Note 11. Derivative Instruments

The Partnership follows the provisions of FASB ASC 815, Derivatives and Hedging. FASB ASC 815 is intended to improve transparency in financial reporting by requiring enhanced disclosures of an entity’s derivative instruments and hedging activities and their effects on the entity’s financial position, financial performance, and cash flows. FASB ASC 815 applies to all derivative instruments within the scope of FASB ASC 815-10-05. It also applies to non-derivative hedging instruments and all hedged items designated and qualifying as hedges under FASB ASC 815-10-05. FASB ASC 815 amends the current qualitative and quantitative disclosure requirements for derivative instruments and hedging activities set forth in FASB ASC 815-10-05 and generally increases the level of disaggregation that will be required in an entity’s financial statements. FASB ASC 815 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements (see Trading Activities and Related Risks, Note 9).

The Partnership’s business is speculative trading. The Partnership intends to close out all futures, options on futures and forward contracts prior to their expiration. The Partnership trades in futures and other commodity interest contracts and is therefore a party to financial instruments with elements of off-balance sheet market risk and credit risk. In entering into these contracts, the Partnership faces the market risk that these contracts may be significantly influenced by market conditions, such as interest rate volatility, resulting in such contracts being less valuable. The Partnership minimizes market risk through real-time monitoring of open positions, diversification of the portfolio and maintenance of a margin-to-equity ratio that rarely exceeds 25%.

In addition to market risk, in entering into commodity interest contracts there is a credit risk that a counter party will not be able to meet its obligations to the Partnership. In general, clearing organizations are backed by the corporate members of the clearing organization who are required to share any financial burden resulting from the non-performance by one of their members and, as such, should significantly reduce this credit risk. In cases in which the clearing organization is not backed by the clearing members, like some non-U.S. exchanges, it is normally backed by a consortium of banks or other financial institutions.

In the case of forward contracts, over-the-counter options contracts or swap contracts, which are traded on the interbank or other institutional market rather than on exchanges, the counterparty is generally a single bank or other financial institution, rather than a central clearing organization backed by a group of financial institutions. As a result, there will likely be greater counterparty credit risk in these transactions. The Partnership trades only with those counterparties that it believes to be creditworthy. Nonetheless, the clearing member, clearing organization or other counterparty to these transactions may not be able to meet its obligations to the Partnership, in which case the Partnership could suffer significant losses on these contracts.

The Partnership does not designate any derivative instruments as hedging instruments under FASB ASC 815-10-05.

For the year ended December 31, 2015, the monthly average futures contracts, options on futures contracts and equity options bought and sold was 63,367 and the monthly average forward contracts bought and sold was 8,724. For the year ended December 31, 2014, the monthly average futures contracts, options on futures contracts and equity options bought and sold was 70,438 and the monthly average forward contracts bought and sold was 16,231. The following tables summarize the quantitative information required by FASB ASC 815:


	Consolidated	Asset		Liability
	Statements of Financial	Derivatives		Derivatives
	Condition Location	12/31/2015		12/31/2015		Fair Value

Agricultural contracts	Net Unrealized gain (loss) on open futures contracts	$	708,940	$	(192,304)	$	516,636

Currencies contracts	Net Unrealized gain (loss) on open futures contracts		1,586,035		(488,106)		1,097,929

Energy contracts	Net Unrealized gain (loss) on open futures contracts		1,861,351		(1,035,133)		826,218

Interest rates contracts	Net Unrealized gain (loss) on open futures contracts		853,598		(2,119,167)		(1,265,569)

Meats contracts	Net Unrealized gain (loss) on open futures contracts		18,294		(165,939)		(147,645)

Metals contracts	Net Unrealized gain (loss) on open futures contracts		1,206,519		(912,776)		293,743

Soft commodities contracts	Net Unrealized gain (loss) on open futures contracts		101,389		(273,791)		(172,402)

Stock indices contracts	Net Unrealized gain (loss) on open futures contracts		614,583		(935,898)		(321,315)

