASC 815 Type of Instrument * Statements of Financial Condition Location Asset Derivatives at December 31, 2014 Fair Value Liability Derivatives at December 31, 2014 Fair Value Net Agriculture Contracts Net unrealized gain (loss) on open futures contracts $ 1,078,045 $ (1,396,330 ) $ (318,285 ) Energy Contracts Net unrealized gain (loss) on open futures contracts 2,759,040 (113,226 ) 2,645,814 Metal Contracts Net unrealized gain (loss) on open futures contracts 3,162,809 (1,957,709 ) 1,205,100 Stock Indices Contracts Net unrealized gain (loss) on open futures contracts 810,026 (1,649,288 ) (839,262 ) Short-Term Interest Rate Contracts Net unrealized gain (loss) on open futures contracts 908,365 (280,621 ) 627,744 Long-Term Interest Rate Contracts Net unrealized gain (loss) on open futures contracts 14,372,166 (228,937 ) 14,143,229 Forward Currency Contracts Net unrealized gain (loss) on open forward currency contracts 37,264,589 (23,687,822 ) 13,576,767 Totals $ 60,355,040 $ (29,313,933 ) $ 31,041,107 * Derivatives not designated as hedging instruments under ASC 815 The trading gains and losses of the Fund's derivatives by instrument type, as well as the location of those gains and losses on the Statements of Operations, for the three months and nine months ended September 30, 2015 and 2014 is as follows: Type of Instrument Trading Gains / (Losses) for the Three Months Ended September 30, 2015 Trading Gains / (Losses) for the Three Months Ended September 30, 2014 Agriculture Contracts $ (3,656,269 ) $ 16,187,188 Energy Contracts 9,509,256 7,520,299 Metal Contracts 18,154,077 3,176,801 Stock Indices Contracts (7,367,691 ) 1,637,375 Short-Term Interest Rate Contracts 2,554,708 (510,458 ) Long Term Interest Rate Contracts (5,481,388 ) 13,362,132 Forward Currency Contracts 13,117,248 44,871,260 Total $ 26,829,941 $ 86,244,597 Type of Instrument Trading Gains / (Losses) for the Nine Months Ended September 30, 2015 Trading Gains / (Losses) for the Nine Months Ended September 30, 2014 Agriculture Contracts $ (15,750,799 ) $ 15,299,825 Energy Contracts (8,137,820 ) (8,427,456 ) Metal Contracts 6,382,203 (9,560,563 ) Stock Indices Contracts 2,933,235 (12,220,611 ) Short-Term Interest Rate Contracts 185,613 (8,449,538 ) Long Term Interest Rate Contracts (9,233,964 ) 43,953,239 Forward Currency Contracts 23,588,094 31,572,696 Total $ (33,438 ) $ 52,167,592 Line Item in the Statements of Operations Trading Gains / (Losses) for the Three Months Ended September 30, 2015 Trading Gains / (Losses) for the Three Months Ended September 30, 2014 Futures trading gains (losses): Realized ** $ (3,970,628 ) $ 35,246,740 Change in unrealized 17,683,321 6,126,597 Forward currency trading gains (losses): Realized 5,409,366 18,008,023 Change in unrealized 7,707,882 26,863,237 Total $ 26,829,941 $ 86,244,597 ** Amounts differ from the amounts on the Statements of Operations as the amounts above do not include gains and losses on foreign currency cash balances at the futures broker. Line Item in the Statements of Operations Trading Gains / (Losses) for the Nine Months Ended September 30, 2015 Trading Gains / (Losses) for the Nine Months Ended September 30, 2014 Futures trading gains (losses): Realized ** $ (14,062,530 ) $ 17,993,473 Change in unrealized (9,559,002 ) 2,601,423 Forward currency trading gains (losses): Realized 36,183,378 1,692,837 Change in unrealized (12,595,284 ) 29,879,859 Total $ (33,438 ) $ 52,167,592 ** Amounts differ from the amounts on the Statements of Operations as the amounts above do not include gains and losses on foreign currency cash balances at the futures broker. For the three months ended September 30, 2015 and 2014, the monthly average of futures contracts bought and sold was approximately 54,300 and 60,400, respectively, and the monthly average of notional value of forward currency contracts was $2,447,800,000 and $4,685,600,000 respectively. For the nine months ended September 30, 2015 and 2014, the monthly average futures contracts bought and sold was approximately 70,100 and 79,700, respectively, and the monthly average of notional value of forward currency contracts was $3,607,700,000 and $5,619,200,000 respectively. Open contracts generally mature within twelve months; as of September 30, 2015, the latest maturity date for open futures contracts is December 2016 and the latest maturity date for open forward currency contracts is December 2015. However, the Fund intends to close all futures and offset all foreign currency contracts prior to maturity. Credit Risk The Fund trades futures contracts on exchanges that require margin deposits with the futures broker. Additional deposits may be necessary for any loss on contract value. The Commodity Exchange Act requires a futures broker to segregate all customer transactions and assets from such futures broker's proprietary activities. A customer's cash and other property (for example, U.S. Treasury Bills) deposited with a futures broker are considered commingled with all other customer funds subject to the futures broker's segregation requirements. In the event of a futures 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 total cash and other property deposited. The Fund trades forward currency contracts in unregulated markets between principals and assumes the risk of loss from counterparty nonperformance. 