Trading Activities and Related Risks

3 Months Ended

Mar. 31, 2014

Trading Activities And Related Risks

Trading Activities and Related Risks

8. Trading Activities and Related Risks

The Fund engages in the speculative trading of futures, options and over-the-counter contracts, including forward currency contracts traded in the U.S. and internationally. Trading in derivatives exposes the Fund to both market risk, the risk arising from a change in the fair value of a contract, and credit risk, the risk of failure by another party to perform according to the terms of a contract.

Purchase and sale of futures contracts requires margin deposits with the futures brokers. Additional deposits may be necessary for any loss of contract value. The Commodity Exchange Act (“CEAct”) requires a broker to segregate all customer transactions and assets from such broker’s proprietary activities. A customer’s cash and other property (for example, U.S. Treasury securities) deposited with a broker are considered commingled with all other customer funds subject to the broker’s segregation requirements. In the event of a 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 (or none of) the total cash and other property deposited. The Fund uses Newedge USA, LLC and J.P. Morgan Securities, LLC as its futures brokers and Newedge UK Financial Limited and UBG AG as its forward currency counterparties.

For futures contracts, risks arise from changes in the fair value of the contracts. Theoretically, the Fund is exposed to a market risk equal to the value of futures and forward currency contracts purchased, and unlimited liability on such contracts sold short.

In addition to market risk, upon entering into commodity interest contracts there is a credit risk that a counterparty will not be able to meet its obligations to the Fund. The counterparty for futures and options on futures contracts traded in the U.S. and on most non-U.S. futures exchanges is the clearinghouse associated with such exchanges. In general, clearinghouses are backed by the corporate members of the clearinghouse 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 where the clearinghouse 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 currency 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 clearinghouse backed by a group of financial institutions; thus there likely will be greater counterparty credit risk. While the Fund trades only with those counterparties that it believes to be creditworthy, there can be no assurance that any clearing member, clearinghouse or other counterparty will be able to meet its obligations to the Fund.

The Fund trades forward currency contracts in unregulated markets between principals and assumes the risk of loss from counterparty non-performance. 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 interbank market makers and other financial institutions in connection with its trading of forward currency contracts and its cash management activities. In the event of an interbank market maker’s or financial institution’s insolvency, recovery of Fund assets on deposit may be limited to account insurance or other protection afforded such deposits.

The Cash Managers manage the Fund’s cash and excess margin through investments in fixed income instruments, pursuant to investment parameters established by the General Partner. Fluctuations in prevailing interest rates could cause mark-to-market losses on the Fund’s fixed income instruments. Prior to April 2011, the Fund used UBS Financial Services, Inc. and Bank of America Merrill Lynch as its cash management securities brokers for the investment of some excess margin amounts into short-term fixed income instruments.

Through its investments in debt securities and certificates of deposit, the Fund has exposure to U.S. and foreign enterprises.  The following table presents the exposure at March 31, 2014.

Country or Region	U.S. Treasury Securities		Commercial Paper		Corporate Notes		Certificates of Deposit		Total		% of Partners’ Capital (Net Asset Value)
United States	$	64,041,413	$	36,333,472	$	221,116,497	$	11,463,464	$	332,954,846		42.59	%
Netherlands		—		—		29,321,686		1,400,357		30,722,043		3.93	%
Great Britain		—		7,998,554		14,879,590		—		22,878,144		2.93	%
Japan		—		4,499,498		10,193,735		2,802,597		17,495,830		2.24	%
Australia		—		1,399,726		12,255,051		—		13,654,777		1.75	%
Canada		—		—		10,623,663		2,004,317		12,627,980		1.62	%
Sweden		—		3,798,495		611,431		2,001,508		6,411,434		0.82	%
France		—		6,334,640		—		—		6,334,640		0.81	%
Switzerland		—		—		2,277,043		3,505,321		5,782,364		0.74	%
Spain		—		—		5,072,187		—		5,072,187		0.65	%
Denmark		—		—		5,016,313		—		5,016,313		0.64	%
British Virgin Islands		—		—		4,781,124		—		4,781,124		0.61	%
Mexico		—		—		4,034,147		—		4,034,147		0.52	%
Singapore		—		3,999,850		—		—		3,999,850		0.51	%
Germany		—		—		—		3,504,590		3,504,590		0.45	%
Finland		—		—		—		2,802,788		2,802,788		0.36	%
Luxumberg		—		—		2,582,176		—		2,582,176		0.33	%
Norway		—		1,249,963		—		—		1,249,963		0.16	%
Total	$	64,041,413	$	65,614,198	$	322,764,643	$	29,484,942	$	481,905,196		61.66	%

The following table presents the exposure at December 31, 2013.

Country or Region	U.S. Treasury Securities		Commercial Paper		Corporate Notes		Certificates of Deposit		Total		% of Partners’ Capital (Net Asset Value)
United States	$	88,102,079	$	31,009,077	$	250,957,531	$	29,100,934	$	399,169,621		45.35	%
Netherlands		—		—		40,422,010		—		40,422,010		4.59	%
Canada		—		2,099,115		22,978,564		4,005,167		29,082,846		3.30	%
Great Britain		—		9,196,934		9,424,171		—		18,621,105		2.12	%
Japan		—		4,714,655		10,240,862		—		14,955,517		1.70	%
Australia		—		2,599,946		9,056,601		—		11,656,547		1.32	%
France		—		5,486,017		3,387,040		—		8,873,057		1.01	%
Netherland Antilles		—		—		8,513,655		—		8,513,655		0.97	%
Switzerland		—		—		2,313,791		4,505,939		6,819,730		0.77	%
Sweden		—		3,899,026		615,818		2,001,859		6,516,703		0.74	%
Mexico		—		—		5,928,963		—		5,928,963		0.67	%
Denmark		—		—		5,020,114		—		5,020,114		0.57	%
Singapore		—		4,899,313		—		—		4,899,313		0.56	%
British Virgin Islands		—		—		4,802,760		—		4,802,760		0.55	%
Multi-national		—		—		4,004,804		—		4,004,804		0.45	%
China		—		—		—		3,011,154		3,011,154		0.34	%
Norway		—		1,249,400		—		—		1,249,400		0.14	%
Total	$	88,102,079	$	65,153,483	$	377,666,684	$	42,625,053	$	573,547,299		65.15	%