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EX-32.02 - CERTIFICATION OF CHIEF FINANCIAL OFFICER - FUTURES PORTFOLIO FUND L.P.ex32-02.htm
EX-32.01 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER - FUTURES PORTFOLIO FUND L.P.ex32-01.htm
EX-31.02 - CERTIFICATION OF CHIEF FINANCIAL OFFICER - FUTURES PORTFOLIO FUND L.P.ex31-02.htm
EX-31.01 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER - FUTURES PORTFOLIO FUND L.P.ex31-01.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2018

 

Commission file number: 000-50728

 

FUTURES PORTFOLIO FUND, LIMITED PARTNERSHIP

 

Organized in MarylandIRS Employer Identification No.: 52-1627106

 

c/o Steben & Company, Inc. 

9711 Washingtonian Blvd., Suite 400 

Gaithersburg, Maryland 20878 

(240) 631-7600

 

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, 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 every Interactive Data File required to be submitted 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 such files).

Yes ☒    No ☐

 

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

Large accelerated filer  ☐ Accelerated filer  ☐
Non-accelerated filer  ☒ Smaller Reporting Company  ☐
Emerging growth company  ☐    

  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.      ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐    No ☒

 

 

 

 

 

 

PART I: FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Futures Portfolio Fund, Limited Partnership 

Statements of Financial Condition 

September 30, 2018 and December 31, 2017

 

  

September 30, 2018 

(Unaudited) 

   December 31, 2017 
Assets          
Equity in broker trading accounts          
Cash  $38,191,061   $45,780,428 
Net unrealized gain (loss) on open futures contracts   10,530,803    8,930,417 
Net unrealized gain (loss) on open forward currency contracts   (832,555)   1,902,516 
Total equity in broker trading accounts   47,889,309    56,613,361 
Cash and cash equivalents   13,251,112    44,360,633 
Investment in SMFSF, at fair value (cost $31,693,882 and $29,594,058)   28,875,415    34,101,936 
Investments in securities, at fair value (cost $226,241,148 and $237,596,840)   225,495,985    237,378,016 
General Partner 1% allocation receivable   63,230     
Exchange membership, at fair value (cost $189,000)   150,500    232,000 
Total assets  $315,725,551   $372,685,946 
           
Liabilities and Partners’ Capital (Net Asset Value)          
Liabilities          
Trading Advisor management fees payable  $492,017   $569,189 
Trading Advisor incentive fees payable   324,536    1,297,698 
Commissions and other trading fees payable on open contracts   75,495    83,313 
Cash Managers fees payable   56,615    75,371 
General Partner management and performance fees payable   390,264    460,536 
General Partner 1% allocation payable       28,756 
Selling agent and broker dealer servicing fees payable – General Partner   363,457    434,439 
Administrative fee payable – General Partner   77,739    88,542 
Redemptions payable   3,484,890    11,825,677 
Subscriptions received in advance   537,959    287,000 
Total liabilities   5,802,972    15,150,521 
           
Partners’ Capital (Net Asset Value)          
Class A Interests – 50,993.7734 and 58,081.8421 units outstanding at September 30, 2018 and
December 31, 2017, respectively
   206,565,353    240,860,323 
Class B Interests – 13,896.3817 and 16,061.6377 units outstanding at September 30, 2018 and
December 31, 2017, respectively
   86,216,039    100,657,081 
Class I Interests – 3,466.2779 units outstanding at September 30, 2018 and December 31, 2017   3,538,128    3,547,299 
Class R Interests – 13,217.2774 and 12,013.6394 units outstanding at September 30, 2018 and
December 31, 2017, respectively
   13,603,059    12,470,722 
Total partners’ capital (net asset value)   309,922,579    357,535,425 
Total liabilities and partners’ capital (net asset value)  $315,725,551   $372,685,946 

 

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

 

1

 

 

Futures Portfolio Fund, Limited Partnership 

Condensed Schedule of Investments 

September 30, 2018 (Unaudited)

 

       Description  Fair Value   % of Partners’ Capital (Net Asset Value) 
INVESTMENTS IN SECURITIES              
U.S. Treasury Securities                 
 Face Value   Maturity Date  Name   Yield1          
$10,000,000   10/18/18  U.S. Treasury   1.99%  $9,989,626    3.22%
 4,475,000   10/31/18  U.S. Treasury   1.25%   4,495,142    1.46%
 10,000,000   11/15/18  U.S. Treasury   2.06%   9,973,294    3.22%
 10,000,000   12/20/18  U.S. Treasury   2.16%   9,951,906    3.21%
 10,000,000   2/28/19  U.S. Treasury   1.50%   9,976,445    3.22%
 6,000,000   3/15/19  U.S. Treasury   1.00%   5,963,952    1.92%
 9,000,000   4/30/19  U.S. Treasury   1.25%   8,983,719    2.90%
Total U.S. Treasury securities (cost:  $59,254,789)         59,334,084    19.15%
                        
U.S. Commercial Paper               
 Face Value   Maturity Date  Name   Yield1          
Aerospace                    
$1,600,000   10/23/18  General Dynamics Corporation   2.08%   1,597,977    0.52%
Automotive                    
 1,500,000   10/17/18  Hyundai Capital America   2.31%   1,498,467    0.47%
 1,600,000   10/10/18  Nissan Motor Acceptance Corporation   2.06%   1,599,180    0.52%
Banks                       
 1,600,000   12/11/18  Mizuho Bank, Ltd.   2.31%   1,592,774    0.51%
 1,500,000   11/8/18  MUFG Bank, Ltd.   2.14%   1,496,628    0.47%
 1,600,000   10/17/18  Nieuw Amsterdam Receivables Corporation   2.16%   1,598,471    0.52%
 1,600,000   12/7/18  Standard Chartered Bank   2.33%   1,593,121    0.51%
Beverages                   
 1,600,000   10/4/18  Brown-Forman Corporation   2.13%   1,599,717    0.52%
 1,600,000   11/6/18  Coca-Cola Company   2.10%   1,596,656    0.52%
Diversified financial services                   
 1,600,000   11/9/18  CRC Funding, LLC   2.16%   1,596,273    0.52%
 1,600,000   11/1/18  Gotham Funding Corporation   2.16%   1,597,038    0.52%
 1,800,000   10/9/18  J.P. Morgan Securities LLC   2.13%   1,799,152    0.58%
 1,500,000   11/19/18  Liberty Street Funding LLC   2.27%   1,495,406    0.47%
 1,600,000   10/5/18  Manhattan Asset Funding Company LLC   2.14%   1,599,621    0.52%
 1,500,000   10/16/18  Thunder Bay Funding, LLC   2.15%   1,498,662    0.48%
Energy                       
 1,600,000   11/6/18  NextEra Energy Capital Holdings, Inc.   2.47%   1,596,080    0.52%
 1,600,000   10/15/18  Oglethorpe Power Corporation   2.32%   1,598,563    0.52%
Media                       
 1,600,000   10/22/18  Comcast Corporation   2.47%   1,597,713    0.52%
Total U.S. commercial paper (cost:  $28,501,695)         28,551,499    9.21%
                        
Foreign Commercial Paper                 
 Face Value   Maturity Date  Name   Yield1          
Banks                       
$1,500,000   11/13/18  KfW   2.16%   1,496,146    0.48%
 1,600,000   10/19/18  Oversea-Chinese Banking Corporation Ltd   2.26%   1,598,200    0.52%
Chemicals                       
 1,500,000   10/26/18  Nutrien Ltd.   2.38%   1,497,542    0.48%
Diversified financial services                
 1,500,000   11/1/18  Nationwide Building Society   2.26%   1,497,094    0.48%
Energy                       
 1,600,000   10/26/18  Engie   2.12%   1,597,656    0.52%

 

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

 

2

 

  

Futures Portfolio Fund, Limited Partnership 

Condensed Schedule of Investments (continued) 

September 30, 2018 (Unaudited)

 

       Description  Fair Value   % of Partners’ Capital (Net Asset Value) 
Foreign Commercial Paper (continued)         
Face Value   Maturity Date  Name  Yield1        
Household products              
$1,600,000   10/2/18  Reckitt Benckiser Treasury Services PLC   2.24%  $1,599,901    0.52%
Telecommunications                
 1,600,000   12/14/18  Telstra Corporation Limited   2.42%   1,592,107    0.51%
Total foreign commercial paper (cost:  $10,850,415)      10,878,646    3.51%
Total commercial paper (cost:  $39,352,110)       39,430,145    12.72%
                        
U.S. Corporate Notes              
 Face Value   Maturity Date  Name   Yield1          
Aerospace                   
$5,000,000   8/16/21  United Technologies Corporation   3.35%   5,014,636    1.62%
Agriculture                    
 4,850,000   5/5/21  Altria Group, Inc.   4.75%   5,112,404    1.65%
Banks                    
 4,250,000   1/10/20  Citigroup Inc.   3.12%   4,310,166    1.39%
 5,000,000   10/29/20  JPMorgan Chase & Co.   2.55%   4,980,933    1.61%
 3,000,000   10/29/20  JPMorgan Chase & Co.   3.54%   3,075,515    0.99%
 4,750,000   1/15/21  Wells Fargo Bank, National Association   2.60%   4,697,840    1.52%
Beverages                    
 4,000,000   2/1/21  Anheuser-Busch InBev Finance Inc.   2.65%   3,958,587    1.28%
Diversified financial services                
 2,600,000   2/15/19  Goldman Sachs Group, Inc.   7.50%   2,670,885    0.86%
 2,250,000   4/25/19  Goldman Sachs Group, Inc.   3.38%   2,275,865    0.73%
 3,000,000   2/1/19  Morgan Stanley   2.45%   3,010,090    0.97%
Energy                   
 4,850,000   2/15/21  Enterprise Products Operating LLC   2.80%   4,803,623    1.55%
Food                       
 3,000,000   4/16/21  General Mills, Inc.   3.20%   3,023,183    0.98%
Healthcare                    
 5,000,000   9/17/21  Halfmoon Parent, Inc.   3.40%   4,978,361    1.61%
Media                    
 3,000,000   9/20/19  Discovery Communications, LLC   3.05%   3,015,364    0.97%
Pharmaceuticals                   
 4,200,000   5/11/20  Amgen Inc.   2.79%   4,233,725    1.37%
 3,500,000   6/25/21  Bayer US Finance II LLC   3.00%   3,515,367    1.13%
Retail                 
 3,000,000   6/1/21  CVS Health Corporation   2.13%   2,915,770    0.94%
Software                 
 3,500,000   10/8/19  Oracle Corporation   2.25%   3,521,289    1.14%
Telecommunications                   
 3,000,000   2/22/19  Apple Inc.   3.13%   3,020,043    0.97%
 6,000,000   2/15/19  AT&T Inc.   5.80%   6,111,427    1.97%
 2,500,000   9/20/19  Cisco Systems, Inc.   2.68%   2,509,345    0.81%
Total U.S. corporate notes (cost:  $81,661,706)       80,754,418    26.06%
                        
Foreign Corporate Notes               
Banks                 
$6,000,000   1/18/19  ABN AMRO Bank N.V.   2.97%   6,046,758    1.95%
 5,500,000   3/2/20  Danske Bank A/S   2.20%   5,410,362    1.75%

 

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

 

3

 

 

Futures Portfolio Fund, Limited Partnership 

Condensed Schedule of Investments (continued) 

September 30, 2018 (Unaudited)

 

       Description  Fair Value   % of Partners’ Capital (Net Asset Value) 
Foreign Corporate Notes (continued)               
 Face Value   Maturity Date  Name   Yield1          
Energy                   
$5,500,000   5/3/19  BP Capital Markets P.L.C.   1.68%  $5,505,941    1.78%
 4,000,000   9/12/19  Shell International Finance B.V.   1.38%   3,950,463    1.27%
 2,500,000   5/11/20  Shell International Finance B.V.   2.13%   2,486,685    0.80%
                        
 4,000,000   9/20/21  AIA Group Limited   2.86%   4,004,813    1.29%
                        
 4,500,000   11/15/20  GE Capital International Funding Company   2.34%   4,436,629    1.43%
                        
 2,250,000   3/12/20  Allergan Funding SCS   3.59%   2,285,087    0.74%
Total foreign corporate notes (cost:  $34,115,560)       34,126,738    11.01%
Total corporate notes (cost:  $115,777,266)       114,881,156    37.07%
                        
