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EX-32.8 - Frontier Fundsex32-8.htm
EX-32.7 - Frontier Fundsex32-7.htm
EX-32.6 - Frontier Fundsex32-6.htm
EX-32.5 - Frontier Fundsex32-5.htm
EX-32.4 - Frontier Fundsex32-4.htm
EX-32.3 - Frontier Fundsex32-3.htm
EX-32.2 - Frontier Fundsex32-2.htm
EX-32.1 - Frontier Fundsex32-1.htm
EX-31.1 - Frontier Fundsex31-1.htm
 

 

UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 10-Q/A

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Period Ended September 30, 2018 

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number 000-51274

 

 

FRONTIER FUNDS

 

FRONTIER DIVERSIFIED FUND;

FRONTIER MASTERS FUND;

FRONTIER LONG/SHORT COMMODITY FUND;

FRONTIER BALANCED FUND;

FRONTIER SELECT FUND;

FRONTIER WINTON FUND;

FRONTIER HERITAGE FUND

(Exact Name of Registrant as specified in its Charter)

 

 

   
Delaware 36-6815533

(State of

Organization)

(IRS Employer

Identification No.)

 

c/o Frontier Fund Management LLC

25568 Genesee Trail Road

Golden, Colorado 80401

(Address of Principal Executive Offices)

 

(303) 454-5500 

(Registrant’s Telephone Number)

 

 

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

Securities registered pursuant to Section 12(g) of the Act:

Frontier Diversified Fund Class 1, Class 2 and Class 3 Units;

Frontier Long/Short Commodity Fund Class 2, Class 3, Class 1a, Class 2a and Class 3a Units;

Frontier Masters Fund Class 1, Class 2 and Class 3 Units;

Frontier Balanced Fund Class 1, Class 1AP, Class 2, Class 2a and Class 3a Units;

Frontier Select Fund Class 1, Class 1AP and Class 2 Units;

Frontier Winton Fund Class 1, Class 1AP and Class 2 Units; 

Frontier Heritage Fund Class 1, Class 1AP and Class 2 Units

 

 

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

 

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

 

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

       
Large Accelerated Filer  Accelerated Filer
       
Non-Accelerated Filer ☒ (Do not check if a smaller reporting company) Smaller reporting company 

 

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

 

 

 

EXPLANATORY NOTE

 

The purpose of this amendment to the form 10-Q for the quarter ended September 30, 2018 of Frontier Funds, as filed with the Securities and Exchange Commission on November 19, 2018, is to furnish corrections regarding the presentation within the Statement of Financial Condition for the Trust. Net Assets of the Trust did not change as a result of this correction.

 

 

TABLE OF CONTENTS

     
PART I – FINANCIAL INFORMATION
   
Item 1. Series Financial Statements
     
  Statements of Financial Condition as of September 30, 2018 (Unaudited) and December 31, 2017 5
     
  Condensed Schedules of Investments as of September 30, 2018 (Unaudited) and December 31, 2017 8
     
  Statements of Operations for the three and nine months ended September 30, 2018 and 2017 (Unaudited) 14
     
  Statements of Changes in Owners’ Capital for the nine months ended September 30, 2018 (Unaudited) 20
     
  Statements of Cash Flows for the nine months ended September 30, 2018 and 2017 (Unaudited) 24
     
  Notes to Financial Statements (Unaudited) 27
   
  Trust Financial Statements (1)
     
  Consolidated Statements of Financial Condition as of September 30, 2018 (Unaudited) and December 31, 2017 64
     
  Consolidated Condensed Schedules of Investments as of September 30, 2018 (Unaudited) and December 31, 2017 65
     
  Consolidated Statements of Operations for the three and nine months ended September 30, 2018 and 2017 (Unaudited) 67
     
  Consolidated Statement of Changes in Owners’ Capital for the nine months ended September 30, 2018 (Unaudited) 69
     
  Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and 2017 (Unaudited) 70
     
  Notes to Consolidated Financial Statements (Unaudited) 71
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 92
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 172
     
Item 4. Controls and Procedures 177
     
PART II – OTHER INFORMATION
     
Item 1. Legal Proceedings 178
     
Item 1A. Risk Factors 178
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 178
     
Item 3. Defaults Upon Senior Securities 178
     
Item 4. Mine Safety Disclosures 178
     
Item 5. Other Information 178
     
Item 6. Exhibits 179
   
SIGNATURES 180
       
(1)These financial statements represent the consolidated financial statements of the Series of the Trust.

3

 

Special Note About Forward-Looking Statements

 

THIS REPORT CONTAINS STATEMENTS WHICH CONSTITUTE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND OTHER FEDERAL SECURITIES LAWS. THESE FORWARD-LOOKING STATEMENTS REFLECT THE MANAGING OWNER’S CURRENT EXPECTATIONS ABOUT THE FUTURE RESULTS, PERFORMANCE, PROSPECTS AND OPPORTUNITIES OF THE TRUST. THE MANAGING OWNER HAS TRIED TO IDENTIFY THESE FORWARD-LOOKING STATEMENTS BY USING WORDS SUCH AS “MAY,” “WILL,” “EXPECT,” “ANTICIPATE,” “BELIEVE,” “INTEND,” “SHOULD,” “ESTIMATE” OR THE NEGATIVE OF THOSE TERMS OR SIMILAR EXPRESSIONS. THESE FORWARD-LOOKING STATEMENTS ARE BASED ON INFORMATION CURRENTLY AVAILABLE TO THE MANAGING OWNER AND ARE SUBJECT TO A NUMBER OF RISKS, UNCERTAINTIES AND OTHER FACTORS, BOTH KNOWN, SUCH AS THOSE DESCRIBED IN THE “RISK FACTORS” SECTION UNDER PART II ITEM 1A AND ELSEWHERE IN THIS REPORT AND UNKNOWN, THAT COULD CAUSE THE TRUST’S ACTUAL RESULTS, PERFORMANCE, PROSPECTS OR OPPORTUNITIES TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN, OR IMPLIED BY, THESE FORWARD-LOOKING STATEMENTS.

 

YOU SHOULD NOT PLACE UNDUE RELIANCE ON ANY FORWARD-LOOKING STATEMENTS. EXCEPT AS EXPRESSLY REQUIRED BY THE FEDERAL SECURITIES LAWS, THE MANAGING OWNER UNDERTAKES NO OBLIGATION TO PUBLICLY UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENTS OR THE RISKS, UNCERTAINTIES OR OTHER FACTORS DESCRIBED HEREIN, AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR CHANGED CIRCUMSTANCES OR FOR ANY OTHER REASON AFTER THE DATE OF THIS REPORT.

 

UNLESS EXPRESSLY STATED OTHERWISE, ALL INFORMATION IN THIS REPORT IS AS OF SEPTEMBER 30, 2018, AND THE MANAGING OWNER UNDERTAKES NO OBLIGATION TO UPDATE THIS INFORMATION.

4

 

PART I. FINANCIAL INFORMATION

 

ITEM  1.Series Financial Statements

 

The Series of Frontier Funds
Statements of Financial Condition
September 30, 2018 (unaudited) and December 31, 2017

 

   Frontier   Frontier   Frontier 
   Diversified Fund   Masters Fund   Long/Short Commodity Fund 
   9/30/2018   12/31/2017   9/30/2018   12/31/2017   9/30/2018   12/31/2017 
ASSETS                              
Cash and cash equivalents  $65,101   $189,890   $35,548   $411,695   $32,954   $152,200 
U.S. Treasury securities, at fair value   938,408    767,049    512,411    1,663,014    475,024    614,803 
Incentive fees receivable                   57,082    57,082 
Swap contracts, at fair value   5,575,997    6,376,472            471,942    397,039 
Investments in private investment companies, at fair value   11,859,099    14,501,510    5,466,265    8,407,168    1,948,076    3,018,571 
Investments in unconsolidated trading companies, at fair value   1,146,091    2,225,210    969,945    1,501,142    99,860    121,510 
Interest receivable   8,786    15,127    5,212    32,798    3,364    12,125 
Other assets               2,973    48,679    5,122 
                               
Total Assets  $19,593,482   $24,075,258   $6,989,381   $12,018,790   $3,136,981   $4,378,452 
                               
LIABILITIES & CAPITAL                              
                               
LIABILITIES                              
Owner redemptions payable  $73,079   $   $114,816   $   $6,185   $ 
Incentive fees payable to Managing Owner   10,897    12,847                 
Management fees payable to Managing Owner   8,244    4,049    7,494    8,949         
Interest payable to Managing Owner                   44    103 
Service fees payable to Managing Owner   4,552    3,614    2,625    3,570    66    172 
Trading fees payable to Managing Owner   47,283    61,188    32,173    49,131    6,259    9,125 
Advance on unrealized swap appreciation   2,500,000    2,500,000            115,000    115,000 
Other liabilities   4,966    26,873    39,602             
                               
Total Liabilities   2,649,021    2,608,571    196,710    61,650    127,554    124,400 
                               
CAPITAL                              
Managing Owner - Class 2   3,056    3,361    54,571    87,344    6,284    11,999 
Managing Owner - Class 2a                   23,759    34,112 
Managing Owner - Class 3   175,263    213,164    21,255    34,209         
Managing Owner - Class 3a                   1,453    1,759 
Limited Owner - Class 1   1,740,332    2,332,222    2,102,479    2,913,542         
Limited Owner - Class 1a                   23,320    107,619 
Limited Owner - Class 2   7,858,881    9,629,385    1,477,956    3,451,256    121,413    246,901 
Limited Owner - Class 2a                   259,051    408,532 
Limited Owner - Class 3   7,166,929    9,288,555    3,136,410    5,470,789    2,010,934    2,472,994 
Limited Owner - Class 3a                   563,213    970,136 
                               
Total Owners’ Capital   16,944,461    21,466,687    6,792,671    11,957,140    3,009,427    4,254,052 
                               
Non-Controlling Interests                        
                               
Total Capital   16,944,461    21,466,687    6,792,671    11,957,140    3,009,427    4,254,052 
                               
Total Liabilities and Capital  $19,593,482   $24,075,258   $6,989,381   $12,018,790   $3,136,981   $4,378,452 
                               
Units Outstanding                              
Class 1   16,661    20,035    21,629    25,393    N/A    N/A 
Class 1a   N/A    N/A    N/A    N/A    353    1,323 
Class 2   63,966    71,254    13,397    26,553    1,233    2,236 
Class 2a   N/A    N/A    N/A    N/A    3,666    4,730 
Class 3   64,138    75,601    29,515    44,254    18,512    20,354 
Class 3a   N/A    N/A    N/A    N/A    6,978    9,918 
                               
Net Asset Value per Unit                              
Class 1  $104.46   $116.41   $97.20   $114.74    N/A    N/A 
Class 1a   N/A    N/A    N/A    N/A   $66.19   $81.35 
Class 2  $122.91   $135.19   $114.39   $133.27   $103.54   $115.81 
Class 2a   N/A    N/A    N/A    N/A   $77.15   $93.59 
Class 3  $114.47   $125.68   $106.99   $124.40   $108.62   $121.50 
Class 3a   N/A    N/A    N/A    N/A   $80.94   $97.99 

 

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

5

 

The Series of Frontier Funds
Statements of Financial Condition
September 30, 2018 (unaudited) and December 31, 2017

 

   Frontier Balanced Fund   Frontier Select Fund 
   9/30/2018   12/31/2017   9/30/2018   12/31/2017 
ASSETS                    
Cash and cash equivalents  $105,108   $164,332   $22,923   $114,973 
U.S. Treasury securities, at fair value   1,515,106    663,808    330,422    464,427 
Open trade equity, at fair value       178,552         
Receivable from futures commission merchants   2,731,030    7,458,096         
Swap contracts, at fair value   9,850,185    11,340,959         
Investments in private investment companies, at fair value   24,170,470    30,501,895    3,443,015    5,579,229 
Investments in unconsolidated trading companies, at fair value   2,144,814    3,178,176    607,771    670,863 
Interest receivable   10,731    13,092    2,340    9,160 
Due from Managing Owner       184,106         
Other assets           17,218     
                     
Total Assets  $40,527,444   $53,683,016   $4,423,689   $6,838,652 
                     
LIABILITIES & CAPITAL                    
                     
LIABILITIES                    
Open trade deficit, at fair value  $23,444   $   $   $ 
Owner redemptions payable   108,038    76,772    10,437     
Incentive fees payable to Managing Owner       40,189         
Management fees payable to Managing Owner   23,019    11,465         
Interest payable to Managing Owner   3,591    2,528    765    1,358 
Service fees payable to Managing Owner   61,951    88,149    7,750    14,743 
Trading fees payable to Managing Owner   108,152    140,868    8,530    14,898 
Risk analysis fees payable   9,188    8,886         
Advance on unrealized swap appreciation   4,926,555    4,926,555         
Other liabilities   280,621    155,425        5,725 
                     
Total Liabilities   5,544,559    5,450,837    27,482    36,724 
                     
CAPITAL                    
Managing Owner - Class 2   126,379    147,888    48,594    70,295 
Managing Owner - Class 2a   253,793    338,655         
Limited Owner - Class 1   28,460,992    38,744,003    4,179,762    5,912,980 
Limited Owner - Class 1AP   431,663    601,247    17,905    23,354 
Limited Owner - Class 2   4,689,023    6,829,139    149,946    795,299 
Limited Owner - Class 2a   114,354    191,276         
Limited Owner - Class 3a   906,681    1,379,971         
                     
Total Owners’ Capital   34,982,885    48,232,179    4,396,207    6,801,928 
                     
Non-Controlling Interests                
                     
Total Capital   34,982,885    48,232,179    4,396,207    6,801,928 
                     
Total Liabilities and Capital  $40,527,444   $53,683,016   $4,423,689   $6,838,652 
                     
Units Outstanding                    
Class 1   237,546    284,956    55,426    65,502 
Class 1AP   3,183    3,993    210    233 
Class 2   26,326    34,386    1,751    6,521 
Class 2a   2,323    3,015    N/A    N/A 
Class 3a   5,741    7,877    N/A    N/A 
                     
Net Asset Value per Unit                    
Class 1  $119.81   $135.96   $75.41   $90.27 
Class 1AP  $135.63   $150.56   $85.45   $100.02 
Class 2  $182.90   $202.90   $113.40   $132.73 
Class 2a  $158.48   $175.77    N/A    N/A 
Class 3a  $157.94   $175.18    N/A    N/A 

 

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

6

 

The Series of Frontier Funds
Statements of Financial Condition
September 30, 2018 (unaudited) and December 31, 2017

 

   Frontier Winton Fund   Frontier Heritage Fund 
   9/30/2018   12/31/2017   9/30/2018   12/31/2017 
ASSETS                    
Cash and cash equivalents  $344,707   $1,403,125   $59,065   $259,161 
U.S. Treasury securities, at fair value   4,968,843    5,667,825    851,399    1,046,861 
Swap contracts, at fair value           3,010,288    3,094,367 
Investments in private investment companies, at fair value           2,095,258    2,772,993 
Investments in unconsolidated trading companies, at fair value   5,010,792    7,987,575    910,059    1,546,974 
Interest receivable   35,193    111,781    6,030    20,647 
Receivable from related parties       58,146         
Other assets   18,359             
                     
Total Assets  $10,377,894   $15,228,452   $6,932,099   $8,741,003 
                     
LIABILITIES & CAPITAL                    
                     
LIABILITIES                    
Owner redemptions payable  $7,649   $   $924   $ 
Incentive fees payable to Managing Owner                
Management fees payable to Managing Owner   34,474    53,039    6,370    13,471 
Interest payable to Managing Owner   15,770    20,992    1,918    2,608 
Service fees payable to Managing Owner   20,813    26,714    10,001    11,483 
Trading fees payable to Managing Owner   23,696    43,573    11,980    15,703 
Due to Managing Owner       152,219         
Advance on unrealized swap appreciation           1,900,000    1,900,000 
Other liabilities       82,265    14,563    16,038 
                     
Total Liabilities   102,402    378,802    1,945,756    1,959,303 
                     
CAPITAL                    
Managing Owner - Class 2   118,515    153,552    47,202    63,646 
Limited Owner - Class 1   9,745,132    13,102,614    3,805,123    5,435,871 
Limited Owner - Class 1AP   35,337    37,761    1,011    6,083 
Limited Owner - Class 2   376,508    1,555,723    594,698    697,026 
                     
Total Owners’ Capital   10,275,492    14,849,650    4,448,034    6,202,626 
                     
Non-Controlling Interests           538,309    579,074 
                     
Total Capital   10,275,492    14,849,650    4,986,343    6,781,700 
                     
Total Liabilities and Capital  $10,377,894   $15,228,452   $6,932,099   $8,741,003 
                     
Units Outstanding                    
Class 1   66,740    82,367    37,636    44,855 
Class 1AP   214    214    9    45 
Class 2   2,401    7,895    4,187    4,233 
                     
Net Asset Value per Unit                    
Class 1  $146.02   $159.08   $101.10   $121.19 
Class 1AP  $165.51   $176.44   $114.58   $134.28 
Class 2  $206.20   $216.50   $153.31   $179.70 

 

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

7

 

The Series of Frontier Funds
Condensed Schedule of Investments
September 30, 2018 (unaudited)

 

      Frontier   Frontier   Frontier 
      Diversified Fund   Masters Fund   Long/Short Commodity Fund 
      Fair   % of Total Capital   Fair   % of Total Capital   Fair   % of Total Capital 
Description  Value   (Net Asset Value)   Value   (Net Asset Value)   Value   (Net Asset Value) 
SWAPS (1)                          
   Frontier XXXV Diversified select swap (U.S.)   $5,575,997    32.91%  $       $     
   Frontier XXXVII L/S select swap (U.S.)                   471,942    15.68%
   Total Swaps   $5,575,997    32.91%  $       $471,942    15.68%
                                  
PRIVATE INVESTMENT COMPANIES (3)                              
   Galaxy Plus Fund - EvE STP Feeder Fund (516) LLC   $1,476,849    8.72%  $1,337,703    19.69%  $427,126    14.19%
   Galaxy Plus Fund - Doherty Feeder Fund (528) LLC   1,252,158    7.39%                
   Galaxy Plus Fund - Fort Contrarian Feeder Fund (510) LLC   1,815,491    10.71%                
   Galaxy Plus Fund - QIM Feeder Fund (526) LLC   1,502,795    8.87%                
   Galaxy Plus Fund - Quantmetrics Feeder Fund (527) LLC   2,014,288    11.89%                
   Galaxy Plus Fund - Quest Feeder Fund (517) LLC   343,205    2.03%                
   Galaxy Plus Fund - Aspect Feeder Fund (532) LLC   381,970    2.25%                
   Galaxy Plus Fund - Welton GDP Feeder Fund (538) LLC   2,966,027    17.50%   2,466,918    36.32%   788,388    26.20%
   Galaxy Plus Fund - TT Feeder Fund (531) LLC       0.00%   1,661,644    24.46%        
   Galaxy Plus Fund - LRR Feeder Fund (522) LLC   106,316    0.63%           732,562    24.34%
   Total Private Investment Companies   $11,859,099    69.99%   $5,466,265    80.47%   $1,948,076    64.73%
                               
INVESTMENT IN UNCONSOLIDATED TRADING COMPANIES (3)                              
   Frontier Trading Company XXXVIII, LLC   $197,274    1.16%   $107,720    1.59%   $99,860    3.32%
   Frontier Trading Company II, LLC   948,817    5.60%   862,225    12.69%        
   Total Investment in Unconsolidated Trading Companies   $1,146,091    6.76%   $969,945    14.28%   $99,860    3.32%
                                  
U.S. TREASURY SECURITIES (2)                              

FACE VALUE

  Fair Value        Fair Value        Fair Value      
$    7,737,000  US Treasury Note 6.875% due 08/15/2025 (Cost $9,813,689)   $938,408    5.54%   $512,411    7.54%   $475,024    15.78%
       $938,408    5.54%   $512,411    7.54%   $475,024    15.78%
                                  
Additional Disclosure on U.S. Treasury Securities  Face Value        Face Value        Face Value      
   US Treasury Note 6.875% due 08/15/2025 (2)  $756,959        $413,332        $383,175      
      $756,959        $413,332        $383,175      
                                  
Additional Disclosure on U.S. Treasury Securities  Cost        Cost        Cost      
   US Treasury Note 6.875% due 08/15/2025 (2)  $960,135        $524,275        $486,023      
      $960,135        $524,275        $486,023      

 

(1)See Note 4 to the Financial Statements.

(2)See Note 2 to the Financial Statements.

(3)See Note 5 to the Financial Statements.

 

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

8

 

The Series of Frontier Funds
Condensed Schedule of Investments
September 30, 2018 (unaudited)

 

      Frontier   Frontier 
      Balanced Fund   Select Fund 
      Fair   % of Total Capital   Fair   % of Total Capital 
Description  Value   (Net Asset Value)   Value   (Net Asset Value) 
LONG FUTURES CONTRACTS*                    
   Various agriculture futures contracts (Canada)  $    0.00%  $    0.00%
   Various agriculture futures contracts (Europe)   (2,512)   -0.01%       0.00%
   Various agriculture futures contracts (U.S.)   1,580    0.00%       0.00%
   Various base metals futures contracts (U.S.)   3,613    0.01%       0.00%
   Various energy futures contracts (U.S.)   22,560    0.06%       0.00%
   Various interest rates futures contracts (Europe)   40,355    0.12%       0.00%
   Various stock index futures contracts (Europe)   (1,774)   -0.01%       0.00%
   Various stock index futures contracts (Far East)   3,607    0.01%      0.00%
   Total Long Futures Contracts  $67,429    0.20%  $    0.00%
SHORT FUTURES CONTRACTS*                    
   Various agriculture futures contracts (Canada)  $22,220    0.06%  $     
   Various base metals futures contracts (U.S.)   (13,238)   -0.04%       0.00%
   Various interest rates futures contracts (Canada)   7,731    0.02%       0.00%
   Various interest rates futures contracts (Far East)   1,761    0.01%       0.00%
   Various interest rates futures contracts (U.S.)   20,016    0.06%       0.00%
   Various precious metal futures contracts (U.S.)   3,945    0.01%       0.00%
   Various soft futures contracts (Far East)   1,101    0.00%       0.00%
   Various soft futures contracts (U.S.)   35,385    0.10%       0.00%
   Various stock index futures contracts (Africa)   1,590    0.00%       0.00%
   Total Short Futures Contracts  $80,511    0.22%  $    0.00%
CURRENCY FORWARDS*                 
   Various currency forwards contracts (NA)  $(171,384)   -0.49%  $    0.00%
   Total Currency Forwards  $(171,384)   -0.49%  $    0.00%
   Total Open Trade Equity (Deficit)  $(23,444)   -0.07%  $    0.00%
SWAP (1)                    
   Frontier XXXIV Balanced select swap (U.S.)  $9,850,185    28.16%  $     
   Total Swap  $9,850,185    28.16%  $     
                        
PRIVATE INVESTMENT COMPANIES (3)                    
   Galaxy Plus Fund - EvE STP Feeder Fund (516) LLC  $2,821,492    8.07%        
   Galaxy Plus Fund - Doherty Feeder Fund (528) LLC   2,104,433    6.02%        
   Galaxy Plus Fund - Fort Contrarian Feeder Fund (510) LLC   3,469,606    9.92%        
   Galaxy Plus Fund - QIM Feeder Fund (526) LLC   3,321,217    9.49%        
   Galaxy Plus Fund - Quantmetrics Feeder Fund (527) LLC   4,232,025    12.10%        
   Galaxy Plus Fund - Quest Feeder Fund (517) LLC   343,487    0.98%        
   Galaxy Plus Fund - Aspect Feeder Fund (532) LLC   1,070,327    3.06%        
   Galaxy Plus Fund - Welton GDP Feeder Fund (538) LLC   6,552,503    18.73%   1,848,757    42.05%
   Galaxy Plus Fund - TT Feeder Fund (531) LLC       0.00%   1,594,258    36.26%
   Galaxy Plus Fund - LRR Feeder Fund (522) LLC   255,381    0.73%        
   Total Private Investment Companies  $24,170,471    69.09%  $3,443,015    78.32%
                        
INVESTMENT IN UNCONSOLIDATED COMPANIES (3)                    
   Frontier Trading Company II, LLC  $1,826,306    5.22%  $     
   Frontier Trading Company XXXVIII, LLC   318,508    0.91%   69,462    1.58%
   Frontier Trading Company XXXIX, LLC           538,309    12.24%
   Total Investment in Unconsolidated Trading Companies  $2,144,814    6.13%  $607,771    13.82%
                        
U.S. TREASURY SECURITIES (2)                    
FACE VALUE  Fair Value        Fair Value      
 7,737,000  US Treasury Note 6.875% due 08/15/2025 (Cost $9,813,689)   1,515,106    4.33%   330,422    7.52%
      $1,515,106    4.33%  $330,422    7.52%
                        
Additional Disclosure on U.S. Treasury Securities  Face Value        Face Value      
   US Treasury Note 6.875% due 08/15/2025 (2)  $1,222,149        $266,532      
      $1,222,149        $266,532      
                        
Additional Disclosure on U.S. Treasury Securities  Cost        Cost      
   US Treasury Note 6.875% due 08/15/2025 (2)  $1,550,186        $338,072      
      $1,550,186        $338,072      

 

*Except for those items disclosed, no individual futures, or forwards position constituted greater than 1 percent of Net Asset Value. Accordingly, the number of contracts and expiration dates are not presented.

 

(1)See Note 4 to the Financial Statements.

(2)See Note 2 to the Financial Statements.

(3)See Note 5 to the Financial Statements.

 

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

9

 

The Series of Frontier Funds
Condensed Schedule of Investments
September 30, 2018 (unaudited)

 

      Frontier   Frontier 
      Winton Fund   Heritage Fund 
      Fair   % of Total Capital   Fair   % of Total Capital 
Description  Value   (Net Asset Value)   Value   (Net Asset Value) 
SWAP (1)                
   Frontier Brevan Howard swap (U.S.)  $       $3,010,288    60.37%
   Total Swap  $       $3,010,288    60.37%
                        
PRIVATE INVESTMENT COMPANIES (3)                    
   Galaxy Plus Fund - Welton GDP Feeder Fund (538) LLC  $       $2,095,258    42.02%
   Total Private Investment Companies  $       $2,095,258    42.02%
                        
INVESTMENT IN UNCONSOLIDATED COMPANIES (3)                    
   Frontier Trading Company II, LLC  $3,966,234    38.60%  $731,077    14.66%
   Frontier Trading Company XXXVIII, LLC   1,044,558    10.17%   178,982    3.59%
   Total Investment in Unconsolidated Trading Companies  $5,010,792    48.77%  $910,059    18.25%
                        
U.S. TREASURY SECURITIES (2)                    
FACE VALUE  Fair Value        Fair Value      
 7,737,000  US Treasury Note 6.875% due 08/15/2025 (Cost $9,813,689)  $4,968,843    48.36%  $851,399    17.07%
      $4,968,843    48.36%  $851,399    17.07%
                        
Additional Disclosure on U.S. Treasury Securities  Face Value        Face Value      
   US Treasury Note 6.875% due 08/15/2025 (2)  $4,008,078        $686,775      
      $4,008,078        $686,775      
                        
Additional Disclosure on U.S. Treasury Securities  Cost        Cost      
   US Treasury Note 6.875% due 08/15/2025 (2)  $5,083,887        $871,112      
      $5,083,887        $871,112      

 

*Except for those items disclosed, no individual futures, or forwards contract position constituted greater than 1 percent of Net Asset Value. Accordingly, the number of contracts and expiration dates are not presented.

 

(1)See Note 4 to the Financial Statements.
(2)See Note 2 to the Financial Statements.
(3)See Note 5 to the Financial Statements.

 

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

10

 

The Series of Frontier Funds

Condensed Schedule of Investments

December 31, 2017

 

       Frontier   Frontier   Frontier 
       Diversified Fund   Masters Fund   Long/Short Commodity Fund 
       Fair   % of Total Capital   Fair   % of Total Capital   Fair   % of Total Capital 
Description      Value   (Net Asset Value)   Value   (Net Asset Value)   Value   (Net Asset Value) 
SWAPS (1)                           
     Frontier XXXV Diversified select swap (U.S.)  $6,376,472    29.70%  $       $     
     Frontier XXXVII L/S select swap (U.S.)                   397,039    9.33%
     Total Swaps  $6,376,472    29.70%  $       $397,039    9.33%
                                    
PRIVATE INVESTMENT COMPANIES (3)                    
     Galaxy Plus Fund - Chesapeake Feeder Fund (518)  $484,742    2.26%  $967,528    8.09%  $322,105    7.57%
     Galaxy Plus Fund - EvE STP Feeder Fund (516) LLC   1,447,461    6.74%   1,588,149    13.28%   576,154    13.54%
     Galaxy Plus Fund - Doherty Feeder Fund (528) LLC   1,253,230    5.84%                
     Galaxy Plus Fund - Fort Contrarian Feeder Fund (510) LLC   1,713,788    7.98%                
     Galaxy Plus Fund - QIM Feeder Fund (526) LLC   2,203,960    10.27%                
     Galaxy Plus Fund - Quantmetrics Feeder Fund (527) LLC   2,067,025    9.63%                
     Galaxy Plus Fund - Quest Feeder Fund (517) LLC   379,664    1.77%                
     Galaxy Plus Fund - Aspect Feeder Fund (532) LLC   479,522    2.23%                
     Galaxy Plus Fund - Welton GDP Feeder Fund (538) LLC   4,343,060    20.23%   3,203,382    26.79%   1,024,222    24.08%
     Galaxy Plus Fund - TT Feeder Fund (531) LLC       0.00%   2,648,109    22.15%        
     Galaxy Plus Fund - LRR Feeder Fund (522) LLC   129,058    0.60%           1,096,090    25.77%
     Total Private Investment Companies  $14,501,510    67.54%  $8,407,168    70.31%  $3,018,571    70.96%
                                    
INVESTMENT IN UNCONSOLIDATED TRADING COMPANIES (3) 
     Frontier Trading Company XXXVIII, LLC  $151,600    0.71%  $328,679    2.75%  $121,510    2.86%
     Frontier Trading Company II, LLC   2,073,610    9.66%   1,172,463    9.81%        
     Total Investment in Unconsolidated Trading Companies  $2,225,210    10.37%  $1,501,142    12.55%  $121,510    2.86%
                                    
U.S. TREASURY SECURITIES (2)       
FACE VALUE    Fair Value        Fair Value        Fair Value      
$9,000,000   US Treasury Note 6.875% due 08/15/2025 (Cost $12,218,715)  $767,049    3.57%  $1,663,014    13.91%  $614,803    14.45%
        $767,049    3.57%  $1,663,014    13.91%  $614,803    14.45%
                                    
Additional Disclosure on U.S. Treasury Securities  Face Value        Face Value        Face Value      
     US Treasury Note 6.875% due 08/15/2025 (2)  $582,555        $1,263,017        $466,927      
        $582,555        $1,263,017        $466,927      
                                    
Additional Disclosure on U.S. Treasury Securities  Cost        Cost        Cost      
     US Treasury Note 6.875% due 08/15/2025 (2)  $774,221        $1,678,562        $620,551      
        $774,221        $1,678,562        $620,551      

 

(1)See Note 4 to the Financial Statements.
(2)See Note 2 to the Financial Statements.
(3)See Note 5 to the Financial Statements.

