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EX-32.02 - CERTIFICATION OF CHIEF FINANCIAL OFFICER OF THE GENERAL PARTNER IN ACCORDANCE WITH SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - FUTURES PORTFOLIO FUND L.P.ex32-02.htm
EX-31.02 - CERTIFICATION OF CHIEF FINANCIAL OFFICER OF THE GENERAL PARTNER IN ACCORDANCE WITH SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - FUTURES PORTFOLIO FUND L.P.ex31-02.htm
EX-31.01 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER OF THE GENERAL PARTNER IN ACCORDANCE WITH SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - FUTURES PORTFOLIO FUND L.P.ex31-01.htm
EX-32.01 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER OF THE GENERAL PARTNER IN ACCORDANCE WITH SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - FUTURES PORTFOLIO FUND L.P.ex32-01.htm

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

 

For the Fiscal Year Ended December 31, 2015

 

Commission file number: 000-50728

 

FUTURES PORTFOLIO FUND, LIMITED PARTNERSHIP 

   
Organized in Maryland IRS Employer Identification No.: 52-1627106

 

c/o Steben & Company, Inc.
9711 Washingtonian Blvd., Suite 400
Gaithersburg, MD 20878
Telephone: (240) 631-7600

 

Securities to be registered pursuant to Section 12(b) of the Act: NONE

 

Securities to be registered pursuant to Section 12(g) of the Act: Limited Partner Interests

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large Accelerated Filer Accelerated Filer
   

Non-Accelerated Filer

(Do not check if a smaller reporting company)

Smaller reporting company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

Aggregate market value of the voting and non-voting common equity held by non-affiliates: N/A.

 

 

 

 
 

 

Table of Contents

     
Part I
Item 1. Business 3
Item 1A. Risk Factors 7
Item 1B. Unresolved Staff Comments 12
Item 2. Properties 12
Item 3. Legal Proceedings 12
Item 4. Mine Safety Disclosures 12
     
Part II
     
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 12
Item 6. Selected Financial Data 13
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 16
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 27
Item 8. Financial Statements and Supplementary Data 30
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 30
Item 9A. Controls and Procedures 30
Item 9B. Other Information 31
     
Part III
     
Item 10. Directors, Executive Officers, and Corporate Governance 31
Item 11. Executive Compensation 32
Item 12. Security Ownership of Certain Beneficial Owners and Management 33
Item 13. Certain Relationships and Related Transactions, and Director Independence 34
Item 14. Principal Accountant Fees and Services 34
     
Part IV
     
Item 15. Exhibits and Financial Statement Schedules 34
Signatures   36

 

 
 

 

PART I

 

Item 1.Business

 

Futures Portfolio Fund, Limited Partnership (“Fund”) is a Maryland limited partnership, was formed on May 11, 1989 and began trading on January 2, 1990. Using professional trading advisors, the Fund engages in the speculative trading of futures contracts, forward currency contacts and other financial instruments traded in the United States (“U.S.”) and internationally. The Fund primarily trades within six major market sectors: equity indices, currencies, interest rate instruments, energy products, metals and agricultural commodities.

 

The Fund’s fiscal year ends each December 31, and the Fund will automatically terminate on December 31, 2025, unless terminated earlier as provided in the Third Amended and Restated Limited Partnership Agreement (“Partnership Agreement”). At December 31, 2015, the aggregate capitalization of the Fund was $643,585,886, which includes Class A interest of $412,948,548, Class B interest of $204,329,032 and Class I interest of $3,767,830. The net asset value per limited partner interests (“Units”) of the Class A Units was $4,212.26, Class B Units was $6,142.34 and Class I units was $984.17 at December 31, 2015.

 

The Fund’s assets are allocated among professional commodity trading advisors (“Trading Advisors”). Portions of the Fund’s assets may be allocated to other investment funds or pools at the discretion of Steben & Company, Inc. (“General Partner”). The General Partner is responsible for selecting and monitoring the Trading Advisors, and it may add new Trading Advisors in the future, terminate the current Trading Advisors, and will, in general, allocate and reallocate the Fund’s assets among the Trading Advisors as it deems is in the best interests of the Fund and without prior notice to investors.

 

During 2014, the Fund purchased $58.5 million of Class I shares of the Steben Managed Futures Strategy Fund (“SMFF”). SMFF is a non-diversified series of shares of beneficial interest of Steben Alternative Investment Fund (the “Trust”), a statutory trust organized under the laws of the State of Delaware, and is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. SMFF issues four classes of shares: Class A, C, I and N. At December 31, 2015, the Fund owned 71% of the outstanding shares of SMFF and therefore had effective control of that entity. Accordingly, the assets, liabilities and operating results of SMFF have been consolidated with the Fund. The portion of SMFF that is not owned by the Fund is presented as the non-controlling interest. SMFF has a similar investment strategy to the Fund, except that through its wholly-owned subsidiary it uses a total return swap with Deutsche Bank AG to obtain access to the returns of select commodity trading advisors. The General Partner serves as the investment manager of SMFF. During 2015, the Fund redeemed $7 million of its investment in SMFF, which is eliminated in consolidation.

 

The Fund maintains its margin deposits and reserves in cash, U.S. Treasury securities, U.S. and foreign government sponsored enterprise notes, registered U.S. money market funds, commercial paper, certificates of deposit, asset backed securities and corporate notes in accordance with Commodity Futures Trading Commission (“CFTC”) rules. All interest income earned by the Fund accrues to the benefit of the Fund.

 

The Fund’s business constitutes only one segment for financial reporting purposes. The Fund does not engage in material operations in foreign countries, although it does trade on international futures markets, nor is a material portion of its revenues derived from foreign customers.

 

General Partner

 

Under the Partnership Agreement, management of all aspects of the Fund’s business and administration is carried out exclusively by the General Partner, a Maryland corporation organized in February 1989. The General Partner is registered with the CFTC as a commodity pool operator and introducing broker, and is also registered with the U.S. Securities and Exchange Commission (“SEC”) as an investment adviser and a broker dealer. The General Partner is a member of the National Futures Association (“NFA”) and the Financial Industry Regulatory Authority (“FINRA”).

 

The General Partner manages all aspects of the Fund’s business, including selecting the Fund’s trading advisors; allocating the Fund’s assets among them; possibly investing a portion of the Fund’s assets in other investment pools; selecting the Fund’s futures broker(s), accountants and attorneys; computing the Fund’s net assets; reporting to limited partners; directing the allocation of excess margin monies; and processing subscriptions and redemptions. The General Partner maintains office facilities for and furnishes administrative and clerical services to the Fund. There have been no material administrative, civil or criminal actions within the past five years against the General Partner or its principals, and no such actions currently are pending.

 

3
 

 

Trading Advisors

 

As of February 29, 2016, the Trading Advisors of the Fund and the allocation of the Fund’s trading level are reflected as follows:

      
   % of Total Allocations 
Crabel Capital Management, LLC   7.9%
FORT, LP   10.3%
Lynx Asset Management AB   13.2%
Systematica Investments Services, Ltd.      
(formerly BlueCrest Capital Management, LLP)    14.1%
Transtrend BV   12.0%
Winton Capital Management Ltd.   22.0%
Other Trading Advisors   20.5%

 

These allocations are subject to change at the General Partner’s sole discretion.

 

An objective of the Fund’s multi-manager approach is to reduce the Fund’s volatility without sacrificing overall rates of return. Trading Advisors are selected by the General Partner based on a number of operational and performance factors.

 

Selling Agents

 

The General Partner acts as a selling agent for the Fund. The General Partner has and intends to continue to appoint certain other broker-dealers registered under the Securities Exchange Act of 1934, as amended (“1934 Act”), and members of FINRA, to act as additional selling agents with respect to Class A, B and I Units. Selling agents are selected to assist in the making of offers and sales of Class A, B and I Units. The Fund currently has approximately 100 selling agents. The selling agents are not required to purchase any Class A, B or I Units, or sell any specific number or dollar amount of Class A, B and I Units, instead use their best efforts to sell such Units. Where the General Partner acts as the selling agent it retains the selling agent fees.

 

Futures Brokers and Forward Currency Counterparties

 

The Fund’s futures trading is currently conducted with SG Americas Securities, LLC (“SGAS”, formerly Newedge USA, LLC), J.P. Morgan Securities LLC (“JPMS”), Deutsche Bank Securities, Inc. (“DBSI”) and UBS AG. SGAS is a wholly-owned subsidiary of Societe Generale. Société Générale is a société anonyme governed by French law. Société Générale Newedge UK Limited (formerly Newedge UK Finance Limited) is one of the Fund’s forward currency counterparties, is a wholly-owned subsidiary of Société Générale, and is regulated by the Financial Services Authority for the conduct of business in the UK.

 

JPMS is an indirect, wholly-owned subsidiary of JPMorgan Chase & Co., one of the largest bank holding companies in the U.S. DBSI is an indirect, wholly-owned subsidiary of Deutsche Bank AG, one of the largest bank holding companies in Europe. UBS AG is another of the fund’s forward currency counterparties. UBS AG is a global financial services company operating in more than 50 countries.

  

The General Partner may, in its discretion, have the Fund use other futures brokers, swap or forward currency counterparties if it deems it to be in the best interest of the Fund.

  

Cash Managers

 

The Fund has engaged J.P. Morgan Investment Management, Inc. (“JPMIM”) and Principal Global Investors, LLC (“PGI” and, together with JPMIM, the “Cash Managers”) to provide cash management services to the Fund. The Cash Managers will manage the Fund’s cash and excess margin through investments in fixed income instruments, pursuant to investment parameters established by the General Partner.

 

Description of Current Charges

 

Charges Amount
Trading Advisor Management Fees

Each class of Units incurs monthly trading advisor management fees, payable monthly or quarterly in arrears, to the Trading Advisors (based on the assets under their management). The fees range from 1/12th of 0% to 1.5%.

 

 

4
 

 

Charges Amount
Trading Advisor Incentive Fees

Each class of Units incurs quarterly trading advisor incentive fees, payable in arrears to the Trading Advisors, for any “Net New Trading Profits” generated on the portion of the Fund the respective Trading Advisor manages. The incentive fees range from 12.5% to 30%.

 

Net New Trading Profits are calculated based on formulas defined in each Trading Advisor’s trading agreement. In determining Net New Trading Profits, any trading losses generated by the respective Trading Advisor for the Fund in prior periods are carried forward, so that the incentive fee is assessed only if and to the extent the profits generated by the Trading Advisor for the period exceed any losses from prior periods. The loss carry-forward is proportionally reduced if and to the extent the Fund reduces the amount of assets allocated to the Trading Advisor.

 

Brokerage Commissions and Expenses

The Fund incurs brokerage commissions and expenses on U.S. futures exchanges at an average of $3.11 per “round-turn” futures transaction (includes NFA, execution, clearing and exchange fees). Brokerage commissions and expenses may be higher for trades executed on certain foreign exchanges.

 

Cash Managers Fees

Each class of Units incurs a monthly cash manager fee, payable in arrears to the Cash Managers, equal to approximately 1/12th of 0.10% of the investments in securities and certificates of deposit.

 

General Partner Management Fee

The Fund incurs a monthly fee on Class A and Class B Units equal to 1/12th of 1.5% of the month-end net asset value of the Class A and Class B Units, payable in arrears. The Fund incurs a monthly fee on Class I Units equal to 1/12th of 0.75% of the month-end net asset value of the Class I Units, payable in arrears.

 

General Partner Performance Fee

The Fund incurs a monthly fee on Class I Units equal to 7.5% of new profits of the Class I Units calculated monthly. The general partner performance fee is payable quarterly in arrears.

 

General Partner 1 percent allocation

Each year, the General Partner receives an annual allocation of 1% of net income earned by the Fund, or pays to the Fund 1% of any net loss incurred by the Fund.

 

Selling Agent Fees and Broker Dealer Servicing Fees

The General Partner charges monthly selling agent fees and broker dealer servicing fees, equal to 1/12th of 2% of the month-end net asset value for Class A Units and 1/12th of 0.2% of the month-end net asset value for Class B Units, payable in arrears. The General Partner, in turn, pays selling agent fees and broker dealer servicing fees to the respective selling agents. If selling agent fees are not paid to the selling agents, or if the General Partner was the selling agent, such portions of the selling agent fees are retained by the General Partner.

 

Administrative Fee

Each class of Units incur a monthly General Partner administrative fee equal to 1/12th of 0.45% of Fund net assets at the end of each month, payable in arrears. This fee compensates the General Partner for a portion of its actual monthly administrative expenses incurred in administering the Fund. The administrative expenses include accounting, audit, legal, salary and administrative costs incurred by the General Partner relating to marketing and administration of the Fund; such as, salaries and commissions of General Partner marketing personnel, administrative employee salaries and related costs.

 

 

Market Sectors

 

The Fund trades speculatively, through the allocation of its assets to Trading Advisors, in U.S. and international futures markets, and may trade or hold futures, forwards, swaps or options. Specifically, the Fund trades futures on interest rate instruments, equity indices, energy products, currencies, metals and agricultural commodities. The Fund also trades forward currency contracts and may trade options, swaps and other forwards other than currencies in the future.

 

Market Types

 

The Fund trades on a variety of U.S. and international futures exchanges. As in the case of its market sector allocations, the Fund’s commitments to different types of markets - U.S. and non-U.S., regulated and non-regulated - differ substantially from time to time, as well as over time, and may change at any time if a Trading Advisor, with the approval of the General Partner, determines such change to be in the best interests of the Fund.

 

5
 

 

Regulations

 

The Fund is a registrant with the SEC pursuant to the 1934 Act. As a registrant, the Fund is subject to the regulations of the SEC and the reporting requirements of the 1934 Act. As a commodity pool, the Fund is subject to the regulations of the CFTC, an agency of the U.S. government, which regulates most aspects of the commodity futures industry; rules of the NFA, an industry self-regulatory organization; and the requirements of commodity exchanges where the Fund executes transactions. Additionally, the Fund is subject to the requirements of futures commission merchants, futures brokers and Interbank market makers through which the Fund trades.

 

Under the Commodity Exchange Act (“CEAct”), commodity exchanges and commodity futures trading are subject to regulation by the CFTC. The NFA, a registered futures association under the CEAct, is the only non-exchange self-regulatory organization for commodity industry professionals. The CFTC has delegated to the NFA responsibility for the registration of commodity trading advisors, commodity pool operators, futures commission merchants, introducing brokers and their respective associated persons and floor brokers. The CEAct requires commodity pool operators, commodity trading advisors and futures brokers or futures commission merchants such as the Fund’s futures brokers to be registered and to comply with various reporting and recordkeeping requirements. The General Partner and the Fund’s futures brokers are members of the NFA. The CFTC may suspend a commodity pool operator’s or trading advisor’s registration if it finds that its trading practices tend to disrupt orderly market conditions, or as the result of violations of the CEAct or rules and regulations promulgated thereunder. In the event the General Partner’s registration as a commodity pool operator were terminated or suspended, the General Partner would be unable to continue to manage the business of the Fund. Should the General Partner’s registration be suspended, dissolution of the Fund might result.

 

The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Reform Act”) was enacted in July 2010. The Reform Act includes provisions that comprehensively regulate the over-the-counter derivatives markets. The Reform Act will mandate that a substantial portion of over-the-counter derivatives must be executed in regulated markets and submitted for clearing to regulated clearinghouses. The mandates imposed by the Reform Act may result in the Fund bearing higher upfront and mark-to-market margin, less favorable trade pricing, and the possible imposition of new or increased fees.

 

The Reform Act also amended the definition of eligible contract participant, and the CFTC has interpreted that definition in such a manner that the Fund may no longer be permitted to engage in forward currency transactions by directly accessing the interbank market. Rather, if and when the Reform Act’s new definition goes into effect, the Fund may be limited to engaging in retail forex transactions which could limit the Fund’s potential forward currency counterparties to futures commission merchants and retail foreign exchange dealers. Thus, limiting the Fund’s potential forward currency counterparties could lead to the Fund bearing higher upfront and mark-to-market margin, less favorable trade pricing, and the possible imposition of new or increased fees. The retail forex markets could also be significantly less liquid than the interbank market. Moreover, the creditworthiness of the futures commission merchants and retail foreign exchange dealers with whom the Fund may be required to trade could be significantly weaker than the creditworthiness of the financial institutions with whom the Fund currently engages for its forward currency transactions. Although the impact of requiring the Fund to conduct forward currency transactions in the retail market could be substantial, the full scope is currently unknown and the ultimate effect could also be negligible.

 

Additionally, the CFTC and certain commodity exchanges have established limits on the maximum net long and net short positions which any person, including the Fund, may hold or control in particular commodities. Most exchanges also limit the maximum changes in futures contract prices that may occur during a single trading day. The Fund also trades in dealer markets for forward currency contracts, which are not regulated by the CFTC. Federal and state banking authorities do not regulate forward trading or forward dealers. In addition, the Fund trades on foreign commodity exchanges, which are not subject to regulation by any U.S. government agency. The CFTC adopted a separate position limits regime for 28 so-called “exempt” (i.e. metals and energy products) and agricultural futures and options contracts and their economically equivalent swap contracts, subject to a delayed implementation schedule. Position limits in spot months are 25% of the official estimated deliverable supply of the underlying commodity and in a non-spot month a percentage of the average open interest in all months for each contract. The General Partner believes that the proposed limits are sufficiently large that when implemented, they should not restrict the Fund’s trading strategy.

 

6
 

 

Competition

 

The Fund operates in a competitive environment in which it faces several forms of competition, including, without limitation, the following:

  

·The Fund competes with other commodity pools and other investment vehicles for investors.

 

·The Trading Advisors may compete with other traders in the markets in establishing or liquidating positions on behalf of the Fund.

 

Available Information

 

The Fund files Forms 10-Q, 10-K, 8-K, 3 and 4, as required, with the SEC. The public may read and copy any materials filed with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Additional information about the Reference Room may be obtained by calling the SEC at (800) SEC-0330. Reports filed electronically with the SEC may be found at http://www.sec.gov.

 

Reports to Security Holders

 

None.

 

Enforceability of Civil Liabilities Against Foreign Persons

 

None.

