3. DERIVATIVE INSTRUMENTS

The Derivatives and Hedging topic of the Codification requires qualitative disclosure 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.

The Partnership’s market risk is influenced by a wide variety of factors, including the level and volatility of interest rates, exchange rates, equity price levels, the market value of financial instruments and contracts, the diversification effects among the Partnership’s open positions, and the liquidity of the markets in which it trades.

The Partnership engages in the speculative trading of futures and forward contracts on currencies, energies, grains, interest rates, livestock, metals, softs and stock indices. The following were the primary trading risk exposures of the Partnership at March 31, 2020, by market sector:

Agricultural (grains, livestock and softs) – The Partnership’s primary exposure is to agricultural price movements which are often directly affected by severe or unexpected weather conditions as well as supply and demand factors.

Currencies – Exchange rate risk is a principal market exposure of the Partnership. The Partnership’s currency exposure is to exchange rate fluctuations, primarily fluctuations which disrupt the historical pricing relationships between different currencies and currency pairs. The fluctuations are influenced by interest rate changes, as well as political and general economic conditions. The Partnership trades in a large number of currencies, including cross-rates—e.g., positions between two currencies other than the U.S. dollar.

Energies – The Partnership’s primary energy market exposure is to gas and oil price movements often resulting from political developments in the oil producing countries and economic conditions worldwide. Energy prices are volatile and substantial profits and losses have been and are expected to continue to be experienced in this market.

Interest rates – Interest rate movements directly affect the price of the sovereign bond futures positions held by the Partnership and indirectly the value of its stock index and currency positions. Interest rate movements in one country, as well as relative interest rate movements between countries, may materially impact the Partnership’s profitability. The Partnership’s primary interest rate exposure is to interest rate fluctuations in countries or regions, including Australia, Canada, Japan, Switzerland, the United Kingdom, the U.S. and the Eurozone. However, the Partnership also may take positions in futures contracts on the government debt of other nations. The General Partner anticipates that interest rates in these industrialized countries or areas, both long-term and short-term, will remain the primary interest rate market exposure of the Partnership for the foreseeable future.

Metals – The Partnership’s metals market exposure is to fluctuations in the price of aluminum, copper, gold, lead, nickel, platinum, silver, tin and zinc.

Stock indices – The Partnership’s equity exposure, through stock index futures, is to equity price risk in the major industrialized countries, as well as other countries.

The Derivatives and Hedging topic of the Codification requires entities to recognize in the Statements of Financial Condition all derivative contracts as assets or liabilities. Fair values of futures and forward currency contracts in a net asset position by counterparty are recorded in the Statements of Financial Condition as “Net unrealized appreciation on open futures and forward currency contracts.” Fair values of futures and forward currency contracts in a net liability position by counterparty are recorded in the Statements of Financial Condition as “Net unrealized depreciation on open futures and forward currency contracts.” The Partnership’s policy regarding fair value measurement is discussed in the Fair Value note, contained herein.

Since the derivatives held or sold by the Partnership are for speculative trading purposes, the derivative instruments are not designated as hedging instruments under the provisions of the Derivatives and Hedging guidance. Accordingly, all realized gains and losses, as well as any change in net unrealized gains or losses on open positions from the preceding period, are recognized as part of the Partnership’s trading gains and losses in the Statements of Operations.

The following tables present the fair value of open futures and forward currency contracts, held long or sold short, at March 31, 2020 and December 31, 2019. Fair value is presented on a gross basis even though the contracts are subject to master netting agreements and qualify for net presentation in the Statements of Financial Condition.


Fair Value of Futures and Forward Currency Contracts at March 31, 2020

										Net Unrealized
		Fair Value - Long Positions				Fair Value - Short Positions				Gain (Loss) on
Sector		Gains		Losses		Gains		Losses		Open Positions

Futures contracts:
Energies	$	-	$	-	$	931,892	$	(55,137)	$	876,755
Grains		81,318		(12,920)		528		(13,451)		55,475
Interest rates		862,548		(258,058)		-		-		604,490
Livestock		3,750		(1,130)		-		-		2,620
Metals		129,545		(1,493,292)		1,821,042		(101,812)		355,483
Softs		4,860		(4,250)		73,274		(3,303)		70,581
Stock indices		291,149		(24,597)		109,216		(59,466)		316,302
Total futures contracts		1,373,170		(1,794,247)		2,935,952		(233,169)		2,281,706

Forward currency contracts		1,930,809		(4,739,140)		6,515,667		(2,062,000)		1,645,336

Total futures and
forward currency contracts	$	3,303,979	$	(6,533,387)	$	9,451,619	$	(2,295,169)	$	3,927,042


Fair Value of Futures and Forward Currency Contracts at December 31, 2019

										Net Unrealized
		Fair Value - Long Positions				Fair Value - Short Positions				Gain (Loss) on
Sector		Gains		Losses		Gains		Losses		Open Positions