 

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

11

 

The Series of Frontier Funds

Condensed Schedule of Investments

December 31, 2017

 

       Frontier   Frontier 
       Balanced Fund   Select Fund 
       Fair   % of Total Capital   Fair   % of Total Capital 
Description    Value   (Net Asset Value)   Value   (Net Asset Value) 
LONG FUTURES CONTRACTS*                   
     Various base metals futures contracts (U.S.)  $61,371    0.13%  $    0.00%
     Various energy futures contracts (U.S.)   96,294    0.20%       0.00%
     Various interest rates futures contracts (Europe)   3,733    0.01%       0.00%
     Various interest rates futures contracts (Far East)   (1,776)   0.00%       0.00%
     Various interest rates futures contracts (Oceanic)   (15,653)   -0.03%       0.00%
     Various soft futures contract (U.S.)   31,613    0.07%       0.00%
     Various stock index futures contracts (Canada)   4,274    0.01%       0.00%
     Various stock index futures contracts (Europe)   (237)   0.00%       0.00%
     Various stock index futures contracts (Far East)   5,757    0.01%       0.00%
     Various stock index futures contracts (Oceanic)   (1,525)   0.00%       0.00%
     Various stock index futures contracts (U.S.)   604    0.00%       0.00%
     Total Long Futures Contracts  $184,455    0.39%  $    0.00%
SHORT FUTURES CONTRACTS*                    
     Various base metals futures contracts (U.S.)  $(66,901)   -0.14%  $     
     Various currency futures contracts (U.S.)   40,897    0.08%       0.00%
     Various energy futures contracts (U.S.)   (28,561)   -0.06%       0.00%
     Various interest rates futures contracts (Canada)   (5,167)   -0.01%       0.00%
     Various interest rates futures contracts (Oceanic)   1,509    0.00%       0.00%
     Various precious metal futures contracts (U.S.)   (12,435)   -0.03%       0.00%
     Various soft futures contract (U.S.)   18,277    0.04%       0.00%
     Various soft futures contracts (Europe)   12,909    0.03%       0.00%
     Total Short Futures Contracts  $(39,472)   -0.09%  $    0.00%
CURRENCY FORWARDS*                    
     Various currency forwards contracts (NA)  $33,569    0.07%  $    0.00%
     Total Currency Forwards  $33,569    0.07%  $    0.00%
     Total Open Trade Equity (Deficit)  $178,552    0.37%  $    0.00%
SWAP (1)                   
     Frontier XXXIV Balanced select swap (U.S.)  $11,340,959    23.51%  $     
     Total Swap  $11,340,959    23.51%  $     
                          
PRIVATE INVESTMENT COMPANIES (3)               
     Galaxy Plus Fund - EvE STP Feeder Fund (516) LLC  $2,896,099    6.00%  $     
     Galaxy Plus Fund - Aspect Feeder Fund (532) LLC   1,439,828    2.99%        
     Galaxy Plus Fund - Doherty Feeder Fund (528) LLC   2,506,740    5.20%        
     Galaxy Plus Fund - Fort Contrarian Feeder Fund (510) LLC   5,809,539    12.04%        
     Galaxy Plus Fund - QIM Feeder Fund (526) LLC   4,403,708    9.13%        
     Galaxy Plus Fund - Quantmetrics Feeder Fund (527) LLC   4,137,638    8.58%        
     Galaxy Plus Fund - LRR Feeder Fund (522) LLC   258,329    0.54%        
     Galaxy Plus Fund - Welton GDP Feeder Fund (538) LLC   8,670,031    17.98%   3,032,072    44.58%
     Galaxy Plus Fund - TT Feeder Fund (531) LLC       0.00%   2,547,157    37.45%
     Galaxy Plus Fund - Quest Feeder Fund (517) LLC   379,983    0.79%        
     Total Private Investment Companies  $30,501,895    63.23%  $5,579,229    82.02%
                          
INVESTMENT IN UNCONSOLIDATED COMPANIES (3)           
     Frontier Trading Company II, LLC  $3,046,981    6.32%  $     
     Frontier Trading Company XXXVIII, LLC   131,195    0.27%   91,790    1.35%
     Frontier Trading Company XXXIX, LLC           579,073    8.51%
     Total Investment in Unconsolidated Trading Companies  $3,178,176    6.60%  $670,863    9.87%
                          
U.S. TREASURY SECURITIES (2)            
FACE VALUE  Fair Value        Fair Value      
$9,000,000   US Treasury Note 6.875% due 08/15/2025 (Cost $12,218,715)   663,808    1.38%   464,427    6.83%
        $663,808    1.38%  $464,427    6.83%
                          
Additional Disclosure on U.S. Treasury Securities  Face Value        Face Value      
     US Treasury Note 6.875% due 08/15/2025 (2)  $504,145        $352,721      
        $504,145        $352,721      
                          
Additional Disclosure on U.S. Treasury Securities  Cost        Cost      
     US Treasury Note 6.875% due 08/15/2025 (2)  $670,014        $468,769      
        $670,014        $468,769      

 

*Except for those items disclosed, no individual futures, or forwards position constituted greater than 1 percent of Net Asset Value. Accordingly, the number of contracts and expiration dates are not presented.

 

(1)See Note 4 to the Financial Statements.
(2)See Note 2 to the Financial Statements.
(3)See Note 5 to the Financial Statements.

 

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

12

 

The Series of Frontier Funds

Condensed Schedule of Investments

December 31, 2017

 

       Frontier   Frontier 
       Winton Fund   Heritage Fund 
       Fair   % of Total Capital   Fair     % of Total Capital 
Description  Value   (Net Asset Value)   Value     (Net Asset Value) 
SWAP (1)                    
     Frontier Brevan Howard swap (U.S.)  $       $3,094,367    45.63%
     Total Swap  $       $3,094,367    45.63%
                          
PRIVATE INVESTMENT COMPANIES (3)                    
     Galaxy Plus Fund - Welton GDP Feeder Fund (538) LLC  $       $2,772,993    40.89%
     Total Private Investment Companies  $       $2,772,993    40.89%
                          
INVESTMENT IN UNCONSOLIDATED COMPANIES (3)                 
     Frontier Trading Company II, LLC  $6,867,383    46.25%  $1,340,071    19.76%
     Frontier Trading Company XXXVIII, LLC   1,120,192    7.54%   206,903    3.05%
     Total Investment in Unconsolidated Trading Companies  $7,987,575    53.79%  $1,546,974    22.81%
                          
U.S. TREASURY SECURITIES (2)                
FACE VALUE    Fair Value        Fair Value      
$9,000,000   US Treasury Note 6.875% due 08/15/2025 (Cost $12,218,715)  $5,667,825    38.17%  $1,046,861    15.44%
        $5,667,825    38.17%  $1,046,861    15.44%
                          
Additional Disclosure on U.S. Treasury Securities  Face Value        Face Value      
     US Treasury Note 6.875% due 08/15/2025 (2)  $4,304,570        $795,065      
        $4,304,570        $795,065      
                          
Additional Disclosure on U.S. Treasury Securities  Cost        Cost      
     US Treasury Note 6.875% due 08/15/2025 (2)  $5,720,817        $1,056,649      
        $5,720,817        $1,056,649      

 

*Except for those items disclosed, no individual futures, or forwards contract position constituted greater than 1 percent of Net Asset Value. Accordingly, the number of contracts and expiration dates are not presented.

 

(1)See Note 4 to the Financial Statements.
(2)See Note 2 to the Financial Statements.
(3)See Note 5 to the Financial Statements.

 

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

13

 

The Series of Frontier Funds

Statements of Operations

For the Three Months Ended September 30, 2018 and 2017

(Unaudited)

 

                   Frontier Long/Short Commodity 
   Frontier Diversified Fund   Frontier Masters Fund   Fund 
                         
   9/30/2018   9/30/2017   9/30/2018   9/30/2017   9/30/2018   9/30/2017 
                               
Investment income:                              
Interest - net  $9,370   $1,825   $4,707   $13,174   $3,176   $ 
                               
Total Income   9,370    1,825    4,707    13,174    3,176     
                               
Expenses:                              
Incentive Fees (rebate)   10,897                     
Management Fees   13,113    13,509    22,605    26,862         
Service Fees - Class 1   14,432    24,584    11,605    19,585    334    1,867 
Trading Fees   145,750    221,452    95,225    151,229    19,318    40,897 
Other Fees                       (2,428)
                               
Total Expenses   184,192    259,545    129,435    197,676    19,652    40,336 
                               
Investment (loss) - net   (174,822)   (257,720)   (124,728)   (184,502)   (16,476)   (40,336)
                               
Realized and unrealized gain/(loss) on investments:                              
Net unrealized gain/(loss) on private investment companies   (191,468)   (581,919)   (43,433)   (284,393)   (110,281)   2,553 
Net realized gain/(loss) on private investment companies   (25,826)   475,572    11,891    152,190    (34,683)   22,256 
Net unrealized gain/(loss) on swap contracts   (213,803)   145,433            39,017    50,384 
Net realized gain/(loss) on U.S. Treasury securities   (11,658)       (5,337)       (4,663)    
Net unrealized gain/(loss) on U.S. Treasury securities   3,255    (3,031)   27,844    (5,333)   (2,297)   (1,069)
Change in fair value of investments in unconsolidated trading companies   36,144    32,229    (1,603)   31,473    1,511    (1,334)
                               
Net gain/(loss) on investments   (403,356)   68,284    (10,638)   (106,063)   (111,396)   72,790 
                               
NET INCREASE/(DECREASE) IN CAPITAL RESULTING FROM OPERATIONS   (578,178)   (189,436)   (135,366)   (290,565)   (127,872)   32,454 
                               
Less: Operations attributable to non-controlling interests                        
                               
NET INCREASE/(DECREASE) IN CAPITAL RESULTING FROM OPERATIONS ATTRIBUTABLE TO CONTROLLING INTERESTS  $(578,178)  $(189,436)  $(135,366)  $(290,565)  $(127,872)  $32,454 
                               
NET INCREASE/(DECREASE) IN CAPITAL RESULTING FROM OPERATIONS ATTRIBUTABLE TO CONTROLLING INTERESTS PER UNIT                              
Class 1  $(3.84)  $(1.63)  $(2.13)  $(2.98)   N/A    N/A 
Class 1a   N/A    N/A    N/A    N/A   $(4.59)  $(0.37)
Class 2  $(3.96)  $(1.32)  $(1.99)  $(2.95)  $(2.98)  $(0.03)
Class 2a   N/A    N/A    N/A    N/A   $(4.98)  $(0.03)
Class 3  $(3.62)  $(1.15)  $(1.78)  $(2.67)  $(3.13)  $(0.02)
Class 3a   N/A    N/A    N/A    N/A   $(5.17)  $0.03 

 

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

14

 

The Series of the Frontier Funds

Statements of Operations

For the Three Months Ended September 30, 2018 and 2017

(Unaudited)

 

   Frontier Balanced Fund   Frontier Select Fund 
                 
   9/30/2018   9/30/2017   9/30/2018   9/30/2017 
                     
Investment income:                    
Interest - net  $10,592   $8,254   $   $ 
                     
Total Income/(loss)   10,592    8,254         
                     
Expenses:                    
Management Fees   26,643    25,760         
Risk analysis Fees   1,612    5,009         
Service Fees - Class 1   222,302    323,572    32,149    46,479 
Trading Fees   339,537    462,275    27,076    39,673 
                     
Total Expenses   590,094    816,616    59,225    86,152 
                     
Investment (loss) - net   (579,502)   (808,362)   (59,225)   (86,152)
                     
Realized and unrealized gain/(loss) on investments:                    
Net realized gain/(loss) on futures, forwards and options   13,124    82,008         
Net unrealized gain/(loss) on private investment companies   (373,146)   (727,964)   163,993    (246,067)
Net realized gain/(loss) on private investment companies   8,097    689,463    (61,092)   (47,803)
Net change in open trade equity/(deficit)   (63,530)   (84,039)        
Net unrealized gain/(loss) on swap contracts   (620,424)   356,572         
Net realized gain/(loss) on U.S. Treasury securities   (18,391)       (1,918)    
Net unrealized gain/(loss) on U.S. Treasury securities   421    (3,909)   13,357    1,751 
Trading commissions   (12,466)   (8,224)        
Change in fair value of investments in unconsolidated trading companies   49,118    63,498    (16,945)   45,390 
                     
Net gain/(loss) on investments   (1,017,197)   367,405    97,395    (246,729)
                     
NET INCREASE/(DECREASE) IN CAPITAL RESULTING FROM OPERATIONS   (1,596,699)   (440,957)   38,170    (332,881)
                     
Less: Operations attributable to non-controlling interests                
                     
NET INCREASE/(DECREASE) IN CAPITAL RESULTING FROM OPERATIONS ATTRIBUTABLE TO CONTROLLING INTERESTS  $(1,596,699)  $(440,957)  $38,170   $(332,881)
                     
NET INCREASE/(DECREASE) IN CAPITAL RESULTING FROM OPERATIONS ATTRIBUTABLE TO CONTROLLING INTERESTS PER UNIT                    
Class 1  $(5.40)  $(1.64)  $0.66   $(4.33)
Class 1AP  $(5.05)  $(0.73)  $1.38   $(4.02)
Class 2  $(6.82)  $(0.98)  $1.84   $(5.45)
Class 2a  $(5.85)  $(0.79)   N/A    N/A 
Class 3a  $(5.83)  $(0.80)   N/A    N/A 

 

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

15

 

The Series of the Frontier Funds

Statements of Operations

For the Three Months Ended September 30, 2018 and 2017

(Unaudited)

 

   Frontier Winton Fund   Frontier Heritage Fund 
                 
   9/30/2018   9/30/2017   9/30/2018   9/30/2017 
                     
Investment income:                    
Interest - net  $   $19,732   $   $ 
                     
Total Income       19,732         
                     
Expenses:                    
Management Fees   104,062    188,835    22,635    43,021 
Risk analysis Fees       26,057         
Service Fees - Class 1   76,839    99,725    29,343    40,954 
Trading Fees   73,379    127,661    33,624    36,907 
                     
Total Expenses   254,280    442,278    85,602    120,882 
                     
Investment (loss) - net   (254,280)   (422,546)   (85,602)   (120,882)
                     
Realized and unrealized gain/(loss) on investments:                    
Net realized gain/(loss) on futures, forwards and options       (276,209)        
Net unrealized gain/(loss) on private investment companies           21,582    (120,769)
Net realized gain/(loss) on private investment companies           (17,465)    
Net change in open trade equity/(deficit)       775,332         
Net unrealized gain/(loss) on swap contracts           6,454    110,814 
Net realized gain/(loss) on U.S. Treasury securities   (48,714)       (7,717)    
Net unrealized gain/(loss) on U.S. Treasury securities   (41,503)   (11,591)   (1,094)   238 
Trading commissions       (15,820)        
Change in fair value of investments in unconsolidated trading companies   156,865    (31,155)   20,832    36,791 
                     
Net gain/(loss) on investments   66,648    440,557    22,592    27,074 
                     
NET INCREASE/(DECREASE) IN CAPITAL RESULTING FROM OPERATIONS   (187,632)   18,011    (63,010)   (93,808)
                     
Less: Operations attributable to non-controlling interests       214,425    3,130    53,727 
                     
NET INCREASE/(DECREASE) IN CAPITAL RESULTING FROM OPERATIONS ATTRIBUTABLE TO CONTROLLING INTERESTS  $(187,632)  $(196,414)  $(66,140)  $(147,535)
                     
NET INCREASE/(DECREASE) IN CAPITAL RESULTING FROM OPERATIONS ATTRIBUTABLE TO CONTROLLING INTERESTS PER UNIT                    
Class 1  $(2.64)  $(1.79)  $(1.58)  $(2.99)
Class 1AP  $(1.68)  $(0.76)  $(0.88)  $(2.39)
Class 2  $2.73   $(0.96)  $(1.23)  $(3.21)

 

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

16

 

The Series of Frontier Funds

Statements of Operations

For the Nine Months Ended September 30, 2018 and 2017

(Unaudited)

 

                   Frontier Long/Short Commodity 
   Frontier Diversified Fund   Frontier Masters Fund   Fund 
                         
   9/30/2018   9/30/2017   9/30/2018   9/30/2017   9/30/2018   9/30/2017 
                               
Investment income:                              
Interest - net  $27,408   $99,222   $21,441   $72,591   $10,635   $ 
                               
Total Income   27,408    99,222    21,441    72,591    10,635     
                               
Expenses:                              
Incentive Fees (rebate)   12,778    (63,508)               (87,670)
Management Fees   37,905    69,251    83,816    150,767         
Service Fees - Class 1   45,236    110,769    39,503    72,519    1,398    12,838 
Trading Fees   454,513    1,154,233    335,271    527,813    65,530    183,990 
Other Fees       1,766        1,792        22,548 
                               
Total Expenses   550,432    1,272,511    458,590    752,891    66,928    131,706 
                               
Investment (loss) - net   (523,024)   (1,173,289)   (437,149)   (680,300)   (56,293)   (131,706)
                               
Realized and unrealized gain/(loss) on investments:                              
Net unrealized gain/(loss) on private investment companies   (1,717,819)   (207,161)   (1,253,590)   (977,064)   (274,347)   (329,330)
Net realized gain/(loss) on private investment companies   45,769    1,567,660    96,298    429,868    (186,723)   (4,741)
Net unrealized gain/(loss) on swap contracts   299,525    147,788            74,903    39,954 
Net realized gain/(loss) on U.S. Treasury securities   (48,013)   (354,609)   (45,508)   (286,742)   (34,564)   227,895 
Net unrealized gain/(loss) on U.S. Treasury securities   (609)   569,536    10,785    328,820    1,715    (212,189)
Change in fair value of investments in unconsolidated trading companies   40,546    (311,775)   (78,937)   (366,569)   (301)   47,097 
                               
Net gain/(loss) on investments   (1,380,601)   1,411,439    (1,270,952)   (871,687)   (419,317)   (231,314)
                               
NET INCREASE/(DECREASE) IN CAPITAL RESULTING FROM OPERATIONS   (1,903,625)   238,150    (1,708,101)   (1,551,987)   (475,610)   (363,020)
                               
Less: Operations attributable to non-controlling interests                        
                               
NET INCREASE/(DECREASE) IN CAPITAL RESULTING FROM OPERATIONS ATTRIBUTABLE TO CONTROLLING INTERESTS  $(1,903,625)  $238,150   $(1,708,101)  $(1,551,987)  $(475,610)  $(363,020)
                               
NET INCREASE/(DECREASE) IN CAPITAL RESULTING FROM OPERATIONS ATTRIBUTABLE TO CONTROLLING INTERESTS PER UNIT                              
Class 1  $(11.95)  $(6.33)  $(17.54)  $(13.39)   N/A    N/A 
Class 1a   N/A    N/A    N/A    N/A   $(15.16)  $(9.52)
Class 2  $(12.28)  $(5.64)  $(18.88)  $(13.83)  $(12.27)  $(13.24)
Class 2a   N/A    N/A    N/A    N/A   $(16.44)  $(10.31)
Class 3  $(11.21)  $(5.00)  $(17.41)  $(12.66)  $(12.88)  $(8.76)
Class 3a   N/A    N/A    N/A    N/A   $(17.05)  $(7.71)

 

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

17

 

The Series of the Frontier Funds

Statements of Operations

For the Nine Months Ended September 30, 2018 and 2017

(Unaudited)

 

   Frontier Balanced Fund   Frontier Select Fund 
                 
   9/30/2018   9/30/2017   9/30/2018   9/30/2017 
                     
Investment income:                    
Interest - net  $35,536   $9,415   $   $ 
                     
Total Income/(loss)   35,536    9,415         
                     
Expenses:                    
Incentive Fees (rebate)   145,134             
Management Fees   69,545    102,297        102,047 
Risk analysis Fees   5,141    12,566        6,829 
Service Fees - Class 1   723,093    1,106,847    105,111    176,247 
Trading Fees   1,068,482    1,625,446    92,779    137,940 
Other Fees       190,804        (5,094)
                     
Total Expenses   2,011,395    3,037,960    197,890    417,969 
                     
Investment (loss) - net   (1,975,859)   (3,028,545)   (197,890)   (417,969)
                     
Realized and unrealized gain/(loss) on investments:                    
Net realized gain/(loss) on futures, forwards and options   (270,212)   (569,161)       (695,436)
Net unrealized gain/(loss) on private investment companies   (3,522,386)   (1,919,200)   (797,340)   (779,294)
Net realized gain/(loss) on private investment companies   244,703    3,954,532    (1,526)   (45,798)
Net change in open trade equity/(deficit)   (141,192)   (403,237)       (145,848)
Net unrealized gain/(loss) on swap contracts   509,226    420,488         
Net realized gain/(loss) on U.S. Treasury securities   (63,298)   (228,904)   (14,456)   (170,783)
Net unrealized gain/(loss) on U.S. Treasury securities   (6,119)   483,160    1,522    202,502 
Trading commissions   (41,403)   (51,477)       (46,591)
Change in fair value of investments in unconsolidated trading companies   105,602    (373,803)   (53,962)   (319,255)
                     
Net gain/(loss) on investments   (3,185,079)   1,312,398    (865,762)   (2,000,503)
                     
NET INCREASE/(DECREASE) IN CAPITAL RESULTING FROM OPERATIONS   (5,160,938)   (1,716,147)   (1,063,652)   (2,418,472)
                     
Less: Operations attributable to non-controlling interests               (432,628)
                     
NET INCREASE/(DECREASE) IN CAPITAL RESULTING FROM OPERATIONS ATTRIBUTABLE TO CONTROLLING INTERESTS  $(5,160,938)  $(1,716,147)  $(1,063,652)  $(1,985,844)
                     
NET INCREASE/(DECREASE) IN CAPITAL RESULTING FROM OPERATIONS ATTRIBUTABLE TO CONTROLLING INTERESTS PER UNIT                    
Class 1  $(16.15)  $(6.60)  $(14.86)  $(19.60)
Class 1AP  $(14.93)  $(3.99)  $(14.57)  $(19.28)
Class 2  $(20.00)  $(5.35)  $(19.32)  $(25.59)
Class 2a  $(17.29)  $(4.07)   N/A    N/A 
Class 3a  $(17.24)  $(4.07)   N/A    N/A 

 

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

18

 

The Series of the Frontier Funds

Statements of Operations

For the Nine Months Ended September 30, 2018 and 2017

(Unaudited)

 

   Frontier Winton Fund   Frontier Heritage Fund 
                 
   9/30/2018   9/30/2017   9/30/2018   9/30/2017 
                     
Investment income:                    
Interest - net  $   $19,732   $   $ 
                     
Total Income       19,732         
                     
Expenses:                    
Incentive Fees (rebate)       (49,790)   1,394    (4,603)
Management Fees   366,404    677,921    92,509    160,879 
Risk analysis Fees       96,830         
Service Fees - Class 1   252,006    368,816    97,753    141,741 
Trading Fees   236,657    431,025    112,771    146,164 
Other       7,074        1,732 
                     
Total Expenses   855,067    1,531,876    304,427    445,913 
                     
Investment (loss) - net   (855,067)   (1,512,144)   (304,427)   (445,913)
                     
Realized and unrealized gain/(loss) on investments:                    
Net realized gain/(loss) on futures, forwards and options       1,053,217         
Net unrealized gain/(loss) on private investment companies           (498,155)   (120,769)
Net realized gain/(loss) on private investment companies           (98,763)    
Net change in open trade equity/(deficit)       (1,630,449)        
Net unrealized gain/(loss) on swap contracts           (84,079)   (513,913)
Net realized gain/(loss) on U.S. Treasury securities   (253,908)   (1,104,301)   (40,316)   (211,694)
Net unrealized gain/(loss) on U.S. Treasury securities   11,126    1,194,837    2,583    291,328 
Trading commissions       (44,385)        
Change in fair value of investments in unconsolidated trading companies   (95,896)   (334,372)   22,800    (170,930)
                     
Net gain/(loss) on investments   (338,678)   (865,453)   (695,930)   (725,978)
                     
NET INCREASE/(DECREASE) IN CAPITAL RESULTING FROM OPERATIONS   (1,193,745)   (2,377,597)   (1,000,357)   (1,171,891)
                     
Less: Operations attributable to non-controlling interests       (352,116)   (40,765)   (249,164)
                     
NET INCREASE/(DECREASE) IN CAPITAL RESULTING FROM OPERATIONS ATTRIBUTABLE TO CONTROLLING INTERESTS  $(1,193,745)  $(2,025,481)  $(959,592)  $(922,727)
                     
NET INCREASE/(DECREASE) IN CAPITAL RESULTING FROM OPERATIONS ATTRIBUTABLE TO CONTROLLING INTERESTS PER UNIT                    
Class 1  $(13.06)  $(12.21)  $(20.10)  $(13.59)
Class 1AP  $(10.93)  $(9.67)  $(19.70)  $(12.05)
Class 2  $(10.30)  $(12.28)  $(26.39)  $(16.13)

 

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

19

 

The Series of Frontier Funds

Statements of Changes in Owners’ Capital

For the Nine Months Ended September 30, 2018 (unaudited)

 

   Frontier Diversified Fund   Frontier Masters Fund 
   Class 1   Class 2   Class 2   Class 3   Class 3           Class 1   Class 2   Class 2   Class 3   Class 3         
   Limited Owners   Managing
Owner
   Limited
Owners
   Managing
Owner
   Limited
Owners
   Non-
Controlling
Interests
   Total   Limited
Owners
   Managing
Owner
   Limited
Owners
   Managing
Owner
   Limited
Owners
   Non-
Controlling
Interests
   Total 
Owners’ Capital, December 31, 2017  $2,332,222   $3,361   $9,629,385   $213,164   $9,288,555   $   $21,466,687   $2,913,542   $87,344   $3,451,256   $34,209   $5,470,789       $11,957,140 
                                                                       
Sale of Units                                                        
Redemption of Units   (354,495)       (933,695)   (19,000)   (1,311,411)       (2,618,601)   (299,860)   (20,000)   (1,457,163)   (8,000)   (1,671,345)       (3,456,368)
Transfer of Units In(Out)                               (80,257)               80,257         
Capital resulting from operations attributable to controlling interests   (237,395)   (305)   (836,809)   (18,901)   (810,215)       (1,903,625)   (430,946)   (12,773)   (516,137)   (4,954)   (743,291)       (1,708,101)
                                                                       
Owners’ Capital, September 30, 2018  $1,740,332   $3,056   $7,858,881   $175,263   $7,166,929   $   $16,944,461   $2,102,479   $54,571   $1,477,956   $21,255   $3,136,410   $   $6,792,671 
                                                                       
Owners’ Capital - Units, December 31, 2017   20,035    25    71,229    1,696    73,905              25,393    655    25,898    275    43,979           
                                                                       
Sale of Units (including transfers)                                                            
Redemption of Units (including transfers)   (3,373)       (7,287)   (165)   (11,299)             (3,762)   (178)   (12,977)   (76)   (14,664)          
                                                                       
Owners’ Capital - Units, September 30, 2018   16,662    25    63,942    1,531    62,606              21,631    477    12,921    199    29,315           
                                                                       
              (1)        (1)                       (1)        (1)          
Net asset value per unit at December 31, 2017   116.41         135.19         125.68             $114.74        $133.27        $124.40           
                                                                       
Change in net asset value per unit for the Nine months ended September 30, 2018   (11.95)        (12.28)        (11.21)             (17.54)        (18.88)        (17.41)          
                                                                       
Net asset value per unit at September 30, 2018  $104.46        $122.91        $114.47             $97.20        $114.39        $106.99           

 

(1)Values are for both the Managing Owner and Limited Owners.

 

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

20

 

The Series of Frontier Funds

Statements of Changes in Owners’ Capital

For the Nine Months Ended September 30, 2018 (unaudited)

 

   Frontier Long/Short Commodity Fund     
   Class 2   Class 3   Class 1a   Class 2a   Class 3a         
   Managing
Owner
   Limited Owners   Limited Owners   Limited Owners   Managing Owner   Limited Owners   Managing Owner   Limited Owners   Non-Controlling
Interests
   Total 
Owners’ Capital, December 31, 2017  $11,999   $246,901   $2,472,994   $107,619   $34,112   $408,532   $1,759   $970,136       $4,254,052 
                                                   
Sale of Units                                        
Redemption of Units   (4,500)   (109,612)   (215,389)   (79,178)   (4,501)   (92,090)       (263,745)       (769,015)
Transfer of Units In(Out)                                        
Capital resulting from operations attributable to controlling interests   (1,215)   (15,876)   (246,671)   (5,121)   (5,852)   (57,391)   (306)   (143,178)       (475,610)
                                                   
Owners’ Capital, September 30, 2018  $6,284   $121,413   $2,010,934   $23,320   $23,759   $259,051   $1,453   $563,213   $   $3,009,427 
                                                   
Owners’ Capital - Units, December 31, 2017   104    2,131    20,355    1,323    364    4,366    18    9,900           
                                                   
Sale of Units (including transfers)                                          
Redemption of Units (including transfers)   (43)   (959)   (1,842)   (970)   (57)   (1,007)       (2,944)          
                                                   
Owners’ Capital - Units, September 30, 2018   61    1,172    18,513    353    307    3,359    18    6,956           
                                                   
         (1)                  (1)        (1)          
Net asset value per unit at December 31, 2017        115.81    121.50    81.35         93.59         97.99           
                                                   
Change in net asset value per unit for the Nine months ended September 30, 2018        (12.27)   (12.88)   (15.16)        (16.44)        (17.05)          
                                                   
Net asset value per unit at September 30, 2018       $103.54   $108.62   $66.19        $77.15        $80.94           

 

(1)Values are for both the Managing Owner and Limited Owners.