U.S. Asset Backed Securities              
 Face Value   Maturity Date  Name   Yield1          
Automotive                   
$700,000   1/8/21  AmeriCredit Automobile Receivables Tr 2015-2   2.40%   699,870    0.22%
 14,155   5/18/20  AmeriCredit Automobile Receivables Tr 2017-1   1.51%   14,152    0.00%
 23,232   7/15/24  Ari Fleet Lease Trust 2016-A   1.82%   23,236    0.01%
 228,031   9/15/20  CarMax Auto Owner Trust 2017-3   1.64%   227,463    0.07%
 176,481   4/15/20  Drive Auto Receivables Trust 2017-3   1.85%   176,503    0.06%
 575,000   6/15/21  Drive Auto Receivables Trust 2018-2   2.88%   575,845    0.19%
 500,000   11/15/21  Drive Auto Receivables Trust 2018-3   3.01%   500,294    0.16%
 700,000   4/15/26  Ford Credit Auto Owner Trust 2014-REV2   2.31%   696,155    0.22%
 154,295   1/21/20  GM Financial Automobile Leasing Tr 2017-2   1.72%   153,896    0.05%
 800,000   9/21/20  GM Financial Automobile Leasing Tr 2018-3   2.89%   800,201    0.26%
 492,309   4/20/20  GM Financial Automobile Leasing Trust 2018-1   2.39%   491,477    0.16%
 500,000   5/17/21  GM Financial Consumer Automobile Receivables Tr 2018-2   2.55%   499,726    0.16%
 187,846   2/18/20  Hyundai Auto Receivables Trust 2017-A   1.48%   187,619    0.06%
 631,190   4/15/20  Mercedes- Benz Auto Lease Trust 2018-A   2.20%   630,532    0.20%
 281,795   8/15/19  Mercedes-Benz Auto Lease Trust 2017-A   2.36%   282,053    0.09%
 346,075   9/16/19  Nissan Auto Lease Trust 2017-A   1.64%   345,445    0.11%
 307,212   2/16/21  Santander Drive Auto Receivables Trust 2016-2   2.08%   307,149    0.10%
 50,309   6/15/20  Santander Drive Auto Receivables Trust 2017-3   1.67%   50,323    0.02%
 500,000   10/15/20  Santander Drive Auto Receivables Trust 2018-2   2.58%   500,328    0.16%
 275,978   3/20/20  Santander Retail Auto Lease Trust 2017-A   2.02%   275,130    0.09%
 173,933   12/20/19  Tesla Auto Lease Trust 2018-A   2.32%   173,579    0.06%
Credit cards                   
 325,000   4/15/19  Capital One Multi-Asset Execution Trust   2.61%   326,054    0.11%
 175,000   5/15/19  Chase Issuance Trust   2.57%   175,579    0.06%
 600,000   8/15/19  Chase Issuance Trust   1.58%   594,097    0.19%
 600,000   1/15/19  Discover Card Execution Note Trust   1.64%   598,937    0.19%
Equipment                    
 178,852   11/16/20  CNH Equipment Trust 2017-B   1.59%   178,309    0.06%
 385,995   2/24/20  Dell Equipment Finance Trust 2017-2   1.97%   384,877    0.12%
 500,000   10/22/20  Dell Equipment Finance Trust 2018-1   2.51%   500,599    0.16%
 192,297   6/20/19  GreatAmerica Leasing Receivables Funding, LLC   1.73%   192,129    0.06%
 475,000   12/20/20  Verizon Owner Trust 2017-2   1.92%   469,028    0.15%

 

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

 

4

 

 

Futures Portfolio Fund, Limited Partnership 

Condensed Schedule of Investments (continued) 

September 30, 2018 (Unaudited)

 

          Description  Fair Value   % of Partners’ Capital (Net Asset Value) 
U.S. Asset Backed Securities (continued)          
  Face Value    Maturity Date  Name   Yield1           
Student loans                       
$ 306,544    3/25/67  Navient Student Loan Trust 2018-1   2.25%  $306,656    0.10%
  463,972    3/25/67  Navient Student Loan Trust 2018-2   2.46%   464,362    0.15%
  48,762    11/25/27  SLM Student Loan Trust 2011-2   2.82%   48,997    0.02%
Total U.S. asset backed securities (cost:  $11,856,983)        11,850,600    3.82%
Total investments in securities (cost:  $226,241,148)       $225,495,985    72.76%
                          
                          

OPEN FUTURES CONTRACTS

           
Long U.S. Futures Contracts              
          Agricultural commodities       $19,605    0.01%
          Currencies        226,355    0.07%
          Energy2        3,520,854    1.15%
          Equity indices        137,714    0.04%
          Interest rate instruments        (834,204)   (0.27)%
          Metals        417,558    0.13%
          Single stock futures        63,228    0.02%
  Net unrealized gain (loss) on open long U.S. futures contracts   3,551,110    1.15%
                          
Short U.S. Futures Contracts            
          Agricultural commodities        1,379,476    0.45%
          Currencies        1,260,881    0.41%
          Energy        (136,853)   (0.04)%
          Equity indices        (1,042,964)   (0.34)%
          Interest rate instruments        3,016,213    0.96%
          Metals        (122,588)   (0.04)%
          Single stock futures        21,134    0.01%
Net unrealized gain (loss) on open short U.S. futures contracts  4,375,299    1.41%
                          
Total U.S. Futures Contracts - net unrealized gain (loss) on open U.S. futures contracts  7,926,409    2.56%
                          
Long Foreign Futures Contracts              
          Agricultural commodities       $3,367    0.00%
          Currencies        34,642    0.01%
          Energy        623    0.00%
          Equity indices2        3,972,229    1.29%
          Interest rate instruments        (1,696,363)   (0.55)%
          Metals        (343)   0.00%
          Single stock futures        (313)   0.00%
  Net unrealized gain (loss) on open long foreign futures contracts     2,313,842    0.75%
          

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

 

5

 

 

Futures Portfolio Fund, Limited Partnership 

Condensed Schedule of Investments (continued) 

September 30, 2018 (Unaudited)

 

  Description  Fair Value   % of Partners’ Capital (Net Asset Value) 
OPEN FUTURES CONTRACTS (continued)        
Short Foreign Futures Contracts          
  Agricultural commodities  $91,928    0.03%
  Currencies   42,492    0.01%
  Energy   5,610    0.00%
  Equity indices   (121,922)   (0.04)%
  Interest rate instruments   284,369    0.09%
  Metals   (11,925)   0.00%
Net unrealized gain (loss) on open short foreign futures contracts   290,552    0.09%
             
Total foreign futures contracts - net unrealized gain (loss) on open foreign futures contracts   2,604,394    0.84%
             
Net unrealized gain (loss) on open futures contracts  $10,530,803    3.40%
             
OPEN FORWARD CURRENCY CONTRACTS          
U.S. Forward Currency Contracts          
  Long  $169,451    0.05%
  Short   (541,967)   (0.17)%
Net unrealized gain (loss) on open U.S. forward currency contracts   (372,516)   (0.12)%
             
Foreign Forward Currency Contracts          
  Long   64,846    0.02%
  Short   (524,885)   (0.17)%
Net unrealized gain (loss) on open foreign forward currency contracts   (460,039)   (0.15)%
             
Net unrealized gain (loss) on open forward currency contracts  $(832,555)   (0.27)%

 

1 Represents the annualized yield at date of purchase for discount securities or the stated coupon rate for coupon-bearing securities.

 

2 No individual futures or forward currency contract position constituted one percent or greater of partners’ capital (net asset value). Accordingly, the number of contracts and expiration dates are not presented.

 

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

 

6

 

 

Futures Portfolio Fund, Limited Partnership

 Condensed Schedule of Investments

December 31, 2017

 

       Description  Fair Value   % of Partners’ Capital (Net Asset Value) 
INVESTMENTS IN SECURITIES           
U.S. Treasury Securities               
 Face Value   Maturity Date  Name   Yield1          
$15,000,000   1/11/18  U.S. Treasury   1.03%  $14,994,718    4.19%
 12,000,000   2/15/18  U.S. Treasury   1.24%   11,980,967    3.35%
 5,250,000   2/15/18  U.S. Treasury   1.00%   5,267,888    1.47%
 15,000,000   3/15/18  U.S. Treasury   1.31%   14,960,225    4.18%
 4,000,000   4/30/18  U.S. Treasury   2.63%   4,033,583    1.14%
 7,000,000   7/31/18  U.S. Treasury   2.25%   7,091,810    1.98%
 Total U.S. Treasury securities (cost:  $58,285,077)         58,329,191    16.31%
                        
U.S. Commercial Paper              
 Face Value   Maturity Date  Name   Yield1          
Automotive                       
$1,500,000   1/24/18  Hyundai Capital America   1.54%   1,498,535    0.42%
 1,500,000   1/3/18  Nissan Motor Acceptance Corporation   1.32%   1,499,890    0.42%
Banks                       
 1,500,000   1/10/18  Nieuw Amsterdam Receivables Corporation   1.37%   1,499,486    0.42%
 1,600,000   2/5/18  Standard Chartered Bank   1.43%   1,597,791    0.44%
 1,500,000   2/20/18  United Overseas Bank Limited   1.53%   1,496,833    0.41%
Beverages                       
 1,500,000   1/29/18  Brown-Forman Corporation   1.68%   1,498,052    0.42%
Computers                       
 1,500,000   1/8/18  Hewlett Packard Enterprise Company   1.62%   1,499,530    0.42%
Diversified financial services                   
 1,600,000   1/18/18  DCAT, LLC   1.46%   1,598,904    0.45%
 1,500,000   1/12/18  Gotham Funding Corporation   1.36%   1,499,377    0.42%
 1,500,000   1/9/18  Liberty Street Funding LLC   1.35%   1,499,550    0.42%
 1,600,000   1/4/18  Manhattan Asset Funding Company LLC   1.34%   1,599,821    0.45%
 1,500,000   1/5/18  Regency Markets No. 1, LLC   1.43%   1,499,763    0.42%
Electronic equipment                   
 1,500,000   1/16/18  Molex Electronic Technologies, LLC   1.78%   1,498,894    0.42%
  Energy                       
 1,500,000   1/25/18  Oglethorpe Power Corporation   1.63%   1,498,380    0.42%
 1,600,000   1/19/18  Sempra Energy Global Enterprises   1.86%   1,598,520    0.44%
 1,500,000   1/10/18  Southern Company Funding Corporation   1.71%   1,499,363    0.42%
Insurance                
 1,500,000   1/18/18  AXA Financial, Inc.   1.42%   1,499,001    0.42%
Nonprofit                      
 1,600,000   1/5/18  The Salvation Army   1.32%   1,599,765    0.45%
Manufactoring                   
 1,500,000   1/22/18  Caterpillar Financial Services Corporation   1.38%   1,498,801    0.42%
Semiconductors                      
 1,500,000   1/9/18  Lam Research Corporation   1.64%   1,499,457    0.42%
Total U.S. commercial paper (cost:  $30,434,788)         30,479,713    8.52%
                        
Foreign Commercial Paper                  
 Face Value   Maturity Date  Name   Yield1          
Banks                   
$1,500,000   2/2/18  Bank of Nova Scotia   1.70%   1,497,746    0.42%
 1,600,000   1/5/18  DBS Bank Ltd.   1.35%   1,599,760    0.45%
 1,500,000   1/4/18  KfW (Kreditanstalt fur Wiederaufbau)   1.30%   1,499,838    0.42%

 

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

 

7

 


 

Futures Portfolio Fund, Limited Partnership

Condensed Schedule of Investments (continued)

December 31, 2017

 

       Description  Fair Value   % of Partners’ Capital (Net Asset Value) 
Foreign Commercial Paper (continued)               
 Face Value   Maturity Date  Name   Yield1          
Energy                   
$1,500,000   1/8/18  Total Capital Canada Ltd.   1.66%  $1,499,519    0.42%
Telecommunications                   
 1,600,000   2/5/18  Telstra Corporation Limited   1.47%   1,597,729    0.45%
Total foreign commercial paper (cost:  $7,683,747)         7,694,592    2.16%
Total commercial paper (cost:  $38,118,535)         38,174,305    10.68%
                        
U.S. Corporate Notes                  
 Face Value   Maturity Date  Name   Yield1          
Automotive                   
$5,700,000   3/2/18  Daimler Finance North America LLC   1.91%   5,709,253    1.60%
 6,500,000   1/9/18  Ford Motor Credit Company LLC   2.29%   6,534,842    1.83%
Banks                   
 6,950,000   4/27/18  Credit Suisse AG   2.05%   6,986,324    1.94%
 3,000,000   10/29/20  JPMorgan Chase & Co.   2.58%   3,080,581    0.86%
 6,625,000   2/9/18  MUFG Americas Holdings Corporation   1.97%   6,645,233    1.86%
Computers                   
 2,000,000   2/22/19  Apple Inc.   1.70%   2,007,229    0.56%
 3,000,000   2/22/19  Apple Inc.   2.27%   3,033,911    0.85%
Diversified financial services                   
 2,600,000   2/15/19  Goldman Sachs Group, Inc.   7.50%   2,821,243    0.79%
 2,250,000   4/25/19  Goldman Sachs Group, Inc.   2.41%   2,278,614    0.64%
 3,000,000   10/15/18  Intercontinental Exchange, Inc.   2.50%   3,027,533    0.85%
 3,000,000   2/1/19  Morgan Stanley   2.45%   3,038,005    0.85%
Healthcare                   
 7,500,000   6/7/18  Aetna Inc.   1.70%   7,496,650    2.10%
 500,000   1/15/18  Anthem, Inc.   1.88%   504,288    0.14%
 6,325,000   4/1/18  Zimmer Biomet Holdings, Inc.   2.00%   6,358,902    1.78%
Media                   
 3,000,000   9/20/19  Discovery Communications, LLC   2.34%   3,018,925    0.84%
Pharmaceuticals                   
 5,775,000   5/14/18  AbbVie Inc.   1.80%   5,785,684    1.62%
 4,200,000   5/11/20  Amgen Inc.   1.86%   4,226,820    1.18%
Retail                   
 6,000,000   7/20/18  CVS Health Corporation   1.90%   6,049,123    1.69%
 3,000,000   9/10/18  Home Depot, Inc.   2.25%   3,029,363    0.85%
Software                   
 3,500,000   10/8/19  Oracle Corporation   2.25%   3,533,591    0.99%
Telecommunications                   
 6,000,000   2/15/19  AT&T Inc.   5.80%   6,357,427    1.78%
 2,500,000   9/20/19  Cisco Systems, Inc.   1.97%   2,516,388    0.70%
Total U.S. corporate notes (cost:  $94,458,841)         94,039,929    26.30%

 

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

 

8

 

 

Futures Portfolio Fund, Limited Partnership

Condensed Schedule of Investments (continued)

December 31, 2017

 