Futures contracts:
Energies	$	340,590	$	(106,604)	$	79,540	$	(1,390)	$	312,136
Grains		19,178		(2,420)		5,688		(210,225)		(187,779)
Interest rates		15,841		(74,086)		562,011		(109,203)		394,563
Livestock		-		(140)		-		-		(140)
Metals		643,619		(256,322)		286,283		(378,574)		295,006
Softs		15,605		(1,265)		6,852		(24,915)		(3,723)
Stock indices		360,698		(293,292)		250,607		(30,604)		287,409
Total futures contracts		1,395,531		(734,129)		1,190,981		(754,911)		1,097,472

Forward currency contracts		3,441,103		(547,890)		503,584		(4,592,861)		(1,196,064)

Total futures and
forward currency contracts	$	4,836,634	$	(1,282,019)	$	1,694,565	$	(5,347,772)	$	(98,592)

The effect of trading futures and forward currency contracts is represented on the Statements of Operations for the three months ended March 31, 2020 and 2019 as “Net realized gains (losses) on closed positions: Futures and forward currency contracts” and “Net change in unrealized: Futures and forward currency contracts.” These trading gains and losses are detailed below.

Trading gains (losses) of futures and forward currency contracts for the three months ended March 31, 2020 and 2019


Sector	Three months ended: March 31, 2020		Three months ended: March 31, 2019

Futures contracts:
Energies	$	7,225,539	$	(3,290,498)
Grains		538,904		420,751
Interest rates		(2,494,946)		6,873,685
Livestock		284,010		(4,950)
Metals		(59,977)		(539,135)
Softs		1,534		65,006
Stock indices		(32,413,088)		719,686

Total futures contracts		(26,918,024)		4,244,545

Forward currency contracts		905,691		(1,678,879)

Total futures and
forward currency contracts	$	(26,012,333)	$	2,565,666

The following table presents average notional value by sector of open futures and forward currency contracts for the three months ended March 31, 2020 and 2019 in U.S. dollars. The Partnership’s average net asset value for the three months ended March 31, 2020 and 2019 was approximately $145,000,000 and $162,000,000, respectively.


Average notional value by sector of futures and forward currency contracts for the three months ended March 31, 2020 and 2019

		2020				2019
Sector		Long positions		Short positions		Long positions		Short positions

Futures contracts:
Energies	$	13,493,572	$	8,451,385	$	8,306,253	$	23,567,196
Grains		1,962,864		5,938,694		3,417,256		9,120,410
Interest rates		100,109,094		108,167,176		271,415,198		97,171,043
Livestock		180,225		-		510,300		408,595
Metals		14,629,243		3,487,808		547,550		13,668,889
Softs		833,210		1,695,831		372,238		3,255,267
Stock indices		62,517,081		15,783,316		52,012,558		45,462,048

Total futures contracts		193,725,289		143,524,210		336,581,353		192,653,448

Forward currency contracts		15,884,893		40,802,386		22,157,493		82,948,064

Total futures and
forward currency contracts	$	209,610,182	$	184,326,596	$	358,738,846	$	275,601,512

Notional values in the interest rate sector were calculated by converting the notional value in local currency of open interest rate futures positions with maturities less than 10 years to 10-year equivalent fixed income instruments and translated to U.S. dollars at March 31, 2020 and 2019. The 10-year note is often used as a benchmark for many types of fixed-income instruments and the General Partner believes it is a more meaningful representation of notional values of the Partnership’s open interest rate positions.

The customer agreements between the Partnership, the futures clearing brokers, including Deutsche Bank Securities Inc. (a wholly-owned subsidiary of Deutsche Bank AG), SG Americas Securities, LLC., and BofA Securities, Inc. (formerly Merrill Lynch Pierce, Fenner & Smith

Inc.) as well as the FX prime brokers, Deutsche Bank AG (“DB”) and Bank of America, N.A. (“BA”), give the Partnership the legal right to net unrealized gains and losses on open futures and forward currency contracts. The Partnership netted, for financial reporting purposes, the unrealized gains and losses on open futures and forward currency contracts on the Statements of Financial Condition as the criteria under ASC 210-20, “Balance Sheet,” were met.

The following tables present gross amounts of assets or liabilities which qualify for offset as presented in the Statements of Financial Condition at March 31, 2020 and December 31, 2019.


Offsetting derivative assets and liabilities at March 31, 2020

Assets		Gross amounts of recognized assets		Gross amounts offset in the Statement of Financial Condition		Net amounts of assets presented in the Statement of Financial Condition
Futures contracts
Counterparty C	$	885,328	$	(183,579)	$	701,749
Counterparty I		2,799,749		(1,729,581)		1,070,168
Counterparty J		624,045		(114,256)		509,789
Total futures contracts		4,309,122		(2,027,416)		2,281,706

Forward currency contracts
Counterparty G		5,044,936		(3,251,863)		1,793,073

Total assets	$	9,354,058	$	(5,279,279)	$	4,074,779

Liabilities		Gross amounts of recognized liabilities		Gross amounts offset in the Statement of Financial Condition		Net amounts of liabilities presented in the Statement of Financial Condition
Forward currency contracts
Counterparty K	$	3,549,277	$	(3,401,540)	$	147,737