 

Item 1A.Risk Factors

 

No Limitations on Trading Policies

 

The Fund’s Partnership Agreement places no limitation on the trading policies the General Partner may pursue for the Fund.

 

Potential Increase in Leverage

  

The General Partner may increase the leverage used with a particular Trading Advisor by the use of notional funds. Notional funds are used when a Trading Advisor is instructed to trade an account according to its trading system under the assumption that the account is larger than the actual cash or securities on hand. This additional leverage, while creating additional profit potential which the General Partner feels may be appropriate with certain Trading Advisors in light of the Fund’s multi-trader diversification, also increases the risk of loss to the Fund.

 

Volatility

 

The volatility of the Fund is expected to be similar to what it has been in the past, although it could be more or less volatile in the future depending upon the volatility of the market, the success of the Trading Advisors and the level of notional funding used by the General Partner in its allocations to the Trading Advisors.

 

Liquidity

 

Although the Fund offers monthly redemptions, the Fund may delay payment if special circumstances require, such as a market emergency that prevents the liquidation of commodity positions or a delay or default in payment to the Fund by a futures broker or a counterparty.

 

Complex Fee Structure

 

Allocation to more than one Trading Advisor makes the Fund’s fee structure more complex which in turn could diminish the Fund’s profit potential.

 

7
 

 

Fund Expenses Will Be Substantial

 

The Fund is obligated to pay brokerage expenses, selling agent and management fees to the General Partner and various Trading Advisors and other administrative fees, regardless of whether it realizes profits. The Fund will need to make substantial trading profits to avoid depletion of its assets from these expenses.

 

Reliance on General Partner

 

The Fund’s success depends significantly on the General Partner’s ability to select Trading Advisors.

 

Dependence on Key Personnel

 

The General Partner is dependent on the services of Mr. Kenneth E. Steben and key management personnel. If Mr. Steben’s services became unavailable, another principal of the firm or a new principal (whose experience cannot be known at this time) would need to take charge of the General Partner.

 

Reliance on the Trading Advisors

 

The Fund’s success depends largely on the ability of its Trading Advisors. There can be no assurance that their trading methods will produce profits (or not generate losses). Past performance is not necessarily indicative of future results.

 

Reliance on Futures Brokers’ Financial Condition

 

If one of the futures brokers becomes insolvent, the Fund might incur a loss of all or a portion of the funds it had deposited directly or indirectly with such futures broker. There is no government insurance for commodity brokerage accounts. Such a loss could occur if one of the futures brokers unlawfully failed to segregate its customers’ funds or if a customer failed to pay a deficiency in its account.

 

Use of Cash Managers

 

A significant percentage of the Fund’s assets not placed as margin with the futures brokers are managed by the Cash Managers. Using investment guidelines established by the General Partner, the Cash Managers invest the excess margin in U.S. Treasury securities, U.S. and foreign government sponsored enterprise notes, commercial paper, corporate notes, asset backed securities and certificates of deposit. Although these investments are considered to be high quality, some of the securities purchased are neither guaranteed by the U.S. government nor supported by the full faith and credit of the U.S. government. There is some risk that a security issuer may fail to pay the interest and principal in a timely manner, or that negative perceptions about the issuer’s ability to make such payments will cause the price of these instruments to decline in value.

 

Investment in Other Investment Pools

 

During 2014, the Fund purchased $58.5 million of Class I shares of the Steben Managed Futures Strategy Fund (“SMFF”). SMFF is a non-diversified series of shares of beneficial interest of Steben Alternative Investment Fund, a statutory trust organized under the laws of the State of Delaware, and is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. SMFF has a similar investment strategy to the Fund, except that it uses a total return swap to obtain access to the returns of select commodity trading advisors.

 

Although it does not do so currently, the Fund may invest in other pools. The Fund expects to be liable to those pools (e.g., limited partners), only for the amount of its investment plus any undistributed profits. However, there can be no assurance in this regard, and the Fund might invest as a general partner if the situation warranted, and thus be liable for additional amounts.

 

Investment in pools (or similar investment vehicles), as distinguished from direct participation in the markets, has several potential disadvantages. Those investments may increase the Fund’s expenses, since the Fund will have to pay its pro rata share of the expenses borne by the investors in the pools, and the pools may have higher expenses. The Fund will generally be a minority investor in those pools and thus lack control over the pools. The pools might (a) change trading policies, strategies and trading advisors without prior notice to the Fund; (b) substantially restrict the ability of their investors to withdraw their capital from the pools; (c) be new ventures with little or no operating history; (d) be general rather than limited partnerships, thus increasing the Fund’s liability; and/or (e) use aggressive leveraging policies.

 

8
 

 

Use of Electronic Trading

 

The Trading Advisors may use electronic trading while implementing their strategies on behalf of the Fund. Electronic trading differs from traditional methods of trading. Electronic system transactions are subject to the rules and regulations of the exchanges offering the system or listing the specific contracts. Attributes of electronic trading may vary widely among the various electronic trading systems with respect to order requirements, processes and administration. There may also be differences regarding conditions for access and reasons for termination and limitations on the types of orders that may be placed into the system. These factors may present various risk factors with respect to trading on or using a specific system. Electronic trading systems may also possess particular risks related to system access, varying response times and security procedures. Internet enabled systems may also have additional risks associated with service providers and the delivery and monitoring of electronic communications.

 

Electronic trading may also be subject to risks associated with system or component failure. In the event of system or component failure, it is possible that a Trading Advisor may not be able to initiate new orders, fill existing orders or modify or cancel orders that were previously entered, as well as exit existing positions. System or component failure may also result in loss of orders or order priority. Some contracts offered on an electronic trading system may also be traded electronically and through open outcry during the same trading hours. Exchanges offering an electronic trading system which lists contracts may have implemented rules to limit their liability, the liability of futures brokers, as well as software and communication system vendors and the damages that may be collected for system inoperability and delays. These limitations of liability provisions may vary among the various exchanges.

 

Changes in Trading Strategies

 

The trading strategies of the Trading Advisors are continually developing. The Trading Advisors are free to make any changes in their trading strategies, without notice, if they feel that doing so will be in the Fund’s best interest. The General Partner will notify the limited partners of any such changes that the General Partner considers material. Changes in commodities or the markets traded shall not be deemed a change in trading strategy.

 

Disadvantages of Periodic Incentive Fees

 

Because the Trading Advisor incentive fees (if any) are paid on a quarterly basis, they could receive incentive fees for a period even though their trading for the year was unprofitable. Once an incentive fee is paid, the Trading Advisors retain the fee regardless of their subsequent performance, but no new incentive fees will be paid until after all previous losses have been recovered.

 

Disadvantages of Multi-Trader Structure

 

The Fund’s use of multiple Trading Advisors to conduct its trading has several potential disadvantages. Each Trading Advisor is paid incentive fees solely on the basis of its trading for the Fund. The Fund, therefore, could have periods in which it pays fees to one or more Trading Advisors even though the Fund, as a whole, has a loss for the period (because the losses incurred by the Fund from unprofitable Trading Advisors exceed the profits earned by the Fund from profitable Trading Advisors).

 

Because the Trading Advisors trade independently of each other, they may establish offsetting positions for the Fund. For example, one Trading Advisor may sell 12 March wheat contracts at the same time another Trading Advisor buys 12 March wheat contracts. The net effect for the Fund will be the incurring of two brokerage commissions without the potential for earning a profit (or incurring a loss).

 

Under certain unusual circumstances, the Fund might have to direct a Trading Advisor to liquidate positions in order to generate funds needed to meet margin calls, to fund the redemption of Units, or to permit the reallocation of funds to another Trading Advisor. Such liquidations could disrupt the Trading Advisor’s trading system or method.

 

Disadvantages of Replacing Trading Advisors

 

The General Partner has the authority to reallocate the Fund’s assets among the Trading Advisors, terminate Trading Advisors and allocate assets to new Trading Advisor(s), or invest the Fund’s assets in other investment funds or commodity pools.

 

Trading Advisors generally have to “make up” previous trading losses incurred by the Fund on portions of the Fund the Trading Advisors are managing, before they can earn an incentive fee. However, a Trading Advisor might terminate its services to the Fund or the General Partner might decide to replace a Trading Advisor when it has such a loss carry-forward. The Fund might have to pay a new Trading Advisor higher advisory fees than are currently being paid to the current Trading Advisor. In addition, the Fund would lose the potential benefit of not having to pay the Trading Advisor an incentive fee during the time that the Trading Advisor was generating profits that made up for the prior losses. The replacement Trading Advisor would “start from scratch,” that is, the Fund would have to pay a new Trading Advisor an incentive fee for each dollar of profit it generated for the Fund, regardless of the Fund’s previous experience.

 

9
 

 

Limited Partners Do Not Participate in Management

 

Limited partners are not entitled to participate in the management of the Fund or the conduct of its business.

 

Non-Transferability of Units

 

Investors may acquire Units only for investment and not for resale, and the Units are transferable only with the General Partner’s consent, provided that the economic benefits of ownership of a limited partner may be transferred or assigned without the consent of the General Partner. There will be no resale market for the Units. However, limited partners may redeem all or (subject to certain limitations) any portion of their Units at the end of any month, on five business days’ written notice to the General Partner.

 

Possible Adverse Effect of Large Redemptions

 

The Trading Advisors’ trading strategies could be disrupted by large redemptions by limited partners. For example, such redemptions could require the Trading Advisors to prematurely liquidate futures positions they had established for the Fund.

 

Mandatory Redemptions

 

The General Partner may require a limited partner to redeem from the Fund if the General Partner deems the redemption (a) necessary to prevent or correct the occurrence of a nonexempt prohibited transaction under the Employee Retirement Income Security Act of 1974, as amended, or the Internal Revenue Code of 1986, as amended, (b) beneficial to the Fund or (c) necessary to comply with the Investment Company Act of 1940.

 

Indemnification

 

The Fund is required to indemnify the General Partner, the Trading Advisors and the futures brokers, and their affiliates, against various liabilities they may incur in providing services to the Fund, provided the indemnified party met the standard of conduct specified in the applicable indemnification clause. The Fund’s indemnification obligations could require the Fund to make substantial indemnification payments.

 

Termination of Fund

 

The Fund will automatically terminate on December 31, 2025, unless terminated earlier as provided in the Partnership Agreement. For example, the General Partner can withdraw on 60 days’ prior written notice, and such a withdrawal could result in termination of the Fund. The General Partner has no present intention of withdrawing and intends to continue the Fund business as long as it believes that it is in the best interest of all Partners to do so. In addition, certain other events may occur which could result in early termination.

 

Lack of Regulation

 

The Fund is not an investment company under the federal securities laws. Thus, limited partners will not have the benefits of federal regulation of investment companies.

 

Conflicts of Interest

 

The General Partner and its principals have organized and are involved in other business ventures, and may have incentives to favor certain of these ventures over the Fund. The Fund will not share in the risks or rewards of such other ventures. However, such other ventures will compete for the General Partner’s and its principals’ time and attention, which might create other conflicts of interest. The Partnership Agreement does not require the General Partner to devote any particular amount of time to the Fund.

 

10
 

 

The General Partner or any of its affiliates or any person connected with it may invest in, directly or indirectly, or manage or advise other investment funds or accounts which invest in assets which may also be purchased or sold by the Fund. Neither the General Partner nor any of its affiliates nor any person connected with it is under any obligation to offer investment opportunities of which any of them becomes aware to the Fund or to account to the Fund in respect of (or share with the Fund or inform the Fund of) any such transaction or any benefit received by any of them from any such transaction, but will allocate such opportunities on an equitable basis between the Fund and other clients.

 

Incentive Fees to the Trading Advisors

The Trading Advisors are entitled to incentive fees, therefore the Trading Advisors may have an incentive to cause the Fund to make riskier or more speculative investments than it otherwise would.

 

Personal Trading

The Trading Advisors, the futures brokers, the General Partner and the principals and affiliates thereof may trade commodity interests for their own account. In such trading, positions might be taken which are opposite those of the Fund, or that compete with the Fund’s trades.

 

Trades by the Trading Advisors and their Principals

The Trading Advisors and their principals may trade for their own accounts in addition to directing trading for client accounts. Therefore, the Trading Advisors and their principals may be deemed to have a conflict of interest concerning the sequence in which orders for transactions will be transmitted for execution. Additionally, a potential conflict may occur when the Trading Advisors and their principals, as a result of a neutral allocation system, testing a new trading system, trading their own proprietary account(s) more aggressively, or any other actions that would not constitute a violation of fiduciary duties, take positions in their own proprietary account(s) which are opposite, or ahead of, the position(s) taken for a client. Proprietary accounts, in trading a new or experimental system, may enter the same markets earlier than (either days before or on the same day) client accounts traded at the same or other futures commission merchants. Since the principals of the Trading Advisors trade futures and foreign exchange for their own accounts, there is potentially a conflict of interest between these principals and the Trading Advisors’ clients when allocating prices on trades that are executed by a futures commission merchant at multiple prices. In such instances, the Trading Advisors use a non-preferential method of fill allocation. The clients of the Trading Advisors will not be permitted to inspect the personal trading records of the Trading Advisors, SGAS, JPMS, or their respective principals, or the written policies relating to such trading. Client records are not available for inspection due to their confidential nature.

 

Effects of Speculative Position Limits

The CFTC and domestic exchanges have established speculative position limits on the maximum net long or net short futures position which any person, or group of persons, or group of persons acting in concert, may hold or control in particular futures contracts or options on futures traded on U.S. commodity exchanges. All commodity accounts owned or controlled by the Trading Advisors and their principals are combined for speculative position limits. Because speculative position limits allow the Trading Advisors and their principals to control only a limited number of contracts in any one commodity, the Trading Advisors and their principals are potentially subject to a conflict among the interests of all accounts the Trading Advisors and their principals control which are competing for shares of that limited number of contracts. There exists a conflict between the Trading Advisors’ interest in maintaining a smaller position in an individual client’s account in order to also provide positions in the specific commodity to other accounts under management and the personal accounts of the Trading Advisors and their principals. The General Partner does not believe, however, that the position limits are likely to impair the Trading Advisors’ trading for the Fund, although it is possible the issue could arise in the future.

 

To the extent that position limits restrict the total number of commodity positions which may be held by the Fund and those other accounts, the Trading Advisors will allocate the orders equitably between the Fund and such other accounts. Similarly, where orders for the same commodity given on behalf of both the Fund and other accounts managed by the Trading Advisors cannot be executed in full, the Trading Advisors will equitably allocate between the Fund and such other accounts that portion of the total quantity able to be executed.

 

Other Activities of the Principals of the Advisors

Certain principals of the Trading Advisors are currently engaged, and expect in the future to be engaged, in other activities, some of which may involve other business activities in the futures industry. In addition, each principal of the Trading Advisors may be engaged in trading for his own personal account. The principals will have a conflict of interest between their obligations to devote all of their attention to client accounts and their interests in engaging in other activities. However, the principals of the Trading Advisors intend to devote substantial attention to the operation and activities of the Trading Advisors consistent with the division of responsibilities among them as is described herein.

 

11
 

 

Fiduciary Responsibility of the General Partner

The General Partner has a fiduciary duty to the Fund to exercise good faith and fairness in all dealings affecting the Fund. If a limited partner believes this duty has been violated, he/she may seek legal relief under applicable law, for himself/herself and other similarly situated partners, or on behalf of the Fund. However, it may be difficult for limited partners to obtain relief because of the changing nature of the law in this area, the vagueness of standards defining required conduct and the broad discretion given the General Partner in the Partnership Agreement and the exculpatory provisions therein.

 

Selling Agents

The receipt by the selling agents and their registered representatives of continued sales commissions and/or servicing fees for outstanding Units may give them an incentive to advise limited partners to remain investors in the Fund. These payments cease to the extent the limited partners withdraw from the Fund.

 

The General Partner Serving as Selling Agent

The General Partner also serves as a selling agent for the Fund. As a result, the fees and other compensation received by the General Partner as selling agent have not been independently negotiated.

 

Futures Brokers

The futures brokers affect transactions for customers (including public and private commodity pools), including the Fund, who may compete with the Fund’s transactions including with respect to priorities or order entry. Since the identities of the purchaser and seller are not disclosed until after the trade, it is possible that the futures brokers could effect transactions for the Fund in which the other parties to the transactions are the futures brokers’ officers, directors, employees, customers or affiliates. Such persons might also compete with the Fund in making purchases or sales of commodities without knowing that the Fund is also bidding on such commodities. Since orders are filled in the order in which they are received by a particular floor broker, transactions for any of such persons might be executed when similar trades for the Fund are not executed or are executed at less favorable prices. However, in entering orders for the Fund and other customer accounts, including with respect to priorities of order entry and allocations of executed trades, CFTC regulations prohibit a futures commission merchant from utilizing its knowledge of one customer’s trades for its own or its other customer’s benefit.

 

Item 1B.Unresolved Staff Comments

 

None.

 

Item 2.Properties

 

The Fund does not use any physical properties in the conduct of its business. Its assets currently consist of futures and other contracts, cash and high grade fixed income instruments.

 

The General Partner’s principal business office is in Gaithersburg, Maryland.

 

Item 3.Legal Proceedings

 

None.

 

Item 4.Mine Safety Disclosures

 

Not applicable.

 

PART II

 

Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

Market Information

 

No class of Units of the Fund is publicly traded. Class A, B and I Units may be transferred or redeemed subject to the conditions imposed by the Partnership Agreement.

 

12
 

 

Class A, B and I Units are being offered continuously by selling agents on a best-efforts basis at subsequent closing dates at a price equal to the net asset value per unit as of the close of business on each applicable closing date, which is the first business day of each month. The minimum investment for Class A and B Units is $10,000, and for Class I Units it is $2,000,000.

 

Holders

 

As of February 29, 2016, there were 5,764 holders of Class A Units, 2,745 holders of Class B Units and 5 holders of Class I Units of the Fund.

 

Dividends

 

The General Partner has sole discretion in determining what distributions, if any, the Fund will make to its limited partners. Since inception, the General Partner has not made any distributions as of the date of this filing.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

No Units were authorized for issuance under equity compensation plans.

 

Recent Sales of Unregistered Securities and Use of Proceeds from Registered Securities

 

There were no sales of unregistered securities of the Fund during the year ended December 31, 2015.