 

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

21

 

The Series of Frontier Funds

Statements of Changes in Owners’ Capital

For the Nine Months Ended September 30, 2018 (unaudited)

 

   Frontier Balanced Fund 
   Class 1   Class 1AP   Class 2   Class 2a   Class 3a         
   Limited
Owners
   Limited
Owners
   Managing
Owner
   Limited
Owners
   Managing
Owner
   Limited
Owners
   Limited
Owners
  

Non-Controlling

Interests

   Total 
Owners’ Capital, December 31, 2017  $38,744,003   $601,247   $147,888   $6,829,139   $338,655   $191,276   $1,379,971       $48,232,179 
                                              
Sale of Units (including transfers)                                     
Redemption of Units (including transfers)   (6,038,368)   (111,300)   (7,000)   (1,507,640)   (10,000)   (65,968)   (348,080)       (8,088,356)
Net increase/(decrease) in Owners’ Capital resulting from operations attributable to controlling interests   (4,244,643)   (58,284)   (14,509)   (632,476)   (74,862)   (10,954)   (125,210)       (5,160,938)
                                              
Owners’ Capital, September 30, 2018  $28,460,992   $431,663   $126,379   $4,689,023   $253,793   $114,354   $906,681   $   $34,982,885 
                                              
Owners’ Capital - Units, December 31, 2017   284,956    3,993    729    33,657    1,926    1,089    7,877           
                                              
Sale of Units (including transfers)                                      
Redemption of Units (including transfers)   (47,409)   (810)   (38)   (8,022)   (325)   (367)   (2,137)          
                                              
Owners’ Capital - Units, September 30, 2018   237,547    3,183    691    25,635    1,601    722    5,740           
                                              
                   (1)        (1)               
Net asset value per unit at December 31, 2017   135.96    150.56         202.90         175.77    175.18           
                                              
Change in net asset value per unit for the Nine months ended September 30, 2018   (16.15)   (14.93)        (20.00)        (17.29)   (17.24)          
                                              
Net asset value per unit at September 30, 2018  $119.81   $135.63        $182.90        $158.48   $157.94           

 

(1)Values are for both the Managing Owner and Limited Owners.

 

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

22

 

The Series of Frontier Funds

Statements of Changes in Owners’ Capital

For the Nine Months Ended September 30, 2018 (unaudited)

 

   Frontier Select Fund   Frontier Winton Fund   Frontier Heritage Fund 
   Class 1   Class 1AP   Class 2           Class 1   Class 1AP   Class 2           Class 1   Class 1AP   Class 2         
   Limited
Owners
   Limited
Owners
   Managing
Owner
   Limited
Owners
   Non-Controlling
Interests
   Total   Limited
Owners
   Limited
Owners
   Managing
Owner
   Limited
Owners
   Non-
Controlling
Interests
   Total   Limited
Owners
   Limited
Owners
   Managing
Owner
   Limited
Owners
   Non-Controlling
Interests
   Total 
Owners’ Capital, December 31, 2017  $5,912,980   $23,354   $70,295   $795,299   $   $6,801,928   $13,102,614   $37,761   $153,552   $1,555,723   $   $14,849,650   $5,435,871   $6,083   $63,646   $697,026   $579,074   $6,781,700 
                                                                                           
Sale of Units                                                                        
Redemption of Units   (813,081)   (3,144)   (11,000)   (514,844)       (1,342,069)   (2,251,329)       (29,000)   (1,100,084)       (3,380,413)   (783,919)   (4,081)   (7,000)           (795,000)
Operations attributable to non-controlling interests                                                                   (40,765)   (40,765)
Transfer of Units In(Out)   (1,232)   1,232                                                                        
Net increase/(decrease) in Owners’ Capital resulting from operations attributable to controlling interests   (918,905)   (3,537)   (10,701)   (130,509)       (1,063,652)   (1,106,153)   (2,424)   (6,037)   (79,131)       (1,193,745)   (846,829)   (991)   (9,444)   (102,328)       (959,592)
                                                                                           
Owners’ Capital, September 30, 2018  $4,179,762   $17,905   $48,594   $149,946   $   $4,396,207   $9,745,132   $35,337    118,515   $376,508   $   $10,275,492   $3,805,123   $1,011   $47,202   $594,698   $538,309   $4,986,343 
                                                                                           
Owners’ Capital - Units, December 31, 2017   65,502    234    530    5,992              82,367    214    709    7,186              44,855    45    377    3,856           
                                                                                           
Sale of Units (including transfers)                                                                              
Redemption of Units (including transfers)   (10,075)   (24)   (101)   (4,670)             (15,627)       (145)   (5,360)             (7,219)   (36)   (46)              
                                                                                           
Owners’ Capital - Units, September 30, 2018   55,427    210    429    1,322              66,740    214    564    1,826              37,636    9    331    3,856           
                                                                                           
                   (1)                            (1)                            (1)          
Net asset value per unit at December 31, 2017   90.27    100.02         132.73              159.08    176.44         216.50             $121.19   $134.28        $179.70           
                                                                                           
Change in net asset value per unit for the Nine months ended September 30, 2018   (14.86)   (14.57)        (19.32)             (13.06)   (10.93)        (10.30)             (20.10)   (19.70)        (26.39)          
                                                                                           
Net asset value per unit at September 30, 2018  $75.41   $85.45        $113.40             $146.02   $165.51        $206.20             $101.10   $114.58        $153.31           

 

(1)Values are for both the Managing Owner and Limited Owners.

 

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

23

 

The Series of Frontier Funds

Statements of Cash Flows

For the Nine Months Ended September 30, 2018 and 2017

(Unaudited)

 

   Frontier Diversified Fund   Frontier Masters Fund   Frontier Long/Short Commodity Fund 
   9/30/2018   9/30/2017   9/30/2018   9/30/2017   9/30/2018   9/30/2017 
                               
Cash Flows from Operating Activities:                              
Net increase/(decrease) in capital resulting from operations  $(1,903,625)  $238,150   $(1,708,101)  $(1,551,987)  $(475,610)  $(363,020)
Adjustments to reconcile net increase/(decrease) in capital resulting from operations to net cash provided by (used in) operating activities:                              
Change in:                              
Net change in ownership allocation of U.S. Treasury securities   (69,880)    3,813,934    1,589,162    (317,619)   (208,272)   2,332,067 
Net unrealized (gain)/loss on swap contracts   (299,525)   (147,788)            (74,903)   (39,954) 
Net unrealized (gain)/loss on U.S. Treasury securities   609    (569,536)   (10,785)   (328,820)   (1,715)   212,189 
Net realized (gain)/loss on U.S. Treasury securities   48,013    354,609    45,508    286,742    34,564    (227,895)
Net unrealized (gain)/loss on private investment companies   1,717,819    207,161    1,253,590    977,064    274,347    329,330 
Net realized (gain)/loss on private investment companies   (45,769)   (1,567,660)   (96,298)   (429,868)   186,723    4,741 
(Purchases) sales of:                              
Sales of U.S. Treasury securities   1,665,387    2,785,190    1,553,660    3,016,330    1,189,411    (2,713,824)
Purchase of U.S. Treasury securities   (1,841,423)       (2,041,104)       (887,337)    
U.S. Treasury interest and premium paid/amortized   25,935    27,016    14,162    29,147    13,128    (10,182)
Purchase of Private Investment Companies   (3,430,348)   (13,705,362)   (2,928,656)   (7,857,452)   (1,081,849)   (2,634,827)
Reduction of collateral in Swap contracts   1,100,000    2,214,000                 3,850,050 
Sale of Private Investment Companies   4,400,709    37,197,835    4,712,267    5,461,344    1,691,274    5,356,545 
Increase and/or decrease in:                              
Investments in unconsolidated trading companies, at fair value   1,079,119    2,378,351    531,197    5,386,133    21,650    (82,293)
Prepaid service fees - Class 1                        
Interest receivable   6,341    121,045    27,586    69,848    8,761    (2,671)
Receivable from related parties       231,671        153,157        87,670 
Other assets       (36,188)   2,973        (43,557)    
Incentive fees payable to Managing Owner   (1,950)                    
Management fees payable to Managing Owner   4,195    (23,496)   (1,455)   (50,174)        
Interest payable to Managing Owner                   (59)   9 
Trading fees payable to Managing Owner   (13,905)   (77,010)   (16,958)   (7,511)   (2,866)   (10,716)
Service fees payable to Managing Owner   938    55,703    (945)   9,598    (106)   (1,970)
Payables to related parties                       (1,603,124)
Other liabilities   (21,907)   (19,674)   39,602    (5,776)   (0)   (5,481)
                               
Net cash provided by (used in) operating activities   2,420,733    33,477,951    2,965,405    4,840,156    643,584    4,476,644 
                               
Cash Flows from Financing Activities:                              
Proceeds from sale of units       785,006        67,610         
Payment for redemption of units   (2,618,601)   (34,998,790)   (3,456,368)   (3,779,383)   (769,015)   (4,157,575)
Change in owner redemptions payable   73,079    169,716    114,816    (131,842)   6,185    67,290 
                               
Net cash provided by (used in) financing activities   (2,545,522)   (34,044,068)   (3,341,552)   (3,843,615)   (762,830)   (4,090,285)
                               
Net increase (decrease) in cash and cash equivalents   (124,789)   (566,117)   (376,147)   996,541    (119,246)   386,359 
                               
Cash and cash equivalents, beginning of period   189,890    674,227    411,695    546,509    152,200     
Cash and cash equivalents, end of period  $65,101   $108,110   $35,548   $1,543,050   $32,954   $386,359 

 

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

24

 

The Series of Frontier Funds

Statements of Cash Flows

For the Nine Months Ended September 30, 2018 and 2017

(Unaudited)

 

   Frontier Balanced Fund   Frontier Select Fund 
   9/30/2018   9/30/2017   9/30/2018   9/30/2017 
                     
Cash Flows from Operating Activities:                    
Net increase/(decrease) in capital resulting from operations  $(5,160,938)  $(1,716,147)  $(1,063,652)  $(2,418,472)
Adjustments to reconcile net increase/(decrease) in capital resulting from operations to net cash provided by (used in) operating activities:                    
Change in:                    
Net change in open trade equity, at fair value   201,996    397,395        686,022 
Due from Managing Owner   184,106             
Net change in ownership allocation of U.S. Treasury securities   53,128    7,943,201    509,154    821,516 
Net unrealized (gain)/loss on swap contracts   (509,226)   (420,488)        
Net unrealized (gain)/loss on U.S. Treasury securities   6,119    (483,160)   (1,522)   (202,502)
Net realized (gain)/loss on U.S. Treasury securities   63,298    228,904    14,456    170,783 
Net unrealized (gain)/loss on private investment companies   3,522,386    1,919,200    797,340    779,294 
Net realized (gain)/loss on private investment companies   (244,703)   (3,954,532)   1,526    45,798 
(Purchases) sales of:                    
Sales of U.S. Treasury securities   2,213,107    887,884    501,919    1,731,714 
Purchases of U.S. Treasury securities   (3,228,823)       (899,134)    
U.S. Treasury interest and premium paid/amortized   41,873    24,870    9,132    15,979 
Purchase of Private Investment Companies   (6,751,508)   (15,315,922)   (2,471,707)   (6,800,023)
Sale of Private Investment Companies   9,805,250    30,906,344    3,809,055    1,034,717 
Reduction of collateral in Swap contracts   2,000,000    7,514,000          
Increase and/or decrease in:                    
Receivable from futures commission merchants   4,727,066    492,880        8,208,218 
Change in control of ownership - trading companies               (3,675,188)
Investments in unconsolidated trading companies, at fair value   1,033,362    3,213,364    63,092    3,361,211 
Interest receivable   2,361    174,699    6,820    51,905 
Receivable from related parties   (0)   346,875        103,407 
Other assets   (40,189)   (85,207)   (17,218)    
Incentive fees payable to Managing Owner   11,554             
Management fees payable to Managing Owner   1,063    (12,438)       (21,219)
Interest payable to Managing Owner   (32,716)   (18,335)   (593)   (2,644)
Trading fees payable to Managing Owner   (26,198)   (53,625)   (6,368)   (2,558)
Service fees payable to Managing Owner   302    9,837    (6,993)   (9,316)
Risk analysis fees payable       8,276        (2,303)
Other liabilities   125,196    (89,587)   (5,725)   (5,863)
                     
Net cash provided by (used in) operating activities   7,997,866    31,918,288    1,239,582    3,870,476 
                     
Cash Flows from Financing Activities:                    
Proceeds from sale of units       162,799        99,812 
Payment for redemption of units   (8,088,356)   (31,560,889)   (1,342,069)   (3,914,340)
Change in owner redemptions payable   31,266    (496,370)   10,437    (132,437)
                     
Net cash provided by (used in) financing activities   (8,057,090)   (31,894,460)   (1,335,704)   (3,946,965)
                     
Net increase (decrease) in cash and cash equivalents   (59,224)   23,828    (92,050)   (76,489)
                     
Cash and cash equivalents, beginning of period   164,332    1,083,579    114,973    432,021 
Cash and cash equivalents, end of period  $105,108   $1,107,407   $22,923   $355,532 

 

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

25

 

The Series of Frontier Funds

Statements of Cash Flows

For the Nine Months Ended September 30, 2018 and 2017

(Unaudited)

 

   Frontier Winton Fund   Frontier Heritage Fund 
   9/30/2018   9/30/2017   9/30/2018   9/30/2017 
                     
Cash Flows from Operating Activities:                    
Net increase/(decrease) in capital resulting from operations  $(1,193,745)  $(2,377,597)  $(1,000,357)  $(1,171,891)
Adjustments to reconcile net increase/(decrease) in capital resulting from operations to net cash provided by (used in) operating activities:                    
Change in:                    
Net change in open trade equity, at fair value       1,682,758         
Net change in ownership allocation of U.S. Treasury securities   (1,817,543)   (4,622,172)   (54,774)   635,669 
Net unrealized (gain)/loss on swap contracts           84,079    513,913 
Net unrealized (gain) loss on U.S. Treasury securities, at fair value   (11,126)   (1,194,837)   (2,583)   (291,328)
Net realized (gain) loss on U.S. Treasury securities, at fair value   253,908    1,104,301    40,316    211,694 
Net unrealized gain/(loss) on private investment companies            498,155    120,769 
Net realized gain/(loss) on private investment companies            98,763     
(Purchases) sale of:                    
Sales of U.S. Treasury Securities   8,763,298    12,652,125    1,393,371    2,231,740 
Purchases of U.S. Treasury Securities   (6,626,880)       (1,204,398)    
U.S. Treasury interest and premium paid/amortized   137,325    119,303    23,530    22,396 
Purchase of Private Investment Companies            (683,033)   (2,306,940)
Sale of Private Investment Companies            763,850    5,000,000 
Increase and/or decrease in:                    
Receivable from futures commission merchants       4,110,059         
Change in control of ownership of trading companies       (2,330,730)       (2,424,186)
Investments in unconsolidated trading companies, at fair value   2,976,783    2,563,419    636,915    1,418,793 
Interest receivable   76,588    240,952    14,617    63,252 
Receivable from related parties   58,146    551,508        131,430 
Other assets   (18,359)       0    (10,159)
Management fees payable to Managing Owner   (18,565)   (162,168)   (7,101)   (56,501)
Interest payable to Managing Owner   (5,222)   (30,730)   (690)   (5,244)
Trading fees payable to Managing Owner   (19,877)   (13,939)   (3,723)   (3,472)
Service fees payable to Managing Owner   (5,901)   9,638    (1,482)   (2,721)
Risk analysis fees payable        13,842         
Payables to related parties   (152,219)            
Other liabilities   (82,266)   110,418    (1,475)   (18,085)
                     
Net cash provided by (used in) operating activities   2,314,346    12,426,150    593,981    4,059,129 
                     
Cash Flows from Financing Activities:                    
Proceeds from sale of units       283,970        34,436 
Payment for redemption of units   (3,380,413)   (7,243,617)   (795,000)   (3,664,806)
Pending owner additions                  
Change in owner redemptions payable   7,649    (9,900)   924    33,898 
                     
Net cash provided by (used in) financing activities   (3,372,764)   (6,969,547)   (794,076)   (3,596,472)
                     
Net increase (decrease) in cash and cash equivalents   (1,058,418)   5,456,603    (200,096)   462,657 
                     
Cash and cash equivalents, beginning of period   1,403,125    1,628,208    259,161    382,499 
Cash and cash equivalents, end of period  $344,707   $7,084,811   $59,065   $845,156 

 

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

26

 

The Series of the Frontier Funds

Notes to Financial Statements (Unaudited)

 

1. Organization and Purpose

 

Frontier Funds (formerly Equinox Frontier Funds), which is referred to in this report as “the Trust”, was formed on August 8, 2003, as a Delaware statutory trust. The Trust is a multi-advisor commodity pool, as described in Commodity Futures Trading Commission (the “CFTC”) Regulation § 4.10(d)(2). The Trust has authority to issue separate series, or each, a Series, of units of beneficial interest (the “Units”) pursuant to the requirements of the Delaware Statutory Trust Act, as amended (the “Trust Act”). The assets of each Series are valued and accounted for separately from the assets of other Series. The Trust is not registered as an investment company under the Investment Company Act of 1940, as amended (the “Investment Company Act”). The Trust is managed by Frontier Fund Management LLC (the “Managing Owner”). The Managing Owner was incorporated in Delaware in November, 2016. The Managing Owner has delegated its commodity pool operator (“CPO”) responsibilities to Wakefield Advisors LLC pursuant to the Commodity Pool Operator Delegation Agreement between the Managing Owner and Wakefield Advisors LLC, which has been registered with the CFTC as a commodity pool operator since January 7, 2013, and has been a member of the NFA since that date. Under the Commodity Pool Operator Delegation Agreement, Wakefield does not receive any fees or remuneration from the Managing Owner in connection with the performance of its obligations thereunder. The Commodity Pool Operator Delegation Agreement is effective until terminated by either the Managing Owner or Wakefield, or until Wakefield is no longer registered as a CPO (unless excluded or exempt from CPO registration under the Commodity Exchange Act, as amended (the “Commodity Exchange Act”)). The Managing Owner remains jointly and severally liable with Wakefield Advisors LLC for violations of the Commodity Exchange Act and CPO Regulations. However, Wakefield Advisors LLC will indemnify the Managing Owner from and against any and all loss, liability, damage, penalty, fine, cost and expense (including attorneys’, accountants’, experts’, and other professionals’ fees and expenses incurred in investigation or defense of any and all demands, claims, actions, suits, or arbitrations) actually and reasonably incurred by the Managing Owner, based upon, arising out of or from, or in any way in connection with, any act, activity, conduct, performance, omission, or non-performance by the Wakefield Advisors LLC of any of its functions as CPO or which violates the Commodity Exchange Act or CPO Regulations in connection with its functions as CPO.

 

Purchasers of Units are limited owners of the Trust (“Limited Owners”) with respect to beneficial interests of the Series’ Units purchased. The Trust Act provides that, except as otherwise provided in the second amended and restated declaration of trust and trust agreement dated December 9, 2013, as further amended, by and among the Managing Owner, Wilmington Trust Company as trustee and the unitholders, as amended from time to time (the “Trust Agreement”), unitholders in a Delaware statutory trust will have the same limitation of liability as do stockholders of private corporations organized under the General Corporation Law of the State of Delaware. The Trust Agreement confers substantially the same limited liability, and contains the same limited exceptions thereto, as would a limited partnership agreement for a Delaware limited partnership engaged in like transactions as the Trust. In addition, pursuant to the Trust Agreement, the Managing Owner of the Trust is liable for obligations of a Series in excess of that Series’ assets. Limited Owners do not have any such liability. The Managing Owner will make contributions to Series of the Trust necessary to maintain at least a 1% interest in the aggregate capital, profits and losses of the combined Series of the Trust.

 

The Trust has been organized to pool investor funds to trading in the United States (“U.S.”) and international markets for currencies, interest rates, stock indices, agricultural and energy products, precious and base metals and other commodities. The Trust may also engage in futures contracts, forwards, option contracts and other interest in derivative instruments, including swap contracts.

 

The Trust has seven (7) separate and distinct series of Units issued and outstanding: Frontier Diversified Fund, Frontier Masters Fund, Frontier Long/Short Commodity Fund, Frontier Balanced Fund, Frontier Select Fund, Frontier Winton Fund and Frontier Heritage Fund, (each a “Series” and collectively, the “Series”). The Trust financial statements are comprised of unitized Series which are consolidated into the Trust financial statements. However, the consolidated Trust does not issue units.

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The Trust, with respect to each Series:

 

engages in the speculative trading of a diversified portfolio of futures, forwards (including interbank foreign Currencies), options contracts and other derivative instruments (including swap contracts), and may, from time to time, engage in cash and spot transactions;

 

allocates funds to a limited liability trading company or companies affiliated with the Managing Owner (“Trading Company” or “Trading Companies” or to an unaffiliated series limited liability company (“Galaxy Plus entities” or “Galaxy Plus entity”), each of which has one-year renewable contracts with its own independent trading advisor(s) (each a “Trading Advisor”) that will manage all or a portion of the applicable Trading Company’s or Galaxy Plus entity’s assets, and make the trading decisions for the assets of each Series vested in such Trading Company of Galaxy Plus entity. The assets of each Trading Company and Galaxy Plus entity will be segregated from the assets of the other Trading Companies and Galaxy Plus entities.

 

maintains separate, distinct records for each Series, and accounts for the assets of each Series separately from the other Series;

 

calculates the Net Asset Value (“NAV”) of its Units for each Series separately from the other Series;

 

has an investment objective of increasing the value of each Series’ Units over the long term (capital appreciation), while managing risk and volatility; further, to offer exposure to the investment programs of individual Trading Advisors and to specific instruments;

 

maintains each Series of Units in three to seven sub-classes—Class 1, Class 1AP, Class 1a, Class 2, Class 2a, Class 3, and Class 3a. Investors who have purchased Class 1 or Class 1a Units of Frontier Diversified Fund, Frontier Masters Fund, and Frontier Long/Short Commodity Fund are charged a service fee of up to two percent (2.0%) annually of the NAV (or the purchase price, in case of the initial service fee) of each Unit purchased, for the benefit of selling agents selling such Class 1 or Class 1a Units. The initial service fee, which is amortized monthly at an annual rate of up to two percent (2.0%) of the average daily NAV of Class 1 or Class 1a of such Series, is prepaid to the Managing Owner by each Series, and paid to the selling agents by the Managing Owner in the month following sale; provided, however, that investors who redeem all or a portion of their Class 1 or Class 1a Units of any Series during the first twelve (12) months following the effective date of their purchase are subject to a redemption fee of up to two percent (2.0%) of the purchase price at which such investor redeemed to reimburse the Managing Owner for the then-unamortized balance of the prepaid initial service fee. Investors who have purchased Class 1 or Class 1a Units of Frontier Balanced Fund, Frontier Heritage Fund, Frontier Select Fund, and Frontier Winton Fund are charged a service fee of up to three percent (3.0%) annually of the NAV (of the purchase price, in case of the initial service fee) of each Unit purchased, for the benefit of selling agents selling such Class 1 or Class 1a Units. The initial service fee, which is amortized monthly at an annual rate of up to three percent (3.0%) of the average daily NAV of Class 1 or Class 1a of such Series, is prepaid to the Managing Owner by each Series, and paid to the selling agents by the Managing Owner in the month following sale. With respect to Class 2 and Class 2a Units of any Series, the Managing Owner pays an ongoing service fee to selling agents of up to one half percent (0.5%) annually of the NAV of each Class 2 or Class 2a Unit (of which 0.25% will be charged to Limited Owners holding Class 2 Units of the Frontier Diversified Fund, and Frontier Masters Fund or Class 2a Units of the Frontier Long/Short Commodity Fund sold until such Class 2 or Class 2a Units which are subject to the fee limitation are reclassified as Class 3 or Class 3a Units of the applicable Series. Class 1AP was created as a sub-class of Class 1 and it has been presented separately because the fees applicable to it are different from those applicable to Class 1. Currently the service fee is not charged to Class 1AP investors. The Managing Owner may also pay selling agents certain additional fees and expenses for administrative and other services rendered and expenses incurred by such selling agents; and

 

all payments made to selling agents who are members of the Financial Industry Regulatory Authority, Inc. (“FINRA”) and their associated persons that constitute underwriting compensation will be subject to the limitations set forth in Rule 2310(b)(4)(B)(ii) (formerly Rule 2810(b)(4)(B)(ii)) of the Conduct Rules of FINRA (“Rule 2310”). An investor’s Class 1 Units or Class 2 Units of any Series, or Class 1a Units or Class 2a Units of the Frontier Long/Short Commodity Fund or Frontier Balanced Fund will be classified as Class 3 or Class 3a Units of such Series, as applicable, when the Managing Owner determines that the fee limitation with respect to such Units has been reached or will be reached. The service fee limit applicable to each unit sold is reached upon the earlier of when (I) the aggregate initial and ongoing service fees received by the selling agent with respect to such unit equals 9% of the purchase price of such unit or (ii) the aggregate underwriting compensation (determined in accordance with FINRA Rule 2310) paid in respect of such unit totals 10% of the purchase price of such unit. No service fees are paid with respect to Class 3 or Class 3a Units. Units of any Class in a Series may be redeemed, in whole or in part, on a daily basis, at the then current NAV per Unit for such Series on the day of the week after the date the Managing Owner is in receipt of a redemption request for at least one (1) Business Day to be received by the Managing Owner prior to 4:00 PM in New York.

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The assets of any particular Series include only those funds and other assets that are paid to, held by or distributed to the Trust on account of and for the benefit of that Series. Under the “Inter-Series Limitation on Liability” expressly provided for under Section 3804(a) of the Trust Act, separate and distinct records of the cash and equivalents, although pooled for maximizing returns, are maintained in the books and records of each Series.

 

As of September 30, 2018, the total Units outstanding were 144,766 for the Frontier Diversified Fund, 64,542 for the Frontier Masters Fund, 30,739 for the Frontier Long/Short Commodity Fund, 275,120 for the Frontier Balanced Fund, 57,387 for the Frontier Select Fund, 69,343 for the Frontier Winton Fund and 41,833 for the Frontier Heritage Fund.

 

As of September 30, 2018, the Trust, with respect to the Frontier Diversified Fund and Frontier Masters Fund, separates Units into three separate Classes—Class 1, Class 2, and Class 3. The Trust, with respect to the Frontier Select Fund, Frontier Winton Fund, and Frontier Heritage separates Units into a maximum of three separate Classes—Class 1, Class 2 and Class 1AP. The Trust, with respect to the Frontier Balanced Fund separates Units into a maximum of five separate Classes— Class 1, Class 1AP, Class 2, Class 2A and Class 3A.   The Trust, with respect to the Frontier Long/Short Commodity Fund separates Units into a maximum of five separate Classes—Class 1A, Class 2A, Class 2, Class 3A and Class 3. On May 10, 2017, the interests Frontier Trading Company XV, LLC, which included exposure to Transtrend B.V.’s TT Enhanced Risk (USD) Program, were transferred to an individual Delaware limited liability company (“Master Fund”) in Galaxy Plus.  The Master Fund is sponsored and operated by Gemini Alternative Funds, LLC (“Sponsor”).  The Sponsor has contracted with the Trading Advisors to manage the portfolios of the Master Funds pursuant to the advisors’ respective program.  For those Series that invest in Galaxy Plus, approximately 30-70% of those Series assets are used to support the margin requirements of the Master Funds.  The remaining assets of the Series are split between investments in Trading Companies and a pooled cash management account that invests primarily in U.S. Treasury securities.  For those Series that do not invest in Galaxy Plus, their assets are split between investments in Trading Companies and investments in the pooled cash management account.

 

As of September 30, 2018, Frontier Winton Fund has invested a portion of its assets into two Trading Companies, and a single Trading Advisor manages 100% of the assets invested in each of these Trading Companies. Each of the remaining Series has invested a portion of its assets in several different Trading Companies or Galaxy Plus entities and one or more Trading Advisors may manage the assets invested in such Trading Companies or Galaxy Plus entities.

 

2. Significant Accounting Policies

 

The following are the significant accounting policies of the Series of the Trust.

 

Basis of Presentation—The Series of the Trust follow U.S. Generally Accepted Accounting Principles (“GAAP”), as established by the Financial Accounting Standards Board (the “FASB”), to ensure consistent reporting of financial condition, condensed schedules of investments, results of operations, changes in capital and cash flows. The Trust is an investment company following accounting and reporting guidance in Accounting Standards Codification (“ASC”) 946.

 

Consolidation—The Series, through investing in the Trading Companies and Galaxy Plus, authorize certain Trading Advisors to place trades and manage assets at pre-determined investment levels. The Trading Companies were organized by the Managing Owner for the purpose of investing in commodities interests and derivative instruments, and have no operating income or expenses, except for trading income and expenses and a risk analysis fee (for closed Series only), all of which is allocated to the Series, if consolidated by a Series. Galaxy Plus is a series of Delaware limited liability companies, sponsored by Gemini Alternative Funds, LLC, that create exposure to a variety of third party professional managed futures and foreign exchange advisors. Galaxy Plus is available to qualified high-net-worth individuals and institutional investors. Trading Companies in which a Series has a controlling and majority interest as calculated on that Series’ pro-rata net asset value in the Trading Company are consolidated by such Series. Investment interests in Galaxy Plus entities are accounted for using net asset value as the practical expedient, which approximates fair value. Fair value represents the proportionate share of the Trust’s interest in the net asset value in the Galaxy Plus entities. The equity interest held by Trust is shown as investments in private investment companies in the statements of financial condition. The income or is shown in the statements of operations as net unrealized gain/(loss) on private investment companies. The Trading Companies and Series of the Trust are consolidated by the Trust.

29

 

Galaxy Plus entities are co-mingled investment vehicles. In addition to the Trust, there are other non-affiliated investors in Galaxy Plus. Subscriptions and redemptions by these non-affiliated investors will have a direct impact on the Trust ownership percentage in Galaxy Plus. It is expected that ownership percentage will fluctuate (sometimes significantly) on a week by week basis which could also result in frequent changes in the consolidating Series. Such fluctuations make consolidating the financial statements of the Galaxy Plus entities both impractical and misleading. Non-consolidation of these Galaxy Plus entities presents a more useful financial statement for the readers. As such, management has decided that presenting Galaxy Plus entities on a non-consolidated basis as investments in other investments companies (a “fund of funds” approach) is appropriate and preferable to the users of these financial statements. Refer to Note 5 for additional disclosures related to these private investment companies.

 

Use of Estimates—The preparation of financial statements in conformity with GAAP may require the Managing Owner to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The valuation of swap contracts requires significant estimates as well as the valuation of certain other investments. Please refer to Note 3 for discussion of valuation methodology. Actual results could differ from these estimates, and such differences could be material.

 

Cash and Cash Equivalents—Cash and cash equivalents include cash and overnight investments in interest-bearing demand deposits held at banks with original maturities of three months or less. This cash is not restricted.

 

Interest Income— U.S. Treasury Securities are pooled for purposes of maximizing returns on these assets to investors of all Series. Interest income from pooled cash management assets is recognized on the accrual basis and allocated daily to each Series based upon its daily proportion of ownership of the pool.