       Description  Fair Value   % of Partners’ Capital (Net Asset Value) 
Foreign Corporate Notes                  
 Face Value   Maturity Date  Name   Yield1          
Banks                   
$6,000,000   1/18/19  ABN AMRO Bank N.V.   1.99%  $6,049,704    1.69%
 4,000,000   8/17/18  ING Bank N.V.   2.20%   4,026,210    1.13%
 3,500,000   7/23/18  National Australia Bank Limited   2.00%   3,523,463    0.99%
Energy                   
 5,500,000   5/3/19  BP Capital Markets P.L.C.   1.68%   5,485,426    1.53%
 5,500,000   9/12/19  Shell International Finance B.V.   1.38%   5,454,808    1.53%
 2,500,000   5/11/20  Shell International Finance B.V.   2.13%   2,502,003    0.70%
Pharmaceuticals                   
 5,915,000   3/12/18  Allergan Funding SCS   2.63%   5,932,274    1.66%
 2,250,000   3/12/20  Allergan Funding SCS   2.80%   2,286,062    0.63%
Total foreign corporate notes (cost:  $35,149,970)         35,259,950    9.86%
Total corporate notes (cost:  $129,608,811)         129,299,879    36.16%
                        
U.S. Asset Backed Securities                  
 Face Value   Maturity Date  Name   Yield1          
Automotive                   
$98,838   5/18/20  Americredit Automobile Receivables Trust 2017-1   1.51%   98,733    0.03%
 146,957   7/15/24  Ari Fleet Lease Trust 2016-A   1.82%   147,004    0.04%
 336,449   9/20/19  Capital Auto Receivables Asset Trust 2015-2   1.73%   336,620    0.09%
 37,929   4/22/19  Capital Auto Receivables Asset Trust 2016-3   1.92%   37,965    0.01%
 356,197   11/15/19  CarMax Auto Owner Trust 2016-4   1.21%   355,640    0.10%
 450,000   9/15/20  CarMax Auto Owner Trust 2017-3   1.64%   449,383    0.13%
 99,576   11/15/19  Drive Auto Receivables Trust 2016-C   1.67%   99,636    0.03%
 228,248   8/15/19  Drive Auto Receivables Trust 2017-2   1.76%   228,446    0.06%
 650,000   4/15/20  Drive Auto Receivables Trust 2017-3   1.85%   649,605    0.18%
 330,485   1/15/20  Drive Auto Receivables Trust 2017-A   1.77%   330,643    0.09%
 164,867   2/22/21  Enterprise Fleet Financing, LLC   1.59%   164,807    0.05%
 300,000   1/21/20  GM Financial Automobile Leasing Trust 2017-2   1.72%   299,567    0.08%
 697,342   2/18/20  Hyundai Auto Receivables Trust 2017-A   1.48%   696,699    0.19%
 938,786   8/15/19  Mercedes-Benz Auto Lease Trust 2017-A   1.68%   939,698    0.26%
 700,000   9/16/19  Nissan Auto Lease Trust 2017-A   1.64%   698,739    0.20%
 650,000   2/16/21  Santander Drive Auto Receivables Trust 2016-2   2.08%   650,731    0.18%
 66,077   11/15/19  Santander Drive Auto Receivables Trust 2016-3   1.34%   66,091    0.02%
 333,862   5/15/19  Santander Drive Auto Receivables Trust 2017-1   1.82%   334,219    0.09%
 300,000   6/15/20  Santander Drive Auto Receivables Trust 2017-3   1.67%   299,683    0.08%
 350,000   3/20/20  Santander Retail Auto Lease Trust 2017-A   2.02%   349,621    0.11%
Credit cards                   
 600,000   1/15/19  Discover Card Execution Note Trust   1.64%   598,529    0.17%
 600,000   8/15/18  World Financial Network CC Master Note Trust   1.44%   598,614    0.17%
Equipment                   
 400,000   11/16/20  CNH Equipment Trust 2017-B   1.59%   399,107    0.11%
 80,251   9/22/20  Dell Equipment Finance Trust 2015-2   1.72%   80,277    0.02%
 625,000   2/24/20  Dell Equipment Finance Trust 2017-2   1.97%   624,052    0.17%
 1,121,319   6/20/19  GreatAmerica Leasing Receivables Funding, LLC   1.73%   1,120,812    0.31%
Student loans                   
 560,237   11/15/23  SMB Private Education Loan Trust 2016-B   2.13%   561,265    0.16%
 358,771   3/25/31  Sofi Professional Loan Program 2016-B   1.68%   358,455    0.11%
Total U.S. asset backed securities (cost:  $11,584,417)         11,574,641    3.24%
Total investments in securities (cost:  $237,596,840)       $237,378,016    66.39%

 

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

 

9

 


Futures Portfolio Fund, Limited Partnership

Condensed Schedule of Investments (continued)

December 31, 2017

 

  Description  Fair Value   % of Partners’ Capital (Net Asset Value) 
OPEN FUTURES CONTRACTS          
Long U.S. Futures Contracts         
  Agricultural commodities  $305,151    0.09%
  Currencies   1,214,348    0.34%
  Energy2   4,890,568    1.37%
  Equity indices   1,917,330    0.53%
  Interest rate instruments   168,325    0.05%
  Metals          
  Copper LME (504 contracts, Jan-May 2018)   4,962,173    1.39%
  Other2   8,470,155    2.37%
  Single stock futures   69,750    0.02%
Net unrealized gain (loss) on open long U.S. futures contracts   21,997,800    6.16%
             
Short U.S. Futures Contracts          
  Agricultural commodities   445,659    0.12%
  Currencies   (800,473)   (0.22)%
  Energy   (1,010,725)   (0.28)%
  Equity indices   (468,325)   (0.13)%
  Interest rate instruments   896,903    0.25%
  Metals2          
  Copper LME (424 contracts, Jan-Mar 2018)   (4,103,670)   (1.15)%
  Other2   (6,851,903)   (1.92)%
  Single stock futures   (34,323)   (0.01)%
Net unrealized gain (loss) on open short U.S. futures contracts   (11,926,857)   (3.34)%
             
Total U.S. Futures Contracts - net unrealized gain (loss) on open U.S. futures contracts   10,070,943    2.82%
             
Long Foreign Futures Contracts          
  Agricultural commodities  $(334)   0.00%
  Currencies   (24,734)   (0.01)%
  Energy   4,034    0.00%
  Equity indices   523,254    0.15%
  Interest rate instruments   (2,676,823)   (0.75)%
  Metals   7,752    0.00%
  Single stock futures   (972)   0.00%
Net unrealized gain (loss) on open long foreign futures contracts   (2,167,823)   (0.61)%
             
Short Foreign Futures Contracts          
  Agricultural commodities   214,672    0.06%
  Currencies   311,035    0.09%
  Energy   42,517    0.01%
  Equity indices   200,527    0.06%
  Interest rate instruments   264,190    0.07%
  Metals   (5,644)   0.00%
Net unrealized gain (loss) on open short foreign futures contracts   1,027,297    0.29%
             
Total foreign futures contracts - net unrealized gain (loss) on open foreign futures contracts   (1,140,526)   (0.32)%
             
Net unrealized gain (loss) on open futures contracts  $8,930,417    2.50%

 

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

 

10

 

 

Futures Portfolio Fund, Limited Partnership

Condensed Schedule of Investments (continued)

December 31, 2017

 

  Description  Fair Value   % of Partners’ Capital (Net Asset Value) 
OPEN FORWARD CURRENCY CONTRACTS        
U.S. Forward Currency Contracts          
  Long  $3,171,470    0.88%
  Short   (2,160,530)   (0.60)%
Net unrealized gain (loss) on open U.S. forward currency contracts   1,010,940    0.28%
             
Foreign Forward Currency Contracts          
  Long   (273,779)   (0.08)%
  Short   1,165,355    0.33%
Net unrealized gain (loss) on open foreign forward currency contracts   891,576    0.25%
             
Net unrealized gain (loss) on open forward currency contracts  $1,902,516    0.53%

 

1 Represents the annualized yield at date of purchase for discount securities, the stated coupon rate for coupon-bearing securities, or the stated interest rate for certificates of deposit.

 

2 No individual futures or forward currency contract position constituted one percent or greater of partners’ capital (net asset value). Accordingly, the number of contracts and expiration dates are not presented.

 

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

 

11

 

 

Futures Portfolio Fund, Limited Partnership 

Consolidated Statements of Operations 

For the Three and Nine Months Ended September 30, 2018 and 2017 

(Unaudited)

 

  

Three Months Ended 

September 30, 

  

Nine Months Ended 

September 30, 

 
   2018   2017   2018   2017 
Realized and change in unrealized gain (loss) on investments                    
Net realized gain (loss) on:                    
Futures and forward contracts  $1,993,988   $(9,839,658)  $7,433,694   $(2,048,554)
Investments in SMFSF   (108,152)   80,105    50,355    80,105 
Investments in securities and CDs   (197,105)   142,942    12,229    169,099 
Net change in unrealized gain (loss) on:                    
Futures and forward contracts   2,665,912    17,516,487    (642,185)   (7,693,615)
Investments in SMFSF   678,607    (572,177)   (1,276,876)   (572,177)
Investments in securities and CDs   154,429    36,487    (369,520)   168,346 
Exchange membership   (44,500)   21,750    (81,500)   43,500 
Brokerage commissions and trading expenses   (1,044,027)   (1,247,256)   (3,268,371)   (3,742,728)
Net realized and changed in unrealized gain (loss) on investments   4,099,152    6,138,680    1,857,828    (13,596,024)
                     
Net investment income (loss)                    
Income                    
Interest income (loss)    1,546,031    1,294,030    4,232,665    4,127,974 
                     
Expenses                    
Trading Advisor management fee   1,211,614    1,528,553    3,806,949    5,224,961 
Trading Advisor incentive fee   325,613    86,974    458,847    3,401,806 
Cash manager fees   61,891    76,038    182,527    269,927 
General Partner management and performance fees   1,187,700    1,464,389    3,737,716    5,033,328 
Selling agent and broker dealer servicing fees – General Partner   1,108,320    1,370,972    3,500,026    4,645,348 
General Partner 1% allocation    15,187    12,530    (63,230)   (297,618)
Administrative expenses – General Partner   231,314    274,670    727,416    940,774 
Investment Manager fees       226,354        953,748 
Distribution (12b-1) fees       6,692        25,397 
Operating services fee       31,043        130,800 
Total expenses   4,141,639    5,078,215    12,350,251    20,328,471 
Net investment income (loss)   (2,595,608)   (3,784,185)   (8,117,586)   (16,200,497)
Net income (loss)   1,503,544    2,354,495    (6,259,760)   (29,796,521)
Less: net (income) loss attributable to non-controlling interest       (1,114,081)       332,291 
Net income (loss) attributable to the Fund  $1,503,544   $1,240,414   $(6,259,760)  $(29,464,230)

 

12

 

 

Futures Portfolio Fund, Limited Partnership 

Consolidated Statements of Operations (continued) 

For the Three and Nine Months Ended September 30, 2018 and 2017 

(Unaudited)

 

   Three Months Ended September 30, 2018 
    Class A    Class B    Class I    Class R 
Increase (decrease) in net asset value per unit  $13.17   $47.72   $10.37   $8.42 
Net income (loss) per unit†  $13.00   $47.74   $10.37   $8.46 
                     
Weighted average number of units outstanding   52,086.2201    14,217.0063    3,466.2779    13,223.7049 

 

   Three Months Ended September 30, 2017 
    Class A    Class B    Class I    Class R 
Increase (decrease) in net asset value per unit  $(0.14)  $25.33   $6.43   $4.66 
Net income (loss) per unit†  $5.31   $41.29   $6.59   $6.30 
                     
Weighted average number of units outstanding   66,562.7105    18,942.0684    3,751.4065    12,702.8260 

 

   Nine Months Ended September 30, 2018 
    Class A    Class B    Class I    Class R 
Increase (decrease) in net asset value per unit  $(96.11)  $(62.72)  $(2.64)  $(8.86)
Net income (loss) per unit†  $(98.94)  $(52.51)  $(2.65)  $(6.03)
                     
Weighted average number of units outstanding   54,483.8423    14,898.0888    3,466.2779    12,857.6758 

 

   Nine Months Ended September 30, 2017 
   Class A   Class B   Class I   Class R 
Increase (decrease) in net asset value per unit  $(283.69)  $(344.84)  $(48.82)  $(50.43)
Net income (loss) per unit†  $(281.75)  $(342.26)  $(47.29)  $(50.88)
                     
Weighted average number of units outstanding   73,215.6232    23,391.8162    3,597.1033    12,971.5921 

 

† (based on weighted average number of units outstanding during the period)

 

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

 

13

 

 

Futures Portfolio Fund, Limited Partnership 

Consolidated Statements of Cash Flows 

For the Nine Months Ended September 30, 2018 and 2017 

(Unaudited)

 

   2018   2017 
Cash flows from operating activities          
Net income (loss)  $(6,259,760)  $(29,796,521)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities          
Net change in unrealized (gain) loss from futures and forwards contracts   1,134,685    7,671,816 
Net realized and change in unrealized (gain) loss on SMFSF, securities and certificates of deposit   1,583,812    154,627 
Purchases of securities and certificates of deposit   (433,829,676)   (572,811,282)
Proceeds from disposition of SMFSF, securities and certificates of deposit      449,354,416    720,420,797 
Changes in          
Exchange membership   81,500    (43,500)
Trading Advisor management fee payable   (77,172)   (17,908)
Trading Advisor incentive fee payable   (973,162)   (1,494,204)
Commissions and other trading fees payable on open contracts   (7,818)   (25,661)
Cash Managers fees payable   (18,756)   (4,711)
General Partner management and performance fees payable   (70,272)   (219,923)
General Partner 1% allocation receivable/payable   (91,986)   (198,867)
Selling agent and broker dealer servicing fees payable – General Partner   (70,982)   (194,649)
Administrative fee payable – General Partner   (10,803)   (39,864)
Investment Manager fee payable       (16,315)
Distribution (12b-1) fees payable       370 
Operating services fee payable       (2,238)
Net cash provided by (used in) operating activities   10,744,026    123,381,967 
           
