Fair Value Measurements

9 Months Ended

Sep. 30, 2015

Note 2. Fair Value Measurements

As described in Note 1, the Partnership follows the provisions of FASB ASC 820, Fair Value Measurements and Disclosures. FASB ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and sets out a fair value hierarchy. The Partnership utilizes valuation techniques to maximize the use of observable inputs and minimize the use of unobservable inputs. Assets and liabilities recorded at fair value are categorized within the fair value hierarchy based upon the level of judgment associated with the inputs used to measure their value. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). Inputs are broadly defined as assumptions market participants would use in pricing an asset or liability. The three levels of the fair value hierarchy are described below:

Level 1. Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

Level 2. Inputs other than quoted prices within Level 1 that are observable for the asset or liability, either directly or indirectly. A significant adjustment to a Level 2 input could result in the Level 2 measurement becoming a Level 3 measurement.

Level 3. Inputs that are unobservable for the asset or liability. The Partnership does not have any assets classified as Level 3.

The following section describes the valuation techniques used by the Partnership to measure different financial instruments at fair value and includes the level within the fair value hierarchy in which the financial instrument is categorized.

Fair value of exchange-traded futures contracts and options on futures contracts are based upon exchange settlement prices as of the last business day of the reporting period. These financial instruments are classified in Level 1 of the fair value hierarchy.

The Partnership values forward contracts and options on forward contracts based on the average bid and ask price of quoted forward spot prices obtained as of the last business day of the reporting period. These financial instruments are classified in Level 2 of the fair value hierarchy.

The Partnership values bank deposits, which consist of interest bearing demand deposits and are included in cash and cash equivalents in the consolidated statements of financial condition, at face value plus accrued interest, which approximates fair value based on prevailing interest rates, and these financial instruments are classified in Level 1 of the fair value hierarchy.

The Partnership values bank deposits, which consist of certificates of deposit and are included in securities owned in the consolidated statements of financial condition, at face value plus accrued interest, which approximates fair value based on prevailing interest rates, and these financial instruments are classified in Level 2 of the fair value hierarchy.

U.S. Government securities, U.S. Government-sponsored enterprise securities and commercial paper are stated at cost plus accrued interest, which approximates fair value based on quoted market prices in an active market. The Partnership compares market prices quoted by dealers to the cost plus accrued interest to ensure a reasonable approximation of fair value. These securities are classified in Level 2 of the fair value hierarchy.

The Partnership values corporate bonds at cost plus accrued interest, which approximates fair value. Corporate bonds purchased are of a high credit quality and have observable market price quotations. The fair value of corporate bonds is evaluated considering market prices of the issuer quoted by dealers. Corporate bonds are classified in Level 2 of the fair value hierarchy.

The investment in the total return swap is reported at fair value based on daily price reporting from the swap counterparty. The Partnership’s swap transaction is a two-party contract entered into primarily to exchange the returns earned or realized on particular pre-determined investments or instruments. The gross returns to be exchanged or swapped between parties are calculated with respect to a notional amount. The total return swap has inputs which are transparent and can generally be corroborated by market data and therefore is classified within Level 2 of the fair value hierarchy.

The following table presents the Partnership’s fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of September 30, 2015:

Assets	Level 1		Level 2			Level 3		Total
Equity in brokers’ trading accounts
U.S. Government securities	$	—	$	9,500,412		$	—	$	9,500,412
U.S. and foreign futures contracts	7,293,331		—			—		7,293,331
Forward currency contracts	—		(480,443		)	—		(480,443		)
Swap contracts	—		411,108			—		411,108
Cash and cash equivalents
Bank deposits	3,077,861		—			—		3,077,861
Foreign commercial paper	—		6,163,239			—		6,163,239
U.S. Commercial paper	—		108,292,356			—		108,292,356
Securities owned
Foreign commercial paper	—		1,997,440			—		1,997,440
U.S. Commercial paper	—		12,160,986			—		12,160,986
U.S. Government-sponsored enterprises	—		68,918,070			—		68,918,070
U.S. Corporate bonds	—		12,130,799			—		12,130,799

Total	$	10,371,192	$	219,093,967		$	—	$	229,465,159

The gross presentation of the fair value of the Partnership’s derivatives by contract type is shown in Note 10. See the consolidated condensed schedule of investments for additional detail categorization.

The following table presents the Partnership’s fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of December 31, 2014:

Assets	Level 1		Level 2			Level 3		Total
Equity in brokers’ trading accounts
U.S. Government securities	$	—	$	12,395,634		$	—	$	12,395,634
U.S. and foreign futures contracts	11,549,467		—			—		11,549,467
Forward currency contracts	—		(181,222		)	—		(181,222		)
Cash and cash equivalents
Bank deposits	6,163,896		—			—		6,163,896
Foreign commercial paper	—		18,301,948			—		18,301,948
U.S. commercial paper	—		136,220,051			—		136,220,051
Securities owned								—
Foreign commercial paper	—		2,580,625			—		2,580,625
U.S. commercial paper	—		8,106,663			—		8,106,663
U.S. Government-sponsored enterprises	—		89,383,625			—		89,383,625
Foreign corporate bonds	—		1,553,227			—		1,553,227
U.S. corporate bonds	—		10,563,619			—		10,563,619

Total	$	17,713,363	$	278,924,170		$	—	$	296,637,533

The Partnership assesses the level of the investments at each measurement date, and transfers between levels are recognized on the actual date of the event or change in circumstances that caused the transfer in accordance with the Partnership’s accounting policy regarding the recognition of transfers between levels of the fair value hierarchy. There were no significant transfers among Levels 1, 2 and 3 during the three and nine months ended September 30, 2015 and year ended December 31, 2014.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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