| 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 March 31, 2016 and December 31, 2015 is as follows: Type of Instrument * Statements of Financial Condition Location Asset Derivatives at March 31, 2016 Fair Value Liability Derivatives at March 31, 2016 Fair Value Net Agriculture Contracts Net unrealized gain (loss) on open futures contracts $ 2,446,676 $ (1,208,945 ) $ 1,237,731 Energy Contracts Net unrealized gain (loss) on open futures contracts 1,345,969 (525,224 ) 820,745 Metal Contracts Net unrealized gain (loss) on open futures contracts 1,635,245 (1,426,005 ) 209,240 Stock Indices Contracts Net unrealized gain (loss) on open futures contracts 2,269,461 (1,762,723 ) 506,738 Short-Term Interest Rate Contracts Net unrealized gain (loss) on open futures contracts 995,022 (380,915 ) 614,107 Long-Term Interest Rate Contracts Net unrealized gain (loss) on open futures contracts 4,955,861 (912,568 ) 4,043,293 Forward Currency Contracts Net unrealized gain (loss) on open forward currency contracts 33,699,218 (33,647,908 ) 51,310 Totals $ 47,347,452 $ (39,864,288 ) $ 7,483,164 * Derivatives not designated as hedging instruments under ASC 815 Type of Instrument * Statements of Financial Condition Location Asset Derivatives at December 31, 2015 Fair Value Liability Derivatives at December 31, 2015 Fair Value Net Agriculture Contracts Net unrealized gain (loss) on open futures contracts $ 2,502,717 $ (1,909,086 ) $ 593,631 Energy Contracts Net unrealized gain (loss) on open futures contracts 1,249,322 (6,944,497 ) (5,695,175 ) Metal Contracts Net unrealized gain (loss) on open futures contracts 1,370,476 (3,754,126 ) (2,383,650 ) Stock Indices Contracts Net unrealized gain (loss) on open futures contracts 560,183 (1,117,990 ) (557,807 ) Short-Term Interest Rate Contracts Net unrealized gain (loss) on open futures contracts 10,868 (450,693 ) (439,825 ) Long-Term Interest Rate Contracts Net unrealized gain (loss) on open futures contracts 1,590,634 (1,199,513 ) 391,121 Forward Currency Contracts Net unrealized gain (loss) on open forward currency contracts 31,083,991 (29,653,439 ) 1,430,552 Totals $ 38,368,191 $ (45,029,344 ) $ (6,661,153 ) * 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 ended March 31, 2016 and 2015 is as follows: Type of Instrument Trading Gains / (Losses) for the Three Months Ended March 31, 2016 Trading Gains / (Losses) for the Three Months Ended March 31, 2015 Agriculture Contracts $ (7,736,363 ) $ 4,743,958 Energy Contracts 3,093,450 537,428 Metal Contracts (7,673,719 ) (2,588,339 ) Stock Indices Contracts (5,052,411 ) 20,376,566 Short-Term Interest Rate Contracts 583,807 (1,814,846 ) Long Term Interest Rate Contracts 14,354,366 26,142,684 Forward Currency Contracts 7,067,682 21,623,003 Total $ 4,636,812 $ 69,020,454 Line Item in the Statements of Operations Trading Gains / (Losses) for the Three Months Ended March 31, 2016 Trading Gains / (Losses) for the Three Months Ended March 31, 2015 Futures trading gains (losses): Realized ** $ (17,954,429 ) $ 57,895,242 Change in unrealized 15,523,559 (10,497,791 ) Forward currency trading gains (losses): Realized 8,446,924 18,168,652 Change in unrealized (1,379,242 ) 3,454,351 Total $ 4,636,812 $ 69,020,454 ** 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 March 31, 2016 and 2015, the monthly average of futures contracts bought and sold was approximately 53,500 and 70,500, respectively, and the monthly average of notional value of forward currency contracts was $3,048,500,000 and $4,131,000,000 respectively. Open contracts generally mature within twelve months; as of March 31, 2016, the latest maturity date for open futures contracts is June 2017 and the latest maturity date for open forward currency contracts is June 2016. 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 a portion of its assets on deposit with PNC Bank. In the event of a financial institution's insolvency, recovery of the Fund's assets on deposit may be limited to account insurance or other protection afforded such deposits. 