Cash flows from financing activities          
Subscriptions   4,978,674    18,793,457 
Subscriptions received in advance   537,959    286,000 
Redemptions   (54,959,547)   (163,334,507)
Non-controlling interest – subscriptions       (161,710)
Non-controlling interest – redemptions       (269,299)
Effect of deconsolidation of SMFSF       (19,504,266)
Net cash provided by (used in) financing activities   (49,442,914)   (164,190,325)
           
Net increase (decrease) in cash and cash equivalents   (38,698,888)   (40,808,358)
Cash and cash equivalents, beginning of period   90,141,061    118,136,562 
Cash and cash equivalents, end of period  $51,442,173   $77,328,204 
           
End of period cash and cash equivalents consists of          
Cash in broker trading accounts  $38,191,061   $63,212,307 
Cash and cash equivalents not in broker trading accounts   13,251,112    14,115,897 
Total end of period cash and cash equivalents  $51,442,173   $77,328,204 

 

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

 

14

 

 

Futures Portfolio Fund, Limited Partnership 

Consolidated Statements of Cash Flows (continued) 

For the Nine Months Ended September 30, 2018 and 2017

(Unaudited)

 

   2018   2017 
Supplemental disclosure of cash flow information          
Prior period redemptions paid  $11,825,677   $18,217,216 
Prior period subscriptions received in advance  $287,000   $2,687,191 
           
Supplemental schedule of non-cash financing activities          
Redemptions payable  $3,484,890   $14,901,008 

 

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

 

15 

 

 

Futures Portfolio Fund, Limited Partnership 

Consolidated Statements of Changes in Partners’ Capital (Net Asset Value) 

For the Nine Months Ended September 30, 2018 and 2017

(Unaudited)

 

   Class A   Class B   Class I   Class R   Non-Controlling Interest       
   Units   Amount   Units   Amount   Units   Amount   Units   Amount   Amount   Total 

Nine months ended September 30, 2018

                                              

Balance at December 31, 2017

  58,081.8421   $240,860,323   16,061.6377   $100,657,081   3,466.2779   $3,547,299   12,013.6394   $12,470,722   $   $357,535,425 
Net income (loss)       (5,390,656)       (782,353)       (9,171)       (77,580)       (6,259,760)
Subscriptions  471.4308    1,916,374   256.9229    1,577,300          1,757.7245    1,772,000        5,265,674 
Redemptions  (6,999.0859)   (28,569,709)  (2,789.7048)   (17,486,968)         (554.0865)   (562,083)       (46,618,760)
Transfers  (560.4136)   (2,250,979)  367.5259    2,250,979                       

Balance at September 30, 2018

  50,993.7734   $206,565,353   13,896.3817   $86,216,039   3,466.2779   $3,538,128   13,217.2774   $13,603,059   $   $309,922,579 
                                               

Nine months ended September 30, 2017

                                              

Balance at December 31, 2016

  84,825.0303   $347,445,757   29,193.8071   $177,512,074   3,828.4541   $3,763,781      $   $34,477,673   $563,199,285 
Net income (loss)       (20,628,190)       (8,005,986)       (170,098)       (659,956)   (332,291)   (29,796,521)
Subscriptions  991.2813    3,984,328   532.3170    3,218,700   519.3249    500,000   775.2776    760,000    13,017,620    21,480,648 
Redemptions  (22,000.6112)   (87,487,792)  (10,390.4768)   (61,159,719)  (881.5011)   (855,189)  (1,887.9383)   (1,827,632)   (8,993,026)   (160,323,358)
Transfers  (361.1106)   (1,403,904)  (1,974.9518)   (11,990,485)         13,399.0197    13,394,389         

Balance at September 30, 2017

  63,454.5898   $241,910,199   17,360.6955   $99,574,584   3,466.2779   $3,238,494   12,286.3590   $11,666,801   $   $356,390,078 

  

Net Asset Value per Unit

 

    Class A   Class B   Class I   Class R 
September 30, 2018   $4,050.80   $6,204.21   $1,020.73   $1,029.19 
December 31, 2017    4,146.91    6,266.93    1,023.37    1,038.05 
September 30, 2017    3,812.34    5,735.63    934.29    949.57 
December 31, 2016    4,096.03    6,080.47    983.11     

 

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

 

16 

 

 

Futures Portfolio Fund, Limited Partnership 

Notes to Consolidated Financial Statements

 

1.Organization and Summary of Significant Accounting Policies

 

Description of the Fund

 

Futures Portfolio Fund, Limited Partnership (“Fund”) is a Maryland limited partnership, which operates as a commodity investment pool that commenced trading operations on January 2, 1990. The Fund issues units of limited partner interests (“Units”) in six classes, Class A, A2, A3, B, I and R, which represent units of fractional undivided beneficial interest in and ownership of the Fund. 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”).

 

The Fund uses commodity trading advisors to engage in the speculative trading of futures contracts, forward currency contracts and other financial instruments traded in the United States (“U.S.”) and internationally.

 

The Fund is a registrant with the U.S. Securities and Exchange Commission (“SEC”) pursuant to the U.S. Securities Exchange Act of 1934, as amended (“1934 Act”). As a registrant, the Fund is subject to the regulations of the SEC and the disclosure requirements of the 1934 Act. As a commodity pool, the Fund is subject to the regulations of the U.S. Commodity Futures Trading Commission (“CFTC”), an agency of the U.S. Government, which regulates most aspects of the commodity futures industry; rules of the National Futures Association (“NFA”), an industry self-regulatory organization; rules of Financial Industry Regulatory Authority (“FINRA”), 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 the futures brokers and interbank market makers through which the Fund trades.

 

Steben & Company, Inc. (“General Partner”), is the general partner of the Fund and a Maryland corporation registered with the CFTC as a commodity pool operator and a commodities introducing broker, and is also registered with the SEC as a registered investment advisor and a broker dealer. The General Partner is a member of the NFA and FINRA. The General Partner manages all aspects of the Fund’s business and serves as one of the Fund’s selling agents.

 

The six classes of Units in the Fund differ only in the fees applicable to each class. Class A Units are subject to a 2% per annum selling agent fee. Class A2 Units may pay an up-front sales commission of up to 3% of the offering price and a 0.6% per annum selling agent fee. Class A3 Units may pay an up-front sales commission of up to 2% of the offering price and a 0.75% per annum selling agent fee. Class B Units are subject to a 0.2% per annum broker dealer servicing fee. Class I Units are subject to higher minimum investments requirements and lower General Partner management fees (0.75% per annum instead of 1.50% per annum) as well as a General Partner performance fee (7.5% of new profits, described more fully in Footnote 4). Class R Units do not pay selling compensation or servicing fees to selling agents, and are generally intended for clients of registered investment advisors. Class R Units were introduced in March 2017, and Class A2 and A3 Units were introduced in June 2017. There were no Class A2 or Class A3 Units outstanding on September 30, 2018.

 

At September 30, 2018, the Fund owned approximately $29 million of Class I shares of the Steben Managed Futures Strategy Fund (“SMFSF”), which represents approximately 37% of that fund. SMFSF 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 investment company.  SMFSF issues four classes of shares: Class A, C, I and N. The General Partner serves as the investment manager of SMFSF. SMFSF has a similar investment strategy to the Fund, using commodity trading advisors to engage in the speculative trading of futures contracts, forward currency contracts and other financial instruments.

 

Prior to August 31, 2017, the Fund owned more than 50% of the outstanding shares of SMFSF and therefore had effective control of that entity. Accordingly, the assets, liabilities and operating results of SMFSF were consolidated with the Fund through that date. The portion of SMFSF that was not owned by the Fund was presented as the non-controlling interest. On August 31, 2017, the Fund’s ownership of SMFSF dropped below 50%. With this decrease in ownership, the Fund no longer has effective control of SMFSF, and effective August 31, 2017 no longer consolidates the assets, liabilities and operating results of SMFSF into the Fund. The Fund continues to hold an investment in SMFSF and any changes in the fair value of its investment in SMFSF are reported on the Statement of Operations. The investment in SMFSF is reported on the statements of financial condition as investment in SMFSF. For financial reporting purposes, SMFSF is treated as a related party. For the nine months ended September 30, 2018 and 2017, the Fund redeemed $4 million and $16 million, respectively, of its investment in SMFSF.

 

17 

 

 

Significant Accounting Policies

 

Accounting Principles 

The Fund’s consolidated financial statements are prepared in conformity with U.S. generally accepted accounting principles (“GAAP”). Under GAAP, the Fund is an investment company and follows accounting and reporting guidance under the Financial Accounting Standards Board (FASB) Accounting Standard Codification (ASC) Topic 946, Financial Services – Investment Companies.

 

Consolidation 

Through August 31, 2017, the accompanying consolidated financial statements included the accounts of the Fund and SMFSF, for which the Fund was the majority shareholder. On August 31, 2017, the Fund ceased being the majority shareholder of SMFSF and no longer consolidates that entity into its financial statements. Intercompany accounts and transactions have been eliminated in consolidation.

 

Use of Estimates 

Preparing consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

 

Revenue Recognition 

Futures, forward currency contracts, investments in securities, certificates of deposit, and the exchange membership are recorded on a trade date basis, and gains or losses are realized when contracts/positions are liquidated. Realized gains and losses on investments in securities and certificates of deposit are determined on a specific identification basis and are included in net realized and change in unrealized gain (loss) in the consolidated statements of operations. Unrealized gains and losses on open contracts (the difference between contract trade price and fair value) are reported in the statements of financial condition as net unrealized gain or loss, as there exists a right of offset of any unrealized gains or losses. The difference between cost and the fair value of open investments in securities and certificates of deposit is reflected as unrealized gain or loss on investments in securities and certificates of deposit. Any change in net unrealized gain or loss from the preceding period is reported in the consolidated statements of operations. Interest income earned on investments in securities, certificates of deposit and other cash and cash equivalent balances is recorded on an accrual basis. Market discounts and premiums on fixed-income securities are amortized daily over the expected life of the security using the effective yield method.

 

Fair Value of Financial Instruments 

Financial instruments are recorded at fair value, the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Assets and liabilities recorded at fair value are classified within a fair value hierarchy based upon the level of judgment associated with the inputs used to measure their value. This fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:

 

Level 1 –Fair value is based on unadjusted quoted prices for identical instruments in active markets. Financial instruments utilizing Level 1 inputs include futures contracts, U.S. Treasury securities and mutual funds.

 

Level 2 –Fair value is based on quoted prices for similar instruments in active markets and inputs other than quoted prices that are observable for the financial instrument, such as interest rates and yield curves that are observable at commonly quoted intervals using a market approach. Financial instruments utilizing Level 2 inputs include forward currency contracts, swaps, commercial paper, corporate notes, certificates of deposit, asset backed securities and the exchange membership.

 

Level 3 –Fair value is based on valuation techniques in which one or more significant inputs are unobservable. The Fund has no financial instruments utilizing Level 3 inputs.

 

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment.

 

18 

 

 

The Fund assesses the classification of the instruments at each measurement date, and any transfers between levels are recognized on the actual date of the event or change in circumstances that caused the transfer in accordance with the Fund’s accounting policy regarding the recognition of transfers between levels of the fair value hierarchy. For the period ended September 30, 2018 and year ended December 31, 2017, there were no such transfers between levels.

 

A description of the valuation techniques applied to the Fund’s major categories of assets and liabilities measured at fair value on a recurring basis follows.

 

U.S. Treasury securities are recorded at fair value based on bid and ask quotes for identical instruments. Commercial paper, certificates of deposit, corporate notes, asset backed securities and the exchange membership are recorded at fair value based on bid and ask quotes for similar, but not identical, instruments. Accordingly, U.S. Treasury securities are classified within Level 1, and commercial paper, certificates of deposit, corporate notes, asset backed securities and exchange memberships are classified within Level 2.

 

The investment in SMFSF (a mutual fund), a money market fund and futures contracts are valued using quoted market prices for identical assets in active markets, and are classified within Level 1. The money market fund is included in cash and cash equivalents in the consolidated statements of financial condition. The fair values of forward currency contracts are based upon third-party quoted dealer values on the interbank market and are classified within Level 2.

 

Cash and Cash Equivalents  

Cash and cash equivalents may include cash, funds held in money market accounts and short-term investments with maturities of three months or less at the date of acquisition and that are not held for sale in the normal course of business. The Fund maintains deposits with financial institutions in amounts that are in excess of federally insured limits; however, the Fund does not believe it is exposed to any significant credit risk.

 

Exchange Membership 

During 2017, the Fund purchased a membership interest in the Chicago Mercantile Exchange (CME). By purchasing the membership, the Fund incurs reduced fees for transactions on the CME. The membership is accounted at its fair value and changes in fair value are reported in net change in unrealized gain (loss) in exchange membership on the statement of operations.

 

Brokerage Commissions and Trading Expenses 

Brokerage commissions and trading expenses include brokerage and other trading fees, and are charged to expense when contracts are opened and closed.

 

Redemptions Payable 

Redemptions payable represent redemptions that meet the requirements of the Fund and have been approved by the General Partner prior to period-end. These redemptions have been recorded using the period-end net asset value per Unit.

 

Income Taxes 

The Fund prepares calendar year U.S. and applicable state and local tax returns. The Fund is not subject to federal income taxes as each partner is individually liable for his or her allocable share of the Fund’s income, expenses and trading gains or losses. The Fund evaluates the tax positions taken or expected to be taken in the course of preparing the Fund’s tax returns to determine whether the tax positions are more-likely-than-not to be sustained when examined by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense and asset or liability in the current year. Management has determined there are no material uncertain income tax positions through September 30, 2018. With few exceptions, the Fund is no longer subject to U.S. federal, or state and local income tax examinations by tax authorities for years before 2015.

 

Foreign Currency Transactions 

The Fund has certain investments denominated in foreign currencies. The purchase and sale of investments, and income and expenses are translated at the rates of exchange prevailing on the respective dates of such transactions. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of investments held. Such fluctuations are included with the net realized and change in unrealized gain or loss on such investments in the consolidated statements of operations.