		$	6,950,709	$	(6,123,114)	$	827,595

Forward currency contracts	Net Unrealized gain (loss) on open forward currency contracts	$	682,325	$	(922,984)	$	(240,659)

Swap Contracts*	Net Unrealized gain (loss) on open swap contracts	$	1,168,100	$	—	$	1,168,100

*At December 31, 2015, the sector exposure of the CTA indices underlying the swap was:

Interest rate contracts	43%
Forward currency contracts	42%
Stock indices and stock index options	15%
Total	100%


	Consolidated	Asset		Liability
	Statements of Financial	Derivatives		Derivatives
	Condition Location	12/31/2014		12/31/2014		Fair Value

Agricultural contracts	Net Unrealized gain (loss) on open futures contracts	$	191,641	$	(419,214)	$	(227,573)

Currencies contracts	Net Unrealized gain (loss) on open futures contracts		2,137,050		(159,450)		1,977,600

Energy contracts	Net Unrealized gain (loss) on open futures contracts		3,081,754		(309,423)		2,772,331

Interest rates contracts	Net Unrealized gain (loss) on open futures contracts		5,167,693		(539,761)		4,627,932

Meats contracts	Net Unrealized gain (loss) on open futures contracts		59,987		(153,808)		(93,821)

Metals contracts	Net Unrealized gain (loss) on open futures contracts		1,755,563		(1,529,838)		225,725

Soft commodities contracts	Net Unrealized gain (loss) on open futures contracts		888,928		(68,652)		820,276

Stock indices contracts	Net Unrealized gain (loss) on open futures contracts		2,186,388		(739,391)		1,446,997

		$	15,469,004	$	(3,919,537)	$	11,549,467

Forward currency contracts	Net Unrealized gain (loss) on open forward currency contracts	$	1,196,820	$	(1,378,042)	$	(181,222)

The Effect of Derivative Instruments on the Consolidated Statement of Operations for the Years Ended December 31, 2015, 2014 and 2013


		Years Ended December 31,
Type of Contract		2015		2014		2013

Agriculturals contracts	Net gain (loss) from futures trading	$	(5,823,922)	$	4,048,911	$	4,293,821
Currencies contracts	Net gain (loss) from futures trading		(1,033,607)		14,766,227		(440,299)
Energy contracts	Net gain (loss) from futures trading		7,578,021		10,731,474		(23,395,558)
Interest rates contracts	Net gain (loss) from futures trading		(546,752)		32,913,449		(24,374,049)
Meats contracts	Net gain (loss) from futures trading		40,851		3,446,508		1,088,278
Metals contracts	Net gain (loss) from futures trading		(493,305)		(7,747,986)		4,917,479
Soft commodities contracts	Net gain (loss) from futures trading		(1,501,617)		3,171,146		617,412
Stock indices	Net gain (loss) from futures trading		(10,362,726)		(13,390,190)		53,211,357
Forward Currency Contracts	Net gain (loss) from forward trading		(2,077,514)		(1,940,807)		2,562,442
Swap Contracts	Net gain (loss) from swap trading		1,168,100		—		—

		$	(13,052,471)	$	45,998,732	$	18,480,883


Line Item in Consolidated Statement of Operations	For years ended December 31,
	2015		2014		2013

Net gain (loss) from futures trading
Realized	$	(1,421,184)	$	61,055,762	$	(6,521,514)
Change in unrealized		(10,721,873)		(13,116,223)		22,439,955
Total realized and changed in unrealized net gain (loss) from futures trading	$	(12,143,057)	$	47,939,539	$	15,918,441

Net gain (loss) from forward trading
Realized	$	(2,018,078)	$	(994,524)	$	3,234,628
Change in unrealized		(59,436)		(946,283)		(672,186)
Total realized and changed in unrealized net gain (loss) from forward trading	$	(2,077,514)	$	(1,940,807)	$	2,562,442

Net gain (loss) from swap trading
Change in unrealized	$	1,168,100		—		—
Total realized and changed in unrealized net gain (loss) from swap trading	$	1,168,100	$	—	$	—

Total realized and changed in unrealized net gain (loss) from futures, forward and swap trading	$	(13,052,471)	$	45,998,732	$	18,480,883

The tables below show the gross and net information related to derivatives eligible for offset in the Consolidated Statement of Financial Condition as of December 31, 2015 and 2014.