 

The proceeds of the sale of registered securities are deposited in the Fund’s bank and brokerage accounts for the purpose of engaging in trading activities in accordance with the Fund’s trading policies and the Trading Advisors’ trading programs.

 

Issuer Purchases of Equity Securities

 

Class A, B and I Units are eligible for redemption on a continuous basis at subsequent closing dates at a price equal to the net asset value per unit as of the close of business on each applicable closing date, which is the last business day of each month. Redemptions may be made by a limited partner as of the last business day of any month at the net asset value on such redemption date of the redeemed Units (or portion thereof) on that date, on five business days’ prior written notice to the General Partner. Partial redemptions must be for at least $1,000, unless such requirement is waived by the General Partner. In addition, if making a partial redemption, the limited partner must maintain at least $10,000 or his original investment amount, whichever is less, in the Fund unless such requirement is waived by the General Partner.

 

Redemptions of Class A, B and I Units during the fourth quarter 2015 were as follows:

                 
   October   November   December   Total 
Class A Units                    
Units redeemed   1,314.6905    1,223.3363    1,496.4087    4,034.4355 
Average net asset value per unit  $4,187.58   $4,423.41   $4,212.26   $4,268.24 
Class B Units                    
Units redeemed   885.1376    514.8412    784.1409    2,184.1197 
Average net asset value per unit  $6,088.21   $6,440.65   $6,142.34   $6,190.72 
Class I Units                    
Units redeemed                
Average net asset value per unit  $   $   $   $ 

 

Item 6.Selected Financial Data

 

The following selected consolidated financial data of the Fund as of and for the years ended December 31, 2015, 2014, 2013, 2012, and 2011 is derived from the consolidated financial statements that have been audited by RSM US LLP (formerly known as McGladrey LLP), the Fund’s independent registered public accountant. This financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and with the Fund’s consolidated financial statements and notes thereto, included elsewhere in this Annual Report on Form 10-K.

 

Certain amounts in the 2014, 2013, 2012 and 2011 consolidated financial statements have been reclassified to conform to the 2015 presentation without affecting previously reported partners’ capital (net asset value) or net income (loss).

 

13
 

 

   For the Year Ended December 31, 
   2015   2014   2013   2012   2011 
Income Statement Items                         
Net gain (loss) from trading  $10,861,775   $104,112,103   $21,371,089   $(12,248,475)  $(55,291,847)
Interest income and net gain (loss) from trading of investments in securities and certificates of deposit   3,317,092    2,765,368    4,385,819    7,458,521    5,933,761 
Net total expenses   (42,969,595)   (53,435,119)   (53,810,139)   (79,113,002)   (84,954,757)
Net income (loss)  $(28,790,728)  $53,442,352   $(28,053,231)  $(83,902,956)  $(134,312,843)
                          
Balance Sheet Items                         
Total assets  $659,382,239   $769,596,902   $924,445,965   $1,320,258,204   $1,527,648,938 
Total partners’ capital (net asset value)  $643,585,886   $741,554,213   $880,409,705   $1,263,878,940   $1,482,656,104 
                          
Class A Units                         
Net asset value per unit  $4,212.26   $4,414.30   $4,114.51   $4,228.83   $4,527.45 
Increase (decrease) in net asset value per unit  $(202.04)  $299.79   $(114.32)  $(298.62)  $(458.39)
Total return   (4.58)%   7.29%   (2.70)%   (6.60)%   (9.19)%
Class B Units                         
Net asset value per unit  $6,142.34   $6,323.56   $5,789.73   $5,845.11   $6,147.29 
Increase (decrease) in net asset value per unit  $(181.22)  $533.83   $(55.38)  $(302.18)  $(503.38)
Total return   (2.87)%   9.22%   (0.95)%   (4.92)%   (7.57)%
Class I Units (began trading 6/1/12)                         
Net asset value per unit  $984.17   $1,004.98   $910.42   $912.75   $ 
Increase (decrease) in net asset value per unit  $(20.81)  $94.56   $(2.33)  $(87.25)  $ 
Total return   (2.07)%   10.39%   (0.25)%   (8.73)%   %

 

Results from past periods are not necessarily indicative of results that may be expected for any future period.

 

14
 

 

The following unaudited supplementary summarized quarterly data are presented for the three-months ended March 31, June 30, September 30 and December 31, 2015 and 2014. 

 

   March 31, 2015   March 31, 2014 
   Class A   Class B   Class I   Class A   Class B   Class I 
Net income (loss)  $29,607,049   $17,763,697   $245,747   $(19,762,382)  $(10,164,209)  $(105,945)
Increase (decrease) in net asset value per unit   279.09    429.90    68.94    (148.93)   (184.57)   (26.79)
Net asset value per unit   4,693.39    6,753.46    1,073.92    3,965.58    5,605.16    883.63 
Ending net asset value   488,591,647    270,388,953    4,101,440    499,249,141    279,118,615    3,150,829 

                         
   June 30, 2015   June 30, 2014 
   Class A   Class B   Class I   Class A   Class B   Class I 
Net income (loss)  $(58,938,015)  $(30,367,490)  $(466,749)  $17,671,617   $11,032,735   $129,824 
Increase (decrease) in net asset value per unit   (561.58)   (781.49)   (121.92)   144.40    230.10    39.00 
Net asset value per unit   4,131.81    5,971.97    952.00    4,109.98    5,835.26    922.63 
Ending net asset value   430,435,913    220,134,000    3,644,692    475,093,236    262,231,798    2,256,446 

                         
   September 30, 2015   September 30, 2014 
   Class A   Class B   Class I   Class A   Class B   Class I 
Net income (loss)  $14,244,219   $8,478,333   $148,589   $5,653,104   $4,248,790   $44,080 
Increase (decrease) in net asset value per unit   138.44    227.19    38.81    51.27    99.22    18.03 
Net asset value per unit   4,270.25    6,199.16    990.81    4,161.25    5,934.48    940.66 
Ending net asset value   434,032,029    214,793,864    3,793,280    460,840,961    253,834,001    2,300,527 

                         
   December 31, 2015   December 31, 2014 
    Class A    Class B    Class I    Class A    Class B    Class I 
Net income (loss)  $(5,704,514)  $(1,923,607)  $(25,450)  $27,746,248   $16,641,745   $155,123 
Increase (decrease) in net asset value per unit   (57.99)   (56.82)   (6.64)   253.05    389.08    64.32 
Net asset value per unit   4,212.26    6,142.34    984.17    4,414.30    6,323.56    1,004.98 
Ending net asset value   412,948,548    204,329,032    3,767,830    468,243,719    262,572,733    3,455,693 

 

15
 

 

Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Cash Management

 

J.P. Morgan Investment Management, Inc. and Principal Global Investors, LLC (collectively, the “Cash Managers”) provide cash management services to the Fund. The Fund’s objective in retaining the Cash Managers is to enhance the return on its assets not required to be held by the Fund’s brokers to support the Fund’s trading.

 

Liquidity

 

At December 31, 2015, there are no known material trends, demands, commitments, events, or uncertainties at the present time that are reasonably likely to result in the Fund’s liquidity increasing or decreasing in any material way.

 

Capital Resources

 

The Fund intends to raise additional capital through the continued sale of Units and does not intend to raise capital through borrowing. Due to the nature of the Fund’s business, the Fund does not contemplate making capital expenditures. The Fund does not have, nor does it expect to have, any capital assets. Redemptions, exchanges and sales of Units in the future will affect the amount of funds available for investment in futures contracts, etc. in subsequent periods. It is not possible to estimate the amount, and therefore the impact, of future inflows and outflows funds related to the sale and redemption of Units. There are no known material trends, favorable or unfavorable, that would affect, nor any expected material changes to, the Fund’s capital resource arrangements at the present time.

 

Contractual Obligations

 

The Fund does not have any contractual obligations of the type contemplated by Item 303(a)(5) of Regulation S-K. The Fund’s sole business is trading futures and forward currency contracts, both long (contracts to buy) and short (contracts to sell).

 

Results of Operations

 

The returns for each Class of Units for the years ended December 31, 2015, 2014, and 2013 were:

 

Class of Units 

  2015   2014   2013 
  Class A   (4.58)%   7.29%   (2.70)%
  Class B   (2.87)%   9.22%   (0.95)%
  Class I   (2.07)%   10.39%   (0.25)%

 

Results from past periods are not necessarily indicative of results that may be expected for any future period. Monthly analysis of the trading gains and losses is provided below.

 

2015

January

In January, Europe’s economic woes continued to have a major impact on financial markets. In order to combat deflationary pressures, the European Central Bank implemented quantitative easing, committing to purchase €60 billion of government bonds per month for 19 months. This led to further depreciation of the euro and a rally in European stocks. In order to untether itself from the falling euro, the Swiss National Bank made a surprise move to de-peg the Swiss franc, which led to a dramatic 30% intraday spike in its exchange rate. In the U.S., bond yields plummeted, with the 30-year yield hitting a historic low of 2.2%, as foreign buyers plowed into safe haven assets supported by a strong U.S. dollar.

 

2015 began with a continuation of many of the strong trends seen in the second half of 2014. The Fund made the bulk of its gains in January from long bond positions, particularly in the U.S. In currencies, the Fund profited from a short position in the euro, which more than offset Swiss franc losses. Short energy positions were also positive contributors. Choppiness in S&P 500 led to a modest loss in the equities sector. Overall, the Fund finished the month with a gain of 4.17%, 4.33% and 4.41% for Class A, B and I Units, respectively.

 

16
 

 

February 

February began with a sell-off in bonds after a strong labor market report in the U.S. led to speculation of interest rate hikes in the second half of the year. Improved growth prospects also stoked a rally in equities, as the S&P 500 made its biggest monthly gain since October 2011. Driven by cold U.S. weather and a falling North American oilrig count, energy prices saw a rebound for the first time since the precipitous decline that began in June 2014. The U.S. dollar continued to appreciate against most major currencies, with the exception of the British pound, which strengthened after the UK saw its eighth straight quarter of positive growth.

 

The Fund’s largest gains for the month came from its long stock index positions. However, trend reversals in bonds hurt the Fund’s long fixed income positions. In currencies, profits made on declines in the euro and Japanese yen were offset by losses from the rising British pound. Short exposure in energy markets also detracted from performance as oil prices staged a minor recovery. Overall, the Fund finished the month with a gain of 0.07%, 0.21% and 0.28% for Class A, B and I Units, respectively.

 

March 

Monetary easing in Europe remained the dominant theme in financial markets in March. The European Central Bank began its bond purchases under its new quantitative easing program, designed to lower borrowing costs and stimulate growth in the region. This pushed down German 10-year bond yields to below 0.2%, and caused the euro to depreciate to its lowest level against the U.S. dollar since 2003. Meanwhile, the U.S. Federal Open Market Committee struck a more dovish tone than the market expected on the timing of interest rate hikes, despite positive labor market trends. In energy markets, a continued supply glut pushed oil prices down to $44 per barrel during the month.

 

The Fund’s largest gains for the month came from its long fixed income positions, particularly in U.S. short term interest rates and UK gilts. In currencies, short euro positions against the U.S. dollar proved profitable. Short oil positions also contributed positively, taking advantage of the slide in energy prices. Performance in equity indices was flat with gains in Europe and Japan being offset by losses in the U.S. Overall, the Fund finished the month with a gain of 2.00%, 2.15% and 2.07% for Class A, B and I Units, respectively.

 

April

In April, markets were quiet through the first three weeks of the month, but a shift in sentiment towards European monetary easing during the final days of the month caused reversals in many of the most profitable trends from the first quarter. Signs of economic improvement in Europe raised fears that quantitative easing programs would be removed sooner than anticipated. The result was a sudden rise in interest rates, and a rebound in the euro along with a retreat in European equity markets.

  

The Fund experienced its largest losses in currencies, interest rates and energy. Losses were partially offset by gains in non-European stock indices. In currencies, the Fund’s net short position against the euro accounted for the majority of losses. In the interest rate instruments, losses occurred during the last week of the month, primarily from Gilts, Canadian Bonds, U.S. Treasury Bonds and German Bunds. Stock indices experienced broad based gains, with long positions in the Hang Sang and Chinese equity index contributing to performance. The Fund finished the month with a loss of 4.04%, 3.89% and 3.81% for Class A, B and I units, respectively.

  

May 

The sudden deterioration in investor sentiment over Europe’s quantitative easing (QE) program carried over from April into the first half of May. Yields on the German Bund, which had previously been on a steady decline, rose sharply from a low of 7 basis points (bps) in late April to a high of 72bps by mid-May. The euro also rebounded against the U.S. dollar, reversing its depreciating trend. However, in the second half of the month worries over Greek debt repayments and an announcement by the European Central Bank (ECB) that it could bring forward its scheduled bond purchases from July and August into June caused the euro and European bond yields to fall once again. Meanwhile, in Japan, expectations of further monetary stimulus on the back of disappointing economic data drove the Japanese yen to a 12-year low against the U.S. dollar, which boosted export-oriented Japanese stocks.

  

The Fund saw losses in the first half of May as a result of a sharp sell-off in bonds, particularly in the German Bund. Other early losses came as a result of a rebound in precious metal prices, which hurt the Fund’s short positions. The Fund made some gains later in the month through short positions in the euro and Japanese yen, which benefited from a depreciation of those currencies against the U.S. dollar. Nevertheless, the Fund finished the month with a loss of 1.42%, 1.27% and 1.19% on Class A, B and I units, respectively.

 

17
 

  

June 

June saw large reversals across a broad range of markets as a result of shifting sentiment in Europe and Asia. The Greek debt crisis once again became a focal point for investors. After early optimism on a possible bailout deal, the Greek government shocked markets with a weekend announcement that the European creditors’ proposed bailout plan and austerity demands would be put to a national referendum, increasing the risk of a full default and a Greek exit from the Eurozone. This caused the largest ever gap decline in Eurostoxx equity index futures when markets re-opened on the last Monday of the month. Elsewhere, the frothy Chinese equity market extended its huge run up before falling more than 20%. Chinese authorities sought to quell concerns by cutting interest rates for the fourth time since last November, causing stocks to rebound. Apart from the macroeconomic issues that dominated headlines, unexpectedly heavy rainfall in the U.S. Midwest delayed crop plantings and caused a sharp reversal in the downtrend recently seen in agricultural commodities.

 

Equity indices, particularly in Europe, were the biggest detractors during the month, as long positions were hurt when the crisis in Greece sparked a broad stock sell-off. Short positions in agricultural commodities also struggled during the month. Wheat and corn prices jumped suddenly, reversing their entire year-to-date trend decline in just seven trading days, as wet weather delayed plantings and reduced supply forecasts. A choppy environment in currencies also proved challenging, as the euro and the Japanese yen rebounded against the U.S. dollar. The Fund finished the month with a loss of 6.94%, 6.80% and 6.73% for Class A, B and I units, respectively.

  

July 

July saw markets begin to trend again after the reversals of the second quarter. While global equity and fixed income markets moved modestly higher for the month, commodities were down more than 14%, as represented by the S&P GSCI. The decline in commodities was caused by weakening demand from China, a stronger U.S. dollar and supply/demand imbalances. Energy markets experienced the strongest sell-off as crude oil futures lost more than 21%, hitting a low of $47 per barrel by month end. Markets were concerned with a surprise increase in the U.S. oil rig count, as well as potential new supply from Iran after a lifting of sanctions. In metals markets, concerns about slowing growth in China put pressure on the price of industrial metals. This broad commodity weakness also led to depreciation in the currencies of exporting countries, such as Canada and Australia.

  

The Fund enjoyed a strong rebound in July, making profits in metals, energy, currencies and interest rates. Performance in agricultural commodities was flat, while equity indices were a marginal detractor. The metals sector was the top contributor and gold was the best performing contract, as short positions benefitted from declining prices. Gold futures prices were down over 6% in July, due to both U.S. dollar strength and a disclosure from China’s central bank that it had purchased less gold during the prior six years than markets realized. Short positions in energy markets profited from falling Brent and WTI crude oil prices. Short exposure to commodity exporting currencies and long fixed income positions also made gains. The Fund finished the month with a gain of 5.68%, 5.83% and 5.93% for Class A, B and I units, respectively.

  

August 

In August, news from China led to a tumultuous month for global financial markets. China’s CSI 300 equity index fell 37% by month end from its June peak, which impacted emerging markets, before spreading to developed markets, with the S&P 500 falling as much as 11% intra-month. Speculation mounted that the Fed might respond by deferring U.S. interest rate hikes, leading to weakness in the U.S. dollar against the euro and Japanese yen. Commodity prices also fell for most of the month, but the last three trading days saw a 27% rebound in oil prices, the largest percentage jump since 1990.

  

The Fund came into August with long positions in developed market equities, and was hit by the sharp sell-off in the second half of the month. Trend following managers moved to a net short position in stock indices by month-end, but not before incurring losses. In foreign exchange markets, the decline in the U.S. dollar hurt the Fund’s long dollar exposure against major currencies. Early gains in long fixed income and short commodity positions were offset at month end after sharp, choppy reversals in these markets. The Fund finished the month with a loss. The trading strategies employed in the Fund have the potential to take advantage of periods of extended market stress, but it is normal to suffer drawdowns at turning points, as managers respond to new trends and reposition their portfolios. Managers’ trading systems are designed to react to price patterns that evolve over the course of days and months. However, it is important to remember that extreme intraday and overnight price reversals, which we saw in August, can be challenging to navigate. Despite this month’s setback, we believe that the Fund’s managers will be successful over the long-term and deliver valuable diversification for investors’ portfolios. The Fund finished the month with a loss of 5.85%, 5.71% and 5.63% for Class A, B and I units, respectively.

  

September 

The global equity rout which began in August spilled over into September. In the U.S., the S&P 500 declined 2.5% during the month. International stocks fell even more, as the Eurostoxx 50 was down 5.1% and the Nikkei dropped 7.3%. China’s slowdown continued to weigh on a broad range of industrial commodities. An overhang in global supply in crude oil relative to reduced demand caused prices to fall from $50 to $45 per barrel. Amid the backdrop of weak global growth, the Fed delayed its first interest rate hike and fixed income markets rallied.