 

Aggregate interest income from all sources, including U.S. Treasury Securities assets net of premiums and cash held at clearing brokers, of up to the first 2% (annualized) is paid to the Managing Owner by the Frontier Balanced Fund (Class 1 and Class 2), Frontier Winton Fund, Frontier Select Fund, and Frontier Heritage Fund. For the Frontier Diversified Fund, Frontier Long/Short Commodity Fund (Class 1a, Class 2a, Class 3a only), Frontier Masters Fund, and Frontier Balanced Fund (Class 1AP, Class 2a and Class 3a) 100% of the interest is retained by the respective Series. All interest not paid to the Managing Owner is interest income to the Series, and shown net on the statement of operations.

 

U.S. Treasury Securities—U.S. Treasury Securities are allocated to all Series of the Trust based on each Series’ percentage ownership in the pooled cash management assets as of the reporting date. They are reported at fair value as Level 1 inputs under ASC 820, Fair Value Measurements and Disclosures (“ASC 820”). The Series of the Trust valued U.S. Treasury Securities at fair value and recorded the daily change in value in the statements of operations as net unrealized gain/(loss) on U.S. Treasury securities. Accrued interest is reported on the statements of financial condition as interest receivable.

 

Receivable from Futures Commission Merchants—The Trust deposits assets with a FCM subject to CFTC regulations and various exchange and broker requirements. Margin requirements are satisfied by the deposit of cash with such FCM. The Trust earns interest income on its assets deposited with the FCM. A portion of the receivable is restricted cash required to meet maintenance margin requirements. Cash with the clearing broker as of September 30, 2018 included restricted cash for margin requirements of $1,450,731 for Frontier Trading Company I LLC and $4,306,571 for Frontier Trading Company II LLC.

 

Investment Transactions—Futures, options on futures, forward and swap contracts are recorded on a trade date basis and realized gains or losses are recognized when contracts are settled. Unrealized gains or losses on open contracts (the difference between contract trade price and market price) are reported in the consolidated statements of financial condition as a net unrealized gain or loss, as there exists a right of offset of unrealized gains or losses in accordance with FASB ASC 210, Balance Sheet (“ASC 210”) and Accounting Standards Update (ASU) 2013-01, Balance Sheet (Topic 210).

30

 

Any change in net unrealized gain or loss from the preceding period is reported in the consolidated statements of operations. Fair value of exchange-traded contracts is based upon exchange settlement prices. Fair value of non-exchange-traded contracts is based on third party quoted dealer values on the interbank market. For U.S. Treasury securities, interest was recognized in the period earned and the instruments were marked-to-market daily based on third party information. Transaction costs are recognized as incurred and reflected separately in the consolidated statements of operations.

 

Purchase and Sales of Private Investment Companies – The Trust is able to subscribe into and redeem from the Galaxy Plus entities on a weekly basis. The value of the private investment companies is determined by the Sponsor and reported on a daily basis. The change in value is calculated as the difference between the total purchase proceeds and the fair value calculated by the Sponsor and is recorded as net unrealized gain/(loss) on private investment companies on the statements of operations.

 

Foreign Currency Transactions—The Series functional currency is the U.S. dollar; however, they transact business in currencies other than the U.S. dollar. The Series of the Trust do not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized or unrealized gain or loss from investments.

 

Allocation of Earnings—Each Series of the Trust may maintain three to seven classes of Units—Class 1, Class 2, Class 3, Class 1a, Class 2a Class 3a and Class 1AP. All classes have identical voting, dividend, liquidation and other rights and the same terms and conditions, except that fees charged to a Class or Series differ as described below. Revenues, expenses (other than expenses attributable to a specific class), and realized and unrealized trading gains and losses of each Series are allocated daily to Class 1, Class 1a, Class 2, Class 2a, Class 3, Class 3a and Class 1AP Units based on each Class’ respective owners’ capital balances as applicable to the classes maintained by the Series.

 

Each Series allocates funds to an affiliated Trading Company, or Companies, of the Trust, or unaffiliated Galaxy Plus entity. Each Trading Company allocates all of its daily trading gains or losses to the Series in proportion to each Series’ ownership trading level interest in the Trading Company, adjusted on a daily basis (except for Trading Advisors and other investments such as swaps that are directly allocated to a specific Series). Likewise, trading gains and losses earned and incurred by the Series through their investments in Galaxy Plus entities are allocated to those Series on a daily basis. The allocation of gains and losses in Galaxy Plus entities are based on each Series pro-rata shares of the trading level of that entity which is updated at the beginning of each month or more frequently if there is a subscription or redemption activity in the entity. The value of all open contracts and cash held at clearing brokers is similarly allocated to the Series in proportion to each Series’ funds allocated to the Trading Companies or Galaxy Plus entities.

 

Investments and Swaps— The Trust records investment transactions on a trade date basis and all investments are recorded at fair value, with changes in fair value reported as a component of realized and unrealized gains/(losses) on investments in the statements of operations. Investments in private investment companies are valued utilizing the net asset values as a practical expedient. Certain Series of the Trust strategically invest a portion or all of their assets in total return swaps, selected at the discretion of the Managing Owner. Swaps are privately negotiated contracts designed to provide investment returns linked to those produced by one or more underlying investment products or indices. In a typical swap, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on one or more particular predetermined investments or instruments. The gross returns to be exchanged or “swapped” between the parties are calculated with respect to a “notional amount” (i.e., the amount of value of the underlying asset used in computing the particular interest rate, return, or other amount to be exchanged) in a particular investment, or in a “basket” of securities. The valuation of swap contracts requires significant estimates. Swap contracts are reported at fair value based upon daily reports from the counterparty. The Managing Owner reviews and approves current day pricing of the CTA positions, as received from the counterparty which includes intra-day volatility and volume and daily index performance, that is used to determine a daily fair value NAV for the swap contracts.

31

 

Income Taxes—The Trust, with respect to the Series, applies the provisions of ASC 740 Income Taxes (“ASC 740”), which provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure. ASC 740 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Trust, with respect to the Series’, financial statements to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions with respect to tax at the Trust’s level not deemed to meet the “more-likely-than-not” threshold would be recorded as a tax benefit or expense in the current year. The Managing Owner has concluded there is no tax expense, interest or penalties to be recorded by the Trust, with respect to the Series. The 2014 through 2017 tax years generally remain subject to examination by U.S. federal and most state tax authorities.

 

In the opinion of the Managing Owner, (i) the Trust, with respect to the Series, is treated as a partnership for federal income tax purposes and, assuming that at least 90% of the gross income of the Trust constitutes “qualifying income” within the meaning of Section 7704(d) of the Code, (ii) the Trust is not a publicly traded partnership treated as a corporation, and (iii) the discussion set forth in the Prospectus under the heading “U.S. Federal Income Tax Consequences” correctly summarizes the material federal income tax consequences as of the date of the Prospectus to potential U.S. Limited Owners of the purchase, ownership and disposition of Units of the Trust.

 

Fees and Expenses—All management fees, incentive fees, service fees risk analysis fee (for closed Series only) and trading fees of the Trust, with respect to the Series, are paid to the Managing Owner. It is the responsibility of the Managing Owner to pay all Trading Advisor management and incentive fees, selling agent service fees and all other operating expenses and continuing offering costs of the Trust, with respect to the Series. Only management fees and incentive fees related to assets allocated through Trading Companies are included in expense on the Statement of Operations. The Series are all charged management and incentive fees on the asset allocated through the Galaxy Plus entities. Those fees are included in unrealized gain/(loss) on private investment companies on the Statements of Operations. The Series are also charged management and incentive fees on assets allocated to swaps. Such fees are embedded in the fair value of the swap and are included in net unrealized gain (loss) on swap contracts on the Statements of Operations. Certain Series are also changed a risk analysis fee (for closed Series only) based on a percentage of nominal assets. Such fee is paid to a third party.

 

Incentive Fee (rebate)—The Managing Owner is allowed to share in the incentive fees earned by the Trading Advisors up to 10% of New Net Profits (as defined in the prospectus). If the Managing Owner’s share of the incentive fee exceeds 10% of new net profits during the period, then the Managing Owner is obligated to return any amount in excess. The returned amounts are recorded as Incentive Fee (Rebate) on the Statements of Operations.

 

Service Fees—The Trust may maintain each Series of Units in three to seven sub-classes—Class 1, Class 1AP, Class 1a, Class 2, Class 2a, Class 3, and Class 3a. Investors who have purchased Class 1 or Class 1a Units of Frontier Diversified Fund, Frontier Masters Fund, and Frontier Long/Short Commodity Fund are charged a service fee of up to two percent (2.0%) annually of the NAV (of the purchase price, in case of the initial service fee) of each Unit purchased, for the benefit of selling agents selling such Class 1 or Class 1a Units. The initial service fee, which is amortized monthly at an annual rate of up to two percent (2.0%) of the average daily NAV of Class 1 or Class 1a of such Series, is prepaid to the Managing Owner by each Series, and paid to the selling agents by the Managing Owner in the month following sale; provided, however, that investors who redeem all or a portion of their Class 1 and Class 1a Units of any Series during the first twelve (12) months following the effective date of their purchase are subject to a redemption fee of up to two percent (2.0%) of the purchase price at which such investor redeemed to reimburse the Managing Owner for the then-unamortized balance of the prepaid initial service fee. Investors who have purchased Class 1 or Class 1a Units of Frontier Balanced Fund, Frontier Heritage Fund, Frontier Select Fund, and Frontier Winton Fund are charged a service fee of up to three percent (3.0%) annually of the NAV (of the purchase price, in case of the initial service fee) of each Unit purchased, for the benefit of selling agents selling such Class 1 or Class 1a Units. The initial service fee, which is amortized monthly at an annual rate of up to three percent (3.0%) of the average daily NAV of Class 1 or Class 1a of such Series, is prepaid to the Managing Owner by each Series, and paid to the selling agents by the Managing Owner in the month following sale; provided, however, that investors who redeem all or a portion of their Class 1 and Class 1a Units of any Series during the first twelve (12) months following the effective date of their purchase are subject to a redemption fee of up to three percent (3.0%) of the purchase price at which such investor redeemed to reimburse the Managing Owner for the then-unamortized balance of the prepaid initial service fee. With respect to Class 2 and Class 2a Units of any Series, the Managing Owner pays an ongoing service fee to selling agents of up to one half percent (0.5%) annually of the NAV of each Class 2 or Class 2a Unit (of which 0.25% will be charged to Limited Owners holding Class 2 Units of the Frontier Diversified Fund and Frontier Masters Fund or Class 2a Units of the Frontier Long/Short Commodity Fund sold) until such Class 2 or Class 2a Units which are subject to the fee limitation are reclassified as Class 3 or Class 3a Units of the applicable Series for administrative purposes. Currently the service fee is not charged to Class 1AP investors. The Managing Owner may also pay selling agents certain additional fees and expenses for administrative and other services rendered and expenses incurred by such selling agents.

32

 

These service fees are part of the offering costs of the Trust, which include registration and filing fees, legal and blue sky expenses, accounting and audit, printing, marketing support and other offering costs which are borne by the Managing Owner. With respect to the service fees, the initial service fee (for the first 12 months) relating to a purchase of Class 1 and Class 1a Units by an investor is prepaid by the Managing Owner to the relevant selling agent in the month following such purchase and is reimbursed for such payment by the Series monthly in arrears in an amount based upon a corresponding percentage of NAV, calculated daily. Consequently, the Managing Owner bears the risk of the downside and enjoys the benefit of the upside potential of any difference between the amount of the initial service fee prepaid by it and the amount of the reimbursement thereof, which may result from variations in NAV over the following 12 months.

 

Pending Owner Additions—Funds received for new subscriptions and for additions to existing owner interests are recorded as capital additions at the NAV per unit of the second business day following receipt.

 

Owner redemptions payable—Funds payable for existing owner redemption requests are recorded as capital subtractions at the NAV per unit on the second business day following receipt or request.

 

Subsequent Events—The Series, follow the provisions of ASC 855, Subsequent Events, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date and up through the date the financial statements are issued.

 

3. Fair Value Measurements

 

In connection with the valuation of investments the Series apply ASC 820. ASC 820 provides clarification that when a quoted price in an active market for the identical asset or liability is not available, a reporting entity is required to measure fair value using certain techniques. ASC 820 also clarifies that when estimating the fair value of an asset or liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of an asset or liability. ASC 820 also clarifies that both a quoted price in an active market for the identical asset or liability at the measurement date and the quoted price for the identical asset or liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required are Level 1 fair value measurements.

 

Level 1 Inputs

 

Unadjusted quoted prices in active markets for identical financial assets that the reporting entity has the ability to access at the measurement date.

 

Level 2 Inputs

 

Inputs other than quoted prices included in Level 1 that are observable for the financial assets or liabilities, either directly or indirectly. These might include quoted prices for similar financial assets in active markets, quoted prices for identical or similar financial assets in markets that are not active, inputs other than quoted prices that are observable for the financial assets or inputs that are derived principally from or corroborated by market data by correlation or other means.

33

 

Level 3 Inputs

 

Unobservable inputs for determining the fair value of financial assets that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the financial asset.

 

The Trust, with respect to the Series, uses the following methodologies to value instruments within its financial asset portfolio at fair value:

 

Trading Securities. These instruments include U.S. Treasury securities and open trade equity positions (futures contracts) that are actively traded on public markets with quoted pricing for corroboration. U.S. Treasury securities and futures contracts, are reported at fair value using Level 1 inputs. Trading securities instruments further include open trade equity positions (trading options and currency forwards) that are quoted prices for identical or similar assets that are not traded on active markets. Trading options and currency forwards are reported at fair value using Level 2 inputs.

 

Swap Contracts. Certain Series of the Trust strategically invest a portion or all of their assets in total return swaps, selected at the direction of the Managing Owner. Swaps are privately negotiated contracts designed to provide investment returns linked to those produced by one or more investment products or indices. In a typical swap, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on one or more particular predetermined investments or instruments. The gross returns to be exchanged or “swapped” between parties are calculated with respect to a “notional amount” (i.e., the amount of value of the underlying asset used in computing the particular interest rate, return, or other amount to be exchanged) in a particular investment, or in a “basket” of securities. Swap contracts are reported at fair value upon daily reports from the counterparty. In addition, a third party takes the inputs from the counterparty, makes certain adjustments, and runs it through their pricing model to come up with their daily price. The fair value measurements of the swap contracts are valued using unadjusted inputs that were not internally developed.  The Managing Owner reviews and compares approves current day pricing of the CTA positions, as received from the counterparty which includes intra-day volatility and volume and daily index performance, as well as from the third party. Differences in prices exceeding 5% are investigated. Unexplainable differences are escalated to the Managing Owner’s Valuation Committee for evaluation and resolution. 

 

Investment in Unconsolidated Trading Companies. This investment represents the fair value of the allocation of cash, futures, forwards, options and swaps to each respective Series relative to its trading allocations from unconsolidated Trading Companies. A Series may redeem its investment in any of the Trading Companies on a daily basis at the Trading Company’s stated net asset value. Each of the Series, all of which are under the same management as the Trading Companies, has access to the underlying positions of the Trading Companies, and as such, the level determination is reflected on that look-through basis. Any redemption of an investment in a Trading Company classified as Level 3 will reflect that classification of the underlying investment owned by the Trading Company. As such, the Series report investments in unconsolidated Trading Companies at fair value using the corresponding inputs of the underlying securities of the Trading Companies which results in the Series reporting the corresponding level determination from the inputs of the Trading Company.

 

Investments in Private Investment Companies. Investments in private investment companies are valued utilizing the net asset values provided by the underlying private investment companies as a practical expedient. The Series applies the practical expedient to its investments in private investment companies on an investment-by-investment basis, and consistently with the Series’ entire position in a particular investment, unless it is probable that the Series will sell a portion of an investment at an amount different from the net asset value of the investment. 

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The following table summarizes the instruments that comprise the Trust, with respect to the Series, financial asset portfolio, by Series, measured at fair value on a recurring basis as of September 30, 2018 and December 31, 2017 segregated by the level of valuation inputs within the fair value hierarchy utilized to measure fair value. Investments in private investment companies are valued utilizing the net asset values provided by the underlying private investment companies as a practical expedient. Each Series applies the practical expedient to its investments in private investment companies on an investment-by-investment basis, and consistently with the Series entire position in a particular investment, unless it is probable that the Series will sell a portion of an investment at an amount different from the net asset value of the investment.

 

   Level 1   Level 2   Level 3   Total 
September 30, 2018  Inputs   Inputs   Inputs   Fair Value 
                 
Frontier Diversified Fund                    
Investment in Unconsolidated Trading Companies  $1,169,987   $(23,896)  $   $1,146,091 
Swap Contracts           5,575,997    5,575,997 
U.S. Treasury Securities   938,408            938,408 
Frontier Masters Fund                    
Investment in Unconsolidated Trading Companies   991,679    (21,734)       969,945 
U.S. Treasury Securities   512,411            512,411 
Frontier Long/Short Commodity Fund                    
Investment in Unconsolidated Trading Companies   99,860            99,860 
Swap Contracts           471,942    471,942 
U.S. Treasury Securities   475,024            475,024 
Frontier Balanced Fund                    
Investment in Unconsolidated Trading Companies   2,190,822    (46,008)       2,144,814 
Open Trade Equity (Deficit)   (23,444)           (23,444)
Swap Contracts           9,850,185    9,850,185 
U.S. Treasury Securities   1,515,106            1,515,106 
Frontier Select Fund                    
Investment in Unconsolidated Trading Companies   69,462        538,309    607,771 
U.S. Treasury Securities   330,422            330,422 
Frontier Winton Fund                    
Investment in Unconsolidated Trading Companies   5,110,724    (99,932)       5,010,792 
U.S. Treasury Securities   4,968,843            4,968,843 
Frontier Heritage Fund                    
Investment in Unconsolidated Trading Companies   928,475    (18,416)       910,059 
Swap Contracts           3,010,288    3,010,288 
U.S. Treasury Securities   851,399            851,399 

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               Total 
December 31, 2017  Level 1 Inputs   Level 2 Inputs   Level 3 Inputs   Fair Value 
                 
Frontier Diversified Fund                    
Investment in Unconsolidated Trading Companies  $2,152,721   $55,593   $   $2,208,314 
Swap Contracts           6,376,472    6,376,472 
U.S. Treasury Securities   767,049            767,049 
Frontier Masters Fund                    
Investment in Unconsolidated Trading Companies   1,460,743    31,450        1,492,193 
U.S. Treasury Securities   1,663,014            1,663,014 
Frontier Long/Short Commodity Fund                    
Investment in Unconsolidated Trading Companies   121,510            121,510 
Swap Contracts           397,039    397,039 
U.S. Treasury Securities   614,803            614,803 
Frontier Balanced Fund                    
Investment in Unconsolidated Trading Companies   3,072,933    81,725        3,154,658 
Open Trade Equity (Deficit)   144,983    33,569        178,552 
Swap Contracts           11,340,959    11,340,959 
U.S. Treasury Securities   663,808            663,808 
Frontier Select Fund                    
Investment in Unconsolidated Trading Companies   91,790        579,073    670,863 
U.S. Treasury Securities   464,427            464,427 
Frontier Winton Fund                    
Investment in Unconsolidated Trading Companies   7,750,343    184,193        7,934,536 
U.S. Treasury Securities   5,667,825            5,667,825 
Frontier Heritage Fund                    
Investment in Unconsolidated Trading Companies   1,500,688    35,943        1,536,631 
Swap Contracts           3,094,367    3,094,367 
U.S. Treasury Securities   1,046,861            1,046,861 

 

The changes in Level 3 assets measured at fair value on a recurring basis are summarized in the following tables. Swap contract asset gains and losses (realized/unrealized) included in earnings are classified in “realized and unrealized gain (loss) on investments – net unrealized gain/(loss) on swap contracts” on the statements of operations. Investment in unconsolidated trading company asset gains and losses (realized/unrealized) included in earnings are classified in “Change in fair value of investments in unconsolidated trading companies.” During the nine months ended September 30, 2018, all identified Level 3 assets were components of the Frontier Diversified Fund, Frontier Long/Short Commodity Fund, Frontier Balanced Fund, Frontier Select Fund, and Frontier Heritage Fund.

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For the Nine Months Ended September 30, 2018

Swaps

 

       Frontier Long/Short 
   Frontier Balanced Fund   Commodity Fund 
Balance of recurring Level 3 assets as of January 1, 2018  $11,340,959   $397,039 
Total gains or losses (realized/unrealized):          
Included in earnings-realized        
Included in earnings-unrealized   509,226    74,903 
Proceeds from collateral reduction   (2,000,000)    
Change in ownership allocation        
Transfers in and/or out of Level 3        
Balance of recurring Level 3 assets as of September 30, 2018  $9,850,185   $471,942 
           
   Frontier Diversified     
   Fund   Frontier Heritage Fund 
Balance of recurring Level 3 assets as of January 1, 2018  $6,376,472   $3,094,367 
Total gains or losses (realized/unrealized):          
Included in earnings-realized        
Included in earnings-unrealized   299,525    (84,079)
Proceeds from collateral reduction   (1,100,000)    
Change in ownership allocation        
Transfers in and/or out of Level 3        
Balance of recurring Level 3 assets as of September 30, 2018  $5,575,997   $3,010,288 

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For the Year Ended December 31, 2017

Swaps

 

       Frontier Long/Short 
   Frontier Balanced Fund   Commodity Fund 
Balance of recurring Level 3 assets as of January 1, 2017  $18,939,450   $4,220,468 
Total gains or losses (realized/unrealized):          
Included in earnings-realized        
Included in earnings-unrealized   (84,491)   26,621 
Proceeds from collateral reduction   (7,514,000)   (3,850,050)
Change in ownership allocation        
Transfers in and/or out of Level 3        
Balance of recurring Level 3 assets as of December 31, 2017  $11,340,959   $397,039 
           
   Frontier Diversified Fund   Frontier Heritage Fund 
Balance of recurring Level 3 assets as of January 1, 2017  $8,637,847   $8,391,414 
Total gains or losses (realized/unrealized):          
Included in earnings-realized        
Included in earnings-unrealized   (47,375)   (297,047)
Proceeds from collateral reduction   (2,214,000)   (5,000,000)
Change in ownership allocation        
Transfers in and/or out of Level 3        
Balance of recurring Level 3 assets as of December 31, 2017  $6,376,472   $3,094,367 
         
For the Nine Months Ended September 30, 2018 
Investments in Unconsolidated Trading Companies: 
         
   Frontier      
   Select     
   Fund     
Balance of recurring Level 3 assets as of January 1, 2018  $579,074      
Change in fair value of investments in unconsolidated trading companies   (40,765)     
Purchases of investments of unconsolidated trading companies         
Change in ownership allocation         
Transfers in and/or out of Level 3         
Balance of recurring Level 3 assets as of September 30, 2018  $538,309      

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Investments in Unconsolidated Trading Companies:

 

   Frontier Select Fund 
Balance of recurring Level 3 assets as of January 1, 2017  $3,147,279 
Change in fair value of investments in unconsolidated trading companies   (144,019)
Change in ownership allocation   (2,424,187)
Transfers in and/or out of Level 3    
Balance of recurring Level 3 assets as of December 31, 2017  $579,073 

 

The Series of the Trust assess the levels of the investments at each measurement date, and transfers between levels are recognized on the actual date of the event or change in circumstances that caused the transfer in accordance with the Series’ accounting policy regarding the recognition of transfers between levels of the fair value hierarchy. During the nine months ended September 30, 2018, the Trust did not transfer any assets between Levels 1, 2 or 3.

 

The amounts reflected in the change in ownership allocation result from changes in ownership in the underlying Trading Companies at the Series level, which have resulted in changes in consolidation or de-consolidation by the Series. The ownership in the Trading Companies is accounted for under the equity method, which approximates fair value.

 

The total change in unrealized appreciation (depreciation) included in the statements of operations attributable to level 3 investments still held at September 30, 2018:

 

   Frontier Diversified   Frontier Long/Short   Frontier Balanced     
   Fund   Commodity Fund   Fund   Frontier Heritage Fund 
Swap Contracts  $299,525   $74,903   $509,226   $(84,079)

 

   Frontier Select Fund 
Investments in Unconsolidated Trading Companies  $(40,765)

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The total change in unrealized appreciation (depreciation) included in the statements of operations attributable to level 3 investments still held at December 31, 2017:

 

       Frontier Long/Short   Frontier Balanced   Frontier Heritage 
   Frontier Diversified Fund   Commodity Fund   Fund   Fund 
Swap Contracts  $(47,375)  $26,621   $(84,491)  $(297,047)

 

   Frontier Select Fund 
Investments in Unconsolidated Trading Companies  $(144,019)

 

4. Swap Contracts

 

In addition to authorizing Trading Advisors to manage pre-determined investment levels of futures, options on futures and forward contracts, certain Series of the Trust will strategically invest a portion or all of their assets in total return swaps, selected at the direction of the Managing Owner. Total return swaps are privately negotiated contracts designed to provide investment returns linked to those produced by one or more investment products or indices. In a typical total return swap, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on one or more particular predetermined investments or instruments. The gross returns to be exchanged or “swapped” between the parties are calculated with respect to a “notional amount” (i.e., the amount or value of the underlying asset used in computing the particular interest rate, return, or other amount to be exchanged) in a particular investment, or in a “basket” of securities.

 

Each Series’ investment in swaps will likely differ substantially over time due to cash flows, portfolio management decisions and market movements. The swaps serve to diversify the investment holdings of each Series and to provide access to programs and advisors that would not be otherwise available to the Series, and are not used for hedging purposes.

 

The Managing Owner follows a procedure in selecting well-established financial institutions which the Managing Owner, in its sole discretion, considers to be reputable, reliable, financially responsible and well established to act as swap counterparties. The procedure includes due diligence review of documentation on all new and existing financial institution counterparties prior to initiation of the relationship, and quarterly ongoing review during the relationship, to ensure that counterparties meet the Managing Owner’s minimum credit requirements, the counterparty average rating being no less than an investment grade rating as defined by the rating agencies. As of September 30, 2018, and December 31, 2017, approximately 10.8% and 10.2%, respectively, of the Trust’s assets were deposited with over-the-counter counterparties in order to initiate and maintain swaps and is recorded as collateral within the swap fair value within the statement of financial condition. The cash held with the counterparty is not restricted.

 

The Series may strategically invest assets in one or more swaps linked to certain underlying investments or indices at the direction of the Managing Owner. The Trading Company in which the assets of these Series will be invested will not own any of the investments or indices referenced by any swap entered into by these Series. In addition, neither the swap counterparty to the Trading Company of these Series nor any advisor referenced by any such swap is a Trading Advisor to these Series.

 

To help to reduce counterparty risk on the Series, the Managing Owner has the right to reduce the Series’ exposure and remove cash from the Series’ total return swaps with Deutsche Bank AG. This cash holding shall be in excess of $250,000, and may not exceed 40% of the Index exposure in total. Index exposure is defined as the total notional amount plus any profit. The Series are charged interest on this cash holding and any amount removed will be offset against the final settlement value of the swap. As of September 30, 2018, the Frontier Balanced Fund, the Frontier Diversified Fund, the Frontier Long/Short Commodity Fund and Frontier Heritage Fund, have received from the swap counterparty $4,926,555, $2,500,000, $115,000 and $1,900,000, respectively. These amounts are shown on the Statements of Financial Conditions of the respective Series under advance on unrealized swap appreciation, which relates to the Trading Companies’ total return swaps with Deutsche Bank AG.

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The Series have invested in the following swaps as of and for the nine months ended September 30, 2018:

 

         Frontier Long/Short  Frontier Heritage
   Frontier Balanced Fund  Frontier Diversified Fund  Commodity Fund  Fund
   Total Return Swap  Total Return Swap  Total Return Swap  Total Return Swap
Counterparty  DeutscheBank AG  DeutscheBank AG  DeutscheBank AG  DeutscheBank AG
Notional Amount  $11,735,292  $3,054,369  $653,610  $2,072,056
Termination Date  7/31/2023  7/31/2023  7/31/2023  3/27/2023
Cash Collateral  $86,000  $86,000  $29,950  $978,950
Swap Value  $9,764,185  $5,489,997  $441,992  $2,031,338
Investee Returns  Total Returns  Total Returns  Total Returns  Total Returns
Realized Gain/(Loss)  $0  $0  $0  $0
Change in Unrealized Gain/(Loss)  $509,226  $299,525  $74,903  ($84,079)
Fair Value as of September 30, 2018  $9,850,185  $5,575,997  $471,942  $3,010,288
Advance on swap appreciation  ($4,926,555)  ($2,500,000)  ($115,000)  ($1,900,000)

 

The Series have invested in the following swaps as of and for the year ended December 31, 2017:

 

         Frontier Long/Short Commodity   
   Frontier Balanced Fund  Frontier Diversified Fund  Fund  Frontier Heritage Fund
   Total Return Swap  Total Return Swap  Total Return Swap  Total Return Swap
Counterparty  DeutscheBank AG  DeutscheBank AG  DeutscheBank AG  DeutscheBank AG
Notional Amount  $13,373,629  $4,651,155  $653,610  $2,072,056
Termination Date  8/2/2018  8/2/2018  8/7/2018  3/26/2018
Cash Collateral  $2,086,000  $1,186,000  $29,950  $982,500
Swap Value  $9,254,959  $5,190,472  $367,089  $2,111,867
Investee Returns  Total Returns  Total Returns  Total Returns  Total Returns
Realized Gain/(Loss)  $0  $0  $0  $0
Change in Unrealized Gain/(Loss)  ($84,491)  ($47,375)  $26,621  ($297,047)
Fair Value as of 12/31/2017  $11,340,959  $6,376,472  $397,039  $3,094,367
Advance on swap appreciation  ($4,926,555)  ($2,500,000)  ($115,000)  ($1,900,000)

 

5. Investments in Unconsolidated Trading Companies and Private Investment Companies

 

Investments in unconsolidated Trading Companies and private investment companies represent cash invested in the Trading and private investment companies as well as by each Series and cumulative trading profits or losses allocated to each Series by the Trading Companies and Private Investment Companies. Trading Companies and private investment companies allocate trading profits or losses on the basis of the proportion of each Series’ capital allocated for trading to each respective Trading Company, which bears no relationship to the amount of cash invested by a Series in the Trading Company and Private Investment Companies. The Trading Companies are valued using the equity method of accounting, which approximates fair value. Investments in private investment companies are valued using the NAV provided by the underlying private investment.