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. The Fund has entered into ISDA Agreements with UBS AG and RBS. Under the terms of each ISDA Agreement, upon the designation of an Event of Default, as defined in each ISDA Agreement, the non-defaulting party may set-off any sum or obligation owed by the defaulting party to the non-defaulting party against any sum or obligation owed by the non-defaulting party to the defaulting party. If any sum or obligation is unascertained, the non-defaulting party may in good faith estimate that sum or obligation and set-off in respect to that estimate, accounting to the other party when such sum or obligation is ascertained. Under the terms of each master netting agreement with UBS Securities and Goldman, upon occurrence of a default by the Fund, as defined in respective account documents, UBS Securities and Goldman have the right to close out any or all open contracts held in the Fund's account; sell any or all of the securities held; and borrow or buy any securities, contracts or other property for the Fund's account. The Fund would be liable for any deficiency in its account resulting from such transactions. The amount of required margin and good faith deposits with the futures brokers and interbank market makers usually range from 10% to 30% of Net Asset Value. The fair value of securities held to satisfy such requirements at September 30, 2015 and December 31, 2014 was $150,289,197 and $157,439,691, respectively, which equals 26% and 23% of Net Asset Value, respectively. The cash deposited with the interbank market makers at September 30, 2015 and December 31, 2014 was $2,857,681 and $103,335, respectively, which equals 0% and 0% of Net Asset Value, respectively. These amounts are included in cash and cash equivalents. There was no restricted cash at September 30, 2015 or December 31, 2014. Set forth below are tables which disclose both gross information and net information about instruments and transactions eligible for offset in the Statements of Financial Condition and instruments and transactions that are subject to a master netting agreement as well as amounts related to financial collateral (including U.S. Treasury Bills and cash collateral) held at clearing brokers and counterparties. Margin reflected in the Collateral tables is limited to the net amount of unrealized loss at each counterparty. Actual margin amounts required at each counterparty are based on the notional amounts or the number of contracts outstanding and may exceed the margin presented in the Collateral tables. Offsetting of Derivative Assets As of September 30, 2015 Type of Instrument Counterparty Gross Amount of Recognized Assets Gross Amounts Offset in the Statements of Financial Condition Net Amount of Unrealized Gain Presented in the Statements of Financial Condition Futures contracts UBS Securities LLC $ 7,472,785 $ (3,432,440 ) $ 4,040,345 Futures contracts Goldman Sachs 7,338,089 (3,473,096 ) 3,864,993 Total futures contracts 14,810,874 (6,905,536 ) 7,905,338 Forward currency contracts UBS AG 10,489,350 (10,002,981 ) 486,369 Forward currency contracts Royal Bank of Scotland 10,442,323 (9,947,209 ) 495,114 Total forward currency contracts 20,931,673 (19,950,190 ) 981,483 Total derivatives $ 35,742,547 $ (26,855,726 ) $ 8,886,821 Derivatives Assets and Collateral Received by Counterparty As of September 30, 2015 Gross Amounts Not Offset in the Statements of Financial Condition Counterparty Net Amount of Unrealized Gain in the Statements of Financial Condition Financial Instruments Cash Collateral Received Net Amount UBS Securities LLC $ 4,040,345 $ 0 $ 0 $ 4,040,345 Goldman Sachs 3,864,993 0 0 3,864,993 UBS AG 486,369 0 0 486,369 Royal Bank of Scotland 495,114 0 0 495,114 Total $ 8,886,821 $ 0 $ 0 $ 8,886,821 Offsetting of Derivative Liabilities As of September 30, 2015 Type of Instrument Counterparty Gross Amount of Recognized Liabilities Gross Amounts Offset in the Statements of Financial Condition Net Amount of Unrealized