 

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Trend-following managers were able to capitalize on September’s decline in investor risk sentiment. The largest positive contributing sector was fixed income, with profitable long positions in interest rate futures as well as in long term bonds. Short oil exposure benefited from the sell-off in energy. Equity positions were small during the month and had little impact on performance. In agricultural markets, the Fund gained on short positions in cattle futures, as robust growth in herds pushed down prices. However this was offset by short positions in sugar as excessive rain in Brazil caused prices to spike. The Fund finished the month with a gain of 3.87%, 4.03% and 4.11% for Class A, B and I units, respectively.

  

October 

After several tumultuous months, risk appetite returned to global markets in October. Equity indices led the way, as the S&P 500 Index finished with a gain of 8.4%. China’s recent stock market volatility subsided, providing a catalyst for improved investor sentiment. Later in the month, the European Central Bank further supported markets by emphasizing the potential for more quantitative easing due to low levels of inflation. In the U.S., the Federal Reserve gave its strongest indication yet that interest rate hikes could happen as soon as December.

  

The sudden change in risk sentiment created a challenging environment for many trend-following managers, as price trends reversed. While the Fund’s positions in equity indices and energy contributed positively to performance, agricultural commodities, metals and interest rates were the largest detractors. In energy markets, mild U.S. weather was a tailwind for the Fund’s short natural gas position. However, in the agricultural sector, short positions in live cattle were negatively impacted by a sharp price recovery despite continued growth in herds. A sharp sell-off in fixed income as a result of the Federal Reserve’s rate hike comments hurt the Fund’s long bond position. The Fund finished the month with a loss of 1.94%, 1.79% and 1.71% for Class A, B and I units, respectively.

  

November 

The Fund benefited from numerous trends in November, gaining over 5% for the month. Commodities continued their year-to-date decline, as the GSCI Total Return Index came under additional selling pressure in November, falling -9.0% for the month. Meanwhile, most major equity markets gained during the month, while U.S. fixed income markets stumbled and European fixed income markets were moderately stronger. Central banks remained in the headlines, with minutes from the recent FOMC meeting suggesting that the Fed was comfortable with a potential interest rate hike in December. In contrast, officials in Europe kept open the possibility of further easing measures by the end of the year.

  

Positions in currencies, energy, metals, agricultural commodities and equity indices contributed positively to performance, while fixed income positions were marginal detractors. Expectations of a Fed rate hike, coupled with potential monetary easing in Europe drove profitability in the Fund’s short euro position against the U.S. dollar. However, the same theme led to losses in U.S. fixed income contracts where the Fund was positioned long across most maturities. Short positioning in physical commodities was profitable, particularly in energy, where oversupply and a mild start to the winter season helped the Funds’ natural gas and crude oil positions. The Fund finished the month with a gain of 5.63%, 5.79% and 5.88% for Class A, B and I units, respectively.

  

December 

December saw large price reversals in European futures markets. Early in the month, the European Central Bank disappointed investors by announcing modest monetary easing measures, after months of rhetoric that suggested more aggressive policy action might be coming. European bonds and stocks sold off sharply, while the euro rallied against the U.S. Dollar. German 10-year Bunds experienced their largest one day loss since the inception of that futures market in 1990. In the U.S., the Federal Reserve raised interest rates for the first time in nearly a decade, but this had limited impact on markets as prices largely reflected that information prior to the announcement. Separately, OPEC decided to maintain production targets despite lower oil prices, placing further selling pressure on crude oil.

  

Short energy positions were profitable for the Fund, as crude oil futures fell below $36 per barrel, matching prices last seen during the financial crisis in 2008. However, market reversals after the ECB’s underwhelming policy actions caused losses in currencies, fixed income and equity indices. The Fund’s main detractors were Euro-centric, including the euro, the German Bund and the Euro Stoxx 50. The Fund finished the month with a net loss. The Fund finished the month with a loss of 4.77%, 4.63% and 4.55% for Class A, B and I units, respectively.

  

2014

  

January

January saw a broad flight to safety, sparked by a sharp sell-off in emerging market currencies, as investors worried about the impact of Fed tapering and weak Chinese manufacturing on emerging economies. This heightened risk aversion quickly spread to developed markets, which saw declines in equity indices and rallies in bonds, gold and safe haven currencies. Meanwhile, in energy markets, natural gas prices surged due to freezing temperatures across the U.S. 

 

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January saw a reversal of many of the most profitable trends from the fourth quarter of 2013, resulting in negative performance for the Fund’s trend-following programs. In equity markets, the Fund’s long positions in the S&P 500 and Nikkei saw losses as global indices fell sharply. Although the Fund has historically been non-correlated to stocks over the long run, in the short term it can have positive or negative correlation depending on whether existing equity trends cause the Fund to be positioned long or short. In currencies, the Fund’s short Japanese yen position suffered as the exchange rate appreciated on safe haven buying. The Fund did make gains in interest rates, where long positions in European and Japanese bonds benefited from fund flows into fixed income markets. In agricultural commodities, the Fund also profited from the continued bearish trend in wheat. Overall, the Fund finished the month with a loss, with Class A Units down 3.50%, Class B Units down 3.36%, and Class I Units down 3.28%.

 

February 

In February, global equities rallied despite weakness in economic data caused by inclement weather. New Fed Chair Janet Yellen reassured investors that interest rate hikes would be unlikely in the current environment and that the gradual tapering of bond purchases would remain contingent on sustained labor market improvement. This relatively dovish stance raised bond prices and weakened the U.S. dollar. Energy prices surged during the month as unusually cold temperatures boosted demand in the U.S., while the escalating crisis in Ukraine threatened to disrupt European supply channels.

  

The Fund made its largest gains from rising equity markets through a range of long positions in U.S. and European indices. Additionally, the Fund profited from long positions in global bonds, which rallied on continued accommodative policy guidance from central banks. Long positions in natural gas and crude oil also benefited the Fund as energy prices moved higher. However, the metals sector caused losses as a rebound in gold and silver on U.S. dollar weakness hurt the Fund’s short positions. Overall, the Fund finished the month with a gain, with Class A Units up 2.09%, Class B Units up 2.24%, and Class I Units up 2.32%.

  

March 

March was a choppy month in equity and energy markets, due to the Russia/Ukraine crisis and as China saw its first domestic corporate bond default in a sign of slowing growth. In the U.S., Fed Chair Yellen stirred up fixed income and currency markets by initially suggesting that interest rates hikes might come sooner than expected, then later backtracking on those comments.

  

The Fund made gains in currencies during the month from long positions in the New Zealand dollar, which rallied as that country became the first developed market to raise interest rates in the current cycle. The agricultural sector was also profitable, with the Fund capitalizing on rising price trends in soybeans (due to poor weather in Brazil) and in lean hogs (due to a disease outbreak in the U.S.). However, uncertainty over both the health of China’s economy and the timing of Fed tightening caused whipsaw market action in global stocks, oil markets and U.S. bonds, which generated losses for trend-following strategies in those sectors. Overall, the Fund finished the month with a loss, with Class A Units down 2.17%, Class B Units down 2.02%, and Class I Units down 1.93%.

  

April 

In April, equities initially sold off amid concerns over stock valuations and weak economic numbers. Optimism returned and global equities rallied mid-month with the Fed calming fears, stating that they remained committed to supportive monetary policy and noting than the recent weather-induced U.S. growth slowdown would be short-lived. Meanwhile, risks of deflation in Europe led to speculation that the ECB might resort to quantitative easing. In contrast, UK unemployment dipped below the Bank of England’s 7% threshold, prompting speculation that the BOE may begin raising interest rates. Tension surrounding Ukraine and sanctions on Russia drove many commodity markets higher on fears of supply disruptions.

  

The Fund recorded its largest gains in the interest rate sector where long positions benefited from risk aversion and potential quantitative easing in Europe fueling demand for bonds. The Fund also made profits in commodities, particularly through long positions in natural gas and soybeans. In currencies, gains were made from long positions in the British pound which rose to four year highs on speculation over interest rate hikes. However, this was offset by losses due to a reversal in the Japanese yen. The Fund saw its largest losses in equities due to an early sell off in stock indices, which then caused the Fund to cut its long positions and prevented it from fully benefiting from the market rebound going into month-end. Overall, the Fund finished the month with a loss, with Class A Units down 0.28%, Class B Units down 0.13%, and Class I Units down 0.05%.

 

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May 

In May, global bond markets rallied as 10-year yields fell to 1.4% in Germany and 2.5% in the U.S. In Europe, this move was driven by investor expectations of a near term interest rate cut and potential future quantitative easing by the European Central Bank to counteract weak economic growth and deflationary risks. Meanwhile in the U.S., Fed Chair Janet Yellen expressed concern over a weak housing recovery, suggesting the Fed could keep interest rates low for longer than previously anticipated. Equity markets interpreted these signals of continued easy monetary policy in a positive light, leading to gains in most developed market stock indices. Volatility in many asset classes continued to decline in May towards historic lows, as exemplified by the VIX index, which fell to the pre-crisis levels of 2007.

  

The Fund was well positioned to profit from the key moves in fixed income and equities during the month. The bulk of returns came from long positions in bonds, in particular the U.S. 10-year, the U.S. long bond and the Euro Bund. In equities, the largest gains came from a short position in VIX futures and a long position in the Eurostoxx 50. Agricultural commodities had a small giveback as upward trending grain prices reversed on improved weather and harvest prospects. Overall, the Fund finished the month with a gain, with Class A Units up 3.29%, Class B Units up 3.45%, and Class I Units up 3.53%.

 

June 

In June, equity markets continued to set record highs as the Federal Reserve reiterated its dovish policy stance in light of a weaker U.S. growth outlook. Meanwhile European fixed income markets rallied as the European Central Bank imposed negative deposit rates to stem deflation and encourage bank lending. Only the Bank of England gave any indication that it could soon begin to raise interest rates, which led to further strengthening in the British pound. Violence escalated in the Middle East, as the militant ISIS group seized key regions in Iraq, pushing up oil prices on fears of a supply disruption.

 

The Fund recorded its largest gains for the month in long equity positions. The portfolio also capitalized on rising energy prices with its long oil positions. The Fund profited in currency trading, particularly in the British pound, which rose on signals of a tightening bias at the Bank of England. However, short positions in gold and silver lost money, as demand climbed for these safe haven assets on fears of a full-blown civil war in Iraq. In agricultural markets, long soybean positions were hurt as prices fell with U.S. farmers planting a record crop. Overall, the Fund finished the month with a gain, with Class A Units up 0.62%, Class B Units up 0.77%, and Class I Units up 0.90%.

  

July

Despite small gains for U.S. equities in early July, a strong GDP report at month-end sparked fears that the Federal Reserve might tighten monetary policy sooner than expected, causing a sharp sell-off in stocks and bonds, as well as a rally in the U.S. dollar. Meanwhile, European equities were driven down by both tougher sanctions on Russia (hurting regional trade) and the collapse of a large Portuguese bank. In energy, crude oil prices fell for the month as supply disruptions due to the civil war in Iraq proved to be less than anticipated. In agricultural commodities, grain prices fell as record plantings and ideal weather in the U.S. drove expected supply levels higher.

  

In July, the agricultural sector was the top contributor to the Fund’s returns, as short exposures in corn and wheat profited from price declines. In foreign exchange markets, the strong surge in the U.S. dollar against major currencies helped the Fund in its short euro position, but this was more than offset by losses from long positions in the Australian dollar and the British pound. In equities, where the Fund was positioned long globally, the U.S. and Europe lost ground, while Asian markets made gains on signs of a manufacturing rebound in China. Bonds and energy both detracted from performance during the month, as long positions were hurt by price corrections in these two sectors. The Fund closed the month with a loss, with Class A Units down 2.35%, Class B down 2.21% and Class I down 2.13%.

  

August 

Global bond markets rallied strongly in August. In the U.S., weaker than expected employment numbers and a dovish speech from Fed Chairwoman Yellen suggested the timing of interest rate hikes might be pushed further out. Meanwhile, Europe threatened to slip into deflation, prompting speculation that the European Central Bank might get more aggressive in its expansionary monetary policy. This fueled a rise in European debt prices and a depreciation of the Euro. In equity markets, tension between Ukraine and Russia caused an initial sell-off, but the expectation of continued support from central banks helped stock indices rebound sharply in the second half of the month.

 

The interest rate sector was the Fund’s top contributor, as long exposures in U.S. and European bonds profited from a decline in yields. In currencies, the Fund made gains from a short position in the Euro, as expectations of further monetary easing pushed the currency to a year-to-date low. In equities, the fund benefited from a long position in the S&P 500 as equity markets rallied into month-end. The Fund closed the month with a gain, with Class A Units up 4.03%, Class B Units up 4.18% and Class I Units up 4.27%.

  

September 

Equity markets rose early in September but declined by month end on poor European economic data and concerns about Chinese growth. Fixed income markets sold off and the U.S. dollar rallied as the Federal Reserve Bank of San Francisco published a report suggesting that markets are underestimating the pace of future rate increases. The euro continued to weaken as the European Central Bank lowered interest rates further and introduced measures to combat low inflation. 

 

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In September, the Fund’s performance was primarily driven by a strong U.S. dollar. Short positions in the physical commodities gained as prices fell on dollar strength, particularly in crude oil and silver. In currencies, short positions in the euro and the Japanese yen against the U.S. dollar proved profitable, but gains were offset by losses on long positions in the New Zealand dollar and Australian dollar which depreciated during the month. Global growth concerns weighed on equity prices which went against the Fund’s long positions. In the fixed income sector, rate increase worries hurt the fund’s long position in the U.S. 10-Year note. The Fund ended the month with a small negative return, with Class A Units down 0.33%, Class B Units down 0.18% and Class I Units down 0.10%.

  

October 

During October, fears of a slowdown in global growth made for volatile financial markets. High unemployment and low inflation readings in Europe drove global equity markets and long-term bond yields lower. Fed meeting minutes showed a concern that the slowdown in Eurozone growth might negatively affect the U.S. economy, just as the Fed was concluding its quantitative easing program. Decreased demand expectations also brought commodity markets to multi-year lows. However, investor risk appetite was renewed mid-month following improved U.S. economic data and strong corporate earnings. Global stock markets and the U.S. dollar surged at month-end when the Bank of Japan announced an unexpected easing program, encouraging expectations for the European Central Bank to do the same.

 

The interest rate sector was the top contributor to performance, as long exposures in U.S. and European bonds profited from a decline in yields. In commodities, the Fund made gains from short positions in oil, which declined on fears of a global growth slowdown. In currencies, the Fund made profits in its short euro position, as expectations for monetary easing in the Eurozone pushed the currency to multi-year lows. The Fund recorded losses in its global equity positions as whipsaw markets prompted the Fund to reduce its long exposure after the initial sell-off, thus missing out on the sharp rebound going into month-end. The Fund closed the month with a positive return, with Class A Units up 1.01%, Class B Unit up 1.16% and Class I Units up 1.24%.

  

November 

In November, central banks in Europe, China and Japan signaled their intention to adopt additional stimulus measures to combat slowing economic growth, which pushed bond yields to new lows and boosted global equities. Comparatively stronger growth and tighter monetary policy in the U.S. caused the dollar to appreciate against other currencies, in particular the Japanese yen. Meanwhile, oil prices fell precipitously on low demand, growing shale supply and OPEC’s decision not to cut production.

 

Fixed income trading contributed the Fund’s largest gains during the month, as long exposures in European bonds and interest rates profited from the European Central Bank’s anticipated monetary easing. The Fund recorded gains in its long equity positions as growing investor risk appetite caused indices to rally over the month. In commodities, the Fund was able to capitalize on the bear market in oil through its short positions. The Fund also took advantage of the rising U.S. dollar to make a profit in currencies and closed the month with its largest monthly gain since October 2008, with Class A Units up 5.47%, Class B Units up 5.62% and Class I Units up 5.71%.

  

December 

December began with a rise in investor risk aversion over Europe’s economic woes and Japan’s slide back into recession. Global equities sold off sharply in the first half of the month, while bonds rallied. Oil prices continued to trend downwards, as OPEC resisted production cuts despite weakening demand projections. Russia suffered collateral damage as shrinking oil revenues caused a run on the ruble, requiring an emergency interest rate hike to avoid further collapse. In contrast, U.S. economic growth remained strong, helping the U.S. dollar appreciate against most global currencies. Falling energy prices allowed the Fed to emphasize “patience” in its guidance on future interest rate increases, which improved sentiment and fueled a stock market rebound in the second half of the month.

 

The Fund saw gains in December from long positions in Japanese and European bonds, which rallied on expectations of further central bank easing. The Fund also profited from short positions in energy and long positions in the U.S. dollar. However, these were offset by losses in equity markets where whipsaw reversals during the month hurt trend-following programs. The Fund ended the month with a negative return, with Class A Units down 0.42%, Class B Units down 0.27% and Class I Units down 0.18%.

 

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2013 

 

January 

Spurred on by the resolution of the U.S. “fiscal cliff” negotiations, markets began 2013 with a strong risk appetite. This led to a rally in global equities and industrial commodities and caused a sell-off in safe haven bonds. In Europe, investors gained confidence that the region’s sovereign debt crisis had been contained, helping the euro strengthen against other currencies. Meanwhile, Japan’s new government implemented a stimulus program consisting of major fiscal spending, coupled with measures to weaken the yen to help the country’s exporters.

  

The Fund started the year on a positive note, as it profited from long positions in stock indices and energy, as well as short positions in the Japanese yen. These gains were partially offset by losses from long fixed income positions, as bond yields and interest rates climbed during the month. Overall, the Fund returned a profit for the month, with Class A Units up 2.20%, Class B Units up 2.35%, and Class I Units up 2.25%.

  

February 

Although February began with a continuation of January’s risk-seeking market trends, the second half of the month saw “risk-off” price reversals across many sectors. Weak European data signaled a region-wide economic contraction. The UK suffered a credit rating downgrade as it is on the verge of a triple-dip recession. Meanwhile, Italian voters toppled the country’s incumbent government with an election result that repudiated austerity as a means of managing Europe’s sovereign debt crisis. In the U.S., minutes from the most recent Fed meeting hinted at a sooner than expected slowdown of monetary stimulus, frightening investors who anticipated longer term quantitative easing.