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The following table summarizes each of the Series’ investments in unconsolidated Trading companies as of September 30, 2018 and December 31, 2017:

 

   As of September 30, 2018  As of December 31, 2017
   Percentage of      Percentage of    
   Series Net      Series Net    
   Assets Invested      Assets Invested    
   in Unconsolidated      in Unconsolidated    
   Trading Companies  Fair Value   Trading Companies  Fair Value 
Series                
                 
Frontier Diversified Series —                
Frontier Trading Companies II and XXXVIII  6.76%  $1,146,091   10.37%  $2,225,210 
Frontier Masters Series —                
Frontier Trading Companies II and XXXVIII  14.28%  $969,945   12.55%  $1,501,142 
Frontier Long/Short Commodity Series —                
Frontier Trading Company XXXVIII  3.32%  $99,860   2.86%  $121,510 
Frontier Balanced Series —                
Frontier Trading Companies II and XXXVIII  6.13%  $2,144,814   6.59%  $3,178,176 
Frontier Select Series —                
Frontier Trading Companies XXXVIII and XXXIX  13.82%  $607,771   9.86%  $670,863 
Frontier Winton Fund                
Frontier Trading Companies II and XXXVIII  48.77%  $5,010,792   53.79%  $7,987,575 
Frontier Heritage Series —                
Frontier Trading Companies II and XXXVIII  18.25%  $910,059   22.66%  $1,536,631 

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The following tables summarize each of the Series; equity in earnings from unconsolidated Trading and private investment companies for the three and nine months ended September 30, 2018 and 2017.

 

   Three Months Ended September 30, 2018   Three Months Ended September 2017 
           Change in               Change in     
   Trading   Realized   Unrealized   Net Income   Trading   Realized   Unrealized   Net Income 
   Commissions   Gain/(Loss)   Gain/(Loss)   (Loss)   Commissions   Gain/(Loss)   Gain/(Loss)   (Loss) 
Frontier Balanced Fund                                        
Frontier Trading Company II, LLC  $   $   $46,550   $46,550   $   $   $72,519   $72,519 
Frontier Trading Company XXXVIII, LLC           2,568    2,568            (9,021)   (9,021)
Galaxy Plus Fund - Aspect Feeder Fund (532) LLC   (9,291)   (65,905)   96,559    21,363    (19,245)   (56,867)   153,322    77,210 
Galaxy Plus Fund - Doherty Feeder Fund (528) LLC   (12,879)   39,369    (23,273)   3,217    (18,045)   41,460    2,070    25,485 
Galaxy Plus Fund - Emil van Essen STP Feeder Fund (516) LL   (68,449)   525,034    (732,131)   (275,546)   (80,645)   809,976    (431,386)   297,945 
Galaxy Plus Fund - Fort Contrarian Feeder Fund (510) LLC   (10,825)   24,104    41,083    54,362    (37,146)   (161,057)   416,622    218,419 
Galaxy Plus Fund - LRR Feeder Fund (522) LLC           (4,884)   (4,884)       (63)   (256,549)   (256,612)
Galaxy Plus Fund - QIM Feeder Fund (526) LLC   (38,176)   (205,387)   29,398    (214,165)   (52,684)   (693,062)   690,348    (55,398)
Galaxy Plus Fund - Quantmetrics Feeder Fund (527) LLC   (10,502)   37,958    (5,938)   21,518    (31,025)   (185,578)   (512)   (217,115)
Galaxy Plus Fund - Quest Feeder Fund (517) LLC   (6,575)   (46,302)   6,537    (46,340)   (7,239)   (14,512)   2,826    (18,925)
Galaxy Plus Fund - Welton GDP Feeder Fund (538) LLC   (38,085)   46,290    67,221    75,426    (87,162)   (408,339)   385,991    (109,510)
Total  $(194,782)  $355,161   $(476,310)  $(315,931)  $(333,191)  $(668,042)  $1,026,230   $24,997 
                                         
Frontier Winton Fund                                        
Frontier Trading Company II, LLC  $   $   $2,568   $2,568                     
Frontier Trading Company XXXVIII, LLC           154,297    154,297            (31,155)   (31,155)
Total  $   $   $156,865   $156,865   $   $   $(31,155)  $(31,155)
                                         
Frontier Frontier Select Fund                                        
Frontier Trading Company XXXIX, LLC  $   $   $3,227   $3,227   $   $   $53,727   $53,727 
Frontier Trading Company XXXVIII, LLC           (20,172)   (20,172)           (8,337)   (8,337)
Galaxy Plus Fund - TT Feeder Fund (531) LLC   (21,700)   91,839    25,085    95,224    (35,396)   67,150    (116,095)   (84,341)
Galaxy Plus Fund - Welton GDP Feeder Fund (538) LLC   (31,965)   13,930    25,712    7,677    (209,529)   (209,529)          
Total  $(53,665)  $105,769   $33,852   $85,956   $(35,396)  $67,150   $(280,234)  $(248,480)
                                         
Frontier Heritage Fund                                        
Frontier Trading Company II, LLC  $   $   $19,781   $19,781   $   $   $46,789   $46,789 
Frontier Trading Company XXXVIII, LLC           1,051    1,051            (9,998)   (9,998)
Galaxy Plus Fund - Welton GDP Feeder Fund (538) LLC   (33,189)   14,991    22,315    4,117   $(29,980)  $51,752   $(142,541)   (120,769)
Total  $(33,189)  $14,991   $43,147   $24,949   $(29,980)  $51,752   $(105,750)  $(83,978)
                                         
Frontier Long/Short Commodity Fund                                        
Frontier Trading Company XXXVIII, LLC  $   $   $1,511   $1,511   $   $   $(1,334)  $(1,334)
Galaxy Plus Fund - Chesapeake Feeder Fund (518) LLC                   (5,111)   10,011    (15,755)   (10,855)
Galaxy Plus Fund - Emil van Essen STP Feeder Fund (516) LLC   (19,658)   84,795    (121,669)   (56,532)   (37,912)   210,831    (102,127)   70,792 
Galaxy Plus Fund - LRR Feeder Fund (522) LLC           (90,105)   (90,105)       (2,869)   5,305    2,436 
Galaxy Plus Fund - Welton GDP Feeder Fund (538) LLC   (15,062)   5,925    10,810    1,673    (30,671)   (59,091)   52,198    (37,564)
Total  $(34,720)  $90,720   $(199,453)  $(143,453)  $(73,694)  $158,882   $(61,713)  $23,475 
                                         
Frontier Diversified Fund                                        
Frontier Trading Company II, LLC  $   $   $34,017   $34,017   $   $   $29,203   $29,203 
Frontier Trading Company XXXVIII, LLC           2,127    2,127            3,026    3,026 
Galaxy Plus Fund - Aspect Feeder Fund (532) LLC   (4,157)   (23,653)   34,404    6,594    (8,281)   (26,711)   65,961    30,969 
Galaxy Plus Fund - Chesapeake Feeder Fund (518) LLC                   (5,529)   14,423    (32,526)   (23,632)
Galaxy Plus Fund - Doherty Feeder Fund (528) LLC   (9,004)   22,242    (13,179)   59    (11,301)   21,985    865    11,549 
Galaxy Plus Fund - Emil van Essen STP Feeder Fund (516) LLC   (39,614)   258,878    (358,841)   (139,577)   (41,460)   371,152    (187,157)   142,535 
Galaxy Plus Fund - Fort Contrarian Feeder Fund (510) LLC   (9,027)   10,939    20,972    22,884    (15,109)   (55,000)   140,263    70,154 
Galaxy Plus Fund - LRR Feeder Fund (522) LLC           (2,350)   (2,350)       (15)   (93,042)   (93,057)
Galaxy Plus Fund - QIM Feeder Fund (526) LLC   (20,929)   (92,636)   16,282    (97,283)   (38,315)   (410,394)   402,029    (46,680)
Galaxy Plus Fund - Quantmetrics Feeder Fund (527) LLC   (8,047)   17,990    (2,619)   7,324    (25,622)   (105,994)   (426)   (132,042)
Galaxy Plus Fund - Quest Feeder Fund (517) LLC   (7,511)   (46,302)   6,537    (47,276)   (10,292)   (25,052)   26,393    (8,951)
Galaxy Plus Fund - Welton GDP Feeder Fund (538) LLC   (20,337)   21,164    31,504    32,331    (58,330)   (244,662)   245,800    (57,192)
Total  $(118,626)  $168,622   $(231,146)  $(181,150)  $(214,239)  $(460,268)  $600,389   $(74,118)
                                         
Frontier Masters Fund                                        
Frontier Trading Company II, LLC  $   $   $(4,703)  $(4,703)  $   $   $36,130   $36,130 
Frontier Trading Company XXXVIII, LLC           3,100    3,100            (4,657)   (4,657)
Galaxy Plus Fund - Chesapeake Feeder Fund (518) LLC                   (11,827)   27,230    (47,312)   (31,909)
Galaxy Plus Fund - Emil van Essen STP Feeder Fund (516) LLC   (51,154)   235,343    (326,220)   (142,031)   (62,543)   419,529    (214,880)   142,106 
Galaxy Plus Fund - Welton GDP Feeder Fund (538) LLC   (32,744)   17,636    26,253    11,145    (55,827)   (139,604)   81,403    (114,028)
Galaxy Plus Fund - TT Feeder Fund (531) LLC   (17,623)   95,172    21,795    99,344            (128,372)   (128,372)
Total  $(101,521)  $348,151   $(279,775)  $(33,145)  $(130,197)  $307,155   $(277,688)  $(100,730)

43

 

   Nine Months Ended September 30, 2018   Nine Months Ended September 2017 
           Change in               Change in     
   Trading   Realized   Unrealized   Net Income   Trading   Realized   Unrealized   Net Income 
   Commissions   Gain/(Loss)   Gain/(Loss)   (Loss)   Commissions   Gain/(Loss)   Gain/(Loss)   (Loss) 
Frontier Balanced Fund                                        
Frontier Trading Company II, LLC  $   $   $114,510   $114,510   $(32,747)  $216,451   $(342,327)  $(158,623)
Frontier Trading Company XXXVIII, LLC           (8,908)   (8,908)           (215,180)   (215,180)
Galaxy Plus Fund - Aspect Feeder Fund (532) LLC   (53,188)   (277,921)   103,487    (227,622)   (64,009)   (444,842)   139,701    (369,150)
Galaxy Plus Fund - Doherty Feeder Fund (528) LLC   (44,264)   (119,199)   (22,162)   (185,625)   (68,404)   189,463    (32,758)   88,301 
Galaxy Plus Fund - Emil van Essen STP Feeder Fund (516) LL   (296,953)   894,510    (718,674)   (121,117)   (450,701)   1,744,230    8,954    1,302,483 
Galaxy Plus Fund - Fort Contrarian Feeder Fund (510) LLC   (47,185)   (114,597)   51,845    (109,937)   (134,386)   896,859    (27,111)   735,362 
Galaxy Plus Fund - LRR Feeder Fund (522) LLC   (123)       (8,469)   (8,592)       (63)   (1,015,265)   (1,015,328)
Galaxy Plus Fund - QIM Feeder Fund (526) LLC   (111,704)   (813,565)   90,256    (835,013)   (1,105,937)   3,100,899    394,461    2,389,423 
Galaxy Plus Fund - Quantmetrics Feeder Fund (527) LLC   (73,053)   (34,735)   6,431    (101,357)   (175,559)   207,540    217,419    249,400 
Galaxy Plus Fund - Quest Feeder Fund (517) LLC   (20,503)   (88,994)   9,703    (99,794)   (20,728)   643,877    (818,574)   (195,425)
Galaxy Plus Fund - Welton GDP Feeder Fund (538) LLC   (175,522)   (1,567,177)   154,073    (1,588,626)   (217,096)   (862,039)   (70,599)   (1,149,734)
Total  $(822,495)  $(2,121,678)  $(227,908)  $(3,172,081)  $(2,269,567)  $5,692,375   $(1,761,279)  $1,661,529 
                                         
Frontier Winton Fund                                        
Frontier Trading Company II, LLC  $   $   $(183,988)  $(183,988)  $   $   $   $ 
Frontier Trading Company XXXVIII, LLC           88,092    88,092            (334,372)   (334,372)
Total  $   $   $(95,896)  $(95,896)  $   $   $(334,372)  $(334,372)
                                         
Frontier Frontier Select Fund                                        
Frontier Trading Company XXXIX, LLC  $   $   $(38,351)  $(38,351)  $   $   $(249,165)  $(249,163)
Frontier Trading Company XXXVIII, LLC           (15,611)   (15,611)           (70,090)   (70,092)
Galaxy Plus Fund - TT Feeder Fund (531) LLC   (83,404)   (433,416)   92,847    (423,973)   (26,272)   455,907    (1,076,952)   (647,317)
Galaxy Plus Fund - Welton GDP Feeder Fund (538) LLC   (112,056)   (80,517)   (182,320)   (374,893)   (35,396)   67,150    (209,529)   (177,775)
Total  $(195,460)  $(513,933)  $(143,435)  $(852,828)  $(61,668)  $523,057   $(1,605,736)  $(966,572)
                                         
Frontier Heritage Fund                                        
Frontier Trading Company II, LLC  $   $   $26,444   $26,444   $(61,563)  $113,582   $(118,339)  $(66,320)
Frontier Trading Company XXXVIII, LLC           (3,644)   (3,644)           (104,610)   (104,610)
Galaxy Plus Fund - Welton GDP Feeder Fund (538) LLC   (128,567)   (535,418)   67,067    (596,918)  $(29,980)  $51,752   $(142,541)   (120,769)
Total  $(128,567)  $(535,418)  $89,867   $(574,118)  $(91,543)  $165,334   $(365,490)  $(291,699)
                                         
Frontier Long/Short Commodity Fund                                        
Frontier Trading Company XXXVIII, LLC  $   $   $(301)  $(301)  $   $   $48,430   $48,430 
Galaxy Plus Fund - Chesapeake Feeder Fund (518) LLC                   (49,244)   (27,947)   56,870    (20,321)
Galaxy Plus Fund - Emil van Essen STP Feeder Fund (516) LLC   (75,198)   191,295    (164,749)   (48,652)   (219,046)   608,857    93,673    483,484 
Galaxy Plus Fund - LRR Feeder Fund (522) LLC   (681)       (145,612)   (146,293)   (570,790)   (2,869)   5,305    (568,354)
Galaxy Plus Fund - Welton GDP Feeder Fund (538) LLC   (59,678)   (230,562)   24,115    (266,125)   (61,797)   (61,934)   (105,149)   (228,880)
Total  $(135,557)  $(39,267)  $(286,547)  $(461,371)  $(900,877)  $516,107   $99,129   $(285,641)
                                         
Frontier Diversified Fund                                        
Frontier Trading Company II, LLC  $   $   $40,239    40,239    (34,961)   156,232    (215,541)   (94,270)
Frontier Trading Company XXXVIII, LLC           307    307            (217,505)   (217,505)
Galaxy Plus Fund - Aspect Feeder Fund (532) LLC   (25,766)   (94,474)   36,713    (83,527)   (47,202)   (275,640)   107,879    (214,963)
Galaxy Plus Fund - Chesapeake Feeder Fund (518) LLC                   (57,740)   (282,402)   368,874    28,732 
Galaxy Plus Fund - Doherty Feeder Fund (528) LLC   (28,732)   (48,799)   (12,067)   (89,598)   (48,192)   115,185    (20,362)   46,631 
Galaxy Plus Fund - Emil van Essen STP Feeder Fund (516) LLC   (127,929)   449,134    (404,314)   (83,109)   (372,907)   1,308,793    157,823    1,093,709 
Galaxy Plus Fund - Fort Contrarian Feeder Fund (510) LLC   (28,612)   (2,139)   29,425    (1,326)   (86,543)   613,006    (32,023)   494,440 
Galaxy Plus Fund - LRR Feeder Fund (522) LLC       (62)   1,592    1,530        (15)   (379,526)   (379,541)
Galaxy Plus Fund - QIM Feeder Fund (526) LLC   (62,615)   (428,811)   18,024    (473,402)   (716,264)   2,120,108    (618)   1,403,226 
Galaxy Plus Fund - Quantmetrics Feeder Fund (527) LLC   (45,287)   (7,954)   2,742    (50,499)   (170,681)   290,815    121,852    241,986 
Galaxy Plus Fund - Quest Feeder Fund (517) LLC   (23,108)   (89,102)   9,703    (102,507)   (65,209)   1,793,033    (2,309,045)   (581,221)
Galaxy Plus Fund - Welton GDP Feeder Fund (538) LLC   (92,781)   (751,752)   54,921    (789,612)   (167,731)   (525,880)   (78,889)   (772,500)
Total  $(434,830)  $(973,959)  $(222,715)  $(1,631,504)  $(1,767,430)  $5,313,235   $(2,497,081)  $1,048,724 
                                         
Frontier Masters Fund                                        
Frontier Trading Company II, LLC  $   $   $(99,255)   (99,255)   25,034    91,810    (254,854)   (138,010)
Frontier Trading Company XV, LLC                   (82,918)   78,115    (115,394)   (120,197)
Frontier Trading Company XXXVIII, LLC           20,318    20,318            (108,362)   (108,362)
Galaxy Plus Fund - Chesapeake Feeder Fund (518) LLC       (76,396)   68,413    (7,983)   (81,868)   (54,404)   103,126    (33,146)
Galaxy Plus Fund - Emil van Essen STP Feeder Fund (516) LLC   (200,364)   498,398    (429,904)   (131,870)   (287,707)   937,794    43,617    693,704 
Galaxy Plus Fund - Welton GDP Feeder Fund (538) LLC   (132,925)   (709,314)   39,893    (802,346)   (89,695)   (176,476)   (192,207)   (458,378)
Galaxy Plus Fund - TT Feeder Fund (531) LLC   (64,811)   7,178    (157,460)   (215,093)           (749,376)   (749,376)
Total  $(398,100)  $(280,134)  $(557,995)  $(1,236,229)  $(517,154)  $876,839   $(1,273,450)  $(913,765)

44

 

The Series’ investments in private investment companies have certain redemption and liquidity restrictions which are described in the following table:

 

   Redemptions  Redemptions  Liquidity
   Notice Period  Permitted  Restrictions
Frontier Diversified Fund         
Multi-Strategy         
Galaxy Plus Fund - EvE STP Feeder Fund (516) LLC  24 hours  Daily  None
Galaxy Plus Fund - LRR Feeder Fund (522) LLC  24 hours  Daily  None
Galaxy Plus Fund - Quantmetrics Feeder Fund (527) LLC  24 hours  Daily  None
Galaxy Plus Fund - Welton GDP Feeder Fund (538) LLC  24 hours  Daily  None
Trend Following         
Galaxy Plus Fund - Aspect Feeder Fund (532) LLC  24 hours  Daily  None
Galaxy Plus Fund - Fort Contrarian Feeder Fund (510) LLC  24 hours  Daily  None
Galaxy Plus Fund - QIM Feeder Fund (526) LLC  24 hours  Daily  None
Galaxy Plus Fund - Quest Feeder Fund (517) LLC  24 hours  Daily  None
Option Trading         
Galaxy Plus Fund - Doherty Feeder Fund (528) LLC  24 hours  Daily  None
          
Frontier Masters Fund         
Trend Following         
Galaxy Plus Fund - TT Feeder Fund (531) LLC  24 hours  Weekly  None
Multi-Strategy         
Galaxy Plus Fund - EvE STP Feeder Fund (516) LLC  24 hours  Daily  None
Galaxy Plus Fund - Welton GDP Feeder Fund (538) LLC  24 hours  Daily  None
          
Frontier Long/Short Commodity Fund         
Multi-Strategy         
Galaxy Plus Fund - EvE STP Feeder Fund (516) LLC  24 hours  Daily  None
Galaxy Plus Fund - LRR Feeder Fund (522) LLC  24 hours  Daily  None
Galaxy Plus Fund - Welton GDP Feeder Fund (538) LLC  24 hours  Daily  None
          
Frontier Balanced Fund         
Multi-Strategy         
Galaxy Plus Fund - EvE STP Feeder Fund (516) LLC  24 hours  Daily  None
Galaxy Plus Fund - Quantmetrics Feeder Fund (527) LLC  24 hours  Daily  None
Galaxy Plus Fund - LRR Feeder Fund (522) LLC  24 hours  Daily  None
Galaxy Plus Fund - Welton GDP Feeder Fund (538) LLC  24 hours  Daily  None
Trend Following         
Galaxy Plus Fund - Aspect Feeder Fund (532) LLC  24 hours  Daily  None
Galaxy Plus Fund - Fort Contrarian Feeder Fund (510) LLC  24 hours  Daily  None
Galaxy Plus Fund - QIM Feeder Fund (526) LLC  24 hours  Daily  None
Galaxy Plus Fund - Quest Feeder Fund (517) LLC  24 hours  Daily  None
Option Trading         
Galaxy Plus Fund - Doherty Feeder Fund (528) LLC  24 hours  Daily  None
          
Frontier Select Fund         
Trend Following         
Galaxy Plus Fund - TT Feeder Fund (531) LLC  24 hours  Weekly  None
          
Frontier Heritage Fund         
Multi-Strategy         
Galaxy Plus Fund - Welton GDP Feeder Fund (538) LLC  24 hours  Weekly  None

45

 

6. Transactions with Affiliates

 

The Managing Owner contributes funds to the Trust, with respect to the Series, in order to have a 1% interest (“Minimum Purchase Commitment”) in the aggregate capital, profits and losses of all Series and in return will receive units designated as general units in the Series in which the Managing Owner invests such funds. The general units may only be purchased by the Managing Owner and may be subject to no advisory fees or advisory fees at reduced rates. Otherwise, the general units hold the same rights as the limited units. The Managing Owner will make contributions to the Series of the Trust necessary to maintain at least a 1% interest in the aggregate capital, profits and losses of the combined Series of the Trust. Such contribution was made by the Managing Owner before trading commenced for the Trust and will be maintained throughout the existence of the Trust, and the Managing Owner will make such purchases as are necessary to effect this requirement. Additionally, the Managing Owner agreed with certain regulatory bodies to maintain a 1% interest specifically in the Frontier Balanced Fund Class 1AP and 2a Units, aggregated, and each of the Frontier Long/Short Commodity Fund, Frontier Diversified Fund and Frontier Masters Fund. The 1% interest in these specific Series is included in computing the Minimum Purchase Commitment in aggregate capital. In addition to the general units the Managing Owner receives in respect of its Minimum Purchase Commitment, the Managing Owner may purchase limited units in any Series as a Limited Owner. Principals of the Managing Owner or affiliates are allowed to own beneficial interests in the Trust, with respect to the Series, as well. All Units purchased by the Managing Owner are held for investment purposes only and not for resale. The Managing Owner may make purchases or redemptions at any time on the same terms as any Limited Owner. The Trust has and will continue to have certain relationships with the Managing Owner and its affiliates.

 

Expenses

 

Management Fees—Each Series of Units pays to the Managing Owner a monthly management fee equal to a percentage of the notional assets of such Series allocated to Trading Companies, calculated on a daily basis. The percentage bases of the fees vary and are in line with the amounts being disclosed below. In addition, the Managing Owner receives a monthly management equal to a certain percentage of the assets in the Galaxy Plus entities attributable to such Series’ (including notional assets), calculated on a monthly basis. The management fees attributable to Galaxy Plus entities are included in unrealized gain/(loss) on private investment companies on the Statements of Operations. The total amount of assets of a Series allocated to Trading Advisors and/or reference programs, including (i) actual funds deposited in accounts directed by the Trading Advisors or deposited as margin in respect of swaps or other derivative instruments referencing a reference program plus (ii) any notional equity allocated to the Trading Advisors and any reference programs, is referred to herein as the “notional assets” of the Series. The annual rate of the management fee is: 0.5%  for the Frontier Balanced Fund Class 1 and Class 2, 1.0% for the Frontier Balanced Fund Class 1AP, Class 2a and Class 3a, 2.0% for the Frontier Winton Fund, Frontier Long/Short Commodity Fund Class 1a, Class 2a and Class 3a and Frontier Masters Fund, 0.75% for Frontier Diversified Fund, 2.5% for the Frontier Heritage Fund and Frontier Select Fund, and 3.5% for the Frontier Long/Short Commodity Fund Class 2 and Class 3. The Managing Owner may pay all or a portion of such management fees to the Trading Advisor(s) and/or waive (up to the percentage specified) any such management fee to the extent any related management fee is paid by a trading company or estimated management fee is embedded in a swap or other derivative instrument. Any management fee embedded in a swap or other derivative instrument may be greater or less than the management fee that would otherwise be charged to the Series by the Managing Owner.

 

As of the date of this report, for a Series that has invested in a swap, the Managing Owner or Trading Advisor(s) do not receive any management fees directly from the Series for such swap, and instead the relevant Trading Advisor receives compensation via the fees embedded in the swap. As of September 30, 2018, the management fees embedded based on fair value of swaps in (i) swaps owned by Frontier Diversified Fund was 1.00% per annum, (ii) swaps owned by Frontier Balanced Fund was 1.00% per annum, (iii) swaps owned by Frontier Long/Short Commodity Fund was 1.50% per annum, and (iv) swaps owned by Frontier Heritage Fund was 1.00% per annum, and the Managing Owner has waived the entire management fee due to it from those Series in respect of such Series’ investment in swaps. In each case, the embedded management fee was accrued on the relevant notional amount of the swap.

46

 

The management fee as a percentage of the applicable Series’ notional assets will be greater than the percentage of the applicable Series’ net asset value to the extent that the notional assets of the Series exceeds its net asset value. The Managing Owner expects that the notional assets of each Series will generally be maintained at a level in excess of the net asset value of such Series and such excess may be substantial to the extent the Managing Owner deems necessary to achieve the desired level of volatility.

 

Trading Fees— In connection with each Series’ trading activities the Frontier Balanced Fund, Frontier Select Fund, Frontier Winton Fund and Frontier Heritage Fund pays to the Managing Owner an FCM Fee of up to 2.25% per annum of notional assets allocated to the trading advisors, including through investments in commodity pools available on the Galaxy Plus Platform, and any reference programs of the applicable Series. The Frontier Diversified Fund, Frontier Long/Short Commodity Fund and Frontier Masters Fund pays to the Managing Owner an FCM Fee of up to 2.25% of notional assets allocated to the trading advisors, including through investments in commodity pools available on the Galaxy Plus Platform, and a custodial/due diligence fee of 0.12% of such Series’ NAV, calculated daily.

 

Incentive Fees— Some Series pay to the Managing Owner an incentive fee of a certain percentage of new net trading profits generated in the Trading Companies by such Series, monthly or quarterly. In addition, the Managing Owner receives a quarterly incentive fee of a certain percentage of new net trading profits generated in the Galaxy Plus entities that have been allocated to the Series. The incentive fees attributable to Galaxy Plus entities are included in unrealized gain/(loss) on private investment companies on the Statements of Operations. Because the Frontier Balanced Fund, Frontier Diversified Fund, Frontier Masters Fund, Frontier Heritage Fund, Frontier Select Fund, and Frontier Long/Short Commodity Fund may each employ multiple Trading Advisors, these Series will pay the Managing Owner a monthly incentive fee calculated on a Trading Advisor by Trading Advisor basis. It is therefore possible that in any given period the Series may pay incentive fees to the Managing Owner for one or more Trading Advisors while each of these Series as a whole experiences losses. The incentive fee is 25% for the Frontier Balanced Fund and the Frontier Diversified Fund and 20% for the Frontier Winton Fund, Frontier Heritage Fund, Frontier Select Fund, Frontier Long/Short Commodity Fund and Frontier Masters Fund. The Managing Owner may pay all or a portion of such incentive fees to the Trading Advisor(s) for such Series.

 

As of the date of this report, for a Series that has invested in a swap, the Managing Owner or Trading Advisor(s) do not receive any incentive fees directly from the Series for such swap, and instead the relevant Trading Advisor receives compensation via the fees embedded in the swap. As of September 30, 2018, the range of incentive fees as a percentage of net new trading profits on swaps embedded in (i) swaps owned by Frontier Diversified Fund was 20-25% per annum, (ii) swaps owned by Frontier Balanced Fund was 20-25% per annum, (iii) swaps owned by Frontier Long/Short Commodity Fund was 25% per annum, and (iv) swaps owned by Frontier Heritage Fund was 15% per annum, and the Managing Owner has waived the entire incentive fee due to it from those Series in respect of such Series’ investment in swaps. In each case, the embedded management fee was accrued on the relevant notional amount of the swap.

 

Service Fees—Investors who have purchased Class 1 or Class 1a Units of Frontier Diversified Fund, Frontier Masters Fund, and Frontier Long/Short Commodity Fund are charged a service fee of up to two percent (2.0%) annually of the NAV (of the purchase price, in case of the initial service fee) of each Unit purchased, for the benefit of selling agents selling such Class 1 or Class 1a Units. The initial service fee, which is amortized monthly at an annual rate of up to two percent (2.0%) of the average daily NAV of Class 1 or Class 1a of such Series, is prepaid to the Managing Owner by each Series, and paid to the selling agents by the Managing Owner in the month following sale; provided, however, that investors who redeem all or a portion of their Class 1 and Class 1a Units of any Series during the first twelve (12) months following the effective date of their purchase are subject to a redemption fee of up to two percent (2.0%) of the purchase price at which such investor redeemed to reimburse the Managing Owner for the then unamortized balance of the prepaid initial service fee. Investors who have purchased Class 1 or Class 1a Units of Frontier Balanced Fund, Frontier Heritage Fund, Frontier Select Fund, and Frontier Winton Fund are charged a service fee of up to three percent (3.0%) annually of the NAV (of the purchase price, in case of the initial service fee) of each Unit purchased, for the benefit of selling agents selling such Class 1 or Class 1a Units. The initial service fee, which is amortized monthly at an annual rate of up to three percent (3.0%) of the average daily NAV of Class 1 or Class 1a of such Series, is prepaid to the Managing Owner by each Series, and paid to the selling agents by the Managing Owner in the month following sale; provided, however, that investors who redeem all or a portion of their Class 1 and Class 1a Units of any Series during the first twelve (12) months following the effective date of their purchase are subject to a redemption fee of up to three percent (3.0%) of the purchase price at which such investor redeemed to reimburse the Managing Owner for the then-unamortized balance of the prepaid initial service fee. With respect to Class 2 and Class 2a Units of any Series, the Managing Owner pays an ongoing service fee to selling agents of up to one half percent (0.5%) annually of the NAV of each Class 2 or Class 2a Unit (of which 0.25% will be charged to Limited Owners holding Class 2 Units of the Frontier Diversified Fund and Frontier Masters Fund or Class 2a Units of the Frontier Long/Short Commodity Fund sold) until such Class 2 or Class 2a Units which are subject to the fee limitation are reclassified as Class 3 or Class 3a Units of the applicable Series for administrative purposes. Currently the service fee is not charged to Class 1AP investors. The Managing Owner may also pay selling agents certain additional fees and expenses for administrative and other services rendered and expenses incurred by such selling agents.

