| 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 futures and forward contracts, 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 June 30, 2017 and December 31, 2016 is as follows: Type of Instrument * Statements of Financial Condition Location Asset Derivatives at June 30, 2017 Fair Value Liability Derivatives at June 30, 2017 Fair Value Net Agriculture Contracts Net unrealized gain (loss) on open futures contracts $ 1,272,570 $ (3,738,568 ) $ (2,465,998 ) Energy Contracts Net unrealized gain (loss) on open futures contracts 106,555 (1,673,550 ) (1,566,995 ) Metal Contracts Net unrealized gain (loss) on open futures contracts 2,407,300 (965,091 ) 1,442,209 Stock Indices Contracts Net unrealized gain (loss) on open futures contracts 611,577 (4,564,807 ) (3,953,230 ) Short-Term Interest Rate Contracts Net unrealized gain (loss) on open futures contracts 124,172 (614,564 ) (490,392 ) Long-Term Interest Rate Contracts Net unrealized gain (loss) on open futures contracts 321,748 (7,592,557 ) (7,270,809 ) Forward Currency Contracts Net unrealized gain (loss) on open forward currency contracts 9,177,208 (10,043,355 ) (866,147 ) Totals $ 14,021,130 $ (29,192,492 ) $ (15,171,362 ) * Derivatives not designated as hedging instruments under ASC 815 Type of Instrument * Statements of Financial Condition Location Asset Derivatives at December 31, 2016 Fair Value Liability Derivatives at December 31, 2016 Fair Value Net Agriculture Contracts Net unrealized gain (loss) on open futures contracts $ 2,621,318 $ (1,669,312 ) $ 952,006 Energy Contracts Net unrealized gain (loss) on open futures contracts 1,294,666 (68,043 ) 1,226,623 Metal Contracts Net unrealized gain (loss) on open futures contracts 589,912 (3,764,311 ) (3,174,399 ) Stock Indices Contracts Net unrealized gain (loss) on open futures contracts 3,886,396 (1,877,982 ) 2,008,414 Short-Term Interest Rate Contracts Net unrealized gain (loss) on open futures contracts 115,803 (363,714 ) (247,911 ) Long-Term Interest Rate Contracts Net unrealized gain (loss) on open futures contracts 1,843,389 (710,683 ) 1,132,706 Forward Currency Contracts Net unrealized gain (loss) on open forward currency contracts 8,412,229 (5,380,563 ) 3,031,666 Totals $ 18,763,713 $ (13,834,608 ) $ 4,929,105 * 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 six months ended June 30, 2017 and 2016 is as follows: Type of Instrument Trading Gains/(Losses) for the Three Months Ended June 30, 2017 Trading Gains/(Losses) for the Three Months Ended Agriculture Contracts $ (79,068 ) $ 678,892 Energy Contracts (4,446,271 ) (15,439,479 ) Metal Contracts (3,091,601 ) 2,038,926 Stock Indices Contracts 11,463,771 (8,388,918 ) Short-Term Interest Rate Contracts (827,381 ) (2,567,379 ) Long-Term Interest Rate Contracts (6,865,354 ) 20,045,663 Forward Currency Contracts (7,129,899 ) (10,409,034 ) Total $ (10,975,803 ) $ (14,041,329 ) Type of Instrument Trading Gains/(Losses) for the Six Months Ended June 30, 2017 Trading Gains/(Losses) for the Six Months Ended June 30, 2016 Agriculture Contracts $ (5,739,260 ) $ (7,057,471 ) Energy Contracts (12,149,020 ) (12,346,029 ) Metal Contracts 1,487,671 (5,634,793 ) Stock Indices Contracts 38,299,912 (13,441,329 ) Short-Term Interest Rate Contracts (1,959,469 ) (1,983,572 ) Long-Term Interest Rate Contracts (12,404,550 ) 34,400,029 Forward Currency Contracts (17,345,036 ) (3,341,352 ) Total $ (9,809,752 ) $ (9,404,517 ) Line Item in the Statements of Operations Trading