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 March 31, 2016 and December 31, 2015 was $126,844,129 and $143,007,124, respectively, which equals approximately 24% and 26% of Net Asset Value, respectively. The cash deposited with the interbank market makers at March 31, 2016 and December 31, 2015 was $199,954 and $207,883, respectively, which equals approximately 0% and 0% of Net Asset Value, respectively. These amounts are included in cash and cash equivalents. Included in cash deposits with the futures brokers and interbank market makers at March 31, 2016 and December 31, 2015 was restricted cash for margin requirements of $0 and $5,107,473, respectively, which equals approximately 0% and 1% of Net Asset Value, respectively. 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 March 31, 2016 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 $ 6,913,446 $ (3,068,820 ) $ 3,844,626 Futures contracts Goldman Sachs 6,734,788 (3,147,560 ) 3,587,228 Total futures contracts 13,648,234 (6,216,380 ) 7,431,854 Forward currency contracts UBS AG 16,846,471 (16,818,651 ) 27,820 Forward currency contracts Royal Bank of Scotland 16,852,747 (16,829,257 ) 23,490 Total forward currency contracts 33,699,218 (33,647,908 ) 51,310 Total derivatives $ 47,347,452 $ (39,864,288 ) $ 7,483,164 Derivatives Assets and Collateral Received by Counterparty As of March 31, 2016 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 $ 3,844,626 $ 0 $ 0 $ 3,844,626 Goldman Sachs 3,587,228 0 0 3,587,228 UBS AG 27,820 0 0 27,820 Royal Bank of Scotland 23,490 0 0 23,490 Total $ 7,483,164 $ 0 $ 0 $ 7,483,164 Offsetting of Derivative Liabilities As of March 31, 2016 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 $ 3,068,820 $ (3,068,820 ) $ 0 Futures contracts Goldman Sachs 3,147,560 (3,147,560 ) 0 Total futures contracts 6,216,380 (6,216,380 ) 0 Forward currency contracts UBS AG 16,818,651 (16,818,651 ) 0 Forward currency contracts Royal Bank of Scotland 16,829,257 (16,829,257 ) 0 Total forward currency contracts 33,647,908 (33,647,908 ) 0 Total derivatives $ 39,864,288 $ (39,864,288 ) $ 0 Derivatives Liabilities and Collateral Pledged by Counterparty As of March 31, 2016 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, 2015 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 $ 3,688,786 $ (3,688,786 ) $ 0 Futures contracts Goldman Sachs 3,595,414 (3,595,414 ) 0 Total futures contracts 7,284,200 (7,284,200 ) 0 Forward currency contracts UBS AG 15,542,073 (14,826,720 ) 715,353 Forward currency contracts Royal Bank of Scotland 15,541,918 (14,826,719 ) 715,199 Total forward currency contracts 31,083,991 (29,653,439 ) 1,430,552 Total derivatives $ 38,368,191 $ (36,937,639 ) $ 1,430,552 Derivatives Assets and Collateral Received by Counterparty As of December 31, 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 $ 0 $ 0 $ 0 $ 0 Goldman Sachs 0 0 0 0 UBS AG 715,353 0 0 715,353 Royal Bank of Scotland 715,199 0 0 715,199 Total $ 1,430,552 $ 0 $ 0 $ 1,430,552 Offsetting of Derivative Liabilities As of December 31, 2015 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 $ 7,516,750 $ (3,688,786 ) $ 3,827,964 Futures contracts Goldman Sachs 7,859,155 (3,595,414 ) 4,263,741 Total futures contracts 15,375,905 (7,284,200 ) 8,091,705 Forward currency contracts UBS AG 14,826,720 (14,826,720 ) 0 Forward currency contracts Royal Bank of Scotland 14,826,719 (14,826,719 ) 0 Total forward currency contracts 29,653,439 (29,653,439 ) 0 Total derivatives $ 45,029,344 $ (36,937,639 ) $ 8,091,705 Derivatives Liabilities and Collateral Pledged by Counterparty As of December 31, 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 $ 3,827,964 $ 0 $ (3,827,964 ) $ 0 Goldman Sachs 4,263,741 0 (4,263,741 ) 0 UBS AG 0 0 0 0 Royal Bank of Scotland 0 0 0 0 Total $ 8,091,705 $ 0 $ (8,091,705 ) $ 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. |