47

 

The following table summarizes fees earned by the Managing Owner for the three months and nine months ended September 30, 2018 and 2017:

 

Three Months Ended September 30, 2018

 

   Incentive Fees (rebate)   Management Fees    Service Fees   Trading Fees 
Frontier Diversified Fund  $10,897   $13,113    $14,432   $145,750 
Frontier Masters Fund       22,605     11,605    95,225 
Frontier Long/Short Commodity Fund            334    19,318 
Frontier Balanced Fund       26,643     222,302    339,537 
Frontier Select Fund            32,149    27,076 
Frontier Winton Fund       104,062     76,839    73,379 
Frontier Heritage Fund       22,635     29,343    33,624 

 

Three Months Ended September 30, 2017

 

   Incentive Fees (rebate)   Management Fees    Service Fees   Trading Fees 
Frontier Diversified Fund  $   $13,509    $24,584   $221,452 
Frontier Masters Fund       26,862     19,585    151,229 
Frontier Long/Short Commodity Fund            1,867    40,897 
Frontier Balanced Fund       25,760     323,572    462,275 
Frontier Select Fund            46,479    39,673 
Frontier Winton Fund       188,835     99,725    127,661 
Frontier Heritage Fund       43,021     40,954    36,907 

 

Nine Months Ended September 30, 2018

 

   Incentive Fees (rebate)   Management Fees    Service Fees   Trading Fees 
Frontier Diversified Fund  $12,778   $37,905    $45,236   $454,513 
Frontier Masters Fund       83,816     39,503    335,271 
Frontier Long/Short Commodity Fund            1,398    65,530 
Frontier Balanced Fund   145,134    69,545     723,093    1,068,482 
Frontier Select Fund            105,111    92,779 
Frontier Winton Fund       366,404     252,006    236,657 
Frontier Heritage Fund   1,394    92,509     97,753    112,771 

 

Nine Months Ended September 30, 2017

 

   Incentive Fees (rebate)   Management Fees    Service Fees   Trading Fees 
Frontier Diversified Fund  $(63,508)  $69,251    $110,769   $1,154,233 
Frontier Masters Fund       150,767     72,519    527,813 
Frontier Long/Short Commodity Fund   (87,670)        12,838    183,990 
Frontier Balanced Fund       102,297     1,106,847    1,625,446 
Frontier Select Fund       102,047     176,247    137,940 
Frontier Winton Fund   (49,790)   677,921     368,816    431,025 

48

 

The following table summarizes fees payable to the Managing Owner as of September 30, 2018 and December 31, 2017.

 

As of September 30, 2018

 

   Incentive Fees   Management Fees   Interest Fees   Service Fees   Trading Fees 
Frontier Diversified Fund  $10,897   $8,244   $   $4,552   $47,283 
Frontier Masters Fund       7,494        2,625    32,173 
Frontier Long/Short Commodity Fund           44    66    6,259 
Frontier Balanced Fund       23,019    3,591    61,951    108,152 
Frontier Select Fund           765    7,750    8,530 
Frontier Winton Fund       34,474    15,770    20,813    23,696 
Frontier Heritage Fund       6,370    1,918    10,001    11,980 

 

As of December 31, 2017

 

   Incentive Fees   Management Fees   Interest Fees   Service Fees   Trading Fees 
Frontier Diversified Fund  $12,847   $4,049   $   $3,614   $61,188 
Frontier Masters Fund       8,949        3,570    49,131 
Frontier Long/Short Commodity Fund           103    172    9,125 
Frontier Balanced Fund   40,189    11,465    2,528    88,149    140,868 
Frontier Select Fund           1,358    14,743    14,898 
Frontier Winton Fund       53,039    20,992    26,714    43,573 
Frontier Heritage Fund       13,471    2,608    11,483    15,703 

 

With respect to the service fees, the initial service fee (for the first 12 months) relating to a purchase of Units by an investor is prepaid by the Managing Owner to the relevant selling agent in the month following such purchase and is reimbursed therefore by the Series monthly in arrears in an amount based upon a corresponding percentage of NAV, calculated daily. Consequently, the Managing Owner bears the risk and the benefit of the upside potential of any difference between the amount of the initial service fee prepaid by it and the amount of the reimbursement thereof, which may result from variations in NAV over the following 12 months.

 

Aggregate interest income from all sources, including U.S. Treasury Securities assets net of premiums and cash held at clearing brokers, of up to the first 2% (annualized) is paid to the Managing Owner by the Frontier Balanced Fund (Class 1 and Class 2), Frontier Long/Short Commodity Fund (Class 2 and Class 3), Frontier Winton Fund, Frontier Select Fund, and Frontier Heritage Fund. For the Frontier Diversified Fund, Frontier Long/Short Commodity Fund (Class 1a, Class 2a, Class 3a only), Frontier Masters Fund, and Frontier Balanced Fund (Class 1AP, Class 2a and Class 3a) 100% of the interest is retained by the respective Series.

49

 

The following table outlines the interest paid by each Series to the Managing Owner and its ratio to average net assets for the three and nine months ended September 30, 2018 and 2017:

 

Three Months Ended

 

   September 30, 2018   September 30, 2017   September 30, 2018   September 30, 2017 
                 
   Gross Amount Paid to   Gross Amount Paid to   Ratio to Average Net   Ratio to Average 
   the Managing Owner   the Managing Owner   Assets   Net Assets 
Frontier Diversified Class 1  $   $    0.00%   0.00%
Frontier Diversified Class 2           0.00%   0.00%
Frontier Diversified Class 3           0.00%   0.00%
Frontier Masters Class 1       (314)   0.00%   -0.01%
Frontier Masters Class 2       (333)   0.00%   -0.01%
Frontier Masters Class 3       (543)   0.00%   -0.01%
Frontier Long/Short Class 2   4    35    0.00%   0.01%
Frontier Long/Short Class 3   55    289    0.31%   0.01%
Frontier Long/Short Class 1a           0.00%   0.00%
Frontier Long/Short Class 2a           0.00%   0.00%
Frontier Long/Short Class 3a           0.00%   0.00%
Frontier Balanced Fund Class 1   4,688    9,154    0.02%   0.02%
Frontier Balanced Fund Class 1AP   85    123    0.02%   0.02%
Frontier Balanced Fund Class 2   848    2,046    0.02%   0.02%
Frontier Balanced Fund Class 2A   12    (77)   0.00%   -0.01%
Frontier Balanced Fund Class 3A   31    (136)   0.00%   -0.01%
Frontier Select Fund Class 1   228    4,708    0.00%   0.08%
Frontier Select Fund Class 1AP   1    17    0.00%   0.08%
Frontier Select Fund Class 2   20    686    0.00%   0.08%
Frontier Winton Class 1   5,024    28,693    0.27%   0.22%
Frontier Winton Class 1AP   18    74    0.00%   0.22%
Frontier Winton Class 2   310    23,095    0.00%   0.22%
Frontier Heritage Fund Class 1   412    7,622    0.02%   0.14%
Frontier Heritage Fund Class 1AP       8    0.00%   0.15%
Frontier Heritage Fund Class 2   68    1,297    0.00%   0.14%
Total  $11,804   $76,444           

50

 

Nine Months Ended

 

   September 30, 2018   September 30, 2017   September 30, 2018   September 30, 2017 
                 
   Gross Amount Paid to   Gross Amount Paid to   Ratio to Average Net   Ratio to Average Net 
   the Managing Owner   the Managing Owner   Assets   Assets 
Frontier Diversified Class 1  $   $(3,860)   0.00%   -0.10%
Frontier Diversified Class 2       (19,555)   0.00%   -0.07%
Frontier Diversified Class 3       (7,071)   0.00%   -0.06%
Frontier Masters Class 1       (4,988)   0.00%   -0.12%
Frontier Masters Class 2       (5,113)   0.00%   -0.11%
Frontier Masters Class 3       (5,881)   0.00%   -0.09%
Frontier Long/Short Class 2   41    167    0.00%   0.03%
Frontier Long/Short Class 3   543    1,566    2.71%   0.04%
Frontier Long/Short Class 1a       533    0.00%   0.07%
Frontier Long/Short Class 2a       233    0.00%   0.03%
Frontier Long/Short Class 3a       189    0.00%   0.01%
Frontier Balanced Fund Class 1   19,340    199,538    0.06%   0.40%
Frontier Balanced Fund Class 1AP   341    2,539    0.06%   0.41%
Frontier Balanced Fund Class 2   3,504    54,615    0.06%   0.31%
Frontier Balanced Fund Class 2A   51    494    0.01%   0.09%
Frontier Balanced Fund Class 3A   139    1,316    0.01%   0.08%
Frontier Select Fund Class 1   6,063    28,362    0.05%   0.36%
Frontier Select Fund Class 1AP   26    84    0.07%   0.35%
Frontier Select Fund Class 2   744    4,295    0.07%   0.36%
Frontier Winton Class 1   67,727    40,855    3.41%   0.25%
Frontier Winton Class 1AP   212    50    0.00%   0.14%
Frontier Winton Class 2   7,338    17,017    0.09%   0.15%
Frontier Heritage Fund Class 1   5,794    33,744    0.24%   0.53%
Frontier Heritage Fund Class 1AP   5    29    0.00%   0.52%
Frontier Heritage Fund Class 2   904    10,039    0.02%   0.56%
Total  $112,772   $349,196           

51

 

7. Financial Highlights

 

The following information presents the financial highlights of the Trust, with respect to the Series, for the three and nine months ended September 30, 2018 and 2017.

 

   Frontier Diversified Fund   Frontier Masters Fund   Frontier Long/Short Commodity Fund 
   Class 1   Class 2   Class 3   Class 1   Class 2   Class 3   Class 1a   Class 2   Class 2a   Class 3   Class 3a 
Per unit operating performance (1)                                                       
Net asset value, June 30, 2018  $108.30   $126.87   $118.09   $99.33   $116.38   $108.77   $70.78   $106.52   $82.13   $111.75   $86.11 
Net operating results:                                                       
Interest income   0.06    0.07    0.06    0.07    0.08    0.07    0.07    0.11    0.08    0.11    0.08 
Expenses   (1.83)   (1.19)   (1.11)   (2.16)   (1.91)   (1.79)   (1.15)   (0.64)   (0.48)   (0.67)   (0.50)
Net gain/(loss) on investments, net of non-controlling interests   (2.07)   (2.83)   (2.57)   (0.02)   (0.15)   (0.06)   (3.50)   (2.44)   (4.58)   (2.57)   (4.75)
Net income/(loss)   (3.84)   (3.96)   (3.62)   (2.13)   (1.99)   (1.78)   (4.59)   (2.98)   (4.98)   (3.13)   (5.17)
Net asset value, September 30, 2018  $104.46   $122.91   $114.47   $97.20   $114.39   $106.99   $66.19   $103.54   $77.15   $108.62   $80.94 
                                                        
Ratios to average net assets                                                       
Net investment income/(loss)   -6.52%   -3.45%   -3.45%   -8.57%   -6.38%   -6.38%   -6.44%   -2.04%   -2.04%   -2.04%   -2.04%
Expenses before incentive fees (3)(4)   6.67%   3.60%   3.60%   8.83%   6.65%   6.65%   6.84%   2.45%   2.45%   2.45%   2.45%
Expenses after incentive fees (3)(4)   6.73%   3.66%   3.66%   8.83%   6.65%   6.65%   6.84%   2.45%   2.45%   2.45%   2.45%
Total return before incentive fees (2)   -3.48%   -3.06%   -3.00%   -2.14%   -1.71%   -1.64%   -6.48%   -2.80%   -6.06%   -2.80%   -6.00%
Total return after incentive fees (2)   -3.55%   -3.12%   -3.07%   -2.14%   -1.71%   -1.64%   -6.48%   -2.80%   -6.06%   -2.80%   -6.00%
                                                        
   Frontier Balanced Fund        Frontier Select Fund           
   Class 1   Class 1AP   Class 2   Class 2a   Class 3a        Class 1   Class 1AP   Class 2           
Per unit operating performance (1)                                                       
Net asset value, June 30, 2018  $125.21   $140.68   $189.72   $164.33   $163.77        $74.75   $84.07   $111.56           
Net operating results:                                                       
Interest income   0.02    0.03    0.03    0.03    0.03         0.00    0.00    0.00           
Expenses   (2.14)   (1.38)   (1.86)   (1.61)   (1.60)        (1.01)   (0.50)   (0.67)          
Net gain/(loss) on investments, net of non-controlling interests   (3.30)   (3.70)   (5.00)   (4.26)   (4.26)        1.67    1.88    2.51           
Net income/(loss)   (5.40)   (5.05)   (6.82)   (5.85)   (5.83)        0.66    1.38    1.84           
Net asset value, September 30, 2018  $119.81   $135.63   $182.90   $158.48   $157.94        $75.41   $85.45   $113.40           
                                                        
Ratios to average net assets                                                       
Net investment income/(loss)   -6.89%   -3.89%   -3.89%   -3.89%   -3.89%        -5.36%   -2.36%   -2.36%          
Expenses before incentive fees (3)(4)   7.01%   4.01%   4.01%   4.01%   4.01%        5.36%   2.36%   2.36%          
Expenses after incentive fees (3)(4)   7.01%   4.01%   4.01%   4.01%   4.01%        5.36%   2.36%   2.36%          
Total return before incentive fees (2)   -4.31%   -3.59%   -3.59%   -3.56%   -3.56%        0.88%   1.64%   1.65%          
Total return after incentive fees (2)   -4.31%   -3.59%   -3.59%   -3.56%   -3.56%        0.88%   1.64%   1.65%          
                                                        
   Frontier Winton Fund   Frontier Heritage Fund                          
   Class 1   Class 1AP   Class 2   Class 1   Class 1AP   Class 2                          
Per unit operating performance (1)                                                       
Net asset value, June 30, 2018  $148.66   $167.19   $203.47   $102.68   $115.46   $154.54                          
Net operating results:                                                       
Interest income   0.00    0.00    0.00    0.00    0.00    0.00                          
Expenses   (3.55)   (2.74)   (3.63)   (2.04)   (1.43)   (1.91)                         
Net gain/(loss) on investments, net of non-controlling interests   0.91    1.06    6.36    0.46    0.55    0.68                          
Net income/(loss)   (2.64)   (1.68)   2.73    (1.58)   (0.88)   (1.23)                         
Net asset value, September 30, 2018  $146.02   $165.51   $206.20   $101.10   $114.58   $153.31                          
                                                        
Ratios to average net assets                                                       
Net investment income/(loss)   -9.49%   -6.49%   -6.49%   -7.93%   -4.93%   -4.93%                         
Expenses before incentive fees (3)(4)   9.49%   6.49%   6.49%   7.93%   4.93%   4.93%                         
Expenses after incentive fees (3)(4)   9.49%   6.49%   6.49%   7.93%   4.93%   4.93%                         
Total return before incentive fees (2)   -1.78%   -1.00%   1.34%   -1.54%   -0.76%   -0.80%                         
Total return after incentive fees (2)   -1.78%   -1.00%   1.34%   -1.54%   -0.76%   -0.80%                         

 

(1)Interest income and expenses per unit are calculated by dividing these amounts by the average number of units outstanding during the period. The net gain/(loss) on investments, net of non-controlling interests is a balancing amount necessary to reconcile the change in net asset value per unit with the other per unit information.
(2)Impact of incentive fee computed using average net assets, otherwise computed using average units outstanding during the period prior to the effects of any non-controlling transactions. An owner’s total returns may vary from the above returns based on the timing of contributions and withdrawals. Total returns are not annualized.
(3)Expense ratios do not reflect interest allocated to the Managing Owner as such expenses are not included in the Statements of Operations of the Series, see footnote 6.
(4)Expense ratios do not include mangement and incentive fees at the Galaxy Plus entities. The ratios would have been higher had those expenses been included. The impact of those fees are included in the total return.

52

 

   Frontier Diversified Fund   Frontier Masters Fund   Frontier Long/Short Commodity Fund 
   Class 1   Class 2   Class 3   Class 1   Class 2   Class 3   Class 1a   Class 2   Class 2a   Class 3   Class 3a 
Per unit operating performance (1)                                                       
Net asset value, December 31, 2017  $116.41   $135.19   $125.68   $114.74   $133.27   $124.40   $81.35   $115.81   $93.59   $121.50   $97.99 
Net operating results:                                                       
Interest income   0.16    0.19    0.17    0.25    0.30    0.28    0.23    0.33    0.26    0.34    0.27 
Expenses   (3.19)   (3.72)   (3.47)   (5.44)   (6.43)   (5.97)   (1.43)   (2.06)   (1.62)   (2.15)   (1.70)
Net gain/(loss) on investments, net of non-controlling interests   (8.91)   (8.74)   (7.92)   (12.35)   (12.75)   (11.72)   (13.96)   (10.54)   (15.08)   (11.08)   (15.62)
Net income/(loss)   (11.95)   (12.28)   (11.21)   (17.54)   (18.88)   (17.41)   (15.16)   (12.27)   (16.44)   (12.88)   (17.05)
Net asset value, September 30, 2018  $104.46   $122.91   $114.47   $97.20   $114.39   $106.99   $66.19   $103.54   $77.15   $108.62   $80.94 
                                                        
Ratios to average net assets                                                       
Net investment income/(loss)   -3.73%   -3.73%   -3.73%   -6.92%   -6.92%   -6.92%   -2.08%   -2.08%   -2.08%   -2.08%   -2.08%
Expenses before incentive fees (3)(4)   3.86%   3.86%   3.86%   7.26%   7.26%   7.26%   2.47%   2.47%   2.47%   2.47%   2.47%
Expenses after incentive fees (3)(4)   3.93%   3.93%   3.93%   7.26%   7.26%   7.26%   2.47%   2.47%   2.47%   2.47%   2.47%
Total return before incentive fees (2)   -10.20%   -9.01%   -8.85%   -15.29%   -14.17%   -14.00%   -18.64%   -10.59%   -17.57%   -10.60%   -17.40%
Total return after incentive fees (2)   -10.27%   -9.08%   -8.92%   -15.29%   -14.17%   -14.00%   -18.64%   -10.59%   -17.57%   -10.60%   -17.40%
                                                        
 Frontier Balanced Fund        Frontier Select Fund           
   Class 1   Class 1AP   Class 2   Class 2a   Class 3a        Class 1   Class 1AP   Class 2           
Per unit operating performance (1)                                                       
Net asset value, December 31, 2017  $135.96   $150.56   $202.90   $175.77   $175.18        $90.27   $100.02   $132.73           
Net operating results:                                                       
Interest income   0.10    0.11    0.15    0.13    0.13         0.00    0.00    0.00           
Expenses   (6.82)   (4.49)   (6.06)   (5.26)   (5.24)        (3.15)   (1.56)   (2.10)          
Net gain/(loss) on investments, net of non-controlling interests   (9.44)   (10.55)   (14.09)   (12.16)   (12.13)        (11.71)   (13.01)   (17.22)          
Net income/(loss)   (16.15)   (14.93)   (20.00)   (17.29)   (17.24)        (14.86)   (14.57)   (19.32)          
Net asset value, September 30, 2018  $119.81   $135.63   $182.90   $158.48   $157.94        $75.41   $85.45   $113.41           
                                                        
Ratios to average net assets                                                       
Net investment income/(loss)   -7.05%   -4.05%   -4.05%   -4.05%   -4.05%        -5.37%   -2.37%   -2.37%          
Expenses before incentive fees (3)(4)   6.81%   3.81%   3.81%   3.81%   3.81%        5.37%   2.37%   2.37%          
Expenses after incentive fees (3)(4)   7.17%   4.17%   4.17%   4.17%   4.17%        5.37%   2.37%   2.37%          
Total return before incentive fees (2)   -11.52%   -9.55%   -9.50%   -9.48%   -9.48%        -16.46%   -14.57%   -14.56%          
Total return after incentive fees (2)   -11.88%   -9.92%   -9.86%   -9.84%   -9.84%        -16.46%   -14.57%   -14.56%          
                                                        
 Frontier Winton Fund   Frontier Heritage Fund                          
   Class 1   Class 1AP   Class 2   Class 1   Class 1AP   Class 2                          
Per unit operating performance (1)                                                       
Net asset value, December 31, 2017  $159.08   $176.44   $216.50   $121.19   $134.28   $179.70                          
Net operating results:                                                       
Interest income   0.00    0.00    0.00    0.00    0.00    0.00                          
Expenses   (10.70)   (8.20)   (10.43)   (6.79)   (5.00)   (6.56)                         
Net gain/(loss) on investments, net of non-controlling interests   (2.36)   (2.73)   0.13    (13.31)   (14.70)   (19.83)                         
Net income/(loss)   (13.06)   (10.93)   (10.30)   (20.10)   (19.70)   (26.39)                         
Net asset value, September 30, 2018  $146.02   $165.51   $206.20   $101.09   $114.58   $153.31                          
                                                        
Ratios to average net assets                                                       
Net investment income/(loss)   -9.52%   -6.52%   -6.52%   -8.46%   -5.47%   -5.47%                         
Expenses before incentive fees (3)(4)   9.52%   6.52%   6.52%   8.44%   5.44%   5.44%                         
Expenses after incentive fees (3)(4)   9.52%   6.52%   6.52%   8.46%   5.47%   5.47%                         
Total return before incentive fees (2)   -8.21%   -6.19%   -4.76%   -16.56%   -14.64%   -14.66%                         
Total return after incentive fees (2)   -8.21%   -6.19%   -4.76%   -16.59%   -14.67%   -14.69%                         

 

(1)Interest income and expenses per unit are calculated by dividing these amounts by the average number of units outstanding during the period. The net gain/(loss) on investments, net of non-controlling interests is a balancing amount necessary to reconcile the change in net asset value per unit with the other per unit information.
(2)Impact of incentive fee computed using average net assets, otherwise computed using average units outstanding during the period prior to the effects of any non-controlling transactions. An owner’s total returns may vary from the above returns based on the timing of contributions and withdrawals. Total returns are not annualized.
(3)Expense ratios do not reflect interest allocated to the Managing Owner as such expenses are not included in the Statements of Operations of the Series, see footnote 6.
(4)Expense ratios do not include mangement and incentive fees at the Galaxy Plus entities. The ratios would have been higher had those expenses been included. The impact of those fees are included in the total return.

53

 

   Frontier Diversified Fund   Frontier Masters Fund   Frontier Long/Short Commodity Fund 
   Class 1   Class 2   Class 3   Class 1   Class 2   Class 3   Class 1a   Class 2   Class 2a   Class 3   Class 3a 
Per unit operating performance (1)                                                       
Net asset value, June 30, 2017  $111.73   $128.62   $119.42   $102.39   $117.90   $109.90   $83.63   $116.35   $95.39   $122.06   $99.76 
Net operating results:                                                       
Interest income   0.01    0.01    0.01    0.11    0.12    0.11    0.00    0.00    0.00    0.00    0.00 
Expenses   (1.86)   (1.22)   (1.13)   (2.03)   (1.65)   (1.54)   (1.16)   (0.87)   (0.72)   (0.91)   (0.75)
Net gain/(loss) on investments, net of non-controlling interests   0.22    (0.11)   (0.03)   (1.06)   (1.42)   (1.24)   0.79    0.84    0.69    0.89    0.78 
Net income/(loss)   (1.63)   (1.32)   (1.15)   (2.98)   (2.95)   (2.67)   (0.37)   (0.03)   (0.03)   (0.02)   0.03 
Net asset value, September 30, 2017  $110.10   $127.30   $118.27   $99.41   $114.95   $107.23   $83.26   $116.32   $95.36   $122.04   $99.79 
                                                        
Ratios to average net assets (3)                                                       
Net investment income/(loss)   -6.50%   -3.69%   -3.69%   -7.26%   -4.99%   -4.99%   -5.31%   -2.87%   -2.87%   -2.87%   -2.87%
Expenses before incentive fees (rebate) (4)(5)   6.52%   3.72%   3.72%   7.66%   5.39%   5.39%   5.31%   2.87%   2.87%   2.87%   2.87%
Expenses after incentive fees (rebate) (4)(5)   6.52%   3.72%   3.72%   7.66%   5.39%   5.39%   5.31%   2.87%   2.87%   2.87%   2.87%
Total return before incentive fees (rebate) (2)   -1.46%   -1.03%   -0.96%   -2.91%   -2.50%   -2.43%   -0.44%   -0.03%   -0.03%   -0.02%   0.03%
Total return after incentive fees (rebate) (2)   -1.46%   -1.03%   -0.96%   -2.91%   -2.50%   -2.43%   -0.44%   -0.03%   -0.03%   -0.02%   0.03%
                                                        
   Frontier Balanced Fund        Frontier Select Fund           
   Class 1   Class 1AP   Class 2   Class 2a   Class 3a        Class 1   Class 1AP   Class 2           
Per unit operating performance (1)                                                       
Net asset value, June 30, 2017  $129.84   $141.71   $190.62   $165.77   $165.22        $78.79   $85.90   $114.11           
Net operating results:                                                       
Interest income   0.02    0.02    0.03    0.03    0.03         0.00    0.00    0.00           
Expenses   (2.20)   (1.32)   (1.77)   (1.54)   (1.54)        (1.07)   (0.50)   (0.66)          
Net gain/(loss) on investments, net of non-controlling interests   0.54    0.57    0.76    0.72    0.71         (3.26)   (3.52)   (4.79)          
Net income/(loss)   (1.64)   (0.73)   (0.98)   (0.79)   (0.80)        (4.33)   (4.02)   (5.45)          
Net asset value, September 30, 2017  $128.20   $140.98   $189.64   $164.98   $164.42        $74.46   $81.88   $108.66           
                                                        
Ratios to average net assets (3)                                                       
Net investment income/(loss)   -6.57%   -3.57%   -3.57%   -3.57%   -3.57%        -5.24%   -2.24%   -2.24%          
Expenses before incentive fees (rebate) (4)(5)   6.63%   3.63%   3.63%   3.63%   3.63%        5.24%   2.24%   2.24%          
Expenses after incentive fees (rebate) (4)(5)   6.63%   3.63%   3.63%   3.63%   3.63%        5.24%   2.24%   2.24%          
Total return before incentive fees (rebate) (2)   -1.26%   -0.52%   -0.51%   -0.48%   -0.48%        -5.50%   -4.68%   -4.78%          
Total return after incentive fees (rebate) (2)   -1.26%   -0.52%   -0.51%   -0.48%   -0.48%        -5.50%   -4.68%   -4.78%          
                                                        
   Frontier Winton Fund    Frontier Heritage Fund                           
   Class 1   Class 1AP   Class 2   Class 1   Class 1AP   Class 2                          
Per unit operating performance (1)                                                       
Net asset value, June 30, 2017  $144.09   $157.26   $199.66   $108.98   $118.94   $159.18                          
Net operating results:                                                       
Interest income   0.12    0.13    0.17    0.00    0.00    0.00                          
Expenses   (3.18)   (2.28)   (2.90)   (2.23)   (1.53)   (2.05)                         
Net gain/(loss) on investments, net of non-controlling interests   1.27    1.39    1.77    (0.76)   (0.86)   (1.16)                         
Net income/(loss)   (1.79)   (0.76)   (0.96)   (2.99)   (2.39)   (3.21)                         
Net asset value, September 30, 2017  $142.30   $156.50   $198.70   $105.99   $116.55   $155.97                          
                                                        
Ratios to average net assets (3)                                                       
Net investment income/(loss)   -8.38%   -5.38%   -5.38%   -8.02%   -5.02%   -5.02%                         
Expenses before incentive fees (rebate) (4)(5)   8.71%   5.71%   5.71%   8.02%   5.02%   5.02%                         
Expenses after incentive fees (rebate) (4)(5)   8.71%   5.71%   5.71%   8.02%   5.02%   5.02%                         
Total return before incentive fees (rebate) (2)   -1.24%   -0.48%   -0.48%   -2.74%   -2.01%   -2.02%                         
Total return after incentive fees (rebate) (2)   -1.24%   -0.48%   -0.48%   -2.74%   -2.01%   -2.02%                         

 

(1)Interest income and expenses per unit are calculated by dividing these amounts by the average number of units outstanding during the period. The net gain/(loss) on investments, net of non-controlling interests is a balancing amount necessary to reconcile the change in net asset value per unit with the other per unit information.
(2)Impact of incentive fee computed using average net assets, otherwise computed using average units outstanding during the period prior to the effects of any non-controlling transactions. An owner’s total returns may vary from the above returns based on the timing of contributions and withdrawals. Total returns are not annualized.
(3)Annualized with the exception of incentive fees.
(4)Expense ratios do not reflect interest allocated to the Managing Owner as such expenses are not included in the Statements of Operations of the Series, refer to Note 6 of the Financial Statements.
(5)Expense ratios do not include management and incentive fees at the Galaxy Plus entities. The ratios would have been higher had those expenses been included. The impact of those fees are included in the total return.