Total liabilities	$	3,549,277	$	(3,401,540)	$	147,737


				Amounts Not Offset in the Statement of Financial Condition
Counterparty		Net amounts of Assets presented in the Statement of Financial Condition		Financial Instruments		Collateral Received(1)(2)		Net Amount(3)

Counterparty C	$	701,749	$	-	$	(701,749)	$	-
Counterparty G		1,793,073		-		-		1,793,073
Counterparty I		1,070,168		-		(1,070,168)		-
Counterparty J		509,789		-		(509,789)		-

Total	$	4,074,779	$	-	$	(2,281,706)	$	1,793,073

				Amounts Not Offset in the Statement of Financial Condition
Counterparty		Net amounts of Liabilities presented in the Statement of Financial Condition		Financial Instruments		Collateral Pledged(1)(2)		Net Amount(4)

Counterparty K	$	147,737	$	-	$	(147,737)	$	-

Total	$	147,737	$	-	$	(147,737)	$	-

(1) Collateral received includes trades made on exchanges. These trades are subject to central counterparty clearing where settlement is guaranteed
by the exchange. Collateral pledged includes both cash and U.S. Treasury notes held at each respective counterparty.
(2) Collateral disclosed is limited to an amount not to exceed 100% of the net amount of assets and liabilities presented in the Statement of
Financial Condition for each respective counterparty.
(3) Net amount represents the amount that is subject to loss in the event of a counterparty failure as of March 31, 2020.
(4) Net amount represents the amounts owed by the Partnership to each counterparty as of March 31, 2020.


Offsetting derivative assets and liabilities at December 31, 2019

Assets		Gross amounts of recognized assets		Gross amounts offset in the Statement of Financial Condition		Net amounts of assets presented in the Statement of Financial Condition
Futures contracts
Counterparty C	$	719,162	$	(343,980)	$	375,182
Counterparty I		1,247,715		(935,027)		312,688
Counterparty J		619,635		(210,033)		409,602

Total assets	$	2,586,512	$	(1,489,040)	$	1,097,472
						(Continued)

Liabilities		Gross amounts of recognized liabilities		Gross amounts offset in the Statement of Financial Condition		Net amounts of liabilities presented in the Statement of Financial Condition
Forward currency contracts
Counterparty G	$	2,882,795	$	(2,020,760)	$	862,035
Counterparty K		2,257,956		(1,923,927)		334,029

Total liabilities	$	5,140,751	$	(3,944,687)	$	1,196,064
						(Concluded)


				Amounts Not Offset in the Statement of Financial Condition
Counterparty		Net amounts of Assets presented in the Statement of Financial Condition		Financial Instruments		Collateral Received(1)(2)		Net Amount(3)

Counterparty C	$	375,182	$	-	$	(375,182)	$	-
Counterparty I		312,688		-		(312,688)		-
Counterparty J		409,602		-		(409,602)		-

Total	$	1,097,472	$	-	$	(1,097,472)	$	-

				Amounts Not Offset in the Statement of Financial Condition
Counterparty		Net amounts of Liabilities presented in the Statement of Financial Condition		Financial Instruments		Collateral Pledged(1)(2)		Net Amount(4)

Counterparty G	$	862,035	$	-	$	(862,035)	$	-
Counterparty K		334,029		-		(334,029)		-

Total	$	1,196,064	$	-	$	(1,196,064)	$	-

(1) Collateral received includes trades made on exchanges. These trades are subject to central counterparty clearing where settlement is guaranteed
by the exchange. Collateral pledged includes both cash and U.S. Treasury notes held at each respective counterparty.
(2) Collateral disclosed is limited to an amount not to exceed 100% of the net amount of assets presented in the Statement of Financial Condition
for each respective counterparty.
(3) Net amount represents the amount that is subject to loss in the event of a counterparty failure as of December 31, 2019.
(4) Net amount represents the amounts owed by the Partnership to each counterparty as of December 31, 2019.

CONCENTRATION OF CREDIT RISK

Credit risk is the possibility that a loss may occur due to the failure of a counterparty to perform according to the terms of a contract. Credit risk is normally reduced to the extent that an exchange or clearing organization acts as a counterparty to futures transactions since typically the collective credit of the members of the exchange is pledged to support the financial integrity of the exchange.

The General Partner seeks to minimize credit risk primarily by depositing and maintaining the Partnership’s assets at financial institutions and trading counterparties which the General Partner believes to be creditworthy. In addition, for OTC forward currency contracts, the Partnership

enters into master netting agreements with its counterparties. Collateral posted at the various counterparties for trading of futures and forward currency contracts includes cash and U.S. Treasury notes.

The Partnership’s forward currency trading activities are cleared by DB and BA. The Partnership’s concentration of credit risk associated with DB or BA nonperformance includes unrealized gains inherent in such contracts, which are recognized in the Statements of Financial Condition plus the value of margin or collateral held by DB and BA. The amount of such credit risk was $11,896,696 and $10,942,019 at March 31, 2020 and December 31, 2019, respectively.