  

The Fund entered February with “risk-on” exposures in many of the markets it trades, including long positions in equities, industrial commodities, the euro and high-yielding currencies. February’s market reversals caused losses in a number of these positions. The largest losses came from energy, as oil prices fell late in the month on concerns over global demand as well as U.S. supply hitting a 20-year high due to shale fracking. In currencies, the decline of the euro detracted from performance. The Fund did however make gains in fixed income with long positions in U.S. bonds. In the agricultural sector, easing drought conditions in the Midwest lowered wheat prices, helping the Fund’s short position. In stock indices, the Fund made a small net gain as profits in the U.S. and Asia were offset by losses in Europe. Overall, the Fund finished with a loss for the month, with Class A Units down 1.41%, Class B Units down 1.26%, and Class I Units down 1.18%.

  

March 

Overall, the Fund returned a profit for the month, with Class A Units up 1.10%, Class B Units up 1.25%, and Class I Units up 1.48%. In March, financial headlines were dominated by the banking crisis in Cyprus. Eurozone members led by Germany made the release of bailout funds contingent on a Cypriot financial contribution through a one-time “tax” on bank deposits. This action sparked protests over the plan’s fairness. A last minute compromise deal exempted smaller insured deposits from capital seizure. Investors feared that the Cyprus bailout might create a precedent for haircutting depositors at troubled banks in Spain and Italy. This prompted a sell-off in the euro, a slide in southern European stock markets and a rally in safe haven German bunds. Meanwhile, in the U.S., equities climbed with largely positive economic data and a statement from Fed Chairman Bernanke that he saw no evidence of a stock bubble. In Japan, monetary easing by the Abe government continued, boosting bond and equity markets and depreciating the yen.

  

The Fund profited in March from long positions in stocks, especially in the U.S. Gains were also made in the currency sector from short positions in the Japanese yen. The Fund was flat in fixed income as gains from being long the German bund were offset by losses due to trend reversals in the U.S. bond market. The contribution of physical commodity markets to the Fund’s performance during the month was minimal.

  

April 

In April, economic data in China confirmed a slowdown in growth, while U.S. GDP estimates for the first quarter were weaker than expected. This led to a sell-off in industrial commodities such as energy and base metals, and a rally in Treasury bonds. The price of gold tumbled mid-month, triggered by reports that Cyprus might sell part of its gold reserves to pay down the country’s debt. Furthermore, the current absence of global inflation has reduced the attractiveness of precious metals that are often used as a hedge against inflation. Meanwhile, the Japanese central bank continued its policy of monetary stimulus, further weakening the yen and boosting the Nikkei stock index.

  

During the month, the Fund profited from its long bond positions, particularly in the U.S., where the fixed income market rallied on disappointing economic growth. The Fund’s short positions in gold and copper also made a positive return contribution after the decline in precious and base metals prices. Partly offsetting these gains were losses from long exposures to declining oil markets, as well as from trend reversals in agricultural markets such as corn. Overall, the Fund finished the month with a profit, with Class A Units up 3.11%, Class B Units up 3.26%, and Class I Units up 3.10%.

 

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May 

In May, improving economic data in the U.S. drove stock indices higher, but also prompted the Fed to signal that it might soon taper its quantitative easing program. Fixed income markets reacted negatively to the prospect of a reduction in the Fed’s $85 billion in monthly purchases of Treasury bonds and mortgage backed securities. U.S. 10-year Treasury bond yields jumped 46 basis points from 1.67% to 2.13% during the month, while international bond markets also sold off. Meanwhile in Japan, the high flying Nikkei index, which at one point was up 50% on the year, fell abruptly by 13% over the last 9 days of the month. This was caused by investors taking profits after signs of slowing Chinese growth and impending U.S. monetary tightening.

  

May proved to be a challenging month for the Fund’s trend-following strategies. The majority of losses were a result of sharp declines in global bond markets, particularly in the U.S. and Europe, which hurt the Fund’s long positions. The Fund’s trading systems responded by cutting back bond positions substantially, standing ready to reposition as new trends emerge, whether bullish or bearish. In the currencies sector, long positions in the Australian dollar and New Zealand dollar detracted from performance, following a surprise interest rate cut in Australia and central bank intervention to weaken the currency in New Zealand. In energy markets, long positions in natural gas suffered as prices declined on higher than expected inventory levels. The Fund did, however, make a profit in equity indices through its long positions across the globe. The Fund was also positive in agricultural commodities, benefitting from a rally in soybeans. Overall, the Fund finished the month with a loss, with Class A Units down 4.97%, Class B Units down 4.83%, and Class I Units down 4.75%.

  

June 

In June, the Fed reaffirmed its desire to phase out its quantitative easing program as long as U.S. economic data continues to improve. Markets interpreted this as the beginning of the end of an era of ultra-easy monetary policy. As a result, global equities and bonds sold off sharply. Ironically, the largest stock market declines were not in the U.S. Prospective tightening by the U.S. Federal Reserve had a greater impact in Europe, where the economic recovery lags the U.S., and in Asia and emerging markets, where a slowdown in China also worried investors. Meanwhile, the Fed’s new stance caused gold prices to plummet to levels last seen in 2010, as the risk of inflation due to loose monetary conditions diminished.

  

The market moves in June were a continuation of the sharp and sudden trend reversals that began at the end of May. These price patterns are particularly difficult for trend-following systems to navigate. The Fund came into June with long exposure to global equities. Although these positions were reduced significantly over the month, the Fund nevertheless saw losses in this sector, particularly in European indices. In currencies, choppy price movements in the euro and British pound sterling against the U.S. dollar were also a detriment to performance. Residual long positions in bonds and interest rates, primarily in Europe, caused losses before positions were closed out. By the end of the month, most of the Fund’s trading advisors had systematically moved to net short positions in fixed income instruments. On the positive side, the Fund was able to profit from the downward trend in precious metals, such as gold and silver, as well as in industrial metals, such as copper. Overall, the Fund finished the month with a loss, with Class A Units down 4.34%, Class B Units down 4.20%, and Class I Units down 4.12%.

  

July 

In July, global equity indices rebounded from their losses in the prior month. This was a result of central banks seeking to reassure skittish investors that they would wait to pull back on monetary easing until an economic recovery became more firmly established. In the U.S., investors came to believe that the imminent tapering of the Fed’s quantitative easing program may be more gradual than previously thought, as Bernanke softened his tone on potential tightening amid still modest economic growth and low inflation. Meanwhile, the European Central Bank announced that interest rates would stay at current levels or lower for an extended period. Gold and bond markets saw a bounce as a result. In energy markets, surprisingly high summer demand in the U.S. coupled with lower inventories caused WTI crude oil prices to jump to a 16-month high of $108/barrel.

  

The Fund profited from long equity positions, particularly in the U.S. However, the size of these gains was tempered by the fact that our trend-following managers had trimmed their exposures after stock market declines in the previous month. Elsewhere, the Fund benefited from its long positions in crude oil. Offsetting these profits were losses from short positions in metals, as gold prices reversed from their downward trend. The Fund also saw small negative contributions from reversals in currencies and bond markets. Overall, the Fund finished the month with a loss, with Class A Units down 0.56%, Class B Units down 0.41%, and Class I Units down 0.33%.

  

August 

August saw continued positive economic data in the U.S. and early signs of a recovery in the Eurozone, where a positive second quarter GDP report marked the end of an 18-month recession in the region. This raised the risk of near-term monetary policy tightening, which caused bond yields to rise across developed markets and weighed on equity indices. In the latter half of the month, political tensions escalated in the Middle East. The U.S. and France threatened to intervene in Syria’s civil war, causing a sell-off in stocks and a rally in oil and gold.

 

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In August, the Fund’s short positions in metals suffered losses, as stronger than expected Chinese industrial production caused a rebound in base metal prices, while the Syrian crisis boosted demand for precious metals. The currency sector also detracted from performance as a result of choppy movements in European exchange rates. Meanwhile, the Fund saw a negative contribution from long positions in equity indices as global stock markets fell, with the S&P 500 seeing its biggest monthly decline since May 2012. On the positive side, the Fund’s long energy positions were able to profit from the rise in oil prices. Overall, the Fund finished the month with a loss, with Class A Units down 2.71%, Class B Units down 2.57%, and Class I Units down 2.49%.

  

September 

In September, the Federal Reserve surprised markets by delaying a much anticipated “tapering” of its quantitative easing program until there are more signs of a robust U.S. economic recovery. The Fed’s decision boosted stock indices, lowered bond yields and weakened the U.S. dollar. Meanwhile, oil prices fell as the U.S. backed away from military intervention in Syria, following the Assad regime’s acceptance of a chemical disarmament proposal. Towards the end of the month, a breakdown in U.S. budget and debt ceiling negotiations caused a sell-off in equities ahead of a government shutdown.

  

The Fund profited in September from long exposure to rising equity indices, although the political impasse over the U.S. budget led to a giveback of some of the stock gains from early in the month. In fixed income markets, the Fund benefited from long positions in Japanese bonds, which rallied on continued monetary stimulus by the Bank of Japan. The Fund’s main losses came from long positions in the energy sector, as oil prices fell from their highs with an easing of the Syrian crisis. The Fund also saw small losses in metals and agricultural commodities. In currencies, gains from long positions in the Euro and British pound were offset by losses from short positions in the Australian dollar. Overall the Fund finished the month with flat performance, with Class A Units at 0.00%, Class B Units up 0.15%, and Class I Units up 0.23%.

  

October 

In October, a budget stalemate in Washington caused a government shutdown and threatened to trigger a sovereign default as the U.S. hovered at its debt ceiling. An agreement reached mid-month reopened government offices and extended the nation’s borrowing capacity until February 2014. As a result, global equities rallied, with the S&P 500 rising to all-time highs. Amid a dysfunctional fiscal policy environment with weak employment growth, the Federal Reserve decided to maintain its current level of bond purchases through its quantitative easing program and pushed out the likely start of monetary tightening further into the future. Meanwhile, in energy markets, crude oil prices fell from their highs reached during the Syrian crisis while natural gas was down on warmer temperature forecasts for the fall season.

  

The Fund enjoyed strong gains in its long equity positions on the back of rallies in the U.S. and European stock markets. In the fixed income sector, interest rates and bond yields fell, benefiting the Fund’s long positions, particularly in Eurodollars and Japanese bonds. These gains outweighed losses sustained on trend reversals in gold, natural gas and crude oil, allowing the Fund to end the month with net positive performance. Overall, the Fund finished the month with a gain, with Class A Units up 2.54%, Class B Units up 2.69%, and Class I Units up 2.77%.

  

November 

Global equity markets continued their broad-based rally in November, as positive economic news in the U.S. outweighed potentially bearish Fed comments that suggested it could begin to taper its quantitative easing program in future months. Meanwhile, the European Central Bank added to its monetary stimulus with a surprise cut in interest rates. Elsewhere, the Bank of Japan signaled it would continue its expansionary monetary policy, which resulted in the Japanese yen falling to new lows. In commodity markets, precious metals declined in anticipation of Fed tightening, while some energy markets rallied due to higher demand from unseasonably cold weather.

  

The Fund profited from the global stock rally, with the largest gains coming from long positions in the S&P 500 and DAX indices. In currencies, the Fund garnered strong returns through a short position in the depreciating Japanese yen. In the metals sector, declines in gold and silver proved profitable for the Fund’s short exposure. However, a short position in natural gas saw losses as prices jumped on unusually chilly temperatures in the U.S. The Fund closed the month with a net positive return, with Class A Units up 1.96%, Class B Units up 2.12%, and Class I Units up 2.20%.

 

25
 

  

December 

In December, equities initially fell as strong U.S. economic performance heightened concerns that the Federal Reserve might unwind its quantitative easing program more sharply than previously expected. However, the Fed allayed the worst of investors’ fears by announcing a moderate $10B reduction in monthly bond purchases, while also signaling that it would keep short-term interest rates low through 2015. This prompted a relief rally in global stock indices into the year-end. Elsewhere, the European Union received a credit rating downgrade, but saw stronger than expected economic growth data. In Asia, the Japanese yen fell to multi-year lows on the belief that the Bank of Japan would continue its monetary easing program. Overall, the Fund enjoyed a moderate gain for the month, with Class A Units up 0.74%, Class B Units up 0.89%, and Class I Units up 0.97%.

 

Off-Balance Sheet Risk

  

The term “off-balance sheet risk” refers to an unrecorded potential liability that, even though it does not appear on the balance sheet, may result in future obligation or loss. The Fund trades in futures and forward currency contracts, and is therefore a party to financial instruments with elements of off-balance sheet market and credit risk. In entering into these contracts there exists a risk to the Fund that such contracts may be significantly influenced by market conditions, such as interest rate volatility, resulting in such contracts being less valuable. If the markets should move against all of the futures interests positions of the Fund at the same time, and if the commodity trading advisors were unable to offset futures interest positions of the Fund, the Fund could lose all of its assets and the limited partners would realize a 100% loss. The General Partner minimizes market risk through diversification of the portfolio allocations to multiple trading advisors, and maintenance of a margin-to-equity ratio that rarely exceeds 35%.

  

In addition to subjecting the Fund to market risk, upon entering into futures and forward currency contracts there is a risk that the counterparty will not be able to meet its obligations to the Fund. The counterparty for futures contracts traded in the U.S. and on most foreign exchanges is the clearinghouse associated with such exchange. 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 risk. In cases where the clearinghouse is not backed by the clearing members, as is the case with some foreign 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 market rather than on exchanges, the counterparty is generally a single bank or other financial institution, rather than a group of financial institutions, thus there may be a greater counterparty risk. The General Partner utilized only those counterparties that it believes to be creditworthy for the Fund. All positions of the Fund are valued each day on a mark-to-market basis. There can be no assurance, however, that any clearing member, clearinghouse or other counterparty will be able to meet its obligations to the Fund.

  

The Fund may invest in U.S. Treasury securities, U.S. and foreign government sponsored enterprise notes, certificates of deposit, commercial paper, asset backed securities and corporate notes. Should an issuing entity default on its obligation to the Fund and such entity is not backed by the full faith and credit of the U.S. government, the Fund bears the risk of loss of the amount expected to be received. The Fund minimizes this risk by only investing in securities and certificates of deposit of firms with high quality debt ratings.

  

Significant Accounting Policies

  

A summary of the Fund’s significant accounting policies are included in Note 1 to the consolidated financial statements.

  

The Fund’s most significant accounting policy is the valuation of its assets invested in U.S. and foreign futures and forward currency contracts, and fixed income instruments. The Fund’s futures contracts are exchange-traded, with the fair value of these contracts based on exchange settlement prices. The fair values of non-exchange-traded contracts, such as forward currency contracts, are based on third-party quoted dealer values on the interbank market. The fair value of money market funds is based on quoted market prices for identical shares. U.S. Treasury securities are stated at fair value based on quoted market prices for identical assets in an active market. Notes of U.S. and foreign government sponsored enterprises, as well as certificates of deposit, commercial paper, asset backed securities and corporate notes, are stated at fair value based on quoted market prices for similar assets in an active market. Given the valuation sources, there is little judgment or uncertainty involved in the valuation of these assets, and it is unlikely that materially different amounts would be reported under different valuation methodologies or assumptions.

 

26
 

  

Item 7A.Quantitative and Qualitative Disclosures about Market Risk

 

Introduction

 

The Fund is a speculative commodity pool. The market-sensitive instruments held by it are acquired for speculative trading purposes, and all or a substantial amount of the Fund’s assets are subject to the risk of trading loss. Unlike an operating company, the risk of market sensitive instruments is integral, not incidental, to the Fund’s main line of business.

  

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 market 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.

  

The Fund acquires and liquidates both long and short positions in a wide range of different markets. Consequently, it is not possible to predict how a particular future market scenario will affect performance, and the Fund’s past performance cannot be relied on as indicative of its future results.

  

Standard of Materiality

  

Materiality as used in this section, “Quantitative and Qualitative Disclosures about Market Risk,” is based on an assessment of reasonably possible market movements and the potential losses caused by such movements, taking into account the leverage, and multiplier features of the Fund’s market sensitive instruments.

  

Quantifying the Fund’s Trading Value at Risk

  

The following quantitative disclosures regarding the Fund’s market risk exposures contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. All quantitative disclosures in this section are deemed to be forward-looking statements for purposes of the safe harbor, except for statements of historical fact.

  

Value at Risk is a measure of the maximum amount which the Fund could reasonably be expected to lose in a given market sector. However, the inherent uncertainty of the Fund’s speculative trading and the recurrence in the markets traded by the Fund to market movements far exceeding expectations could result in actual trading or non-trading losses far beyond the indicated Value at Risk or the Fund’s experience to date (i.e., “risk of ruin”). Risk of ruin is defined to be no more than a 5% chance of losing 20% or more on a monthly basis. In light of the foregoing as well as the risks and uncertainties intrinsic to all future projections, the inclusion of the quantification included in this section should not be considered to constitute any assurance or representation that the Fund’s losses in any market sector will be limited to Value at Risk or by the Fund’s attempts to manage its market risk.

  

The Fund’s risk exposure in the various market sectors traded by the Fund’s Trading Advisors is quantified below in terms of Value at Risk. Due to mark-to-market accounting, any loss in the fair value of the Fund’s open positions is directly reflected in the Fund’s earnings.

  

Exchange margin requirements have been used by the Fund as the measure of its Value at Risk. Margin requirements are set by exchanges to equal or exceed the maximum losses reasonably expected to be incurred in the fair value of any given contract in 95% - 99% of any one-day interval. The margin levels are established by dealers and exchanges using historical price studies as well as an assessment of current market volatility and economic fundamentals to provide a probabilistic estimate of the maximum expected near-term one-day price fluctuation.

  

In the case of market sensitive instruments that are not exchange-traded (includes currencies, certain energy products and metals), the margin requirements required by the forward counterparty is used as Value at Risk.

  

In quantifying the Fund’s Value at Risk, 100% positive correlation in the different positions held in each market risk category has been assumed. Consequently, the margin requirements applicable to the open contracts have simply been aggregated to determine each trading category’s aggregate Value at Risk. The diversification effects resulting from the fact that the Fund’s positions are rarely, if ever, 100% positively correlated, have not been reflected.

  

Value at Risk as calculated herein may not be comparable to similarly titled measures used by others.