Gains/(Losses) for the Three Months Ended June 30, 2017 Trading Gains/(Losses) for the Three Months Ended June 30, 2016 Futures trading gains (losses): Realized ** $ 13,575,035 $ (10,439,130 ) Change in unrealized (17,420,939 ) 6,806,835 Forward currency trading gains (losses): Realized (10,711,797 ) (13,411,922 ) Change in unrealized 3,581,898 3,002,888 Total $ (10,975,803 ) $ (14,041,329 ) Line Item in the Statements of Operations Trading Gains/(Losses) for the Six Months Ended June 30, 2017 Trading Gains/(Losses) for the Six Months Ended June 30, 2016 Futures trading gains (losses): Realized ** $ 23,737,938 $ (28,393,559 ) Change in unrealized (16,202,654 ) 22,330,394 Forward currency trading gains (losses): Realized (13,447,223 ) (4,964,998 ) Change in unrealized (3,897,813 ) 1,623,646 Total $ (9,809,752 ) $ (9,404,517 ) ** 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 brokers. For the three months ended June 30, 2017 and 2016, the monthly average of futures contracts bought and sold was approximately 36,100 and 68,200, respectively, and the monthly average of notional value of forward currency contracts was $1,340,700,000 and $2,982,600,000, respectively. For the six months ended June 30, 2017 and 2016, the monthly average of futures contracts bought and sold was approximately 34,600 and 60,800, respectively, and the monthly average of notional value of forward currency contracts was $1,362,000,000 and $3,015,600,000, respectively. Open contracts generally mature within twelve months; as of June 30, 2017, the latest maturity date for open futures contracts is September 2018 and the latest maturity date for open forward currency contracts is September 2017. However, the Fund intends to close all futures and offset all forward currency contracts prior to maturity. Credit Risk The Fund trades futures contracts on exchanges that require margin deposits with the futures brokers. 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 June 30, 2017 and December 31, 2016 was $93,285,581 and $83,929,651, respectively, which equals approximately 32% and 22% of Net Asset Value, respectively. The cash deposited with the interbank market makers at June 30, 2017 and December 31, 2016 was $171,614 and $138,161, 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 June 30, 2017 and December 31, 2016 was restricted cash for margin requirements of $15,566,029 and $0, respectively, which equals approximately 5% and 0% 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 June 30, 2017 Type of Instrument Counterparty Gross Amounts of Recognized Assets Gross Amounts Offset in the Statements of Financial Condition Net Amounts of Unrealized Gain Presented in the Statements of Financial Condition Futures contracts UBS Securities LLC $ 2,405,850 $ (2,405,850 ) $ 0 Futures contracts Goldman Sachs 2,438,072 (2,438,072 ) 0 Total futures contracts 4,843,922 (4,843,922 ) 0 Forward currency contracts UBS AG 4,588,604 (4,588,604 ) 0 Forward currency contracts Royal Bank of Scotland 4,588,604 (4,588,604 ) 0 Total forward currency contracts 9,177,208 (9,177,208 ) 0 Total derivatives $ 14,021,130 $ (14,021,130 ) $ 0 Derivatives Assets and Collateral Received by Counterparty As of June 30, 2017 Gross Amounts Not Offset in the Statements of Financial Condition Counterparty Net Amounts 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 0 0 0 0 Royal Bank of Scotland 0 0 0 0 Total $ 0 $ 0 $ 0 $ 0 Offsetting of Derivative Liabilities As of June 