Loss Presented in the Statements of Financial Condition Futures contracts UBS Securities LLC $ 3,432,440 $ (3,432,440 ) $ 0 Futures contracts Goldman Sachs 3,473,096 (3,473,096 ) 0 Total futures contracts 6,905,536 (6,905,536 ) 0 Forward currency contracts UBS AG 10,002,981 (10,002,981 ) 0 Forward currency contracts Royal Bank of Scotland 9,947,209 (9,947,209 ) 0 Total forward currency contracts 19,950,190 (19,950,190 ) 0 Total derivatives $ 26,855,726 $ (26,855,726 ) $ 0 Derivatives Liabilities and Collateral Pledged by Counterparty As of September 30, 2015 Gross Amounts Not Offset in the Statements of Financial Condition Counterparty Net Amount of Unrealized Loss in the Statements of Financial Condition Financial Instruments Cash Collateral Pledged Net Amount UBS Securities LLC $ 0 $ 0 $ 0 $ 0 Goldman Sachs 0 0 0 0 UBS AG 0 0 0 0 Royal Bank of Scotland 0 0 0 0 Total $ 0 $ 0 $ 0 $ 0 Offsetting of Derivative Assets As of December 31, 2014 Type of Instrument Counterparty Gross Amount of Recognized Assets Gross Amount Offset in the Statements of Financial Condition Net Amount of Unrealized Gain Presented in the Statements of Financial Condition Futures contracts UBS Securities LLC $ 11,539,188 $ (2,856,927 ) $ 8,682,261 Futures contracts Goldman Sachs 11,551,263 (2,769,184 ) 8,782,079 Total futures contracts 23,090,451 (5,626,111 ) 17,464,340 Forward currency contracts UBS AG 18,635,604 (11,843,876 ) 6,791,728 Forward currency contracts Royal Bank of Scotland 18,628,985 (11,843,946 ) 6,785,039 Total forward currency contracts 37,264,589 (23,687,822 ) 13,576,767 Total derivatives $ 60,355,040 $ (29,313,933 ) $ 31,041,107 Derivatives Assets and Collateral Received by Counterparty As of December 31, 2014 Gross Amounts Not Offset in the Statements of Financial Condition Counterparty Net Amount of Unrealized Gain in the Statements of Financial Condition Financial Instruments Cash Collateral Received Net Amount UBS Securities LLC $ 8,682,261 $ 0 $ 0 $ 8,682,261 Goldman Sachs 8,782,079 0 0 8,782,079 UBS AG 6,791,728 0 0 6,791,728 Royal Bank of Scotland 6,785,039 0 0 6,785,039 Total $ 31,041,107 $ 0 $ 0 $ 31,041,107 Offsetting of Derivative Liabilities As of December 31, 2014 Type of Instrument Counterparty Gross Amount of Recognized Liabilities Gross Amount Offset in the Statements of Financial Condition Net Amount of Unrealized Loss Presented in the Statements of Financial Condition Futures contracts UBS Securities LLC $ 2,856,927 $ (2,856,927 ) $ 0 Futures contracts Goldman Sachs 2,769,184 (2,769,184 ) 0 Total futures contracts 5,626,111 (5,626,111 ) 0 Forward currency contracts UBS AG 11,843,876 (11,843,876 ) 0 Forward currency contracts Royal Bank of Scotland 11,843,946 (11,843,946 ) 0 Total forward currency contracts 23,687,822 (23,687,822 ) 0 Total derivatives $ 29,313,933 $ (29,313,933 ) $ 0 Derivatives Liabilities and Collateral Pledged by Counterparty As of December 31, 2014 Gross Amounts Not Offset in the Statements of Financial Condition Counterparty Net Amount of Unrealized Loss in the Statements of Financial Condition Financial Instruments Cash Collateral Pledged Net Amount UBS Securities LLC $ 0 $ 0 $ 0 $ 0 Goldman Sachs 0 0 0 0 UBS AG 0 0 0 0 Royal Bank of Scotland 0 0 0 0 Total $ 0 $ 0 $ 0 $ 0 Campbell & Company 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. Campbell & Company's basic market risk control procedures consist of continuously monitoring open positions, diversification of the portfolio and maintenance of a margin-to-equity ratio that rarely exceeds 30%. Campbell & Company's attempt to manage the risk of the Fund's open positions is essentially the same in all market categories traded. Campbell & Company applies risk management policies to its trading which generally limit the total exposure that may be taken per "risk unit" of assets under management. In addition, Campbell & Company follows diversification guidelines (often formulated in terms of the balanced volatility between markets and correlated groups), as well as reducing position sizes dynamically in response to trading losses. Campbell & Company controls the risk of the Fund's non-trading fixed income instruments by limiting the duration of such instruments and requiring a minimum credit quality of the issuers of those instruments. Campbell & Company seeks to minimize credit risk primarily by depositing and maintaining the Fund's assets at financial institutions and brokers which Campbell & Company believes to be credit worthy. The limited partners bear the risk of loss only to the extent of the market value of their respective investments and, in certain specific circumstances, distributions and redemptions received. |