 

19 

 

 

Reclassification 

Certain amounts reported in the 2017 consolidated financial statements may have been reclassified to conform to the 2018 presentation without affecting previously reported partners’ capital (net asset value) or net income (loss).

 

New Accounting Pronouncements 

Revenue from Contracts with Customers

In May 2014, the FASB issued revenue recognition guidance, which replaces most pre-existing revenue recognition guidance in U.S. generally accepted accounting principles. The guidance provides a framework for addressing revenue recognition and, for the Fund, was effective January 1, 2018. The Fund evaluated the impact of this new guidance and determined that its adoption did not have a material effect on the financial statements.

 

Restricted Cash 

In November 2016, the FASB issued guidance regarding the presentation of changes in restricted cash and restricted cash equivalents within the statement of cash flows. The Fund adopted the guidance on January 1, 2018, and its adoption did not have a material effect on the financial statements.

 

Fair Value Disclosures 

In August 2018, the FASB issued guidance updating the disclosure requirements for fair value measurement and the fair value hierarchy. Primarily, the guidance added or modified certain disclosures regarding Level 3 fair value measurements and removed certain disclosures involving transfers between Level 1 and Level 2 of the fair value hierarchy. Historically, the Fund has not had any Level 3 fair value measurements and has not had any transfers between Level 1 and Level 2 on the fair value hierarchy. The update is effective beginning after December 15, 2019, although early adoption is permitted. The Fund is considering early adoption of this guidance and does not believe that such adoption will have a material effect on the financial statements.

 

2.Fair Value Disclosures

 

The Fund’s assets and liabilities, measured at fair value on a recurring basis, are summarized in the following tables by the type of inputs applicable to the fair value measurements:

 

At September 30, 2018

    
   Level 1   Level 2   Total 
Equity in broker trading accounts:               
Net unrealized gain (loss) on open futures contracts*  $10,530,803   $   $10,530,803 
Net unrealized gain (loss) on open forward currency contracts*       (832,555)   (832,555)
Cash and cash equivalents:               
    Money market fund   8,809,415        8,809,415 
Investment in SMFSF   28,875,415        28,875,415 
Investments in securities:               
    U.S. Treasury securities*   59,334,084        59,334,084 
    Asset backed securities*       11,850,600    11,850,600 
    Commercial paper*       39,430,145    39,430,145 
    Corporate notes*       114,881,156    114,881,156 
Exchange membership       150,500    150,500 
Total  $107,549,717   $165,479,846   $273,029,563 

 

*See the condensed schedule of investments for further description.

 

At December 31, 2017

    
   Level 1   Level 2   Total 
Equity in broker trading accounts:               
    Net unrealized gain (loss) on open futures contracts*  $8,930,417   $   $8,930,417 
    Net unrealized gain (loss) on open forward currency contracts*       1,920,516    1,902,516 
Cash and cash equivalents:               
    Money market fund   42,775,036        42,775,036 
Investment in SMFSF   34,101,936        34,101,936 
Investments in securities:               
    U.S. Treasury securities*   58,329,191        58,329,191 
    Asset backed securities*       11,574,641    11,574,641 
    Commercial paper*       38,174,305    38,174,305 
    Corporate notes*       129,299,879    129,299,879 
Exchange membership       232,000    232,000 
Total  $144,136,580   $181,183,341   $325,319,921 

 

*See the condensed schedule of investments for further description.

 

20 

 

 

There were no Level 3 holdings at September 30, 2018 and December 31, 2017, or during the periods then ended.

 

In addition to the financial instruments listed above, substantially all of the Fund’s other assets and liabilities are considered financial instruments and are reflected at fair value, or at carrying amounts that approximate fair value because of the short maturity of the instruments.

 

3.Derivative Instruments Disclosures

 

The Fund’s derivative contracts are comprised of futures and forward currency contracts, none of which are designated as hedging instruments. At September 30, 2018, the Fund’s derivative contracts had the following impact on the statements of financial condition:

 

September 30, 2018  Derivative Assets and Liabilities, at fair value 
Consolidated Statements of Financial Condition Location  Gross Amounts of Recognized Assets   Gross Amounts Offset in the Statements of Financial Condition   Net Amount of Assets Presented in the Statements of Financial Condition 
Equity in broker trading accounts:                  
Net unrealized gain (loss) on open futures contracts                
Agricultural commodities  $1,888,405   $(394,029)  $1,494,376 
Currencies   2,225,431    (661,061)   1,564,370 
Energy   3,688,479    (298,245)   3,390,234 
Equity indices   5,002,904    (2,057,847)   2,945,057 
Interest rate instruments   3,772,085    (3,002,070)   770,015 
Metals   6,643,491    (6,360,789)   282,702 
Single stock futures   197,566    (113,517)   84,049 
Net unrealized gain (loss) on open futures contracts  $23,418,361   $(12,887,558)  $10,530,803 
                
Net unrealized gain (loss) on open forward currency contracts  $2,659,452   $(3,492,007)  $(832,555)

 

At September 30, 2018, there were 37,534 open futures contracts and 4,394 open forward currency contracts.

 

21 

 

 

The Fund’s financial assets, derivative assets, and cash collateral held by counterparties at September 30, 2018 were:  

 

  

Net Amount of

 Assets in the  

   Gross Amounts Not Offset in the
Statements of Financial Condition
     
Counterparty 

Statements of

Financial Condition

   Financial
Instruments
   Cash Collateral Received   Net Amount 
Deutsche Bank AG
  $(243,900)  $   $   $(243,900)
Deutsche Bank Securities, Inc.   770,601            770,601 
JP Morgan Securities, LLC   1,792,539            1,792,539 
SG Americas Securities, LLC   7,967,663            7,967,663 
Société Générale International Limited   (310,285)           (310,285)
UBS AG   (278,370)           (278,370)
Total  $9,698,248   $   $   $9,698,248 

 

For the three and nine months ended September 30, 2018, the Fund’s derivative contracts had the following impact on the consolidated statements of operations:

 

   Three Months Ended 
September 30, 2018
   Nine Months Ended 
September 30, 2018
 
Types of Exposure 

Net realized

gain (loss)

   Net change 
in unrealized 
gain (loss)
  

Net realized

gain (loss)

   Net change 
in unrealized 
gain (loss)
 
Futures contracts                    
Agricultural commodities  $756,935   $612,052   $(304,119)  $529,228 
Currencies   1,195,312    549,985    (764,125)   864,194 
Energy   985,165    (159,952)   11,119,956    (536,160)
Equity indices   (1,599,731)   4,196,850    (1,814,177)   772,271 
Interest rate instruments   (1,692,158)   (1,989,382)   (3,103,744)   2,117,420 
Metals   2,497,577    382,903    2,706,165    (2,196,161)
Single stock futures   239,497    302,037    1,031,980    49,594 
Total futures contracts  $2,382,597   $3,894,493   $8,871,936   $1,600,386 
                     
Forward currency contracts   (251,668)   (1,228,581)   (1,138,233)   (2,735,071)
                     
Total futures and forward contracts  $2,130,929   $2,665,912   $7,733,703   $(1,134,685)

 

For the three months ended September 30, 2018, the number of futures contracts closed was 444,338 and the number of forward currency contracts closed was 98,416. For the nine months ended September 30, 2018, the number of futures contracts closed was 1,404,605 and the number of forward currency contracts closed was 283,431.

 

At December 31, 2017, the Fund’s derivative contracts had the following impact on the consolidated statements of financial condition:

 

December 31, 2017  Derivative Assets and Liabilities, at Fair Value 
Consolidated Statements of Financial Condition Location  Gross Amounts of Recognized Assets   Gross Amounts Offset in the Statements of Financial Condition   Net Amount of Assets Presented in the Statements of Financial Condition 
Equity in broker trading accounts:                
Net unrealized gain (loss) on open futures contracts                
Agricultural commodities  $1,610,106   $(644,958)  $965,148 
Currencies   1,970,468    (1,270,292)   700,176 
Energy   5,254,612    (1,328,218)   3,926,394 
Equity indices   4,652,670    (2,479,884)   2,172,786 
Interest rate instruments   2,293,476    (3,640,881)   (1,347,405)
Metals   13,922,808    (11,443,945)   2,478,863 
Single stock futures   234,102    (199,647)   34,455 
Net unrealized gain (loss) on open futures contracts  $29,938,242   $(21,007,825)  $8,930,417 
                
Net unrealized gain (loss) on open forward currency contracts  $5,193,499   $(3,290,983)  $1,902,516 

 

22 

 

 

At December 31, 2017, there were 45,440 open futures contracts and 2,030 open forward currency contracts.

 

The Fund’s financial assets, derivative assets, and cash collateral held by counterparties at December 31, 2017 were: 

 

      Gross Amounts Not Offset in the
Statements of Financial Condition
     
Counterparty  Net Amount of Assets in the Statements of Financial Condition  

Financial

Instruments

  

Cash

Collateral

Received

   Net Amount 
                 
Deutsche Bank AG
  $332,031   $   $   $332,031 
Deutsche Bank Securities, Inc.   838,938            838,938 
JP Morgan Securities, LLC   1,270,509            1,270,509 
SG Americas Securities, LLC   6,820,970            6,820,970 
Société Générale International Limited   1,122,595            1,122,595 
UBS AG   447,890            447,890 
Total  $10,832,933   $   $   $10,832,933 
                     

 

For the three and nine months ended September 30, 2017, the Fund’s derivative contracts had the following impact on the consolidated statements of operations:

 

   Three Months Ended 
September 30, 2017
   Nine Months Ended 
September 30, 2017
 
Types of Exposure  Net realized gain (loss)   Net change 
in unrealized 
gain (loss)
   Net realized gain (loss)   Net change 
in unrealized 
gain (loss)
 
Futures contracts                    
Agricultural commodities  $(6,541,457)  $1,227,206   $(6,596,357)  $(443,395)
Currencies   1,135,806    (636,093)   (6,620,973)   (1,390,426)
Energy   (6,004,129)   4,237,001    (23,769,957)   (1,540,634)
Equity indices   4,717,902    12,586,291    58,408,937    4,639,226 
Interest rate instruments   (7,694,836)   1,858,105    (16,896,028)   (6,169,056)
Metals   1,104,206    686,981    (6,179,041)   473,428 
Single stock futures   341,862    (128,685)   1,532,908    38,411 
Total futures contracts  $(12,940,646)  $19,830,806   $(120,511)  $(4,392,446)
                     
Forward currency contracts   2,774,595    (1,888,144)   (3,268,948)   (3,279,370)
                     
Total futures and forward contracts  $(10,166,051)  $17,942,662   $(3,389,459)  $(7,671,816)

 

For the three months ended September 30, 2017, the number of futures contracts closed was 512,812 and the number of forward currency contracts closed was 56,054. For the nine months ended September 30, 2017, the number of futures contracts closed was 1,500,502 and the number of forward currency contracts closed was 164,068.

 

23 

 

 

4.General Partner

 

At September 30, 2018 and December 31, 2017, and for the periods then ended, the General Partner did not maintain a capital balance in the Fund; however, the beneficiary of the majority shareholder of the General Partner had the following investment in Class I Units:

 

   September 30,
2018
   December 31,
2017
 
Units Owned   254.4114    254.4114 
Value of Units  $259,685   $260,358 

 

The following fees are paid to the General Partner:

 

General Partner Management Fee – the Fund incurs a monthly fee on Class A, A2, A3, B and R Units equal to 1/12th of 1.5% of the month-end net asset value of the Class A, A2, A3, B and R 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 any Net New Trading Profits of the Class I Units calculated monthly. In determining Net New Trading Profits, any trading losses incurred by the Class I Units in prior periods is carried forward, so that the incentive fee is assessed only if and to the extent the profits generated by the Class I units exceed any losses from prior periods. The general partner performance fee is payable quarterly in arrears.

 

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. Class A2 Units may pay an up-front sales commission of up to 3% of the offering price and a 0.6% per annum selling agent fee. Class A3 Units may pay an up-front sales commission of up to 2% of the offering price and a 0.75% per annum selling agent fee. Selling agent fees amounted to $1,063,990 and $1,314,201 for the three months ended September 30, 2018 and 2017, respectively. Selling agent fees amounted to $3,360,170 and $4,432,752 for the nine months ended September 30, 2018 and 2017, respectively. 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 fees 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 fees 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. Broker dealer servicing fees amounted to $44,330 and $56,771 for the three months ended September 30, 2018 and 2017, respectively. Broker dealer servicing fees amounted to $139,856 and $212,596 for the nine months ended September 30, 2018 and 2017, respectively. 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 fees 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 fees are retained by the General Partner.

 

Administrative Expenses – the Fund incurs a monthly fee equal to 1/12th of 0.45% of the month-end net asset value of the Fund, payable in arrears to the General Partner. In return, the General Partner provides operating and administrative services, including accounting, audit, legal, marketing, and administration (exclusive of extraordinary costs and administrative expenses charged by other funds in which the Fund may have investments).

 

Pursuant to the terms of the Partnership Agreement, each year the General Partner receives from the Fund 1% of any net income earned by the Fund. Conversely, the General Partner pays to the Fund 1% of any net loss incurred by the Fund. Such amounts are reflected as General Partner 1% allocation receivable or payable in the consolidated statements of financial condition and as General Partner 1% allocation in the consolidated statements of operations.

 

The following fees were paid to the General Partner during the period in which it consolidated SMFSF:

 

Management fee – SMFSF incurs a monthly fee equal to 1/12th of 1.75% of the month-end net asset value of the trust, payable in arrears to the General Partner.

 

24 

 

 

Distribution (12b-1) fee – SMFSF 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.

 

Operating Services Fee – SMFSF incurs a monthly fee equal to 1/12th of 0.24% of the month-end net asset value of the trust, payable to the General Partner. The General Partner, in turn, pays the operating expenses of the trust, pursuant to an operating services agreement between the parties.