30, 2017 Type of Instrument Counterparty Gross Amounts of Recognized Liabilities Gross Amounts Offset in the Statements of Financial Condition Net Amounts of Unrealized Loss Presented in the Statements of Financial Condition Futures contracts UBS Securities LLC $ 9,602,517 $ (2,405,850 ) $ 7,196,667 Futures contracts Goldman Sachs 9,546,620 (2,438,072 ) 7,108,548 Total futures contracts 19,149,137 (4,843,922 ) 14,305,215 Forward currency contracts UBS AG 5,021,678 (4,588,604 ) 433,074 Forward currency contracts Royal Bank of Scotland 5,021,677 (4,588,604 ) 433,073 Total forward currency contracts 10,043,355 (9,177,208 ) 866,147 Total derivatives $ 29,192,492 $ (14,021,130 ) $ 15,171,362 Derivatives Liabilities and Collateral Pledged by Counterparty As of June 30, 2017 Gross Amounts Not Offset in the Statements of Financial Condition Counterparty Net Amounts of Unrealized Loss in the Statements of Financial Condition Financial Instruments Cash Collateral Pledged Net Amount UBS Securities LLC $ 7,196,667 $ 0 $ (7,196,667 ) $ 0 Goldman Sachs 7,108,548 0 (7,108,548 ) 0 UBS AG 433,074 (433,074 )* 0 0 Royal Bank of Scotland 433,073 (433,073 )* 0 0 Total $ 15,171,362 $ (866,147 ) $ (14,305,215 ) $ 0 * Represents a portion of the $30,405,079 fair value in the U.S. Treasury Bills held at the interbank market makers. Offsetting of Derivative Assets As of December 31, 2016 Type of Instrument Counterparty Gross Amounts of Recognized Assets Gross Amounts Offset in the Statements of Financial Condition Net Amounts of Unrealized Gain Presented in the Statements of Financial Condition Futures contracts UBS Securities LLC $ 5,189,897 $ (4,226,165 ) $ 963,732 Futures contracts Goldman Sachs 5,161,587 (4,227,880 ) 933,707 Total futures contracts 10,351,484 (8,454,045 ) 1,897,439 Forward currency contracts UBS AG 4,206,734 (2,690,255 ) 1,516,479 Forward currency contracts Royal Bank of Scotland 4,205,495 (2,690,308 ) 1,515,187 Total forward currency contracts 8,412,229 (5,380,563 ) 3,031,666 Total derivatives $ 18,763,713 $ (13,834,608 ) $ 4,929,105 Derivatives Assets and Collateral Received by Counterparty As of December 31, 2016 Gross Amounts Not Offset in the Statements of Financial Condition Counterparty Net Amounts of Unrealized Gain in the Statements of Financial Condition Financial Instruments Cash Collateral Received Net Amount UBS Securities LLC $ 963,732 $ 0 $ 0 $ 963,732 Goldman Sachs 933,707 0 0 933,707 UBS AG 1,516,479 0 0 1,516,479 Royal Bank of Scotland 1,515,187 0 0 1,515,187 Total $ 4,929,105 $ 0 $ 0 $ 4,929,105 Offsetting of Derivative Liabilities As of December 31, 2016 Type of Instrument Counterparty Gross Amounts of Recognized Liabilities Gross Amounts Offset in the Statements of Financial Condition Net Amounts of Unrealized Loss Presented in the Statements of Financial Condition Futures contracts UBS Securities LLC $ 4,226,165 $ (4,226,165 ) $ 0 Futures contracts Goldman Sachs 4,227,880 (4,227,880 ) 0 Total futures contracts 8,454,045 (8,454,045 ) 0 Forward currency contracts UBS AG 2,690,255 (2,690,255 ) 0 Forward currency contracts Royal Bank of Scotland 2,690,308 (2,690,308 ) 0 Total forward currency contracts 5,380,563 (5,380,563 ) 0 Total derivatives $ 13,834,608 $ (13,834,608 ) $ 0 Derivatives Liabilities and Collateral Pledged by Counterparty As of December 31, 2016 Gross Amounts Not Offset in the Statements of Financial Condition Counterparty Net Amounts 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. |