54

 

   Frontier Diversified Fund   Frontier Masters Fund   Frontier Long/Short Commodity Fund 
   Class 1   Class 2   Class 3   Class 1   Class 2   Class 3   Class 1a   Class 2   Class 2a   Class 3   Class 3a 
Per unit operating performance (1)                                                       
Net asset value, December 31, 2016  $116.43   $132.94   $123.27   $112.80   $128.78   $119.89   $92.78   $129.56   $105.67   $130.80   $107.50 
Net operating results:                                                       
Interest income   0.27    0.30    0.28    0.53    0.61    0.56    0.01    0.00    0.00    0.00    0.00 
Expenses   (6.36)   (3.56)   (3.28)   (6.82)   (5.69)   (5.27)   (3.15)   (2.19)   (1.79)   (2.22)   (1.82)
Net gain/(loss) on investments, net of non-controlling interests   (0.24)   (2.38)   (2.00)   (7.10)   (8.75)   (7.95)   (6.38)   (11.05)   (8.52)   (6.54)   (5.89)
Net income/(loss)   (6.33)   (5.64)   (5.00)   (13.39)   (13.83)   (12.66)   (9.52)   (13.24)   (10.31)   (8.76)   (7.71)
Net asset value, September 30, 2017  $110.10   $127.30   $118.27   $99.41   $114.95   $107.23   $83.26   $116.32   $95.36   $122.04   $99.79 
                                                        
Ratios to average net assets (3)                                                       
Net investment income/(loss)   -7.02%   -3.26%   -3.26%   -7.59%   -5.33%   -5.33%   -4.92%   -2.70%   -2.70%   -2.70%   -2.70%
Expenses before incentive fees (rebate) (4)(5)   7.46%   3.70%   3.70%   8.23%   5.97%   5.97%   6.17%   3.95%   3.95%   3.95%   3.95%
Expenses after incentive fees (rebate) (4)(5)   7.32%   3.56%   3.56%   8.23%   5.97%   5.97%   4.92%   2.70%   2.70%   2.70%   2.70%
Total return before incentive fees (rebate) (2)   -5.58%   -4.39%   -4.20%   -11.87%   -10.74%   -10.56%   -11.52%   -11.47%   -11.01%   -7.95%   -8.43%
Total return after incentive fees (rebate) (2)   -5.44%   -4.24%   -4.06%   -11.87%   -10.74%   -10.56%   -10.26%   -10.22%   -9.76%   -6.70%   -7.17%
                                                        
   Frontier Balanced Fund        Frontier Select Fund           
   Class 1   Class 1AP   Class 2   Class 2a   Class 3a        Class 1   Class 1AP   Class 2           
Per unit operating performance (1)                                                       
Net asset value, December 31, 2016  $134.80   $144.97   $194.99   $169.05   $168.49        $94.06   $101.16   $134.25           
Net operating results:                                                       
Interest income   0.02    0.02    0.03    0.02    0.02         0.00    0.00    0.00           
Expenses   (6.75)   (4.06)   (5.49)   (4.75)   (4.73)        (4.24)   (2.49)   (3.32)          
Net gain/(loss) on investments, net of non-controlling interests   0.13    0.05    0.11    0.66    0.64         (15.36)   (16.79)   (22.27)          
Net income/(loss)   (6.60)   (3.99)   (5.35)   (4.07)   (4.07)        (19.60)   (19.28)   (25.59)          
Net asset value, September 30, 2017  $128.20   $140.98   $189.64   $164.98   $164.42        $74.46   $81.88   $108.66           
                                                        
Ratios to average net assets (3)                                                       
Net investment income/(loss)   -6.66%   -3.68%   -3.68%   -3.68%   -3.68%        -6.51%   -3.54%   -3.54%          
Expenses before incentive fees (rebate) (4)(5)   6.68%   3.70%   3.70%   3.70%   3.70%        6.51%   3.54%   3.54%          
Expenses after incentive fees (rebate) (4)(5)   6.68%   3.70%   3.70%   3.70%   3.70%        6.51%   3.54%   3.54%          
Total return before incentive fees (rebate) (2)   -4.90%   -2.75%   -2.74%   -2.41%   -2.42%        -20.84%   -19.06%   -19.06%          
Total return after incentive fees (rebate) (2)   -4.90%   -2.75%   -2.74%   -2.41%   -2.42%        -20.84%   -19.06%   -19.06%          
                                                        
   Frontier Winton Fund    Frontier Heritage Fund                           
   Class 1   Class 1AP   Class 2   Class 1   Class 1AP   Class 2                          
Per unit operating performance (1)                                                       
Net asset value, December 31, 2016  $154.51   $166.17   $210.98   $119.58   $128.60   $172.10                          
Net operating results:                                                       
Interest income   0.11    0.12    0.15    0.00    0.00    0.00                          
Expenses   (9.63)   (6.83)   (8.66)   (6.81)   (4.62)   (6.24)                         
Net gain/(loss) on investments, net of non-controlling interests   (2.69)   (2.96)   (3.77)   (6.78)   (7.43)   (9.89)                         
Net income/(loss)   (12.21)   (9.67)   (12.28)   (13.59)   (12.05)   (16.13)                         
Net asset value, September 30, 2017  $142.30   $156.50   $198.70   $105.99   $116.55   $155.97                          
                                                        
Ratios to average net assets (3)                                                       
Net investment income/(loss)   -8.55%   -5.58%   -5.58%   -7.98%   -5.01%   -5.01%                         
Expenses before incentive fees (rebate) (4)(5)   8.83%   5.85%   5.85%   8.04%   5.06%   5.06%                         
Expenses after incentive fees (rebate) (4)(5)   8.65%   5.67%   5.67%   7.98%   5.01%   5.01%                         
Total return before incentive fees (rebate) (2)   -8.08%   -6.00%   -6.00%   -11.42%   -9.43%   -9.43%                         
Total return after incentive fees (rebate) (2)   -7.90%   -5.82%   -5.82%   -11.36%   -9.37%   -9.37%                         

 

(1)Interest income and expenses per unit are calculated by dividing these amounts by the average number of units outstanding during the period. The net gain/(loss) on investments, net of non-controlling interests is a balancing amount necessary to reconcile the change in net asset value per unit with the other per unit information.
(2)Impact of incentive fee computed using average net assets, otherwise computed using average units outstanding during the period prior to the effects of any non-controlling transactions. An owner’s total returns may vary from the above returns based on the timing of contributions and withdrawals. Total returns are not annualized.
(3)Annualized with the exception of incentive fees.
(4)Expense ratios do not reflect interest allocated to the Managing Owner as such expenses are not included in the Statements of Operations of the Series, refer to Note 6 of the Financial Statements.
(5)Expense ratios do not include management and incentive fees at the Galaxy Plus entities. The ratios would have been higher had those expenses been included. The impact of those fees are included in the total return.

55

 

8. Derivative Instruments and Hedging Activities

 

The Series’ primary business is to engage in speculative trading of a diversified portfolio of futures, forwards (including interbank foreign Currencies), options contracts and other derivative instruments (including swap contracts). The Series do not enter into or hold positions for hedging purposes as defined under ASC 815, Derivatives and Hedging (“ASC 815”). The detail of the fair value of the Series’ derivatives by instrument types as of September 30, 2018 and December 31, 2017 is included in the Condensed Schedules of Investments. See Note 4 for further disclosure related to each Series’ position in swap contracts.

56

 

The following tables summarize the monthly averages of forwards, options and futures contracts bought and sold for each respective Series of the Trust:

 

For the Three Months Ended September 30, 2018        
         
Monthly average contracts        
   Bought   Sold 
         
Frontier Balanced Fund   231    231 

 

For the Three Months Ended September 30, 2017        
         
Monthly average contracts        
   Bought   Sold 
         
Frontier Balanced Fund   567    459 
Frontier Winton Fund   1,849    1,477 

 

For the Nine Months Ended September 30, 2018        
         
Monthly average contracts        
   Bought   Sold 
         
Frontier Balanced Fund   1,753    1,749 

 

For the Nine Months Ended September 30, 2017        
         
Monthly average contracts        
   Bought   Sold 
         
Frontier Balanced Fund   1,195    1,121 
Frontier Select Fund   4,690    4,675 
Frontier Winton Fund   2,168    1,978 

57

 

The following tables summarize the trading revenues for the three and nine months ended September 30, 2018 and 2017 by sector:

 

Realized Trading Revenue from Futures, Forwards and Options
for the Three Months Ended September 30, 2018

 

   Frontier Balanced 
Type of contract  Fund 
     
Metals  $122,534 
Currencies   8,349 
Energies   (18,352)
Agriculturals   (26,065)
Interest rates   (64,465)
Stock indices   (8,877)
Realized trading income/(loss)(1)  $13,124 

 

Realized Trading Revenue from Futures, Forwards and Options
for the Three Months Ended September 30, 2017

 

   Frontier Balanced   Frontier Winton 
Type of contract  Fund   Fund 
         
Metals  $(35,090)  $(380,449)
Currencies   418,961    274,057 
Energies   (37,022)   (434,257)
Agriculturals   (255,648)   (307,146)
Interest rates   26,520    (125,819)
Stock indices   (35,713)   697,405 
Realized trading income/(loss)(1)  $82,008   $(276,209)

 

(1)Amounts recorded in the Statements of Operations under Net realized gain/(loss) on futures, forwards, and options

 

Unrealized Trading Revenue from Futures, Forwards and Options
for the Three Months Ended September 30, 2018

 

   Frontier Balanced 
Type of contract  Fund 
     
Metals  $(10,838)
Currencies   (83,636)
Energies   6,294 
Agriculturals   38,061 
Interest rates   (24,837)
Stock indices   11,426 
Change in unrealized trading income/(loss)(1)  $(63,530)

 

Unrealized Trading Revenue from Futures, Forwards and Options
for the Three Months Ended September 30, 2017

 

   Frontier Balanced   Frontier Winton 
Type of contract  Fund   Fund 
         
         
Metals  $41,418   $(5,368)
Currencies   (257,141)   (221,054)
Energies   8,412    204,615 
Agriculturals   59,883    204,560 
Interest rates   31,989    (179,186)
Stock indices   31,400    771,765 
Change in unrealized trading income/(loss)(1)  $(84,039)  $775,332 

 

(1)Amounts recorded in the Statements of Operations under Net change in open trade equity/(deficit)

58

 

Realized Trading Revenue from Futures, Forwards and Options
for the Nine Months Ended September 30, 2018

 

   Frontier Balanced 
Type of contract  Fund 
     
Metals  $16,990 
Currencies   (190,681)
Energies   42,905 
Agriculturals   24,718 
Interest rates   (161,677)
Stock indices   (2,467)
Realized trading income/(loss)(1)  $(270,212)

  

Realized Trading Revenue from Futures, Forwards and Options
for the Nine Months Ended September 30, 2017

  

   Frontier Balanced   Frontier Select   Frontier Winton 
Type of contract  Fund   Fund   Fund 
             
Metals  $(112,630)  $(145,043)  $(1,442,763)
Currencies   238,745    (126,402)   (1,244,155)
Energies   (868)   (516,253)   (1,721,544)
Agriculturals   (509,639)   27,824    399,406 
Interest rates   (425,751)   (768,438)   (1,296,976)
Stock indices   240,982    832,876    6,359,249 
Realized trading income/(loss)(1)  $(569,161)  $(695,436)  $1,053,217 

 

(1)Amounts recorded in the Statements of Operations under Net realized gain/(loss) on futures, forwards, and options

  

Unrealized Trading Revenue from Futures, Forwards and Options
for the Nine Months Ended September 30, 2018

 

   Frontier Balanced 
Type of contract  Fund 
     
Metals  $12,286 
Currencies   (185,045)
Energies   (45,174)
Agriculturals   (5,025)
Interest rates   87,216 
Stock indices   (5,450)
Change in unrealized trading income/(loss)(1)  $(141,192)

 

Unrealized Trading Revenue from Futures, Forwards and Options
for the Nine Months Ended September 30, 2017

 

   Frontier Balanced   Frontier Select   Frontier Winton 
Type of contract  Fund   Fund   Fund 
             
Metals  $(110,251)  $(51,351)  $10,108 
Currencies   (258,229)   (370,286)   (843,998)
Energies   11,735    (146,125)   28,571 
Agriculturals   (96,789)   108,409    (92,870)
Interest rates   38,801    (296,328)   (827,879)
Stock indices   11,496    609,833    95,619 
Change in unrealized trading income/(loss)(1)  $(403,237)  $(145,848)  $(1,630,449)

  

(1)Amounts recorded in the Statements of Operations under Net change in open trade equity/(deficit)

59

 

Certain financial instruments and derivative instruments are eligible for offset in the statements of financial condition under GAAP. The Series’ open trade equity/(deficit), options written, and receivables from futures commissions merchants (each, an “FCM”) are subject to master netting arrangements and collateral arrangements and meet the GAAP guidance to qualify for offset. A master netting arrangement with a counterparty creates a right of offset for amounts due to and from that same counterparty that is enforceable in the event of a default or bankruptcy. The Series’ policy is to recognize amounts subject to master netting arrangements on a net basis on the statements of financial condition.

 

The following tables present gross and net information about the Series’ assets and liabilities subject to master netting arrangements as disclosed on the statements of financial condition as of September 30, 2018 and December 31, 2017.

 

As of September 30, 2018

 

           Net Amounts 
       Gross Amounts   Presented in the 
   Gross Amounts of   offset in the   Statements of 
   recognized   Statements of   Financial 
   Derivative Assets   Financial   Condition 
             
Frontier Balanced Fund               
Open Trade Equity/(Deficit)  $580,714   $(604,158)  $(23,444)
Swap Contracts   9,850,185        9,850,185 
                
Frontier Diversified Fund               
Swap Contracts  $5,575,997   $   $5,575,997 
                
Frontier Long/Short Commodity Fund               
Swap Contracts  $471,942   $   $471,942 
                
Frontier Heritage Fund               
Swap Contracts  $3,010,288   $   $3,010,288 

60

 

As of December 31, 2017

 

           Net Amounts 
       Gross Amounts   Presented in the 
   Gross Amounts   offset in the   Statements of 
   of recognized   Statements of   Financial 
   Derivative Assets   Financial Condition   Condition 
             
Frontier Balanced Fund               
Open Trade Equity/(Deficit)  $343,222   $(164,670)  $178,552 
Swap Contracts   11,340,959        11,340,959 
                
Frontier Diversified Fund               
Swap Contracts  $6,376,472   $   $6,376,472 
                
Frontier Long/Short Commodity Fund               
Swap Contracts  $397,039   $   $397,039 
                
Frontier Heritage Fund               
Swap Contracts  $3,094,367   $   $3,094,367 

61

 

9. Trading Activities and Related Risks

 

The purchase and sale of futures and options on futures contracts require margin deposits with FCMs. Additional deposits may be necessary for any loss on contract value. The Commodity Exchange Act, as amended (the “Commodity Exchange Act”) requires an FCM to segregate all customer transactions and assets from the FCM’s proprietary activities. A customer’s cash and other property (for example, U.S. treasury bills) deposited with an FCM are considered commingled with all other customer funds subject to the FCM’s segregation requirements. In the event of an FCM’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 the total of cash and other property deposited.

 

The term “off-balance sheet risk” refers to an unrecorded potential liability that, even though it does not appear on the statements of financial condition, may result in future obligation or loss in excess of the amount paid by the Series for a particular investment. Each Trading Company expects to trade in futures, options, forward and swap contracts and will therefore be a party to financial instruments with elements of off-balance sheet market and credit risk. In entering into these contracts, there exists a market risk 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 positions held by a Trading Company in respect of any Series at the same time, and if the Trading Advisor(s) of such Trading Company are unable to offset such futures interests positions, such Trading Company could lose all of its assets and the holders of Units of such Series would realize a 100% loss. The Managing Owner will seek to minimize market risk through real-time monitoring of open positions and the level of diversification of each Trading Advisor’s portfolio. It is anticipated that any Trading Advisor’s margin-to-equity ratio will typically not exceed approximately 35% although the actual ratio could be higher or lower from time to time.

 

In addition to market risk, trading futures, forward and swap contracts entails credit risk that a counterparty will not be able to meet its obligations to a Trading Company. The counterparty for futures contracts traded in the United States 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 credit risk. In cases where the clearinghouse is not backed by the clearing members, like some foreign exchanges, it is normally backed by a consortium of banks or other financial institutions. Some non-U.S. exchanges, in contrast to U.S. exchanges, are principals’ markets in which performance is the responsibility only of the individual counterparty with whom the Trading Company has entered into the transaction, and not of the exchange or clearing corporation. In these kinds of markets, there is risk of bankruptcy or other failure or refusal to perform by the counterparty.

 

In the case of forward contracts traded on the interbank market and swaps, neither is traded 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 credit risk. The Managing Owner expects the Trading Advisors to trade only with those counterparties which it believes to be creditworthy. All positions of each Trading Company will be valued each day on a mark-to-market basis. There can be no assurance that any clearing member, clearinghouse or other counterparty will be able to meet its obligations to any Trading Company.

 

The Managing Owner has established procedures to actively monitor and minimize market and credit risks. The Limited Owners bear the risk of loss only to the extent of the market value of their respective investments and, in certain specific circumstances, distributions and redemptions received.

 

10. Indemnifications and Guarantees noted in Management Discussion and Analysis

 

The Trust has entered into agreements, which provide for the indemnification of futures clearing brokers, and commodity trading advisers, among others, against losses, costs, claims and liabilities arising from the performance of their individual obligations under such agreements, except for gross negligence or bad faith. The Trust has had no prior claims or payments pursuant to these agreements. The Trust’s individual maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Trust that have not yet occurred. However, based on experience the Trust expects the risk of loss to be remote. Maximum exposure is unfulfilled obligations of the Series up to the amount of equity at risk with Morgan Stanley & Co. LLC of the referenced Series as allocated from the Trading Company. The Series have not recorded any liability for the guarantees in the accompanying financial statements as it expects any possibility of losses to be remote. The Series have not recorded any liability for the indemnifications in the accompanying financial statement, as it expects any possibility of losses to be remote.

62

 

11. Subsequent Events

 

From October 1, 2018 through November 19, 2018, Frontier Balanced Fund, Frontier Diversified Fund, Frontier Heritage Fund, Frontier Long/Short Commodity Fund, Frontier Masters Fund, Frontier Select Fund, and Frontier Winton Fund paid $1,602,003, $234,295, $181,043, $211,739, $435,911 $192,279 and $215,916, respectively, in redemptions.

63

 

Frontier Funds
Consolidated Statements of Financial Condition
September 30, 2018 (unaudited) and December 31, 2017

 

   9/30/18   12/31/17 
         
ASSETS          
           
Cash and cash equivalents  $665,406   $2,695,377 
U.S. Treasury securities, at fair value   9,591,613    10,887,786 
Receivable from futures commission merchants   10,714,941    20,584,602 
Open trade equity, at fair value   346,726    1,568,414 
Incentive fee receivable   57,082    57,082 
Swap contracts, at fair value   18,908,412    21,208,838 
Investments in private investment companies, at fair value   50,998,548    66,933,235 
Interest receivable   71,656    214,730 
Due from Managing Owner       31,887 
Receivables from related party       58,146 
Other assets        
           
Total Assets  $91,354,384   $124,240,097 
           
LIABILITIES & CAPITAL          
           
LIABILITIES          
Owner redemptions payable  $321,128   $76,773 
Incentive fees payable to Managing Owner   10,897    53,036 
Management fees payable to Managing Owner   79,601    90,972 
Interest payable to Managing Owner   22,088    26,007 
Trading fees payable to Managing Owner   238,073    334,485 
Service fees payable to Managing Owner   107,758    148,445 
Risk analysis fees payable   28,610    25,576 
Advance on unrealized Swap Appreciation   9,441,555    9,441,555 
Other liabilities   255,497    278,983 
           
Total Liabilities   10,505,207    10,475,832 
           
OWNERS CAPITAL          
Managing Owner Units   880,124    1,159,984 
Limited Owner Units   79,969,053    112,604,281 
           
Total Owners Capital   80,849,177    113,764,265 
           
Total Liabilities and Owners Capital  $91,354,384   $124,240,097 

 

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

64

 

Frontier Funds
Consolidated Condensed Schedule of Investments
September 30, 2018 (unaudited)

 

       Fair   % of Total Capital 
Description      Value   (Net Asset Value) 
LONG FUTURES CONTRACTS *          
     Various agriculture futures contracts (Canada)  $(173)   0.00%
     Various agriculture futures contracts (Europe)   (2,265)   0.00%
     Various agriculture futures contracts (U.S.)   2,310    0.00%
     Various base metals futures contracts (U.S.)   (85,792)   -0.11%
     Various currency futures contracts (Europe)   5,110    0.01%
     Various currency futures contracts (Latin America)   35,880    0.04%
     Various energy futures contracts (U.S.)   149,308    0.18%
     Various interest rates futures contracts (Canada)   (3,340)   0.00%
     Various interest rates futures contracts (Europe)   (98,875)   -0.12%
     Various interest rates futures contracts (Far East)   (3,610)   0.00%
     Various interest rates futures contracts (Oceanic)   (11,160)   -0.01%
     Various interest rates futures contracts (U.S.)   (90,328)   -0.11%
     Various precious metal futures contracts (U.S.)   4,870    0.01%
     Various soft futures contracts (U.S.)   (51,765)   -0.06%
     Various stock index futures contracts (Europe)   18,675    0.02%
     Various stock index futures contracts (Far East)   37,635    0.05%
     Various stock index futures contracts (Oceanic)   4,107    0.01%
     Various stock index futures contracts (U.S.)   31,544    0.04%
     Total Long Futures Contracts  $(57,869)   -0.05%
SHORT FUTURES CONTRACTS *          
     Various agriculture futures contracts (Canada)  $84,444    0.10%
     Various agriculture futures contracts (U.S.)   (38,870)   -0.05%
     Various base metals futures contracts (U.S.)   (13,753)   -0.02%
     Various currency futures contracts (Europe)   19,481    0.02%
     Various currency futures contracts (Far East)   191,075    0.24%
     Various currency futures contracts (Oceanic)   (34,915)   -0.04%
     Various energy futures contracts (U.S.)   (37,980)   -0.05%
     Various interest rates futures contracts (Canada)   7,731    0.01%
     Various interest rates futures contracts (Europe)   25,411    0.03%
     Various interest rates futures contracts (Far East)   1,761    0.00%
     Various interest rates futures contracts (U.S.)   64,383    0.08%
     Various precious metal futures contracts (U.S.)   162,150    0.20%
     Various soft futures contracts (Far East)   1,101    0.00%
     Various soft futures contracts (U.S.)   255,560    0.32%
     Various stock index futures contracts (Africa)   2,471    0.00%
     Various stock index futures contracts (Far East)   (1,465)   0.00%
     Various stock index futures contracts (U.S.)   14,481    0.02%
     Total Short Futures Contracts  $703,066    0.86%
CURRENCY FORWARDS *          
     Various currency forwards contracts (NA)  $(298,471)   -0.37%
     Total Currency Forwards  $(298,471)   -0.37%
     Total Open Trade Equity (Deficit)  $346,726    0.44%
SWAPS (1)          
     Frontier Brevan Howard swap (U.S.)  $3,010,288    3.72%
     Frontier XXXIV Balanced select swap (U.S.)   9,850,185    12.18%
     Frontier XXXV Diversified select swap (U.S.)   5,575,997    6.90%
     Frontier XXXVII L/S select swap (U.S.)   471,942    0.58%
     Total Swaps  $18,908,412    23.38%
PRIVATE INVESTMENT COMPANIES (2)          
     Galaxy Plus Fund - EvE STP Feeder Fund (516) LLC   6,063,170    7.50%
     Galaxy Plus Fund - Doherty Feeder Fund (528) LLC   3,356,591    4.15%
     Galaxy Plus Fund - Fort Contrarian Feeder Fund (510) LLC   5,285,097    6.54%
     Galaxy Plus Fund - QIM Feeder Fund (526) LLC   4,824,012    5.97%
     Galaxy Plus Fund - Quantmetrics Feeder Fund (527) LLC   6,246,313    7.73%
     Galaxy Plus Fund - Quest Fit Feeder Fund (517) LLC   2,016,365    2.49%
     Galaxy Plus Fund - Quest Feeder Fund (517) LLC   686,691    0.85%
     Galaxy Plus Fund - Aspect Feeder Fund (532) LLC   1,452,297    1.80%
     Galaxy Plus Fund - Welton GDP Feeder Fund (538) LLC   16,717,851    20.68%
     Galaxy Plus Fund - TT Feeder Fund (531) LLC   3,255,902    4.03%
     Galaxy Plus Fund - LRR Feeder Fund (522) LLC   1,094,259    1.35%
     Total Private Investment Companies  $50,998,548    63.09%
U.S. TREASURY SECURITIES          
                
FACE VALUE  Fair Value   Fair Value 
                
$7,737,000   US Treasury Note 6.875% due 08/15/2025 (Cost $9,813,689)   9,591,613    11.86%
     Total U.S. Treasury Securities  $9,591,613    11.86%

 

*Except for those items disclosed, no individual futures, forwards and option on futures contract position constituted greater than 1 percent of Net Asset Value. Accordingly, the number of contracts and expiration dates are not presented.
(1)See Notes to Consolidated Financial Statements, Note 4.
(2)See Notes to Consolidated Financial Statements, Note 5.

 

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

65

 

Frontier Funds
Consolidated Condensed Schedule of Investments
December 31, 2017

 

       Fair   % of Total Capital 
Description      Value   (Net Asset Value) 
LONG FUTURES CONTRACTS *          
     Various base metals futures contracts (U.S.)  $1,088,822    0.96%
     Various currency futures contracts (Canada)   18,470    0.02%
     Various currency futures contracts (Europe)   27,263    0.02%
     Various currency futures contracts (Oceanic)   20,670    0.02%
     Various currency futures contracts (U.S.)   (52,460)   -0.05%
     Various energy futures contracts (U.S.)   513,613    0.45%
     Various energy futures contracts (Europe)   (11,873)   -0.01%
     Various interest rates futures contracts (Europe)   (118,226)   -0.10%
     Various interest rates futures contracts (Far East)   (4,756)   0.00%
     Various interest rates futures contracts (Oceanic)   (23,380)   -0.02%
     Various interest rates futures contracts (U.S.)   (25,875)   -0.02%
     Various precious metal futures contracts (U.S.)   18,190    0.02%
     Various soft futures contract (Europe)   (372)   0.00%
     Various soft futures contract (U.S.)   55,621    0.05%
     Various stock index futures contracts (Africa)   4,465    0.00%
     Various stock index futures contracts (Canada)   5,605    0.00%
     Various stock index futures contracts (Europe)   (104,638)   -0.09%
     Various stock index futures contracts (Far East)   96,403    0.08%
     Various stock index futures contracts (Oceanic)   2,815    0.00%
     Various stock index futures contracts (U.S.)   197,228    0.17%
     Total Long Futures Contracts  $1,707,585    1.50%
SHORT FUTURES CONTRACTS *          
     Various base metals futures contracts (U.S.)  $(411,270)   -0.36%
     Various currency futures contracts (Europe)   (89,175)   -0.08%
     Various currency futures contracts (Far East)   (50,066)   -0.04%
     Various currency futures contracts (U.S.)   40,897    0.04%
     Various energy futures contracts (U.S.)   (77,171)   -0.07%
     Various interest rates futures contracts (Canada)   (4,439)   0.00%
     Various interest rates futures contracts (Europe)   (6,824)   -0.01%
     Various interest rates futures contracts (Oceanic)   1,509    0.00%
     Various interest rates futures contracts (U.S.)   104,111    0.09%
     Various precious metal futures contracts (U.S.)   (153,585)   -0.14%
     Various soft futures contract (U.S.)   93,576    0.08%
     Various soft futures contracts (Europe)   35,920    0.03%
     Various stock index futures contracts (U.S.)   (45,128)   -0.04%
     Total Short Futures Contracts  $(561,645)   -0.50%
CURRENCY FORWARDS *          
     Various currency forwards contracts (NA)  $422,474    0.37%
     Total Currency Forwards  $422,474    0.37%
     Total Open Trade Equity (Deficit)  $1,568,414    1.37%
SWAPS (1)          
     Frontier Brevan Howard swap (U.S.)  $3,094,367    2.72%
     Frontier XXXIV Balanced select swap (U.S.)   11,340,960    9.97%
     Frontier XXXV Diversified select swap (U.S.)   6,376,472    5.60%
     Frontier XXXVII L/S select swap (U.S.)   397,039    0.35%
     Total Swaps  $21,208,838    18.64%
PRIVATE INVESTMENT COMPANIES (2)          
     Galaxy Plus Fund - Chesapeake Feeder Fund (518)  $1,774,375    1.56%
     Galaxy Plus Fund - EvE STP Feeder Fund (516) LLC   6,507,863    5.72%
     Galaxy Plus Fund - Doherty Feeder Fund (528) LLC   3,759,970    3.31%
     Galaxy Plus Fund - Fort Contrarian Feeder Fund (510) LLC   7,523,327    6.61%
     Galaxy Plus Fund - QIM Feeder Fund (526) LLC   6,607,668    5.81%
     Galaxy Plus Fund - Quantmetrics Feeder Fund (527) LLC   6,204,663    5.45%
     Galaxy Plus Fund - Quest Fit Feeder Fund (517) LLC   2,151,869    1.89%
     Galaxy Plus Fund - Quest Feeder Fund (517) LLC   759,647    0.67%
     Galaxy Plus Fund - Aspect Feeder Fund (532) LLC   1,919,350    1.69%
     Galaxy Plus Fund - Welton GDP Feeder Fund (538) LLC   23,045,760    20.26%
     Galaxy Plus Fund - TT Feeder Fund (531) LLC   5,195,266    4.57%
     Galaxy Plus Fund - LRR Feeder Fund (522) LLC   1,483,477    1.30%
     Total Private Investment Companies  $66,933,235    58.84%
U.S. TREASURY SECURITIES          
                
FACE VALUE  Fair Value   Fair Value 
                
$8,269,000   US Treasury Note 6.875% due 08/15/2025 (Cost $10,985,078)   10,887,786    9.57%
     Total U.S. Treasury Securities  $10,887,786    9.57%

 

*Except for those items disclosed, no individual futures, forwards and option on futures contract position constituted greater than 1 percent of Net Asset Value. Accordingly, the number of contracts and expiration dates are not presented.
(1)See Notes to Consolidated Financial Statements, Note 4.
(2)See Notes to Consolidated Financial Statements, Note 5.