 

27
 

 

 

The Fund’s Trading Value at Risk in Different Market Sectors

 

The following table indicates the trading Value at Risk associated with the Fund’s open positions by market sector at December 31, 2015 and 2014. All open position trading risk exposures of the Fund have been included in calculating the figures set forth below. At December 31, 2015 and 2014, the Fund’s total capitalization was $643,585,886 and $741,554,213, respectively.

 

   December 31, 
   2015   2014 
Market Sector  Value at Risk  

% of Total
Capitalization

   Value at Risk  

% of Total
Capitalization

 
                 
Agricultural commodities  $10,544,852    1.64%  $8,075,148    1.09%
Currencies   22,945,769    3.57    18,867,664    2.54 
Energy   14,721,478    2.29    9,381,922    1.27 
Equity indices   25,559,869    3.97    26,466,899    3.57 
Interest rate instruments   16,494,300    2.56    31,668,506    4.27 
Metals   9,735,517    1.51    7,196,461    0.97 
Single stock futures   5,787,197    0.90    7,932,365    1.07 
Total  $105,788,982    16.44%  $109,588,965    14.78%

 

Material Limitations on Value at Risk as an Assessment of Market Risk

 

The face value of the market sector instruments held by the Fund is typically many times the applicable margin requirement (margin requirements generally ranging between approximately 1% and 10% of contract face value) as well as many times the capitalization of the Fund. The magnitude of the Fund’s open positions creates a risk of ruin not typically found in most other investment vehicles. Because of the size of its positions, certain market conditions - unusual, but historically recurring from time to time - could cause the Fund to incur severe losses over a short period of time. The foregoing Value at Risk tables, as well as the past performance of the Fund, gives no indication of this risk of ruin.

 

Non-Trading Risk

 

The Fund has non-trading market risk on its foreign cash balances not needed for margin. However, these balances (as well as the market risk they represent) are immaterial to the Fund as a whole. The Fund also has non-trading market risk as a result of investing a substantial portion of its available assets in U.S. Treasury securities, U.S. government sponsored enterprise notes, commercial paper, corporate notes, asset backed securities and certificates of deposit. Although these investments are considered to be high quality, some of the securities purchased are neither guaranteed by the U.S. government nor supported by the full faith and credit of the U.S. government. There is some risk that a security issuer may fail to pay the interest and principal in a timely manner, or that negative perceptions about the issuer’s ability to make such payments will cause the price of these instruments to decline in value.

 

Qualitative Disclosures Regarding Primary Trading Risk Exposures

 

The following qualitative disclosures regarding the Fund’s market risk exposures - except for those disclosures that are statements of historical fact and the descriptions of how the Fund manages its primary market risk exposures - constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, (“1933 Act”) and Section 21E of the Securities Exchange Act of 1934, (“1934 Act”). The Fund’s primary market risk exposures as well as the strategies used and to be used by the Fund’s Trading Advisors for managing such exposures are subject to numerous uncertainties, contingencies and risks, any one of which could cause the actual results of the Fund’s risk controls to differ materially from the objectives of such strategies. Government interventions, defaults and expropriations, illiquid markets, the emergence of dominant fundamental factors, political upheavals, changes in historical price relationships, an influx of new market participants, increased regulation and many other factors could result in material losses as well as in material changes to the risk exposures and the risk management strategies of the Fund. There can be no assurance that the Fund’s current market exposure and/or risk management strategies will not change materially or that any such strategies will be effective in either the short- or long-term. Investors must be prepared to lose all or substantially all of their investment in the Fund.

 

The following were the primary trading risk exposures of the Fund as of December 31, 2015 and 2014, by market sector.

 

 28

 

 

Agricultural Commodities

The Fund’s primary agricultural exposure is due to price movements in agricultural commodities, which are often directly affected by severe or unexpected weather conditions as well as other factors that affect inventory levels or supply and demand characteristics. The Fund’s agricultural exposure is primarily to cotton, coffee, cocoa, rubber, corn, soybeans, sugar and wheat.

 

Currencies

The Fund’s currency risk exposure is due to exchange rate fluctuations, primarily fluctuations which disrupt the historical pricing relationships between different currencies and currency pairs. These fluctuations are influenced by interest rate changes as well as political and general economic conditions. The Fund trades various currencies, including cross-rates (i.e., positions between two currencies other than the U.S. dollar).

 

Energy

The Fund’s primary energy market exposure is due to gas and oil price movements, often resulting from political developments, ongoing conflicts or production disruptions in the Middle East and other oil producing nations as well as other factors that can influence supply and demand. Crude oil, heating oil, unleaded gas and natural gas are the dominant energy market exposures of the Fund. Oil and gas prices can be volatile and substantial profits and losses have been and are expected to continue to be experienced in this market.

 

Equity Indices

The Fund’s primary equity exposure is due to equity price risk in many countries other than the U.S. The stock index futures traded by the Fund are limited to futures on broadly based indices. The Fund is primarily exposed to the risk of adverse price trends or static markets in the major Australian, Canadian, European, Hong Kong, Japanese and U.S. indices.

 

Interest Rate Instruments

Interest rate risk is a significant market exposure of the Fund. Interest rate movements directly affect the price of the sovereign bond futures positions held by the Fund 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 materially impact the Fund’s profitability. The Fund’s primary interest rate exposure is to interest rate fluctuations in the U.S., Japan, Great Britain, the European Economic Union, Sweden, Canada, Australia and New Zealand.

 

Metals

The Fund’s metals market exposure is primarily due to fluctuations in the price of aluminum, copper, gold, silver, nickel, platinum, lead and zinc.

 

Single Stock Futures

The Fund has a very small exposure to Single Stock Futures (“SSF”). The Fund’s SSF exposure is primarily due to adverse price movements in the underlying stock.

 

Qualitative Disclosures Regarding Non-Trading Risk Exposure

 

The following were the significant non-trading risk exposures of the Fund as of December 31, 2015 and 2014.

 

Foreign Currency Balances

The Fund’s primary foreign currency balances are in euros, Japanese yen, British pounds, Australian dollars, Hong Kong dollars and Canadian dollars. The Fund controls the non-trading risk of these balances by regularly converting these balances back into dollars (no less frequently than once a week).

 

U.S. Treasury Securities, U.S. and Foreign Government Sponsored Enterprise Notes, Commercial Paper, Corporate Notes, Asset Backed Securities and Certificates of Deposit

Monies in excess of margin requirements are invested in fixed income instruments, including U.S. Treasury securities, U.S. and foreign government sponsored enterprise notes, commercial paper, corporate notes, asset backed securities and certificates of deposit. Fluctuations in prevailing interest rates could cause immaterial mark-to-market gains or losses on the Fund’s investments; although substantially all of these investments are held to maturity.

 

Qualitative Disclosures Regarding Means of Managing Risk Exposure

 

The means by which the Fund and the Fund’s Trading Advisors, severally, attempt to manage the risk of the Fund’s open positions is essentially the same in all market sectors traded. The Fund’s Trading Advisors apply risk management policies to their respective trading which generally limit the total exposure that may be taken. In addition, the Trading Advisors generally follow proprietary diversification guidelines (often formulated in terms of the balanced volatility between markets and correlated groups).

 

 29

 

 

The Fund is unaware of any (i) anticipated known demands, commitments or capital expenditures; (ii) material trends, favorable or unfavorable, in its capital resources; or (iii) trends or uncertainties that will have a material effect on operations. From time to time, certain regulatory agencies have proposed increased margin requirements on futures contracts. Because the Fund generally will use a small percentage of assets as margin, the Fund does not believe that any increase in margin requirements, as proposed, will have a material effect on the Fund’s operations.

 

Item 8.Financial Statements and Supplementary Data

 

Financial statements meeting the requirements of Regulation S-X appear in Part IV of this report. The supplementary financial information specified by Item 302 of Regulation S-K is included in this report under the heading “Selected Financial Data” above.

 

Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

 

None.

 

Item 9A.Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

The General Partner of the Fund, with the participation of the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Fund’s disclosure controls and procedures at December 31, 2015 (the “Evaluation Date”). Based on their evaluation, the Chief Executive Officer and Chief Financial Officer of the General Partner concluded that, as of the Evaluation Date, the Fund’s disclosure controls and procedures were effective.

 

Any control system, no matter how well designed and operated, can provide only reasonable (not absolute) assurance that its objectives will be met. Furthermore, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

 

Management’s Annual Report on Internal Control over Financial Reporting

 

The management of the General Partner is responsible for establishing and maintaining adequate internal control over financial reporting by the Fund.

 

The Fund’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. The Fund’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Fund; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States, and that receipts and expenditures of the Fund are being made only in accordance with authorizations of management of the Fund; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Fund’s assets that could have a material effect on the consolidated financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention of overriding controls. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Management assessed the effectiveness of the Fund’s internal control over financial reporting as of December 31, 2015, based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework published in 1992. Based on that assessment, management concluded that, as of December 31, 2015, the Fund’s internal control over financial reporting is effective based on the criteria established in Internal Control-Integrated Framework published in 1992.

 

 30

 

 

Changes in Internal Control Over Financial Reporting

 

There has been no change in internal control over financial reporting that occurred during the year ended December 31, 2015 that has materially affected, or is reasonably likely to materially affect, the Fund’s internal control over financial reporting.

 

Item 9B.Other Information

 

None.

 

PART III

 

Item 10.Directors, Executive Officers and Corporate Governance

 

Directors and Executive Officers

 

The Fund itself has no directors or officers and has no employees. It is managed by the General Partner in its capacity as General Partner. The Kenneth E. Steben Revocable Trust, dated January 29, 2008, (“Trust”) is the majority shareholder of the General Partner and Mr. Kenneth E. Steben is the sole trustee and beneficiary of the Trust. The directors and executive officers of the General Partner are Kenneth E. Steben, Michael D. Bulley, Carl A. Serger and Francine Rosenberger. Their respective biographies are set forth below.

 

Kenneth E. Steben is the General Partner’s founder, President and Chief Executive Officer. Additionally, he is Chairman of the board of directors of the General Partner. Mr. Steben, born in January 1955, received his Bachelor’s Degree in Interdisciplinary Studies, with a concentration in Accounting in 1979 from Maharishi University of Management. Mr. Steben has been a licensed stockbroker since 1981 and a licensed commodities broker since 1983. Mr. Steben holds his Series 3, 5, 7, 24, 63 and 65 FINRA and NFA licenses. Mr. Steben has been a CFTC listed Principal, and registered as an Associated Person since March 15, 1989.

 

Michael D. Bulley is a Director. Mr. Bulley is a CAIASM designee and Member of the Chartered Alternative Investment Analyst Association®. Mr. Bulley, born in October 1957, received his Bachelor’s Degree in Electrical Engineering from the University of Wisconsin – Madison in 1980 and his Master’s in Business Administration with a concentration in Finance from Johns Hopkins University in 1998. Mr. Bulley joined the General Partner as SVP, Research and Risk Management in November 2002 and retired in July 2015, and holds Series 3, 7, 28 and 30 FINRA licenses. Mr. Bulley has been a CFTC listed Principal and registered as an Associated Person of the General Partner since January 18, 2003.

 

Carl A. Serger is Chief Financial Officer and a Director. Mr. Serger joined the General Partner in December of 2009 and has been listed as a CFTC Principal of the General Partner since February 2, 2010. Mr. Serger, born in March 1960, graduated cum laude from Old Dominion University with a BS in Business Administration and has a Technology Management Certification from the California Institute of Technology. Prior to joining the General Partner, Mr. Serger was the CFO and Senior Vice President of Operations of Peracon, Inc., a software platform for institutional commercial real estate transactions from November 2007 through November 2009. From July 2007 to November 2007, he acted as an independent consultant to start-up companies in the financial services and technology industries. From January 2007 to July 2007, Mr. Serger was the CFO, Senior Vice President and Treasurer of Ebix, Inc., an international software company serving the financial services and insurance industries. From October 2006 through December 2006, he was President of Finetre Corporation, a division of Ebix, Inc. From December 1999 until its October 2006 acquisition by Ebix, Inc., Mr. Serger was the CFO, Senior Vice President and Treasurer of Finetre Corporation, a financial technology platform company providing services to major brokerage firms, banks and insurance companies. Mr. Serger holds a Series 28 FINRA license.

 

Francine Rosenberger is General Counsel and a Director. Ms. Rosenberger, born in October 1967, earned her Bachelor of Arts from Juniata College in 1989, and graduated magna cum laude, with a J.D., from The Columbus School of Law at Catholic University in 1995. Prior to joining the General Partner, Ms. Rosenberger was in the Investment Management practice at the law firm of K&L Gates from September 1995 until January 2013. At K&L Gates, Ms. Rosenberger specialized in the formation, structuring and operation of investment companies, ETFs, and commodity pools. She has been a CFTC listed Principal of the General Partner since March 7, 2013.

 

 31

 

 

Kenneth E. Steben Revocable Trust, dated January 29, 2008, has been a CFTC listed Principal of the General Partner since March 10, 2008. The Trust is the majority shareholder of the General Partner. Kenneth E. Steben is the sole beneficiary of the Trust and serves as its sole trustee. A biography of Mr. Steben is set forth above.

 

Since August 1, 2013, the General Partner has acted as the general partner for Steben Select Multi-Strategy Partners, L.P., a privately offered investment fund. Since August 1, 2013, the General Partner has been the Investment Manager for Steben Select Multi-Strategy Master Fund, a privately offered closed-end fund. Additionally, since January 1, 2014, the General Partner acts as the investment manager for Steben Select Multi-Strategy Fund, a publicly offered closed-end fund. Since April 2014, the General Partner has acted as the investment manager for Steben Managed Futures Strategy Fund, an open-end mutual fund. Because Steben & Company, Inc. serves as the general partner or manager of these funds, the officers and directors of Steben & Company, Inc. effectively manage the respective funds.

 

Significant Employees

 

The General Partner is dependent on the services of Mr. Steben and key management personnel. If Mr. Steben’s services became unavailable, another principal of the firm or a new principal (whose experience cannot be known at this time) would need to take charge of the General Partner.

 

Family Relationships

 

None.

 

Business Experience

 

See “Item 10. Directors, Executive Officers and Corporate Governance” above.

 

Involvement in Certain Legal Proceedings

 

None.

 

Promoters and Control Persons

 

Not applicable.

 

Section 16 (A) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the 1934 Act requires that reports of beneficial ownership of limited partner interests and changes in such ownership be filed with the SEC by Section 16 “reporting persons.” The Fund is required to disclose in this annual report on Form 10-K each reporting person whom it knows to have failed to file any required reports under Section 16(a) on a timely basis during the year ended December 31, 2015. During the year ended December 31, 2015, all reporting persons complied with all Section 16(a) filing requirements applicable to them.

 

Code of Ethics

 

The General Partner has adopted a code of ethics, as of the period covered by this report, which applies to the Fund’s principal executive officer and principal financial officer, or persons performing similar functions. A copy of the code of ethics is available without charge upon request by calling 240-631-7600.

 

Item 11.Executive Compensation

 

The Fund does not have any officers, directors or employees. The managing officers of the General Partner are remunerated by the General Partner in their respective positions. The directors and managing officers of the General Partner receive no other compensation from the Fund.

 

As compensation for its services in managing the Fund, the General Partner earns the following compensation:

 

General Partner Management Fee – the Fund incurs a monthly fee on Class A and Class B Units equal to 1/12th of 1.5% of the month-end net asset value of the Class A and Class B Units, payable in arrears. Prior to June 1, 2012, the general partner management fee was 1.75% per annum. The Fund incurs a monthly fee on Class I Units equal to 1/12th of 0.75% of the month-end net asset value of the Class I Units, payable in arrears. During 2015, 2014 and 2013, the General Partner earned $10,463,942, $11,605,429 and $16,660,484, respectively, in General Partner management fees.

 

 32

 

 

 

General Partner Performance Fee – the Fund incurs a monthly fee on Class I Units equal to 7.5% of new profits of the Class I Units calculated monthly. The general partner performance fee is payable quarterly in arrears. During 2015, 2014 and 2013, the General Partner earned $7,808, $0 and $13,402, respectively, in General Partner performance fees.

 

Management fee – SMFF incurs a monthly fee equal to 1/12th of 1.25% of the month-end net asset value of the trust, payable in arrears to the General Partner. During 2015 and 2014, the investment manager earned $1,011,765 and $554,872, respectively, in management fees. The General Partner earned no management fees in 2013.

 

Distribution (12b-1) fee – SMFF incurs a monthly 12b-1 fee of 1/12th of 0.25% of the month-end net asset value of the Class A and N shares, and 1/12th of 1% of the month-end value of the Class C shares. During 2015 and 2014, the General Partner earned $21,977 and $628, respectively, in distribution (12b-1) fees. During 2013, the General Partner earned no distribution (12b-1) fees.

 

Selling Agent Fees – the Class A Units incur a monthly fee equal to 1/12th of 2% of the month-end net asset value of the Class A Units and such amounts are included in selling agent and broker dealer servicing fees – General Partner in the consolidated statements of operations. The General Partner, in turn, pays the selling agent fee to the respective selling agents. If there is no designated selling agent or the General Partner was the selling agent, such portions of the selling agent fee are retained by the General Partner.

 

Broker Dealer Servicing Fees – the Class B Units incur a monthly fee equal to 1/12th of 0.2% of the month-end net asset value of the Class B Units and such amounts are included in selling agent and broker dealer servicing fees – General Partner in the consolidated statements of operations. The General Partner, in turn, pays the fee to the respective selling agents. If there is no designated selling agent or the General Partner was the selling agent, such portions of the broker dealer servicing fee are retained by the General Partner. During 2015, 2014, and 2013, the General Partner earned $9,604,363, $10,438,411 and $14,343,627, respectively, in selling agent and broker dealer servicing fees.

 

Additionally, each year the General Partner receives from the Fund 1% of any net income earned by the Fund, or pays to the Fund 1% of any net loss incurred by the Fund. For the years ended December 31, 2015, 2014 and 2013, the General Partner received from or paid the Fund the following amounts:

 

Year   Received
From the Fund
   Paid to the
Fund
 
 2015   $   $271,430 
 2014    538,285     
 2013        283,366 
 Total   $538,285   $554,796 

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

The Fund has no officers or directors as its affairs are managed by the General Partner. Set forth in the table below is information regarding the beneficial ownership of the officers and directors of the Fund’s General Partner at February 29, 2016. There are no securities authorized for issuance under an equity compensation plan.