 

5.Trading Advisors and Cash Managers

 

The Fund has advisory agreements with various commodity trading advisors, pursuant to which the Fund incurs a monthly advisor management fee that ranges from 0% to 3% per annum of allocated net assets (as defined in each respective advisory agreement), paid monthly or quarterly in arrears. Additionally, the Fund incurs advisor incentive fees, payable quarterly in arrears, ranging from 0% to 30% of net new trading profits (as defined in each respective advisory agreement).

 

Principal Global Investors, LLC serves as the cash manager for the Fund. Prior to December 31, 2017, J.P. Morgan Investment Management, Inc. also served as a cash manager (collectively, the “Cash Managers”). The Fund incurs monthly fees, payable in arrears to the Cash Managers, equal to approximately 1/12th of 0.11% and 1/12th of 0.14% of the investments in securities and certificates of deposit as of the period ended September 30, 2018 and 2017, respectively.

 

6.Deposits with Brokers

 

To meet margin requirements, the Fund maintains assets, including cash, equity in futures and forward currency contracts, and investments in securities, with brokers, subject to CFTC regulations and various exchange and broker requirements. At September 30, 2018 and December 31, 2017, the Fund had assets totaling $77,804,135 and $98,549,270, respectively, with brokers and margin deposit requirements of $56,448,278 and $71,513,422, respectively.

 

7.Subscriptions, Distributions and Redemptions

 

Investments in the Fund are made by subscription agreement and must be received within five business days of the end of the month, subject to acceptance by the General Partner. The minimum investment is $10,000 for Class A, A2, A3, B and R units and $2,000,000 for Class I units. Units are sold at the respective net asset value per unit for Class A, A2, A3, B, I or R interests as of the close of business on the last day of the month in which the subscription is accepted. Investors whose subscriptions are accepted are admitted as limited partners as of the beginning of the month following the month in which their subscriptions were accepted. At September 30, 2018 and December 31, 2017, the Fund received advance subscriptions of $537,959 and $287,000, respectively, which were recognized as subscriptions to the Fund or returned, if applicable, subsequent to period-end.

 

The Fund is not required to make distributions, but may do so at the sole discretion of the General Partner. A limited partner may request and receive redemption of Class A, A2, A3, B, I or R Units owned at the end of any month, subject to five business days’ prior written notice to the General Partner, and in certain circumstances, restrictions in the Partnership Agreement.

 

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 non-exempt 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 applicable government or other self-regulatory organization regulations.

 

8.Trading Activities and Related Risks

 

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

 

Purchase and sale of futures contracts requires margin deposits with the futures brokers. Additional deposits may be necessary for any loss of contract value. The Commodity Exchange Act (“CEAct”) requires a broker to segregate all customer transactions and assets from such broker’s proprietary activities. A customer’s cash and other property (for example, U.S. Treasury securities) deposited with a broker are considered commingled with all other customer funds subject to the broker’s segregation requirements. In the event of a broker’s insolvency, recovery may be limited to a pro rata share of segregated funds available. It is possible that the recovered amount could be less than (or none of) the total cash and other property deposited. The Fund uses SG Americas Securities, LLC, JP Morgan Securities, LLC, and Deutsche Bank Securities, Inc. as its futures brokers. The Fund uses Société Générale International Limited, Deutsche Bank AG, and UBS AG as its forward currency counterparties.

 

25 

 

 

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

 

In addition to market risk, upon entering into commodity interest contracts there is a credit risk that a counterparty will not be able to meet its obligations to the Fund. The counterparty for futures and options on futures contracts traded in the U.S. and on most non-U.S. futures exchanges is the clearinghouse associated with such exchanges. In general, clearinghouses are backed by the corporate members of the clearinghouse who are required to share any financial burden resulting from the non-performance by one of their members and, as such, should significantly reduce this credit risk. In cases where the clearinghouse is not backed by the clearing members, like some non-U.S. exchanges, it is normally backed by a consortium of banks or other financial institutions.

 

In the case of forward currency contracts, which are traded on the interbank or other institutional market rather than on exchanges, the counterparty is generally a single bank or other financial institution, rather than a clearinghouse backed by a group of financial institutions; thus there likely will be greater counterparty credit risk. While the Fund trades only with those counterparties that it believes to be creditworthy, there can be no assurance that any clearing member, clearinghouse or other counterparty will be able to meet its obligations to the Fund.

 

The Fund trades forward currency contracts in unregulated markets between principals and assumes the risk of loss from counterparty non-performance. Accordingly, the risks associated with forward currency contracts are generally greater than those associated with exchange-traded contracts because of the greater risk of counterparty default. Additionally, the trading of forward currency contracts typically involves delayed cash settlement.

 

The Fund has a portion of its assets on deposit with interbank market makers and other financial institutions in connection with its trading of forward currency contracts and its cash management activities. In the event of an interbank market maker’s or financial institution’s insolvency, recovery of Fund assets on deposit may be limited to account insurance or other protection afforded such deposits.

 

Entering into swap agreements involves, to varying degrees, credit, market, and counterparty risk in excess of the amounts recognized on the statements of financial condition.

 

The Cash Managers manage the Fund’s cash and excess margin through investments in fixed income instruments, pursuant to investment parameters established by the General Partner. Fluctuations in prevailing interest rates could cause mark-to-market losses on the Fund’s fixed income instruments.

 

Through its investments in debt securities and certificates of deposit, the Fund has exposure to U.S. and foreign enterprises.  The following table presents the exposure at September 30, 2018.

 

26 

 

 

 

Country or Region  U.S. Treasury Securities   Commercial Paper   Corporate Notes   Asset Backed Securities   Total   % of Partners’ Capital (Net Asset Value) 
United States  $59,334,084   $28,551,499   $80,754,418   $11,850,600   $180,490,601    58.23%
Netherlands           12,483,906        12,483,906    4.03%
Ireland           4,436,629        4,436,629    1.43%
United Kingdom       3,096,995    5,505,941        8,602,936    2.78%
Denmark           5,410,362        5,410,362    1.75%
Hong Kong           4,004,813        4,004,813    1.29%
Australia       1,592,107            1,592,107    0.51%
Luxumbourg       1,497,542            1,497,542    0.48%
Canada           2,285,087        2,285,087    0.74%
Singapore       1,598,200            1,598,200    0.52%
France       1,597,656            1,597,656    0.52%
Germany       1,496,146            1,496,146    0.48%
  Total  $59,334,084   $39,430,145   $114,881,156   $11,850,600   $225,495,985    72.76%

 

The following table presents the exposure at December 31, 2017.

 

Country or Region  U.S. Treasury Securities   Commercial Paper   Corporate Notes   Asset Backed Securities   Total   % of Partners’ Capital (Net Asset Value) 
United States  $58,329,191   $30,479,713   $94,039,929   $11,574,641   $194,423,474    54.38%
Netherlands           18,032,725        18,032,725    5.04%
Canada           8,218,336        8,218,336    2.30%
France           5,485,426        5,485,426    1.53%
Australia       1,597,729    3,523,463        5,121,192    1.43%
Luxumbourg       2,997,265            2,997,265    0.84%
Singapore       1,599,760            1,599,760    0.45%
Germany       1,499,838            1,499,838    0.42%
  Total  $58,329,191   $38,174,305   $129,299,879   $11,574,641   $237,378,016    66.39%

  

9.Indemnifications

 

In the normal course of business, the Fund may enter into contracts and agreements that contain a variety of representations and warranties, and which provide general indemnifications. The Fund’s maximum exposure under these arrangements cannot be estimated. However, the Fund believes that it is unlikely it will have to make material payments under these arrangements and has not recorded any contingent liability in the consolidated financial statements for such indemnifications.

 

10.Interim Financial Statements

 

The statements of financial condition, including the condensed schedule of investments, at September 30, 2018, the consolidated statements of operations for the three and nine months ended September 30, 2018 and 2017, the consolidated statements of cash flows and consolidated statement of changes in partners’ capital (net asset value) for the nine months ended September 30, 2018 and 2017, and the accompanying notes to the consolidated financial statements are unaudited. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with GAAP may be omitted pursuant to such rules and regulations. In the opinion of management, such consolidated financial statements and accompanying disclosures reflect all adjustments, which were of a normal and recurring nature, necessary to present fairly the financial position at September 30, 2018, results of operations, cash flows and changes in partners’ capital (net asset value) for the three and nine months ended September 30, 2018 and 2017. The results of operations for the three and nine months ended September 30, 2018 and 2017 are not necessarily indicative of the results to be expected for the full year or any other period. These consolidated financial statements should be read in conjunction with the audited financial statements and the notes thereto included in the Fund’s Form 10-K as filed with the SEC.

 

27 

 

 

11.Financial Highlights

 

The following information presents per unit operating performance data and other ratios for the three and nine months ended September 30, 2018 and 2017, assuming the unit was outstanding throughout the entire period:

 

   Three Months Ended September 30, 2018 
   Class A   Class B   Class I   Class R 
Per Unit Operating Performance                    
                     
Net asset value per unit, beginning of period  $4,037.63   $6,156.49   $1,010.36   $1,020.77 
                     
Net realized and change in unrealized gain (loss) on investments(1)   52.70    80.26    13.13    13.28 
Net investment income (loss)(1)   (39.53)   (32.54)   (2.76)   (4.86)
Total income (loss) from operations   13.17    47.72    10.37    8.42 
                     
Net asset value per unit, end of period  $4,050.80   $6,204.21   $1,020.73   $1,029.19 
                     
Total return(4)   0.33%   0.78%   1.03%   0.82%
                     
Other Financial Ratios                    
Ratios to average net asset value                    
Expenses prior to General Partner 1% allocation(2) (3)   5.86%   4.04%   2.99%   3.82%
General Partner 1% allocation(4)   0.00%   0.01%   0.01%   0.01%
Net total expenses   5.86%   4.05%   3.00%   3.83%
                     
Net investment income (loss)(2) (3) (5)   (3.90)%   (2.08)%   (1.05)%   (1.86)%

 

 

   Three Months Ended September 30, 2017 
   Class A   Class B   Class I   Class R 
Per Unit Operating Performance                    
                     
Net asset value per unit, beginning of period  $3,812.48   $5,710.30   $927.86   $944.91 
                     
Net realized and change in unrealized gain (loss) on investments(1)   43.86    65.63    10.47    10.72 
Net investment income (loss)(1)   (44.00)   (40.30)   (4.04)   (6.06)
Total income (loss) from operations   (0.14)   25.33    6.43    4.66 
                     
Net asset value per unit, end of period  $3,812.34   $5,735.63   $934.29   $949.57 
                     
Total return(4)   (0.00)%   0.44%   0.69%   0.49%
                     
Other Financial Ratios                    
Ratios to average net asset value                    
Expenses prior to General Partner 1% allocation(2) (3)   5.91%   4.12%   3.04%   3.85%
General Partner 1% allocation(4)   0.00%   0.01%   0.01%   0.01%
Net total expenses   5.91%   4.13%   3.05%   3.86%
                     
Net investment income (loss)(2) (3) (5)   (4.56)%   (2.76)%   (1.69)%   (2.50)%

 

28 

 

 

   Nine Months Ended September 30, 2018 
   Class A   Class B   Class I   Class R 
Per Unit Operating Performance                    
                     
Net asset value per unit, beginning of period or at issuance
  $4,146.91   $6,266.93   $1,023.37   $1,038.05 
                     
Net realized and change in unrealized gain (loss) on investments(1)   22.39    34.43    5.42    5.62 
Net investment income (loss)(1)   (118.50)   (97.15)   (8.06)   (14.48)
Total income (loss) from operations   (96.11)   (62.72)   (2.64)   (8.86)
                     
Net asset value per unit, end of period  $4,050.80   $6,204.21   $1,020.73   $1,029.19 
                     
Total return(4)   (2.32)%   (1.00)%   (0.26)%   (0.85)%
                     
Other Financial Ratios                    
Ratios to average net asset value                    
Expenses prior to General Partner 1% allocation(2) (3)   5.61%   3.81%   2.76%   3.61%
General Partner 1% allocation(4)   (0.02)%   (0.01)%   0.00%   (0.01)%
Net total expenses   5.59%   3.80%   2.76%   3.60%
                     
Net investment income (loss)(2) (3) (5)   (3.91)%   (2.10)%   (1.06)%   (1.89)%

 

 

   Nine Months Ended September 30, 2017 
    Class A    Class B    Class I    Class R 
Per Unit Operating Performance                    
                     
Net asset value per unit, beginning of period or at issuance
  $4,096.03   $6,080.47   $983.11   $1,000.00 
                     
Net realized and change in unrealized gain (loss) on investments(1)   (119.55)   (177.28)   (29.74)   (35.44)
Net investment income (loss)(1)   (164.14)   (167.56)   (19.08)   (14.99)
Total income (loss) from operations   (283.69)   (344.84)   (48.82)   (50.43)
                     
Net asset value per unit, end of period  $3,812.34   $5,735.63   $934.29   $949.57 
                     
Total return(4)   (6.93)%   (5.67)%   (4.97)%   (5.04)%
                     
Other Financial Ratios                    
Ratios to average net asset value                    
Expenses prior to General Partner 1% allocation(2) (3)   6.84%   5.08%   3.97%   4.51%
General Partner 1% allocation(4)   (0.07)%   (0.06)%   (0.05)%   (0.05)%
Net total expenses   6.77%   5.02%   3.92%   4.46%
                     
Net investment income (loss)(2) (3) (5)   (5.60)%   (3.83)%   (2.71)%   (3.19)%

 

Total returns are calculated based on the change in value of a Class A, Class B, Class I or Class R Unit during the period. An individual partner’s total returns and ratios may vary from the above total returns and ratios based on the timing of subscriptions and redemptions.

 

† Class R Units were introduced in April 2017.