Offsetting of Derivative Assets

As of December 31, 2015


					Net Amount of
			Gross Amounts		Unrealized Gain
			Offset in the		Presented in
	Gross Amount of		Consolidated		the Consolidated
	Recognized		Statement of		Statement of
Type of Instrument	Assets		Financial Condition		Financial Condition

U.S. and foreign futures contracts	$	6,950,709	$	(6,123,114)	$	827,595
Forward contracts		682,325		(922,984)		(240,659)
Swap Contracts		1,168,100		—		1,168,100
Total derivatives	$	8,801,134	$	(7,046,098)	$	1,755,036

Offsetting of Derivative Liabilities

As of December 31, 2015


					Net Amount of
			Gross Amounts		Unrealized Gain
			Offset in the		Presented in
	Gross Amount of		Consolidated		the Consolidated
	Recognized		Statement of		Statement of
Type of Instrument	Liabilities		Financial Condition		Financial Condition

U.S. and foreign futures contracts	$	6,123,114	$	(6,123,114)	$	—
Forward contracts		922,984		(922,984)		—
Swap contracts		—		—		—
Total derivatives	$	7,046,098	$	(7,046,098)	$	—

Derivatives Assets and Liabilities and Collateral Received by Counterparty

As of December 31, 2015


			Gross Amounts Not Offset in the Consolidated
			Statement of Financial Condition
	Net Amount of
	Unrealized Gain
	Presented in
	the Consolidated
	Statement of		Financial		Cash Collateral
Counterparty	Financial Condition		Instruments		Received		Net Amount

Deutsche Bank AG	$	1,168,100	$	—	$	—	$	1,168,100
ED&F Man Capital Markets Inc		525,206		—		—		525,206
SG Americas Securities, LLC		281,024		—		—		281,024
UBS Securities LLC		(219,294)		—		—		(219,294)
Total	$	1,755,036	$	—	$	—	$	1,755,036

Offsetting of Derivative Assets

As of December 31, 2014


					Net Amount of
			Gross Amounts		Unrealized Gain
			Offset in the		Presented in
	Gross Amount of		Consolidated		the Consolidated
	Recognized		Statement of		Statement of
Type of Instrument	Assets		Financial Condition		Financial Condition

U.S. and foreign futures contracts	$	15,469,004	$	(3,919,537)	$	11,549,467
Forward contracts		1,196,820		(1,378,042)		(181,222)
Options on futures and forward contracts		—		—		—
Total derivatives	$	16,665,824	$	(5,297,579)	$	11,368,245

Offsetting of Derivative Liabilities

As of December 31, 2014


					Net Amount of
			Gross Amounts		Unrealized Gain
			Offset in the		Presented in
	Gross Amount of		Consolidated		the Consolidated
	Recognized		Statement of		Statement of
Type of Instrument	Liabilities		Financial Condition		Financial Condition

U.S. and foreign futures contracts	$	3,919,537	$	(3,919,537)	$	—
Forward contracts		1,378,042		(1,378,042)		—
Options on futures and forward contracts		—		—		—
Total derivatives	$	5,297,579	$	(5,297,579)	$	—

Derivatives Assets and Liabilities and Collateral Received by Counterparty

As of December 31, 2014


			Gross Amounts Not Offset in the Consolidated
			Statement of Financial Condition
	Net Amount of
	Unrealized Gain
	Presented in
	the Consolidated
	Statement of		Financial		Cash Collateral
Counterparty	Financial Condition		Instruments		Received		Net Amount

Bank of America N.A.	$	207,217	$	—	$	—	$	207,217
Jefferies Bache, LLC		4,107,099		—		—		4,107,099
SG Americas Securities, LLC		1,285,569		—		—		1,285,569
UBS Securities LLC		5,768,360		—		—		5,768,360
Total	$	11,368,245	$	—	$	—	$	11,368,245