 

At February 29, 2016, no person or group is known to have been the beneficial owner of more than 5% of the Units.

 

At February 29, 2016, the General Partner did not own any Units. At February 29, 2016, the directors, executive officers and principals of the General Partner beneficially owned interests in the Fund as follows:

 

Name  Class of
Units Owned
  Number of
Units Owned
   Value of Units   Percentage of
the Fund
 
Kenneth E. Steben  I   254.4114   $276,143    0.04%
Carl A. Serger  B   16.1415    109,261    0.02%
Total directors and executive officers of the General Partner as a group      286.4954   $479,796    0.06%

 

 

 33

 

 

The address of each director and officer is c/o Steben & Company, Inc., 9711 Washingtonian Boulevard, Suite 400, Gaithersburg, Maryland 20878.

 

There has been no change in control of the Fund.

 

Item 13. Certain Relationships and Related Transactions, and Director Independence

 

See “Item 1. Business” for a description of the relationships between the General Partner, the Fund, the Trading Advisor, the futures brokers and the Cash Managers. See “Item 11. Executive Compensation” and “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”

 

Item 14. Principal Accountant Fees and Services

 

The following table sets forth the fees billed to the Fund for professional audit services provided by RSM US LLP (formerly known as McGladrey LLP), the Fund’s independent registered public accountant, for the audits of the Fund’s annual consolidated financial statements for the years ended December 31, 2015 and 2014, and fees billed for other professional services rendered by RSM US LLP during those years.

 

Fee Category  2015   2014 
Audit fees(1)  $214,500   $210,800 
Audit-related fees        
Tax fees(2)   44,000    42,000 
All other fees        
Total fees  $258,500   $252,800 

 

(1) Audit fees consist of fees for professional services rendered for the audit of the Fund’s consolidated financial statements and review of consolidated financial statements included in the Fund’s quarterly reports, as well as services normally provided by the independent accountant in connection with statutory and regulatory filings or engagements.
(2) Tax fees consist of fees for the preparation of original tax returns.

 

The General Partner’s Board of Directors pre-approves all audit and permitted non-audit services of the Fund’s independent accountants, including all engagement fees and terms. The General Partner’s Board of Directors approved all the services provided by RSM US LLP during 2015 and 2014 to the Fund described above. The General Partner’s Board of Directors has determined that the payments made to RSM US LLP for these services during 2015 and 2014 are compatible with maintaining that firm’s independence.

 

PART IV

 

Item 15.Exhibits and Financial Statement Schedules

 

Consolidated Financial Statements

 

Futures Portfolio Fund, Limited Partnership

Report of Independent Registered Public Accounting Firm

Consolidated Statements of Financial Condition as of December 31, 2015 and 2014

Consolidated Condensed Schedule of Investments as of December 31, 2015

Consolidated Condensed Schedule of Investments as of December 31, 2014

Consolidated Statements of Operations for the Years Ended December 31, 2015, 2014 and 2013

Consolidated Statements of Cash Flows for the Years Ended December 31, 2015, 2014, and 2013

Consolidated Statements of Changes in Partners’ Capital (Net Asset Value) for the Years Ended December 31, 2015, 2014 and 2013

Notes to Consolidated Financial Statements

 

 34

 

 

Financial statement schedules not included in this Form 10-K have been omitted for the reason that they are not required or are not applicable or that equivalent information has been included in the financial notes or statements thereto.

 

Exhibits.

 

The following exhibits are filed herewith or incorporated by reference.

 

Exhibit No.

Description of Exhibit

   
1.1(a) Form of Selling Agreement
   
3.1(a) Maryland Certificate of Limited Partnership.
   
4.1(a) Limited Partnership Agreement.
   
10.1(a) Form of Subscription Agreement
   
16.1(a) Letter regarding change in certifying accountant.
   
31.01 Certification of Chief Executive Officer of the General Partner in accordance with Section 302 of the Sarbanes-Oxley Act of 2002
31.02 Certification of Chief Financial Officer of the General Partner in accordance with Section 302 of the Sarbanes-Oxley Act of 2002
32.01 Certification of Chief Executive Officer of the General Partner in accordance with Section 906 of the Sarbanes-Oxley Act of 2002
32.02

Certification of Chief Financial Officer of the General Partner in accordance with Section 906 of the Sarbanes-Oxley Act of 2002

101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

 

(a)Incorporated by reference to the corresponding exhibit to the Registrant’s registration statement (File no. 000-50728) filed on April 29, 2004 on Form 10 under the 1934 Act, as amended.

 

 35

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the General Partner of the Registrant in the capacities and on the date indicated.

 

Name Title Date
     
     

/s/ Kenneth E. Steben

Kenneth E. Steben

President, Chief Executive Officer and Director of the General Partner March 23, 2016
     

/s/ Carl A. Serger

Carl A. Serger

Chief Financial Officer and Director of the General Partner March 23, 2016

 

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

       
    Futures Portfolio Fund, Limited Partnership
  Dated March 23, 2016    
    By: Steben & Company, Inc.
      General Partner
       
    By: /s/ Kenneth E. Steben
    Name: Kenneth E. Steben
    Title: President, Chief Executive Officer and Director of the General Partner

 

 36

 

 

Report of Independent Registered Public Accounting Firm

  

To the Partners of

Futures Portfolio Fund, Limited Partnership

 

We have audited the accompanying consolidated statements of financial condition, including the consolidated condensed schedule of investments, of Futures Portfolio Fund, Limited Partnership (the “Fund”), as of December 31, 2015 and 2014, and the related consolidated statements of operations, cash flows, and changes in partners’ capital (net asset value) for each of the three years in the period ended December 31, 2015. These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing the audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Futures Portfolio Fund, Limited Partnership as of December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2015 in conformity with U.S. generally accepted accounting principles.

 

/s/ RSM US LLP

 

Chicago, Illinois

March 23, 2016

 

F-1
 

  

Futures Portfolio Fund, Limited Partnership

Consolidated Statements of Financial Condition

December 31, 2015 and 2014 

 

   2015   2014 
Assets          
Equity in broker trading accounts          
Cash  $122,736,345   $240,042,950 
Net unrealized gain (loss) on open futures contracts   4,412,678    33,424,425 
Net unrealized gain (loss) on open forward currency contracts   (1,614,491)   (1,409,257)
Net unrealized gain (loss) on swap contract   3,440,896    8,071,814 
Total equity in broker trading accounts   128,975,428    280,129,932 
Cash and cash equivalents   56,290,425    29,900,779 
Investments in securities, at fair value (cost $453,001,973 and $432,077,493)   451,049,033    430,462,588 
Certificates of deposit (CDs), at fair value (cost $22,673,242 and $28,848,010)   22,710,509    28,894,203 
General Partner 1% allocation receivable   271,430     
Subscriptions receivable   85,414    209,400 
Total assets  $659,382,239   $769,596,902 
           
Liabilities and Partners’ Capital (Net Asset Value)          
Liabilities          
Trading Advisor management fees payable  $1,301,752   $1,212,424 
Trading Advisor incentive fees payable   216,856    10,977,066 
Commissions and other trading fees payable on open contracts   138,206    146,411 
Cash Managers fees payable   109,594    111,171 
General Partner management and performance fees payable   789,152    930,656 
General Partner 1% allocation payable       538,285 
Selling agent and broker dealer servicing fees payable – General Partner   735,514    838,049 
Administrative expenses payable – General Partner   155,471    183,163 
Investment Manager fees payable   83,884    74,621 
Distribution (12b-1) fees payable   2,204    321 
Operating services fee payable   33,554    29,848 
Redemptions payable   11,143,201    10,423,609 
Subscriptions received in advance   1,086,965    2,577,065 
Total liabilities   15,796,353    28,042,689 
           
Partners’ Capital (Net Asset Value)          
Class A Interests – 98,034.9581 and 106,074.0114 units outstanding at December 31, 2015 and 2014, respectively   412,948,548    468,243,719 
Class B Interests – 33,265.6588 and 41,522.9665 units outstanding at December 31, 2015 and 2014, respectively   204,329,032    262,572,733 
Class I Interests – 3,828.4541 and 3,438.9708 units outstanding at December 31, 2015 and 2014, respectively   3,767,830    3,455,693 
Non-controlling interest   22,540,476    7,282,068 
Total partners’ capital (net asset value)   643,585,886    741,554,213 
Total liabilities and partners’ capital (net asset value)  $659,382,239   $769,596,902 

 

 The accompanying notes are an integral part of these consolidated financial statements.

  

F-2
 

 

Futures Portfolio Fund, Limited Partnership
Consolidated Condensed Schedule of Investments
December 31, 2015

                               
          Description     Fair Value     % of Partners’
Capital (Net
Asset Value)
 
INVESTMENTS IN SECURITIES                    
U.S. Treasury Securities                    
Face Value   Maturity Date   Name   Yield 1                
$ 50,000,000   2/18/16   U.S. Treasury Bill   0.09 %   $ 49,993,194     7.77 %
  2,000,000   12/8/16   U.S. Treasury Bill   0.72 %     1,988,643     0.31 %
  10,500,000   1/15/16   U.S. Treasury Notes   0.38 %     10,517,770     1.63 %
  1,750,000   3/15/16   U.S. Treasury Notes   0.38 %     1,752,420     0.27 %
  1,500,000   6/30/16   U.S. Treasury Notes   0.50 %     1,499,781     0.23 %
  4,600,000   8/31/16   U.S. Treasury Notes   1.00 %     4,624,882     0.72 %
  1,500,000   10/31/16   U.S. Treasury Notes   1.00 %     1,505,484     0.23 %
  1,800,000   11/15/16   U.S. Treasury Notes   0.63 %     1,799,062     0.28 %
  1,500,000   11/30/16   U.S. Treasury Notes   2.75 %     1,529,797     0.24 %
  1,788,200   12/15/16   U.S. Treasury Notes   0.63 %     1,785,926     0.28 %
Total U.S. Treasury securities (cost: $77,027,397)           76,996,959     11.96 %
                               
U.S. Commercial Paper                      
Face Value   Maturity Date   Name   Yield 1                
Automotive                        
$ 500,000   1/11/16   Nissan Motor Acceptance Corporation   0.50 %     499,928     0.08 %
  1,600,000   1/22/16   Nissan Motor Acceptance Corporation   0.78 %     1,599,272     0.25 %
Banks                          
  400,000   1/21/16   Standard Chartered Bank   0.27 %     399,940     0.06 %
Beverages                          
  2,100,000   1/6/16   Bacardi U.S.A., Inc.   0.51 %     2,099,851     0.33 %
  1,500,000   1/7/16   Brown-Forman Corporation   0.45 %     1,499,888     0.23 %
  500,000   1/7/16   Brown-Forman Corporation   0.45 %     499,963     0.08 %
  1,700,000   11/17/16   Coca-Cola Company   0.80 %     1,689,858     0.26 %
Chemicals                          
  500,000   1/14/16   Clorox Company   0.46 %     499,917     0.08 %
  1,500,000   1/27/16   Clorox Company   0.51 %     1,499,448     0.23 %
Diversified financial services                    
  375,000   1/19/16   American Express Credit Corporation   0.55 %     374,897     0.06 %
  1,700,000   1/15/16   DCAT, LLC   0.42 %     1,699,722     0.26 %
  1,700,000   1/5/16   Gotham Funding Corporation   0.28 %     1,699,947     0.26 %
  1,700,000   1/20/16   Hewlett Packard Enterprise Company   0.92 %     1,699,175     0.26 %
  400,000   3/2/16   ING (U.S.) Funding LLC   0.65 %     399,559     0.06 %
  1,700,000   1/4/16   Intercontinental Exchange, Inc.   0.42 %     1,699,940     0.26 %
  450,000   1/15/16   J.P. Morgan Securities LLC   0.25 %     449,956     0.07 %
  1,400,000   1/12/16   Manhattan Asset Funding Company LLC   0.27 %     1,399,885     0.22 %
  1,700,000   1/13/16   Regency Group, Inc.   0.40 %     1,699,773     0.26 %
  1,300,000   1/4/16   The Southern Company   0.53 %     1,299,943     0.20 %
Energy                        
  500,000   1/27/16   Dominion Resources, Inc.   0.67 %     499,758     0.08 %
  2,100,000   1/21/16   Enterprise Products Operating LLC   0.78 %     2,099,090     0.34 %
  2,100,000   1/7/16   Motiva Enterprises LLC   0.60 %     2,099,790     0.34 %
  400,000   1/5/16   Oglethorpe Power Corp.   0.32 %     399,986     0.06 %
  1,700,000   2/1/16   Oglethorpe Power Corp.   0.48 %     1,699,297     0.26 %

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-3
 

  

Futures Portfolio Fund, Limited Partnership
Consolidated Condensed Schedule of Investments (continued)
December 31, 2015

                               
          Description     Fair Value     % of Partners’
Capital (Net
Asset Value)
 
U.S. Commercial Paper (continued)                    
Face Value   Maturity Date   Name   Yield 1                
Healthcare                          
$ 1,850,000   1/20/16   Catholic Health Initiatives   0.45 %   $ 1,849,561     0.29 %
Insurance                        
  2,200,000   1/12/16   AXA Financial, Inc.   0.35 %     2,199,766     0.34 %
REIT                      
  1,500,000   2/9/16   Simon Property Group, L.P.   0.45 %     1,499,269     0.23 %
Total U.S. commercial paper (cost: $35,039,075)           35,057,379     5.45 %
                               
Foreign Commercial Paper                    
Face Value   Maturity Date   Name   Yield 1                
Banks                        
$ 1,400,000   6/2/16   Bank of China Hong Kong Ltd   0.99 %     1,394,628     0.22 %
  2,200,000   1/11/16   Bank of Tokyo-Mitsubishi UFJ, Ltd.   0.23 %     2,199,859     0.34 %
  400,000   2/11/16   DBS Bank Ltd.   0.54 %     399,754     0.06 %
  3,000,000   2/23/16   DNB Bank ASA   0.55 %     2,998,889     0.47 %
  700,000   10/17/16   Macquarie Bank Limited   0.89 %     695,151     0.11 %
  1,700,000   1/6/16   Mizuho Bank, Ltd.   0.29 %     1,699,932     0.26 %
  300,000   1/7/16   Mizuho Bank, Ltd.   0.30 %     299,985     0.05 %
  400,000   1/5/16   Oversea-Chinese Banking Corp. Ltd   0.40 %     399,982     0.06 %
  450,000   2/16/16   Skandinaviska Enskilda Banken AB   0.33 %     449,810     0.07 %
  1,600,000   3/16/16   Sumitomo Mitsui Bank   0.65 %     1,597,833     0.25 %
Diversified financial services                    
  500,000   4/1/16   Ontario Teachers Finance Trust   0.65 %     499,178     0.08 %
Energy                            
  1,200,000   1/6/17   Electricite de France SA   1.67 %     1,180,966     0.18 %
  800,000   1/9/17   Electricite de France SA   1.67 %     787,192     0.12 %
  1,600,000   1/25/16   Engie   0.30 %     1,599,680     0.25 %
  500,000   1/25/16   Engie   0.27 %     499,910     0.08 %
  400,000   1/21/16   Total Capital Canada Ltd.   0.45 %     399,900     0.06 %
Insurance                            
  1,700,000   1/19/16   Prudential PLC   0.25 %     1,699,788     0.26 %
Manufacturing                    
  2,000,000   1/13/16   John Deere Financial Limited   0.25 %     1,999,833     0.31 %
Telecommunications                    
  400,000   2/22/16   Telstra Corporation Limited   0.38 %     399,780     0.06 %
  1,000,000   3/21/16   Vodafone Group Public Limited Company   0.90 %     998,783     0.16 %
Total foreign commercial paper (cost: $22,169,024)           22,200,833     3.45 %
Total commercial paper (cost: $57,208,099)           57,258,212     8.90 %
                       
U.S. Corporate Notes                      
Face Value   Maturity Date   Name   Yield 1                
Advertising                      
$ 2,379,000   4/15/16   Omnicom Group Inc.   5.90 %     2,439,009     0.38 %
Aerospace                            
  1,200,000   5/1/16   Lockheed Martin Corporation   7.65 %     1,241,939     0.19 %
  3,800,000   12/15/16   Rockwell Collins, Inc.   0.86 %     3,803,447     0.59 %
Automotive                    
  1,584,000   2/28/17   American Honda Finance Corporation   2.13 %     1,612,408     0.25 %
  566,000   7/13/18   American Honda Finance Corporation   0.78 %     565,677     0.09 %
  700,000   1/11/16   Daimler Finance North America LLC   1.25 %     704,161     0.11 %
  2,500,000   9/15/16   Daimler Finance North America LLC   2.63 %     2,542,748     0.40 %
  649,000   8/3/17   Daimler Finance North America LLC   1.04 %     649,353     0.10 %

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-4
 

 

Futures Portfolio Fund, Limited Partnership
Consolidated Condensed Schedule of Investments (continued)
December 31, 2015

                               
          Description     Fair Value     % of Partners’
Capital (Net
Asset Value)
 