 

(1)The net investment income (loss) per unit is calculated by dividing the net investment income (loss) by the average number of Class A, B, I or R Units outstanding during the period. Net realized and change in unrealized gain (loss) on investments is a balancing amount necessary to reconcile the change in net asset value per unit with the other per unit information. Such balancing amount may differ from the calculation of net realized and change in unrealized gain (loss) on investment per unit due to the timing of investment gains and losses during the period relative to the number of units outstanding.

 

(2)The net investment income (loss) includes interest income and excludes net realized and net change in unrealized gain (loss) from investment activities as shown in the consolidated statements of operations. The total amount is then reduced by all expenses, excluding brokerage commissions, which are included in net investment gain (loss) in the consolidated statements of operations. The resulting amount is divided by the average net asset value for the period.

 

(3)Ratios have been annualized.

 

(4)Ratios have not been annualized.

 

(5)Ratio excludes General Partner 1% allocation.

 

12. Subsequent Events

 

Subsequent to quarter end, there were approximately $1,046,000 of contributions and $3,668,000 of redemptions from the Fund.

 

29 

 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Current Positioning

 

Sector risk allocations and net positioning as of September 30, 2018 were as follows:

 

Risk Allocation  

Net

Position 

  Sector
10%   Short   Agriculture
12%   Long   Energy
9%   Short   Metals
23%   Long USD   Currencies
23%   Long   Equity indices
23%   Short US, Long Int’l   Interest rates

 

As of the end of September 2018, exposures in the Fund were relatively balanced between futures sectors. In commodity futures, the Fund was long energy, short agricultural markets and short metals. The Fund was also moderately long global stock indices and long the U.S. dollar against most currencies. The most notable quarterly change was an increase in the size of the short position in U.S. bonds, while retaining a modestly long exposure to international bonds.

 

Results of Operations

 

The returns for each Class of Units for the nine months ended September, 2018 and 2017 were:

 

Class of Units   2018   2017
 Class A   (2.32)%   (6.93)%
 Class B   (1.00)%   (5.67)%
 Class I   (0.26)%   (4.97)%
 Class R   (0.85)%   (5.04)%

 

Class R units did not begin reflecting a return until April 1, 2017. 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.

 

2018

January

Global equity markets rallied sharply in January, driven higher by investor euphoria over economic growth data and US tax cuts. This pushed already rich valuations further towards historic extremes. By the end of the month, the S&P 500’s Shiller P/E ratio exceeded its high during the 1929 stock market bubble. Meanwhile, anticipation of sustained monetary tightening by the Federal Reserve pushed the US 10-year bond yield up to 2.7%, its highest level since 2014. In foreign exchange markets, the U.S. Dollar weakened against a broad set of developed and emerging market currencies.

 

The Fund enjoyed a strong start to 2018, following a solid fourth quarter finish last year. Profits were made in long equity positions, particularly in Asia and the U.S. Gains were also made in currencies through short positions in the U.S. dollar against long positions in the Euro, British pound, and Australian dollar. In commodities, energy was a positive contributor as long oil positions benefited from a rise in the price of crude from $60 to $65 per barrel. Detractors for the month included long bond positions in the U.S. and Europe, as well as short positions in grains. The Fund finished with a net gain of 5.65%, 5.81%, 5.90%, and 5.83% for Class A, B, I, and R Units, respectively.

 

February

Following a period of historic calm in markets, volatility jumped higher in February as equities sold off and bond yields increased. The S&P 500 Total Return Index had closed higher for 15 consecutive months prior to February’s decline. Market participants attributed the February spike in volatility to several factors including high equity valuations, the potential for faster than expected interest rate hikes and fears that inflation was rising too quickly. The decline in stocks spilled over into other sectors as well. Oil prices ended January at nearly $65 per barrel, fell as low as $59 by mid-February, before recovering to $61 at month-end. Bond markets did not provide safety for investors either. The Bloomberg Barclays US Aggregate Bond Index was down more than 2% this year through February, after posting its first back-to-back monthly losses since 2016.

 

After strong performance in the fourth quarter of 2017 and into January, the Fund experienced a reversal of those gains in February. Positions that led to the Fund’s previous performance gains contributed to losses for the month. In particular, the Fund had losses from long exposure in equity and oil contracts. The currency sector was also challenging due to the Fund’s short bias positioning in the U.S. dollar, which strengthened against most major currencies. Interest rate markets were a positive contributor as the Fund recently shifted towards a short bias in those markets and bond prices declined. The Fund finished with a net loss of 9.12%, 8.99%, 8.91%, and 8.97% for Class A, B, I, and R Units, respectively.

 

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March 

Global equities declined again in March, with the MSCI World Index falling 2.4%, as President Trump announced a range of import tariffs, which investors feared could spark a trade war with China and Europe. Technology stocks were also hit over privacy concerns, as it was reported that large datasets of Facebook user activity had been used in political advertising. Meanwhile, the Federal Reserve raised U.S. interest rates by 25 basis points, the first of several expected hikes this year. Long-term bond yields dipped in Europe on disappointment in economic growth indicators.

 

The Fund finished the month with a positive return. Gains came primarily from long positions in the energy sector as crude oil prices rose to $65 per barrel on rising Mideast tensions and continued tight supply. In currencies, the Fund also benefited from short U.S. dollar positions, particularly against the British pound. Modestly-sized long equity positions detracted from performance, as did long positions in base metals. Fixed income sector returns were relatively flat as declines in short U.S. bond positions were offset by gains in long European bond positions. The Fund finished with a net gain of 0.55%, 0.70%, 0.79%, and 0.72% for Class A, B, I, and R Units, respectively.

 

April

Inflation expectations continued to drift higher in April pushing U.S. 10-year bond yields above the symbolic 3% threshold for the first time since 2014, as the market anticipated the Fed would continue to pursue monetary tightening. Oil prices also rose to their highest level in four years on the possibility of new Iranian sanctions. Equity markets stabilized from their early year declines as the trade spat between the U.S. and China subsided and as first quarter earnings proved to be relatively robust.

 

The Fund was profitable in April, with the strongest returns coming from long positions in the oil complex. Gains were also made in modestly sized long equity index positions, particularly in France. Short bond positions in the U.S. contributed positively as yields rose and prices declined. Currencies were the primary detractor as trends reversed with a weakening of the British pound and Japanese yen. The Fund finished with a net gain of 1.32%, 1.47%, 1.55%, and 1.48% for Class A, B, I, and R Units, respectively.

 

May

In May, hawkish Federal Reserve monetary policy expectations pushed the U.S. 10-year bond yield to a 7- year high of 3.1%, before reversing course in the second half of the month. While global stocks made early gains, trade disputes over U.S. import tariffs caused a late month dip, particularly in Asia and Europe. Meanwhile, President Trump’s withdrawal from the Iran nuclear deal and tight supply conditions led to a further rise in oil prices to a high of $72 per barrel, before moderating on an agreement between Russia and OPEC to expand output. Italian politics dominated financial headlines at month-end, as a newly formed populist government stoked fears of fiscal indiscipline and weakening loyalties to the Eurozone. This caused the Euro to weaken and Italian stocks and bonds to sell off.

 

While the Fund made gains early in May, these were followed by declines at month-end as a number of trends reversed. The political crisis in Italy caused losses in long Italian bond and stock positions as well as in currency trading, with the Euro falling to its weakest level of the year. Long positions in other European and Asian stock indices also detracted from performance as trade relations with the U.S. deteriorated. The strongest positive contributor for the Fund came from long oil positions, which profited from the continued rise in energy prices. The Fund finished with a net loss of 1.30%, 1.15%, 1.07%, and 1.13% for Class A, B, I, and R Units, respectively.

 

June

In June, the U.S. Government’s economic policies continued to stoke global trade tensions. The threat of tariffs hurt Asian and European stocks, while the prospect of retaliatory measures from China caused U.S. grain prices to slump. Economic data remained strong, however, leading the Fed to make its second interest rate hike of 2018, with the potential for two more hikes before year-end. Tightening U.S. monetary policy also caused a strengthening of the U.S. dollar against major currencies. Meanwhile, OPEC increased production less than expected, leading to a further rise in oil prices.

 

The Fund made a net profit for the month, with the largest positive contribution coming in the agricultural sector. Highlighting the Fund’s ability to profit from declining markets, short positions in soybeans and corn benefited from price declines ahead of potential Chinese import reductions. In currencies, the Fund made gains on long U.S. dollar positions against the Euro, Japanese yen and British pound. Fed tightening helped short positions in U.S. bonds. In energy, long positions in crude oil gained as its price hit a high for the year of $74 per barrel. The Fund finished with a net gain of 0.84%, 0.99%, 1.08%, and 1.01% for Class A, B, I, and R Units, respectively.

 

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July

U.S. stocks rose in July as a result of strong earnings and solid second quarter GDP growth, which were boosted by fiscal stimulus from this year’s tax cuts. The month saw a sharp rotation from high momentum technology stocks into value-oriented stocks. In international markets, Chinese equities continued to slump as a result of both central bank tightening and an ongoing trade spat with the U.S. In the energy sector, increased supply from Saudi Arabia and Libya caused a pullback in oil prices. Fixed income markets saw a reversal during the month. Bond yields rose in Europe and Japan (and bond prices fell) in anticipation of announcements of the gradual withdrawal of easy monetary policy.

 

The Fund’s trading style is primarily trend-following, leading to profits in markets where trends are sustained and losses in markets where trends reverse. In July, the Fund made gains in long positions in stock indices and short positions in precious metals. However, these profits were offset by declines in other sectors. Long positions in oil and refined oil products were impacted by a reversal of bullish price trends in the energy sector. In bond futures, long German and Japanese positions saw losses as a result of a rise in yields in anticipation of less accommodative central bank policy. Choppiness in the U.S. dollar led to a giveback in the currency sector. The Fund finished with a net loss of 1.41%, 1.26%, 1.18%, and 1.24% for Class A, B, I, and R Units, respectively.

 

August

August saw a panic in emerging markets, as countries with large USD-denominated debt buckled under the strength of the U.S. dollar and rising U.S. interest rates. A politically induced trade spat with the U.S. proved to be an additional catalyst in Turkey as the Lira fell 25% during August. Fear spread to other emerging markets, culminating in a dramatic drop in the Argentine peso at month end. Investor risk aversion caused a decline in European and Asian stocks and a rotation into bonds. Despite this international turmoil, U.S. equity markets proved robust, with the S&P 500 rising on strong earnings and a rally in technology stocks.

 

The Fund had a strong month and was profitable in each of the sectors it trades. Metals were the biggest positive contributor, as the Fund made gains in short positions in gold, which declined with U.S. dollar strength, and in short positions in industrial metals, which fell on weaker Chinese demand. In energy, long positions profited from a rise in crude oil prices. In agricultural markets, short coffee positions saw the strongest gains. Turning to financial futures markets, the Fund profited from long exposure to U.S. stock indices, long exposure to European bonds and broadly long U.S. dollar exposure against other currencies. The Fund finished with a net gain of 2.81%, 2.96%, 3.05%, and 2.98% for Class A, B, I, and R Units, respectively.

 

September

With U.S. economic data continuing to show strength in September, the Federal Reserve made its third interest rate hike of the year and signaled four more hikes by the end of 2019. U.S. Treasury yields rose and bonds sold off as Fed minutes dropped long-standing references to an “accommodative” monetary policy. The European Central Bank’s plans to move ahead with tapering of their quantitative easing policy caused European bonds to decline as well. The trade conflict between the U.S. and

 

China escalated with U.S. tariffs announced on $200 billion of Chinese goods. U.S. equity markets were relatively unfazed by these developments, but many Asian stock markets fell. Oil prices continued to climb with looming U.S. sanctions on Iran, a major producer.

 

The Fund’s biggest gains in the month came from the energy sector with long positions in crude oil. However, the interest rates sector detracted from performance. The Fund had a positive contribution from short U.S. positions, but saw losses from long European bond futures positions. In currencies, the Fund benefited from the continued depreciation of the Japanese yen, but saw reversals in other markets. Stock index trading saw a balance between gains in the U.S. and declines in Europe. The Fund finished with a net loss of 1.02%, 0.87%, 0.79%, and 0.86% for Class A, B, I, and R Units, respectively.

 

2017

January

Markets digested the impact of the new U.S. administration’s economic policy proposals as the calendar year began. The policy specifics remain uncertain, but market participants showed optimism that potential changes to the tax code and increased infrastructure spending would bolster economic growth. Equity markets in the U.S. and Europe were generally higher, while interest rates held mostly steady. Following broad based strength in the second half of 2016, the U.S. dollar weakened during the start of the year as concerns about trade protection and accusations of currency manipulation began to emerge.

 

Ongoing strength in equity markets was a positive contributor to Fund performance. Specifically, long positions in Nasdaq, S&P 500 and Hang Seng indices were key contributors. Increased economic bullishness also led to a near 9% rise in copper prices, benefitting the Fund’s long copper position. After several months of strength, energy prices drifted lower in January, due partially to the belief that OPEC’s attempts to cut production would be short lived. The Fund’s long energy positions detracted from performance. Within foreign exchange markets, the U.S. dollar reversal caused losses, as the Fund was long U.S. dollar versus euro, British Pound and Japanese yen. The Fund finished with a net loss of 2.27%, 2.13% and 2.04% for Class A, B and I Units, respectively.

 

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February

February saw a continued rise in investor risk appetite. The S&P 500 rallied to new highs and rich valuations got even richer, spurred by positive earnings data and the Trump administration’s pledge to cut corporate taxes and spend heavily on infrastructure. International equity markets also had a positive month as global economic data showed improvement. In Europe, the political risk of potential nationalist party victories in upcoming elections in France and the Netherlands led to a rally in safe haven German bonds and a depreciation of the euro.

 

The Fund’s largest gains during the month came from long equity index positions, which benefited from the global rally in stocks. Long positions in European bonds and a short currency position in the euro both profited from market skittishness over possible populist electoral gains. The Fund did see modest losses in energy as trend-following programs were whipsawed by choppy directionless oil prices. Overall, the Fund finished the month with a net gain of 3.33%, 3.48% and 3.57% for Class A, B and I Units, respectively.

 

March

Economic policy remained a focus for markets throughout the month. President Trump’s proposal to replace the Affordable Care Act failed in Congress as it met with resistance from conservative Republicans. The fate of this measure was significant as it provided an indication of Trump’s ability to push through other policies such as tax reform and deregulation. The bill’s failure initially triggered a dip in global equities, but optimism over the prospects for tax cuts quickly returned and markets recovered. March also saw developments in monetary policy, as the Federal Reserve raised interest rates by 25 basis points, in line with expectations. In Europe, the United Kingdom formally triggered the exit process from the European Union, and investor attention turned to the possibility of populist gains in the upcoming French presidential election.

 

The Fund profited from its long equity exposure, with the strongest gains coming from Europe. Losses occurred in interest rate, currency and energy positions. Within the interest rate sector, the Fund encountered choppy trading conditions in European rate markets, but the primary losses came from Germany, where bond prices rallied against the Fund’s short position. Losses in the currency sector were attributable to a long U.S. dollar bias, as expectations of a slower tightening cycle by the Fed caused the dollar to depreciate against the euro, Pound and yen. Overall, the Fund finished the month with a net loss of 1.97%, 1.82% and 1.74% for Class A, B and I Units, respectively.

 

April

Heightened geopolitical uncertainty weighed on risk assets early in the month. Markets were focused on saber rattling from North Korea and U.S. airstrikes in Syria. Later in the month, the first round of the French Presidential elections concluded without surprise, making a Le Pen victory and potential French exit from the Eurozone less probable. As a result, equity markets traded higher and the euro rallied sharply. The euro finished April at 1.09 against the U.S. dollar and gained more than 2% during the month. Energy markets were volatile, as an early month rally quickly gave way to a sell-off, with crude oil ending April down 3.4%.

 

The Fund continued to make profits from its long equity positions, and experienced losses in currency and energy positions. Within the equity allocation, the Fund was particularly profitable trading futures contracts in Euro Stoxx, Nasdaq and the S&P 500. The Euro Stoxx position was supported by the French elections, while upbeat corporate earnings provided momentum in U.S. equity markets. A long U.S. dollar and short euro position detracted due to strength in the euro. The Fund was long live cattle futures and benefited from a 15% increase in cattle prices, driven by strong consumer demand and tighter beef supply. Overall, the Fund finished the month with a net loss of 1.61%, 1.46%, 1.38% and 1.45% for Class A, B, I and R Units, respectively.

 

May

In May, developed market equity indices drifted higher and valuations continued to inflate, spurred by U.S. tech sector earnings and a centrist victory in the French Presidential election. The appointment of a special counsel to investigate the Trump administration’s alleged Russian ties led to a brief stock sell-off, but investors quickly shrugged off the news. The VIX volatility index dipped back below 10, setting a new low for the year. In foreign exchange markets, the U.S. dollar weakened against most major currencies, erasing all of its gains since the U.S. election. Energy markets had a choppy month, with oil prices declining as OPEC failed to implement larger production cuts.

 

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The Fund made gains in its long global equity positions, especially in the tech-heavy NASDAQ Index. Losses came primarily from commodities markets, as trend-following programs were whipsawed by reversals in oil and precious metals. Currencies also proved to be a detractor, as the Fund’s long U.S. dollar positions were hurt by a rebound in the euro and Japanese yen. Performance in fixed income futures was marginally positive during the month. Overall, the Fund finished the month with a net loss of 0.61%, 0.46%, 0.38% and 0.45% for Class A, B, I and R Units, respectively.

 

June

Global equity markets remained stable in the first half of the month, despite a number of major political events, ranging from former FBI Director James Comey’s congressional testimony to general elections in the UK. However, market sentiment shifted at month-end after European Central Bank President Mario Draghi discussed the return of reflationary forces and the potential need to end quantitative easing measures later this year. Comments from the Bank of England and Bank of Canada were also more hawkish than anticipated. Markets interpreted these statements as the first step towards a less accommodative monetary policy environment and the result was a sharp sell-off in government bond markets accompanied by a rally in the euro, British Pound and Canadian dollar.

 

The Fund made money from long equity positions early in the month, but the ECB and BOE comments led to a decline in European equity markets that caused the sector to finish down modestly. Interest rate contracts were challenging for the Fund, as global long bond positions were hurt by the fixed income sell-off in the last week of the month. Agricultural prices jumped at month-end after a U.S. Department of Agriculture report indicated plantings were short of expectations for wheat and soybean, hurting the Fund’s short positions in those markets. Overall, the Fund finished the month with a net loss of 3.85%, 3.71%, 3.63% and 3.69% for Class A, B, I and R Units, respectively.

 

July

Summertime markets were mostly quiet in July, despite political fireworks in the U.S. as Congress attempted to repeal the Affordable Care Act. The contentious nature of the vote and an inability to reach solidarity within the Republican Party was viewed as an impediment for passing tax reform and infrastructure spending later this year. The sector most impacted by the uncertainty was currencies. After starting the year at $1.05 against the U.S. dollar, the euro strengthened to $1.18, rising in six of seven months this year and returning to its highest levels since early 2015. Equity indices drifted to all-time highs and largely ignored the political tumult in Washington.

 

The Fund was profitable in equity and currency markets, with slight losses in commodity and interest rate sectors. During the last three months, the Fund switched from a long U.S. dollar position against the euro to being short U.S. dollar and long euro. The timing worked out favorably for the Fund due to the continued appreciation of the euro. Equity indices have been in an uptrend since March 2016 and the Fund continues to benefit from being long equities. Commodity prices were mostly rangebound in July and had a limited impact on overall Fund performance. Overall, the Fund finished the month with a net gain of 0.81%, 0.96%, 1.04% and 0.98% for Class A, B, I and R Units, respectively.

 

August

As summer entered the final stretch, global markets were generally calm, although there were periodic bouts of volatility due to an escalating North Korean threat and a terrorist attack in Spain. In the early part of the month, equity markets in the U.S. reached all-time highs, but valuation concerns along with the prospect of North Korean missile tests near the island of Guam caused markets to sell-off. In foreign exchange markets, the U.S. dollar continued to weaken against the euro, with the exchange rate returning to early 2015 levels.

 

The Fund experienced broad based profits in August, with the strongest gains coming from the interest rate, metals, foreign exchange and agricultural sectors. Relatively choppy trading conditions in equity markets were a modest detractor for the Fund’s long equity allocation. Within the metals sector, the Fund was long copper and gold futures, which were profitable as those markets rallied. A long euro exposure was beneficial and the Fund was also profitable trading emerging market currency pairs. Growing trepidation for a looming U.S. government shutdown in the fall led to a drop in interest rates as bond prices appreciated. The Fund was positioned long in interest rate contracts and realized profits as a result. Overall, the Fund finished the month with a net gain of 3.14%, 3.30%, 3.38% and 3.31% for Class A, B, I and R Units, respectively.

 

September

September saw a hawkish turn in central bank policy guidance due to rising inflation forecasts. Both the Federal Reserve and the Bank of England indicated that interest rate hikes were imminent. The Fed also announced that, starting in October, it would begin to sell bonds from its $4.5 trillion balance sheet. This led to a rise in U.S. and European bond yields, a fall in bond prices, a rally in the British pound and U.S. dollar, and a decline in gold. President Trump and Congressional Republicans turned their attention to long-promised tax cuts, propelling stock indices higher. Despite the prospect of monetary tightening and rising tension with North Korea, equity market volatility remained abnormally low, as the average level of the VIX so far in 2017 has been lower than any other year since the inception of the index.

 

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The Fund profited from the sustained bullish trend in equities and also made gains from long positions in the energy sector as oil prices continued their recovery. However, long bond positions suffered as yields jumped on impending central bank tightening. The rise in the British pound and in the U.S. dollar hurt short positions in those currencies. In metals, long copper positions were negatively impacted by a price reversal caused by weaker Chinese demand. In September, the Fund made an adjustment to its line-up of managers, removing Lynx and adding Millburn, whose program blends trend following, machine learning and other futures strategies. Overall, the Fund finished the month with a net loss of 3.83%, 3.69%, 3.61% and 3.67% for Class A, B, I and R Units, respectively.

 

Liquidity

 

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.

 

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 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.

 

 35

 

 

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.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

Introduction

 

The Fund is a speculative commodity pool. The market-sensitive instruments held by the Fund are acquired for speculative trading purposes, and all or substantially all 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 market 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 rapidly 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.

 

 36

 

 

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.

 

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 September 30, 2018 and December 31, 2017. All open position trading risk exposures of the Fund have been included in calculating the figures set forth below.

 

   September 30, 2018   December 31, 2017 
Market Sector  Value at Risk  

% of Total

Capitalization 

   Value at Risk  

% of Total 

Capitalization

 
Agricultural commodities  $3,893,466    1.26%  $4,433,155    1.24%
Currencies   12,646,939    4.08    19,663,340    5.50 
Energy   3,576,974    1.15    6,107,457    1.71 
Equity indices   23,736,615    7.67    28,841,492    8.06 
Interest rate instruments   8,628,839    2.78    6,824,373    1.91 
Metals   3,359,536    1.08    5,017,984    1.40 
Single stock futures   3,045,990    0.98    4,565,988    1.28 
Total  $58,888,359    19.00%  $75,453,789    21.10%

 

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 range between 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 table – 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. 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, asset backed securities, corporate notes 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.

 

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The following were the primary trading risk exposures of the Fund as of September 30, 2018, by market sector.

 

Agricultural Commodities

The Fund takes positions in a broad range of agricultural futures, including soybeans, wheat, corn, sugar, and cotton among others. Prices in these markets can be affected by changes in demand, as well changes in supply factors such as weather and inventory levels.

 

Currencies

The Fund trades in foreign exchange markets by taking positions in currency futures and forward contracts for a large number of developed and emerging market currencies. Exposures may take the form of direct exchange rates against the U.S. dollar, or cross-rates between two foreign currencies. Exchange rates can be impacted by economic differences between regions (such as interest rate differentials or economic growth differentials), political events, as well as investor risk sentiment.

 

Energy

The Fund gains trading exposure in energy markets through oil and gas futures, which include WTI crude oil, Brent crude oil, distillates such as heating oil, and natural gas. Prices have historically been highly volatile, driven by demand side factors such as global economic growth and weather conditions, as well as supply side factors such as Middle East conflicts, OPEC production agreements, and shale production.

 

Equity Indices

The Fund has exposure to major stock market indices around the world through equity index futures. Primary exposures are in developed markets such as the U.S., the UK, Germany, Japan, Hong Kong and Australia, but there can also be exposure to smaller developing market stock indices. Equity index price movements can be affected by microeconomic factors such as corporate earnings, by macroeconomic factors such as government fiscal and monetary policy, as well as by investor sentiment.

 

Interest Rate Instruments

The Fund has exposure to global fixed income markets through bond futures and interest rate futures in countries such as the U.S., the UK, Germany, Japan and Australia. The Fund has exposure across the yield curve with positions in the futures for both short term and long term instruments. The yield curve (and futures prices) can be affected by economic growth, inflation expectations, monetary policy and investor risk aversion.

 

Metals

The Fund has exposure to metals futures, including both precious metals such as gold, silver and platinum, as well as industrial metals such as copper, aluminum and zinc. Metals prices can be volatile. Precious metals prices are often driven by inflation expectations, risk aversion, and mining output. Industrial metals prices tend to be impacted by industrial demand relative to production.

 

Single Stock Futures

The Fund has a small exposure to single stock futures, with positions primarily in companies that trade on U.S. exchanges. The price drivers here tend to be more microeconomic with corporate earnings and industry trends being important. However, macroeconomic and market-wide factors can also affect single stock futures prices.

 

Qualitative Disclosures Regarding Non-Trading Risk Exposure

 

The following represent non-trading risk exposures of the Fund as of September 30, 2018.

 

 38

 

 

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 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).

 

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 4. Controls and Procedures

 

The General Partner, 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 September 30, 2018 (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.

 

PART II: OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

None.

 

Item 1A. Risk Factors.

 

There have been no material changes from risk factors disclosed in the Fund’s Form 10-K for year ended December 31, 2017.

 

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

There were no sales of unregistered securities of the Fund during the three months ended September 30, 2018. Under the Fund’s Partnership Agreement, limited partners may redeem their Units at the end of each calendar month at the then current month-end net asset value per Unit. Redemptions of Units during the three months ended September 30, 2018 were as follows:

 

   July   August   September   Total 
A Units                    
Units redeemed   (896.2678)   (997.3036)   (509.0480)   (2,402.6194)
Average net asset value per unit  $3,980.82   $4,092.54   $4,050.80   $4,042.02 
                     

B Units 

                    
Units redeemed   (288.9367)   (241.6560)   (229.3348)   (759.9275)
Average net asset value per unit  $6,078.91   $6,258.83   $6,204.21   $6,173.94 
                     
I Units                    
Units redeemed                
Average net asset value per unit  $   $   $   $ 
                     
R Units                    
Units redeemed   (198.6202)   (68.2222)       (266.8424)
Average net asset value per unit  $1,008.07   $1,038.08   $   $1,015.74 

 

Item 3. Defaults Upon Senior Securities

 

Not applicable.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

None.

 

Item 6. Exhibits

 

The following exhibits are filed herewith of 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.
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.

 

 40

 

 

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.

 

Dated: November 13, 2018 Futures Portfolio Fund, Limited Partnership

 

 

  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
    (Principal Executive Officer)

 

  By: /s/ Carl A. Serger
  Name: Carl A. Serger
  Title: Chief Financial Officer and Director of the General Partner
    (Principal Financial and Accounting Officer)

 

 41