U.S. Corporate Notes (continued)                    
Face Value   Maturity Date   Name   Yield 1                
Automotive (continued)                    
$ 6,700,000   3/2/18   Daimler Finance North America LLC   0.84 %   $ 6,623,197     1.03 %
  7,350,000   1/9/18   Ford Motor Credit Company LLC   1.26 %     7,308,669     1.13 %
  1,388,000   3/15/16   Nissan Motor Acceptance Corporation   1.00 %     1,392,489     0.22 %
  1,762,000   9/26/16   Nissan Motor Acceptance Corporation   1.30 %     1,761,988     0.27 %
  1,400,000   9/23/16   Toyota Motor Credit Corporation   0.69 %     1,397,807     0.22 %
  500,000   5/23/17   Volkswagen Group of America Finance, LLC   0.75 %     484,025     0.08 %
  200,000   11/20/17   Volkswagen Group of America Finance, LLC   0.81 %     192,023     0.03 %
Banks                    
  5,250,000   3/22/16   Bank of America, NA   1.41 %     5,265,175     0.82 %
  4,250,000   6/15/16   Bank of America, NA   0.79 %     4,248,615     0.66 %
  1,473,000   11/14/16   Bank of America, NA   1.13 %     1,472,341     0.23 %
  800,000   11/14/16   Bank of America, NA   0.83 %     800,400     0.12 %
  1,615,000   7/28/16   Bank of New York Company, Inc.   2.30 %     1,644,459     0.26 %
  1,400,000   4/3/17   Branch Banking and Trust Company   1.00 %     1,395,869     0.22 %
  1,500,000   2/13/17   Capital One Bank   0.86 %     1,498,334     0.23 %
  1,500,000   7/15/16   Capital One Financial Corporation   3.15 %     1,535,652     0.24 %
  1,000,000   2/26/16   Fifth Third Bank   0.82 %     1,000,681     0.16 %
  607,000   1/15/16   Goldman Sachs Group, Inc.   5.35 %     622,609     0.10 %
  950,000   2/7/16   Goldman Sachs Group, Inc.   3.63 %     965,675     0.15 %
  400,000   12/15/17   Goldman Sachs Group, Inc.   1.31 %     401,900     0.06 %
  880,000   8/2/16   Huntington National Bank   1.35 %     884,972     0.14 %
  900,000   11/20/16   Huntington National Bank   1.30 %     900,732     0.14 %
  4,500,000   2/26/16   JPMorgan Chase & Co.   1.03 %     4,509,217     0.70 %
  1,060,000   10/18/16   Morgan Stanley   5.75 %     1,108,690     0.17 %
  5,900,000   1/9/17   Morgan Stanley   5.45 %     6,286,679     0.98 %
  8,125,000   2/9/18   MUFG Americas Holdings Corporation   0.91 %     8,127,276     1.25 %
  1,123,000   9/19/16   PNC Funding Corp   2.70 %     1,142,621     0.18 %
  300,000   1/28/16   PNC Realty Investors, Inc.   0.80 %     301,015     0.05 %
  570,000   10/3/16   PNC Realty Investors, Inc.   1.30 %     573,028     0.09 %
  1,800,000   1/30/17   U.S. Bank National Association   1.10 %     1,805,706     0.28 %
  806,000   9/11/17   U.S. Bank National Association   0.69 %     804,160     0.12 %
  2,000,000   9/26/16   UBS AG   1.10 %     2,000,294     0.31 %
  4,750,000   6/1/17   UBS AG   0.97 %     4,752,655     0.74 %
  2,500,000   12/15/16   Wells Fargo & Company   2.63 %     2,536,869     0.39 %
Beverages                            
  1,350,000   1/15/16   Anheuser-Busch Inbev Finance Inc.   0.80 %     1,354,981     0.21 %
Biotechnology                    
  750,000   12/1/16   Gilead Sciences, Inc.   3.05 %     766,081     0.12 %
Diversified financial services                    
  1,800,000   9/19/16   American Express Credit Corporation   2.80 %     1,837,207     0.29 %
  1,000,000   6/5/17   American Express Credit Corporation   0.72 %     993,291     0.15 %
  2,700,000   10/18/16   American International Group, Inc.   5.60 %     2,822,703     0.44 %
  1,500,000   8/15/16   Berkshire Hathaway Finance Corporation   0.95 %     1,506,223     0.23 %
  1,000,000   1/9/17   General Electric Capital Corporation   0.60 %     1,001,768     0.16 %
  2,600,000   7/28/16   Jackson National Life Global Funding   0.57 %     2,602,783     0.40 %
  1,174,000   12/9/16   MassMutual Global Funding II   0.71 %     1,172,646     0.18 %
  798,000   4/5/17   MassMutual Global Funding II   2.00 %     807,344     0.13 %
  1,500,000   4/10/17   Metropolitan Life Global Funding I   1.30 %     1,503,816     0.23 %
  1,000,000   4/10/17   Metropolitan Life Global Funding I   0.70 %     1,003,167     0.16 %
  1,240,000   5/27/16   National Rural Utilities Coop Fin Corp   0.66 %     1,240,664     0.19 %
  1,000,000   3/1/17   New York Life Global Funding   1.13 %     1,003,318     0.16 %

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-5
 

  

Futures Portfolio Fund, Limited Partnership
Consolidated Condensed Schedule of Investments (continued)
December 31, 2015 

                               
          Description     Fair Value     % of Partners’
Capital (Net
Asset Value)
 
U.S. Corporate Notes (continued)                    
Face Value   Maturity Date   Name   Yield 1                
Diversified financial services (continued)                    
$ 8,500,000   11/25/16   Pricoa Global Funding I   1.15 %   $ 8,469,554     1.31 %
  1,800,000   12/1/17   Principal Life Global Funding II   0.98 %     1,800,152     0.28 %
  1,158,000   3/7/16   State Street Corporation   2.88 %     1,172,622     0.18 %
  1,757,000   12/13/16   USAA Capital Corporation   2.25 %     1,787,773     0.28 %
Energy                    
  812,000   9/15/16   Anadarko Petroleum Corporation   5.95 %     848,602     0.13 %
  1,000,000   8/1/16   Arizona Public Service Company   6.25 %     1,052,152     0.16 %
  1,461,000   11/9/17   Chevron Corporation   0.72 %     1,460,560     0.23 %
  500,000   9/15/16   Dayton Power and Light Company   1.88 %     501,620     0.08 %
  5,750,000   4/3/17   Duke Energy Corporation   0.70 %     5,751,540     0.89 %
  1,000,000   8/15/16   Georgia Power Company   0.76 %     1,000,453     0.16 %
  3,350,000   12/1/17   Kinder Morgan, Inc.   2.00 %     3,235,921     0.50 %
  2,000,000   2/1/16   ONEOK Partners, L.P.   3.25 %     2,028,323     0.32 %
  4,778,000   7/15/16   Pioneer Natural Resources Company   5.88 %     5,002,042     0.78 %
  1,500,000   5/15/16   Sierra Pacific Power Company   6.00 %     1,537,909     0.24 %
  5,500,000   6/15/16   Spectra Energy Partners, LP   2.95 %     5,511,061     0.86 %
Engineering and construction                    
  1,375,000   6/15/16   ABB Treasury Center (USA), Inc.   2.50 %     1,383,400     0.21 %
Healthcare                    
  500,000   1/15/18   Anthem, Inc.   1.88 %     502,578     0.08 %
  7,750,000   1/17/17   UnitedHealth Group Incorporated   0.77 %     7,761,182     1.20 %
  2,695,000   9/26/16   Ventas Realty, Limited Partnership   1.55 %     2,712,922     0.42 %
  3,775,000   4/1/18   Zimmer Biomet Holdings, Inc.   2.00 %     3,774,019     0.59 %
Manufacturing                    
  700,000   7/11/17   John Deere Capital Corporation   0.77 %     701,864     0.11 %
Pharmaceutical                    
  7,775,000   5/14/18   AbbVie Inc.   1.80 %     7,755,563     1.20 %
  1,400,000   10/7/16   Bayer US Finance LLC   0.57 %     1,401,153     0.22 %
  500,000   3/17/17   EMD FIN LLC   0.88 %     499,452     0.08 %
Retail                    
  1,500,000   10/15/16   Lowe’s Companies, Inc.   5.40 %     1,568,330     0.24 %
  2,000,000   3/1/16   The Home Depot, Inc.   5.40 %     2,050,064     0.32 %
Software                    
  1,500,000   2/5/16   IBM   0.40 %     1,500,557     0.23 %
  900,000   7/7/17   Oracle Corporation   0.52 %     900,450     0.14 %
Telecommunication                    
  1,500,000   8/15/16   AT&T Inc.   2.40 %     1,523,455     0.24 %
  2,150,000   9/15/16   Verizon Communications, Inc.   2.04 %     2,170,327     0.34 %
  1,300,000   11/1/16   Verizon Communications, Inc.   2.00 %     1,312,430     0.20 %
  4,800,000   6/9/17   Verizon Communications, Inc.   0.88 %     4,793,185     0.74 %
Transportation                    
  4,500,000   10/28/16   Kansas City Southern   1.16 %     4,496,674     0.70 %
Total U.S. corporate notes (cost: $198,467,053)           196,888,445     30.59 %
                               
Foreign Corporate Notes                    
Face Value   Maturity Date   Name   Yield 1                
Banks                    
$ 1,810,000   1/22/16   ABN AMRO Bank N.V.   1.38 %     1,821,127     0.28 %
  2,365,000   9/9/16   Bank of Tokyo-Mitsubishi UFJ, Ltd.   1.55 %     2,380,844     0.37 %
  2,584,000   9/22/16   Barclays Bank PLC   5.00 %     2,685,835     0.42 %
  800,000   1/29/18   Caisse Centrale Desjardins   0.99 %     799,842     0.12 %
  2,000,000   9/20/16   Commonwealth Bank of Australia   1.07 %     2,003,104     0.31 %
  1,800,000   5/26/17   Credit Suisse AG   1.38 %     1,793,903     0.28 %

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-6
 

  

Futures Portfolio Fund, Limited Partnership
Consolidated Condensed Schedule of Investments (continued)
December 31, 2015

                               
          Description     Fair Value     % of Partners’
Capital (Net
Asset Value)
 
Foreign Corporate Notes (continued)                    
Face Value   Maturity Date   Name   Yield 1                
Banks (continued)                    
$ 8,000,000   4/27/18   Credit Suisse AG   1.00 %   $ 7,959,269     1.23 %
  756,000   1/11/16   Deutsche Bank AG   3.25 %     767,886     0.12 %
  3,700,000   5/24/16   HSBC Bank PLC   3.10 %     3,743,250     0.58 %
  1,000,000   3/15/16   ING Bank N.V.   4.00 %     1,018,058     0.16 %
  5,000,000   8/17/18   ING Bank N.V.   1.14 %     5,024,448     0.78 %
  1,500,000   8/15/16   Macquarie Bank Limited   2.00 %     1,517,041     0.24 %
  2,000,000   12/9/16   National Australia Bank Limited   0.73 %     1,998,123     0.31 %
  5,000,000   7/23/18   National Australia Bank Limited   0.96 %     5,006,135     0.78 %
  1,950,000   5/13/16   Nordea Bank AB   0.88 %     1,952,066     0.30 %
  548,000   1/19/17   Rabobank Nederland   3.38 %     568,507     0.09 %
  1,158,000   9/9/16   Royal Bank of Canada   1.45 %     1,165,655     0.18 %
  1,200,000   1/18/16   Sumitomo Mitsui Bank   0.90 %     1,204,890     0.19 %
  1,800,000   7/12/16   Svenska Handelsbanken AB   3.13 %     1,846,627     0.29 %
  1,500,000   7/23/18   Toronto-Dominion Bank   0.86 %     1,497,653     0.23 %
Diversified financial services                    
  1,012,000   4/15/16   GE Capital International Funding Co.   0.96 %     1,012,921     0.16 %
Energy                    
  750,000   3/11/16   BP Capital Markets P.L.C.   3.20 %     760,566     0.12 %
  4,800,000   5/9/16   CNOOC Finance (2013) Limited   1.13 %     4,798,968     0.75 %
  1,000,000   5/10/17   Shell International Finance B.V.   0.66 %     999,488     0.16 %
  1,000,000   1/15/16   TransCanada PipeLines Limited   0.75 %     1,003,288     0.16 %
Holding company                    
  222,000   1/13/17   Hutchison Whampoa International (11) Ltd   3.50 %     229,384     0.04 %
Pharmaceutical                    
  6,790,000   3/12/18   Actavis Funding SCS   1.58 %     6,870,944     1.06 %
Semiconductors                    
  1,520,000   10/17/16   Siemens Financieringsmaatschappij N.V.   5.75 %     1,592,129     0.25 %
Telecommunication                    
  1,287,000   9/8/16   America Movil SAB DE CV   2.38 %     1,300,842     0.20 %
  1,300,000   4/11/16   Deutsche Telekom International Finance B.V.   3.13 %     1,316,291     0.20 %
  1,000,000   2/16/16   Telefonica Emisiones, S.A.U.   3.99 %     1,017,721     0.16 %
Total foreign corporate notes (cost: $67,851,993)           67,656,805     10.52 %
Total corporate notes (cost: $266,319,046)           264,545,250     41.11 %
                               
U.S. Asset Backed Securities                    
Face Value   Maturity Date   Name   Yield 1                
Automotive                    
$ 700,000   3/15/18   Ally Auto Receivables Trust 2015-2   0.98 %     699,431     0.11 %
  258,662   4/9/18   Americredit Automobile Receivables Tr 2014-4   0.68 %     258,621     0.04 %
  1,300,000   1/8/19   AmeriCredit Automobile Receivables Trust 2006-A-F   1.07 %     1,297,418     0.20 %
  513,173   2/8/19   AmeriCredit Automobile Receivables Trust 2006-A-F   0.90 %     512,195     0.08 %
  317,374   1/15/21   Ari Fleet Lease Tr 2012-B   0.63 %     316,798     0.05 %
  486,782   4/16/18   Bank of the West Auto Trust 2015-1   0.87 %     486,202     0.08 %
  1,400,000   1/22/18   BMW Vehicle Lease Trust 2015-2   1.07 %     1,396,601     0.22 %
  67,783   6/20/17   Capital Auto Receivables Asset Trust 2013-1   0.79 %     67,786     0.01 %
  475,000   10/20/17   Capital Auto Receivables Asset Trust 2015-2   0.81 %     474,265     0.07 %
  856,429   2/15/18   CarMax Auto Owner Trust 2014-4   0.67 %     855,631     0.13 %
  1,117,496   6/15/18   Carmax Auto Owner Trust 2015-2   0.82 %     1,115,167     0.17 %
  70,609   11/15/17   Drive Auto Receivables Tr 2015-A   1.01 %     70,592     0.01 %
  220,808   12/15/17   Drive Auto Receivables Tr 2015-B   0.93 %     220,621     0.03 %

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-7
 

  

Futures Portfolio Fund, Limited Partnership
Consolidated Condensed Schedule of Investments (continued)
December 31, 2015 

                               
          Description     Fair Value     % of Partners’
Capital (Net
Asset Value)
 
U.S. Asset Backed Securitiess (continued)                    
Face Value   Maturity Date   Name   Yield 1                
Automotive (continued)                    
$ 55,476   3/20/19   Enterprise Fleet Financing, LLC   1.06 %   $ 55,459     0.01 %
  345,000   5/15/18   Fifth Third Auto Trust 2015-1   1.02 %     344,327     0.05 %
  600,000   5/15/18   Ford Credit Auto Lease 2015-B   1.04 %     598,447     0.09 %
  217,000   9/15/17   Ford Credit Auto Lease Trust 2014-B   0.89 %     216,793     0.03 %
  645,000   3/15/18   Ford Credit Auto Owner Trust 2012-D   0.67 %     644,154     0.10 %
  754,588   8/15/17   Ford Credit Auto Owner Trust 2014-C   0.61 %     754,540     0.12 %
  1,332,350   3/15/18   Ford Credit Auto Owner Trust 2015-B   0.72 %     1,331,478     0.21 %
  500,000   7/20/19   GE Dealer Floorplan Master Not   0.78 %     498,239     0.08 %
  1,073,001   1/15/19   Harley-Davidson Motorcycle Trust 2015-2   0.80 %     1,069,918     0.17 %
  337,447   5/15/17   Honda Auto Receivables 2013-3 Owner Trust   0.77 %     337,380     0.05 %
  2,262,218   9/18/17   Honda Auto Receivables 2013-4 Owner Trust   0.69 %     2,260,433     0.36 %
  528,585   6/15/17   Honda Auto Receivables 2015-1 Owner Trust   0.70 %     528,234     0.08 %
  500,000   11/20/17   Honda Auto Receivables 2015-3 Owner Tr   0.92 %     499,511     0.08 %
  800,000   7/23/18   Honda Auto Receivables 2015-4 Owner Trust   0.82 %     798,033     0.12 %
  1,900,000   11/15/17   Hyundai Auto Lease Securitization Tr 2014-B   0.98 %     1,898,765     0.30 %
  821,121   10/16/17   Hyundai Auto Receivables Trust 2015-A   0.68 %     820,891     0.13 %
  700,000   11/15/18   Hyundai Auto Receivables Trust 2015-C   0.99 %     698,990     0.11 %
  1,020,000   1/16/18   Mercedes-Benz Auto Lease Trust 2015-B   1.00 %     1,017,989     0.16 %
  1,767,624   11/15/17   Nissan Auto Lease Trust 2015-A   0.68 %     1,766,793     0.27 %
  620,981   8/15/18   Nissan Auto Receivables 2013-C Owner Trust   0.67 %     619,775     0.10 %
  581,520   6/15/17   Nissan Auto Receivables 2014-B Owner Trust   0.60 %     581,275     0.09 %
  1,056,510   9/15/17   Nissan Auto Receivables 2015-A Owner Trust   0.67 %     1,055,702     0.16 %
  215,904   11/21/17   Porsche Innovative Lease Owner Tr 2015-1   0.79 %     215,439     0.03 %
  450,000   11/15/18   Santander Drive Auto Receivables Tr 2015-5   1.12 %     449,482     0.07 %
  1,000,000   9/17/18   Santander Drive Auto Receivables Trust 2014-4   1.08 %     999,912     0.16 %
  93,553   4/16/18   Santander Drive Auto Receivables Trust 2014-5   0.73 %     93,469     0.01 %
  1,008,000   4/8/19   Santander Drive Auto Receivables Trust 2015-4   1.26 %     1,006,995     0.16 %
  500,000   2/15/18   Toyota Auto Receivables 2015-C Owner Tr   0.66 %     499,531     0.08 %
  512,648   8/21/17   Volkswagen Auto Loan Enhanced Trust 2013-1   0.56 %     511,991     0.08 %
  549,589   4/20/18   Volkswagen Auto Loan Enhanced Trust 2013-2   0.70 %     546,997     0.08 %
  400,000   10/22/18   Volkswagen Auto Loan Enhanced Trust 2014-1   0.91 %     397,899     0.06 %
Commerial mortgages                    
  1,540,572   1/15/49