 

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

66

 

Frontier Funds
Consolidated Statements of Operations
For the Three Months Ended September 30, 2018 and 2017 (unaudited)

 

   2018   2017 
         
Investment income:          
Interest - net  $58,726   $42,985 
           
Total Income   58,726    42,985 
           
Expenses:          
Incentive Fees (rebate)   10,897     
Management Fees   189,058    297,987 
Risk analysis Fees   21,033    31,067 
Service Fees - Class 1   387,003    556,766 
Trading Fees   733,788    1,080,095 
Other Fees       (2,428)
           
Total Expenses   1,341,779    1,963,487 
           
Investment income/(loss) - net   (1,283,053)   (1,920,502)
           
Realized and unrealized gain/(loss) on investments:          
Net realized gain/(loss) on futures, forwards and options   1,175,855    (194,202)
Net unrealized gain/(loss) on private investment companies   (761,505)   (2,049,818)
Net realized gain/(loss) on private investment companies   (146,345)   1,291,678 
Net change in open trade equity/(deficit)   (713,117)   691,294 
Net unrealized gain/(loss) on swap contracts   (788,755)   663,203 
Net realized gain/(loss) on U.S. Treasury securities   (98,396)    
Net unrealized gain/(loss) on U.S. Treasury securities   (16)   (22,945)
Trading commissions   (23,960)   (24,044)
           
Net gain/(loss) on investments   (1,356,241)   355,166 
           
NET INCREASE/(DECREASE) IN OWNERS’ CAPITAL RESULTING FROM OPERATIONS  $(2,639,294)  $(1,565,336)

 

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

67

 

Frontier Funds
Consolidated Statements of Operations
For the Nine Months Ended September 30, 2018 and 2017 (unaudited)

 

   2018   2017 
         
Investment income:          
Interest - net  $175,283   $200,963 
           
Total Income   175,283    200,963 
           
Expenses:          
Incentive Fees (rebate)   159,306    (205,571)
Management Fees   650,179    1,263,162 
Risk analysis Fees   64,753    116,226 
Service Fees - Class 1   1,264,101    1,989,777 
Trading Fees   2,366,003    4,206,610 
Other Fees       220,622 
           
Total Expenses   4,504,342    7,590,826 
           
Investment income/(loss) - net   (4,329,059)   (7,389,863)
           
Realized and unrealized gain/(loss) on investments:          
Net realized gain/(loss) on futures, forwards and options   1,136,964    (211,381)
Net unrealized gain/(loss) on private investment companies   (8,567,706)   (5,325,203)
Net realized gain/(loss) on private investment companies   277,090    6,098,199 
Net change in open trade equity/(deficit)   (1,227,357)   (2,179,533)
Net unrealized gain/(loss) on swap contracts   799,575    94,319 
Net realized gain/(loss) on U.S. Treasury securities   (500,063)   (2,129,137)
Net unrealized gain/(loss) on U.S. Treasury securities   21,003    2,857,993 
Trading commissions   (75,709)   (142,453)
           
Net gain/(loss) on investments   (8,136,203)   (937,196)
           
NET INCREASE/(DECREASE) IN OWNERS’ CAPITAL RESULTING FROM OPERATIONS  $(12,465,262)  $(8,327,059)

 

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

68

 

Frontier Funds
Consolidated Statements of Changes in Owners’ Capital
For the Nine Months Ended September 30, 2018 (Unaudited)

 

   Managing   Limited     
   Owner   Owners   Total 
             
Owners’ Capital, December 31, 2017   1,159,984    112,604,281    113,764,265 
                
Sale of Units (including transfers)            
Redemption of Units (including transfers)       (20,449,826)   (20,449,826)
Payment made by Related Party            
Net increase/(decrease) in Owners’ Capital resulting from operations   (279,860)   (12,185,402)   (12,465,262)
                
Owners’ Capital, September 30, 2018  $880,124   $79,969,053   $80,849,177 

 

The consolidated Trust is not unitized as are the individual Series of the Trust

 

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

69

 

Frontier Funds
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2018 and 2017 (unaudited)

 

   2018   2017 
         
Cash Flows from Operating Activities:          
Net increase/(decrease) in capital resulting from operations  $(12,465,262)  $(8,327,059)
Adjustments to reconcile net increase/(decrease) in capital resulting from operations to net cash provided by (used in) operating activities:          
Change in:          
Net change in open trade equity   1,221,688    2,766,175 
Net change in ownership allocation of U.S. Treasury Securities         
Net unrealized (gain)/loss on swap contracts   (799,574)   (94,319)
Net unrealized (gain)/loss on U.S. Treasury securities   (21,003)   (2,857,993)
Net realized (gain)/loss on U.S. Treasuries securities   500,063    2,129,137 
Net unrealized (gain)/loss on private investment companies   8,567,706    5,325,203 
Net realized (gain)/loss on private investment companies   (277,090)   (6,098,199)
(Purchases) sales of:          
(Purchases) of U.S. Treasury securities   (16,729,100)    
Sales of U.S. Treasury securities   17,281,128    31,077,906 
(Purchases) of Private Investment Companies   (20,597,103)   (48,309,537)
Sales of Private Investment Companies   28,241,174    87,612,483 
Reduction of collateral in Swap contracts   3,100,000    18,578,050 
U.S. Treasury interest and premium paid/amortized   265,085    348,378 
Increase and/or decrease in:          
Receivable from futures commission merchants   9,869,661    12,811,157 
Interest receivable   143,074    719,026 
Receivable from related parties   58,146    87,670 
Other assets   (93,479)   (8,974)
Incentive fees payable to Managing Owner   (42,139)    
Management fees payable to Managing Owner   (11,371)   (325,996)
Interest payable to Managing Owner   (3,919)   (56,946)
Trading fees payable to Managing Owner   (96,412)   (168,831)
Service fees payable to Managing Owner   (40,687)   70,771 
Due from Managing Owner   31,887     
Risk analysis fees payable   3,034    19,815 
Payables to related parties       (85,078)
Other liabilities   (23,486)   (144,049)
           
Net cash provided by operating activities   18,175,500    95,068,790 
Cash Flows from Financing Activities:          
           
Proceeds from sale of capital       1,433,633 
Payment for redemption of capital   (20,449,826)   (89,319,399)
Redemptions payable   244,355    (499,642)
           
Net cash used in financing activities   (20,205,471)   (88,385,408)
           
Net increase (decrease) in cash and cash equivalents   (2,029,971)   6,683,382 
           
Cash and cash equivalents, beginning of period   2,695,377    4,747,043 
Cash and cash equivalents, end of period  $665,406   $11,430,425 

 

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

70

 

Frontier Funds

Notes to Consolidated Financial Statements (Unaudited)

 

1. Organization and Purpose

 

Frontier Funds, which is referred to in this report as the “Trust”, was formed on August 8, 2003, as a Delaware statutory trust and is set to expire on December 31, 2053. The Trust is a multi-advisor commodity pool, as described in CFTC Regulation § 4.10(d)(2). The Trust has authority to issue separate Series of Units pursuant to the requirements of the Trust Act. The assets of each Series are valued and accounted for separately from the assets of other Series. The Trust is not registered as an investment company under the Investment Company Act. It is managed by the Managing Owner.

 

Purchasers of Units are Limited Owners of the Trust with respect to beneficial interests of the Series’ Units purchased. The Trust Act provides that, except as otherwise provided in the second amended and restated declaration of trust and trust agreement dated December 9, 2013, as further amended, by and among the Managing Owner, Wilmington Trust Company as trustee and the unitholders, as amended from time to time (the “Trust Agreement”), unitholders of the Trust will have the same limitation of liability as do stockholders of private corporations organized under the General Corporation Law of the State of Delaware. The Trust Agreement confers substantially the same limited liability, and contains the same limited exceptions thereto, as would a limited partnership agreement for a Delaware limited partnership engaged in like transactions as the Trust. In addition, pursuant to the Trust Agreement, the Managing Owner of the Trust is liable for obligations of a Series in excess of that Series’ assets. Limited Owners do not have any such liability. The Managing Owner will make contributions to the Series of the Trust necessary to maintain at least a 1% interest in the aggregate capital, profits and losses of all Series.

 

The Trust has been organized to pool investor funds for the purpose of trading in the U.S. and international markets for currencies, interest rates, stock indices, agricultural and energy products, precious and base metals and other commodities. The Trust may also engage in futures contracts, forwards, option contracts and other interest in derivative instruments, including swap contracts.

 

The Trust has seven (7) separate and distinct Series of Units issued and outstanding: Frontier Diversified Fund, Frontier Masters Fund, Frontier Long/Short Commodity Fund, Frontier Balanced Fund, Frontier Select Fund, Frontier Winton Fund, and Frontier Heritage Fund. The Trust financial statements are comprised of unitized Series which are consolidated into the Trust financial statements. However, the consolidated Trust does not issue units.

 

The Trust, with respect to each Series:

 

engages in the speculative trading of a diversified portfolio of futures, forwards (including interbank foreign currencies), options contracts and other derivative instruments (including swap contracts), and may, from time to time, engage in cash and spot transactions;

 

allocates funds to a limited liability trading company or companies (“Trading Company” or “Trading Companies”) and Galaxy Plus entities (“Galaxy Plus”). Except as otherwise described in these notes, each Trading Company and Galaxy Plus entity has one-year renewable contracts with its own independent commodity trading advisor (s), or each, a Trading Advisor, that will manage all or a portion of such Trading Company’s and Galaxy Plus assets and make the trading decisions for the assets of each Series vested in such Trading Company and Galaxy Plus entity. Each Trading Company and Galaxy Plus entity will segregate its assets from any other Trading Company and Galaxy Plus entity;

 

maintains separate, distinct records for each Series, and accounts for the assets of each Series separately from the other Series;

 

calculates the Net Asset Value (“NAV”) of its Units for each Series separately from the other Series;

 

has an investment objective of increasing the value of each Series’ Units over the long term (capital appreciation), while managing risk and volatility; further, to offer exposure to the investment programs of individual Trading Advisors and to specific instruments;

71

 

maintains each Series of Units in three to seven sub-classes—Class 1, Class 1AP, Class 1a, Class 2, Class 2a, Class 3, and Class 3a. Investors who have purchased Class 1 or Class 1a Units of Frontier Diversified Fund, Frontier Masters Fund, and Frontier Long/Short Commodity Fund are charged a service fee of up to two percent (2.0%) annually of the NAV (of the purchase price, in case of the initial service fee) of each Unit purchased, for the benefit of selling agents selling such Class 1 or Class 1a Units. The initial service fee, which is amortized monthly at an annual rate of up to two percent (2.0%) of the average daily NAV of Class 1 or Class 1a of such Series, is prepaid to the Managing Owner by each Series, and paid to the selling agents by the Managing Owner in the month following sale; provided, however, that investors who redeem all or a portion of their Class 1 or Class 1a Units of any Series during the first twelve (12) months following the effective date of their purchase are subject to a redemption fee of up to two percent (2.0%) of the purchase price at which such investor redeemed to reimburse the Managing Owner for the then-unamortized balance of the prepaid initial service fee. Investors who have purchased Class 1 or Class 1a Units of Frontier Balanced Fund, Frontier Heritage Fund, Frontier Select Fund, and Frontier Winton Fund are charged a service fee of up to three percent (3.0%) annually of the NAV (of the purchase price, in case of the initial service fee) of each Unit purchased, for the benefit of selling agents selling such Class 1 or Class 1a Units. The initial service fee, which is amortized monthly at an annual rate of up to three percent (3.0%) of the average daily NAV of Class 1 or Class 1a of such Series, is prepaid to the Managing Owner by each Series, and paid to the selling agents by the Managing Owner in the month following sale. With respect to Class 2 and Class 2a Units of any Series, the Managing Owner pays an ongoing service fee to selling agents of up to one half percent (0.5%) annually of the NAV of each Class 2 or Class 2a Unit (of which 0.25% will be charged to Limited Owners holding Class 2 Units of the Frontier Diversified Fund, and Frontier Masters Fund or Class 2a Units of the Frontier Long/Short Commodity Fund sold until such Class 2 or Class 2a Units which are subject to the fee limitation are reclassified as Class 3 or Class 3a Units of the applicable Series. Class 1AP was created as a sub-class of Class 1 and it has been presented separately because the fees applicable to it are different from those applicable to Class 1. Currently the service fee is not charged to Class 1AP investors. The Managing Owner may also pay selling agents certain additional fees and expenses for administrative and other services rendered and expenses incurred by such selling agents; and

 

all payments made to selling agents who are members of the Financial Industry Regulatory Authority, Inc. (“FINRA”) and their associated persons that constitute underwriting compensation will be subject to the limitations set forth in Rule 2310(b)(4)(B)(ii) (formerly Rule 2810(b)(4)(B)(ii)) of the Conduct Rules of FINRA (“Rule 2310”). An investor’s Class 1 Units or Class 2 Units of any Series, or Class 1a Units or Class 2a Units of the Frontier Long/Short Commodity Fund or Frontier Balanced Fund will be classified as Class 3 or Class 3a Units of such Series, as applicable, when the Managing Owner determines that the fee limitation set forth in Rule 2310 with respect to such Units has been reached or will be reached. The service fee limit applicable to each unit sold is reached upon the earlier of when (i) the aggregate initial and ongoing service fees received by the selling agent with respect to such unit equals 9% of the purchase price of such unit or (ii) the aggregate underwriting compensation (determined in accordance with FINRA Rule 2310) paid in respect of such unit totals 10% of the purchase price of such unit. No service fees are paid with respect to Class 3 or Class 3a Units. Units of any Class in a Series may be redeemed, in whole or in part, on a daily basis, at the then current NAV per Unit for such Series on the day of the week after the date the Managing Owner is in receipt of a redemption request for at least one (1) Business Day to be received by the Managing Owner prior to 4:00 PM in New York.

 

The assets of any particular Series include only those funds and other assets that are paid to, held by or distributed to the Trust on account of and for the benefit of that Series. Under the “Inter-Series Limitation on Liability” expressly provided for under Section 3804(a) of the Trust Act, separate and distinct records of the cash and equivalents, although pooled for maximizing returns, is maintained in the books and records of each Series.

 

As of September 30, 2018, the Trust, with respect to the Frontier Diversified Fund and Frontier Masters Fund, separates Units into three separate Classes—Class 1, Class 2, and Class 3. The Trust, with respect to the Frontier Select Fund Frontier Winton Fund and Frontier Heritage Fund separates Units into a maximum of three separate Classes- Class 1, Class 2 and Class 1AP. The Trust, with respect to the Frontier Balanced Fund separates Units into a maximum of five separate Classes— Class 1, Class 1AP, Class 2, Class 2A and Class 3A. The Trust, with respect to the Frontier Long/Short Commodity Fund separates Units into a maximum of five separate Classes— Class 1A, Class 2A, Class 2, Class 3A and Class 3. Between April 15, 2016 and May 10, 2017, a portion of the interests in Frontier Trading Company I, LLC and all of the interests in Frontier Trading Company VII, LLC, Frontier Trading Company XV, LLC, and Frontier Trading Company XXIII LLC held by Frontier Diversified Fund, Frontier Masters Fund, Frontier Select Fund, Frontier Balanced Fund and Frontier Long/Short Commodity Fund were exchanged for equivalent interests in the Galaxy Plus Managed Account Platform (“Galaxy Plus”) which is an unaffiliated, third-party managed account platform. The assets of Frontier Trading Company I, LLC, which included exposure to Quantmetrics Capital Management LLP’s Multi-Strategy Program, Quantitative Investment Management, LLC’s Quantitative Global Program, Quest Partners LLC’s Quest Tracker Index Program, and Doherty Advisors LLC’s Relative Value Moderate Program, the assets of Frontier Trading Company VII, LLC, which included exposure to Emil van Essen LLC’s Multi-Strategy Program, Red Oak Commodity Advisors, Inc.’s Fundamental Diversified Program, Rosetta Capital Management, LLC’s Rosetta Trading Program, and Landmark Trading Company’s Landmark Program, the assets of Frontier Trading Company XV, LLC, which included exposure to Transtrend B.V.’s TT Enhanced Risk (USD) Program, and the assets of Frontier Trading Company XXIII, LLC which included exposure to Fort L.P.’s Global Contrarian Program have been transferred to individual Delaware limited liability companies (“Master Funds”) in Galaxy Plus. Each Master Fund is sponsored and operated by Gemini Alternative Funds, LLC (“Sponsor”). The Sponsor has contracted with the Trading Advisors to manage the portfolios of the Master Funds pursuant to the advisors’ respective program. For those Series that invest in Galaxy Plus, approximately 30-70% of those Series assets are used to support the margin requirements of the Master Funds. The remaining assets of the Series are split between investments in Trading Companies and a pooled cash management account that invests primarily in U.S. Treasury securities. For those Series that do not invest in Galaxy Plus, their assets are split between investments in Trading Companies and investments in the pooled cash management account.

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As of September 30, 2018, Frontier Winton Fund has invested a portion of its assets into two Trading Companies, and a single Trading Advisor manages 100% of the assets invested in each of these Trading Companies. Each of the remaining Series has invested a portion of its assets in several different Trading Companies or Galaxy Plus entities and one or more Trading Advisors may manage the assets invested in such Trading Companies or Galaxy Plus entities.

 

The Trust has entered into agreements, which provide for the indemnification of futures clearing brokers, currency trading companies, and commodity trading advisers, among others, against losses, costs, claims and liabilities arising from the performance of their individual obligations under such agreements, except for gross negligence or bad faith.

 

2. Significant Accounting Policies

 

The following are the significant accounting policies of the Trust.

 

Basis of Presentation—The Trust follows GAAP, as established by the Financial Accounting Standards Board (the “FASB”), to ensure consistent reporting of financial condition, condensed schedules of investments, results of operations, changes in capital and cash flows. The Trust is an investment company following accounting and reporting guidance in Accounting Standards Codification (“ASC”) 946.

 

Consolidation— The Series, through investing in the Trading Companies and Galaxy Plus, authorize certain Trading Advisors to place trades and manage assets at pre-determined investment levels. The Trading Companies were organized by the Managing Owner for the purpose of investing in commodities interests and derivative instruments, and have no operating income or expenses, except for trading income and expenses and a risk analysis fee (for closed Series only), all of which is allocated to the Series, if consolidated by a Series. Galaxy Plus is a series of Delaware limited liability companies, sponsored by Gemini Alternative Funds, LLC, that create exposure to a variety of third party professional managed futures and foreign exchange advisors. Galaxy Plus is available to qualified high-net-worth individuals and institutional investors. Investment interests in Galaxy Plus entities are accounted for using net asset value as the practical expedient, which approximates fair value. Fair value represents the proportionate share of the Trust’s interest in the NAV in the Galaxy Plus entities. The equity interest held by Trust is shown as investments in private investment companies in the statements of financial condition. The income or is shown in the statements of operations as net unrealized gain/(loss) on private investment companies. The Trading Companies and Series of the Trust are consolidated by the Trust.

 

Galaxy Plus entities are co-mingled investment vehicles. In addition to the Trust, there are other non-affiliated investors in Galaxy Plus. Subscriptions and redemptions by these non-affiliated investors will have a direct impact on the Trust ownership percentage in Galaxy Plus. It is expected that ownership percentage will fluctuate (sometimes significantly) on a week by week basis which could also result in frequent changes in the consolidating Series. Such fluctuations make consolidating the financial statements of the Galaxy Plus entities both impractical and misleading. Non-consolidation of these Galaxy Plus entities presents a more useful financial statement for the readers. As such, management has decided that presenting Galaxy Plus entities on a non-consolidated basis as investments in other investments companies (a “fund of funds” approach) is appropriate and preferable to the users of these financial statements. Refer to Note 5 for additional disclosures related to these private investment companies.

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Use of Estimates—The preparation of consolidated financial statements in conformity with GAAP may require the Managing Owner to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The valuation of swap contracts requires significant estimates as well as the valuation of certain other investments. Please refer to Note 3 for discussion of valuation methodology. Actual results could differ from these estimates and such differences could be material.

 

Cash and Cash Equivalents—Cash and cash equivalents include cash and overnight investments in interest-bearing demand deposits held at banks with original maturities of three months or less. This cash is not restricted.

 

Interest Income—U.S. Treasury Securities are pooled for purposes of maximizing returns on these assets to investors of all Series. Interest income from pooled cash management assets is recognized on the accrual basis and allocated daily to each Series based upon its daily proportion of ownership of the pool. Aggregate interest income from all sources, including U.S. Treasuries and assets held at a futures commission merchant (“FCM”), of up to two percentage points of the aggregate percentage yield (annualized) of net asset value less any fair market value related to swaps, is paid to the Managing Owner by the Frontier Balanced Fund (Class 1 and Class 2), Frontier Long/Short Commodity Fund (Class 2 and Class 3), Frontier Winton Fund, Frontier Select Fund, and Frontier Heritage Fund. For the Frontier Diversified Fund, Frontier Long/Short Commodity Fund (Class 1a, Class 2a, Class 3a only), Frontier Masters Fund, and Frontier Balanced Fund (Class 1AP, Class 2a and Class 3a) 100% of the interest is retained by the respective Series. All interest not paid to the Managing Owner is interest income to the Series, and shown net on the statement of operations.

 

U.S. Treasury Securities—U.S. Treasury Securities are reported at fair value as Level 1 inputs under ASC 820, Fair Value Measurements and Disclosures (“ASC 820”). The Trust values U.S. Treasury Securities at fair value and records the daily change in value in the consolidated statements of operations as net unrealized gain/(loss) on U.S. Treasury securities. Accrued interest is reported on the consolidated statements of financial condition as interest receivable.

 

Receivable from Futures Commission Merchants—The Trust deposits assets with a FCM subject to CFTC regulations and various exchange and broker requirements. Margin requirements are satisfied by the deposit of cash with such FCM. The Trust earns interest income on its assets deposited with the FCM. A portion of the receivable is restricted cash required to meet maintenance margin requirements. Cash with the clearing broker as of September 30, 2018 included restricted cash for margin requirements of $1,450,731 for the Frontier Trading Company I LLC and $4,305,571 for Frontier Trading Company II LLC.

 

Investment Transactions—Futures, options on futures, forward and swap contracts are recorded on a trade date basis and realized gains or losses are recognized when contracts are settled. Unrealized gains or losses on open contracts (the difference between contract trade price and market price) are reported in the consolidated statements of financial condition as a net unrealized gain or loss, as there exists a right of offset of unrealized gains or losses in accordance with FASB ASC 210, Balance Sheet (“ASC 210”) and Accounting Standards Update (ASU) 2013-01, Balance Sheet (Topic 210).

 

Any change in net unrealized gain or loss from the preceding period is reported in the consolidated statements of operations. Fair value of exchange-traded contracts is based upon exchange settlement prices. Fair value of non-exchange-traded contracts is based on third party quoted dealer values on the interbank market. For U.S. Treasury securities, interest was recognized in the period earned and the instruments were marked-to-market daily based on third party information. Transaction costs are recognized as incurred and reflected separately in the consolidated statements of operations.

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Purchase and Sales of Private Investment Companies – The Trust is able to subscribe into and redeem from the Galaxy Plus entities on a weekly basis. The value of the private investment companies is determined by the Sponsor and reported on a daily basis. The change in value is calculated as the difference between the total purchase proceeds and the fair value calculated by the Sponsor and is recorded as net unrealized gain/(loss) on private investment companies on the statements of operations.

 

Foreign Currency Transactions—The Series of the Trust’s functional currency is the U.S. dollar; however, they transact business in Currencies other than the U.S. dollar. The Series of the Trust do not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized or unrealized gain or loss from investments.

 

Allocation of Earnings—Each Series of the Trust may maintain three to seven classes of Units—Class 1, Class 2, Class 3, Class 1a, Class 2a Class 3a and Class 1AP. All classes have identical voting, dividend, liquidation and other rights and the same terms and conditions, except that fees charged to a Class or Series differ as described below. Revenues, expenses (other than expenses attributable to a specific class), and realized and unrealized trading gains and losses of each Series are allocated daily to Class 1, Class 1a, Class 2, Class 2a, Class 3, Class 3a and Class 1AP Units based on each Class’ respective owners’ capital balances as applicable to the classes maintained by the Series.

 

Each Series allocates funds to an affiliated Trading Company, or Companies, of the Trust, or unaffiliated Galaxy Plus entity. Each Trading Company allocates all of its daily trading gains or losses to the Series in proportion to each Series’ ownership trading level interest in the Trading Company, adjusted on a daily basis (except for Trading Advisors and other investments such as swaps that are directly allocated to a specific series). Likewise, trading gains and losses earned and incurred by the Series through their investments in Galaxy Plus entities are allocated to those Series on a daily basis. The allocation of gains and losses in Galaxy Plus entities are based on each Series pro-rata shares of the trading level of that entity which is updated at the beginning of each month or more frequently if there is a subscription or redemption activity in the entity. The value of all open contracts and cash held at clearing brokers is similarly allocated to the Series in proportion to each Series’ funds allocated to the Trading Companies or Galaxy Plus entities.

 

Investments and Swaps— The Trust records investment transactions on a trade date basis and all investments are recorded at fair value, with changes in fair value reported as a component of realized and unrealized gains/(losses) on investments in the statements of operations. Investments in private investment companies are valued utilizing the net asset values as a practical expedient. Certain Series of the Trust strategically invest a portion or all of their assets in total return swaps, selected at the discretion of the Managing Owner. Swaps are privately negotiated contracts designed to provide investment returns linked to those produced by one or more underlying investment products or indices. In a typical swap, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on one or more particular predetermined investments or instruments. The gross returns to be exchanged or “swapped” between the parties are calculated with respect to a “notional amount” (i.e., the amount of value of the underlying asset used in computing the particular interest rate, return, or other amount to be exchanged) in a particular investment, or in a “basket” of securities. The valuation of swap contracts requires significant estimates. Swap contracts are reported at fair value based upon daily reports from the counterparty. The Managing Owner reviews and approves current day pricing of the CTA positions, as received from the counterparty which includes intra-day volatility and volume and daily index performance, that is used to determine a daily fair value NAV for the swap contracts.

 

Income Taxes—The Trust applies the provisions of ASC 740 Income Taxes (“ASC 740”), which provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure. ASC 740 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Trust’s financial statements to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions with respect to tax at the Trust’s level not deemed to meet the “more-likely-than-not” threshold would be recorded as a tax benefit or expense in the current year. The Managing Owner has concluded there is no tax expense, interest or penalties to be recorded by the Trust for the year ended December 31, 2017. The 2014 through 2017 tax years generally remain subject to examination by U.S. federal and most state tax authorities.

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In the opinion of the Managing Owner, (i) the Trust is treated as a partnership for Federal income tax purposes and, assuming that at least 90% of the gross income of the Trust constitutes “qualifying income” within the meaning of Section 7704(d) of the Code, (ii) the Trust is not a publicly traded partnership treated as a corporation, and (iii) the discussion set forth in the Prospectus under the heading “U.S. Federal Income Tax Consequences” correctly summarizes the material Federal income tax consequences as of the date of the Prospectus to potential U.S. Limited Owners of the purchase, ownership and disposition of Series Units of the Trust.

 

Fees and Expenses— All management fees, incentive fees, service fees, risk analysis fees (for closed Series only) and trading fees of the Trust, with respect to the Series, are paid to the Managing Owner. It is the responsibility of the Managing Owner to pay all Trading Advisor management and incentive fees, selling agent service fees and all other operating expenses and continuing offering costs of the Trust, with respect to the Series. Only management fees and incentive fees related to assets allocated through Trading Companies are included in expense on the Statement of Operations. The Series are all charged management and incentive fees on the asset allocated through the Galaxy Plus entities. Those fees are included in unrealized gain/(loss) on private investment companies on the Statements of Operations. The Series are also charged management and incentive fees on assets allocated to swaps. Such fees are embedded in the fair value of the swap and are included in net unrealized gain (loss) on swap contracts on the Statements of Operations. Certain Series are also changed a risk analysis fee (for closed Series only) based on a percentage of nominal assets. Such fee is paid to a third party.

 

Incentive Fee (rebate)—The Managing Owner is allowed to share in the incentive fees earned by the Commodity Trading Advisors up to 10% of New Net Profits (as defined in the prospectus). If the Managing Owner’s share of the incentive fee exceeds 10% of new net profits during the period, then the Managing Owner is obligated to return any amount in excess. The returned amounts are recorded as Incentive Fee (Rebate) on the Statements of Operations.

 

Service Fees—The Trust may maintain each Series of Units in three to seven sub-classes—Class 1, Class 1AP, Class 1a, Class 2, Class 2a, Class 3, and Class 3a. Investors who have purchased Class 1 or Class 1a Units of Frontier Diversified Fund, Frontier Masters Fund, and Frontier Long/Short Commodity Fund are charged a service fee of up to two percent (2.0%) annually of the NAV (of the purchase price, in case of the initial service fee) of each Unit purchased, for the benefit of selling agents selling such Class 1 or Class 1a Units. The initial service fee, which is amortized monthly at an annual rate of up to two percent (2.0%) of the average daily NAV of Class 1 or Class 1a of such Series, is prepaid to the Managing Owner by each Series, and paid to the selling agents by the Managing Owner in the month following sale; provided, however, that investors who redeem all or a portion of their Class 1 and Class 1a Units of any Series during the first twelve (12) months following the effective date of their purchase are subject to a redemption fee of up to two percent (2.0%) of the purchase price at which such investor redeemed to reimburse the Managing Owner for the then-unamortized balance of the prepaid initial service fee. Investors who have purchased Class 1 or Class 1a Units of Frontier Balanced Fund, Frontier Heritage Fund, Frontier Select Fund, and Frontier Winton Fund are charged a service fee of up to three percent (3.0%) annually of the NAV (of the purchase price, in case of the initial service fee) of each Unit purchased, for the benefit of selling agents selling such Class 1 or Class 1a Units. The initial service fee, which is amortized monthly at an annual rate of up to three percent (3.0%) of the average daily NAV of Class 1 or Class 1a of such Series, is prepaid to the Managing Owner by each Series, and paid to the selling agents by the Managing Owner in the month following sale; provided, however, that investors who redeem all or a portion of their Class 1 and Class 1a Units of any Series during the first twelve (12) months following the effective date of their purchase are subject to a redemption fee of up to three percent (3.0%) of the purchase price at which such investor redeemed to reimburse the Managing Owner for the then-unamortized balance of the prepaid initial service fee. With respect to Class 2 and Class 2a Units of any Series, the Managing Owner pays an ongoing service fee to Selling agents of up to one half percent (0.5%) annually of the NAV of each Class 2 or Class 2a Unit (of which 0.25% will be charged to Limited Owners holding Class 2 Units of the Frontier Diversified Fund and Frontier Masters Fund or Class 2a Units of the Frontier Long/Short Commodity Fund sold) until such Class 2 or Class 2a Units which are subject to the fee limitation are reclassified as Class 3 or Class 3a Units of the applicable Series for administrative purposes. Currently the service fee is not charged to Class 1AP investors. The Managing Owner may also pay selling agents certain additional fees and expenses for administrative and other services rendered and expenses incurred by such Selling agents.

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These service fees are part of the offering costs of the Trust, which include registration and filing fees, legal and blue sky expenses, accounting and audit, printing, marketing support and other offering costs which are borne by the Managing Owner. With respect to the service fees, the initial service fee (for the first 12 months) relating to a purchase of Class 1 and Class 1a Units by an investor is prepaid by the Managing Owner to the relevant selling agent in the month following such purchase and is reimbursed for such payment by the Series monthly in arrears in an amount based upon a corresponding percentage of NAV, calculated daily. Consequently, the Managing Owner bears the risk of the downside and enjoys the benefit of the upside potential of any difference between the amount of the initial service fee prepaid by it and the amount of the reimbursement thereof, which may result from variations in NAV over the following 12 months.

 

Pending Owner Additions—Funds received for new subscriptions and for additions to existing owner interests are recorded as capital additions at the NAV per unit of the second business day following receipt.

 

Owner redemptions payable—Funds payable for existing owner redemption requests are recorded as capital subtractions at the NAV per unit as of the second business day following receipt or request.

 

Subsequent Events—The Trust follows the provisions of ASC 855, Subsequent Events, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date and up through the date the financial statements are issued.

 

3. Fair Value Measurements

 

In connection with the valuation of investments the Trust applies ASC 820. ASC 820 provides clarification that when a quoted price in an active market for the identical asset or liability is not available, a reporting entity is required to measure fair value using certain techniques. ASC 820 also clarifies that when estimating the fair value of an asset or liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of an asset or liability. ASC 820 also clarifies that both a quoted price in an active market for the identical asset or liability at the measurement date and the quoted price for the identical asset or liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required are Level 1 fair value measurements.

 

Level 1 Inputs

 

Unadjusted quoted prices in active markets for identical financial assets that the reporting entity has the ability to access at the measurement date.

 

Level 2 Inputs

 

Inputs other than quoted prices included in Level 1 that are observable for the financial assets or liabilities, either directly or indirectly. These might include quoted prices for similar financial assets in active markets, quoted prices for identical or similar financial assets in markets that are not active, inputs other than quoted prices that are observable for the financial assets or inputs that are derived principally from or corroborated by market data by correlation or other means.

 

Level 3 Inputs

 

Unobservable inputs for determining the fair value of financial assets that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the financial asset.

 

The Trust, with respect to the Series, uses the following methodologies to value instruments within its financial asset portfolio at fair value:

 

Trading Securities. These instruments include U.S. Treasury securities and open trade equity positions (futures contracts) that are actively traded on public markets with quoted pricing for corroboration. U.S. Treasury securities and futures contracts are reported at fair value using Level 1 inputs. Trading securities instruments further include open trade equity positions (trading options and currency forwards) that are quoted prices for identical or similar assets that are not traded on active markets. Trading options and currency forwards are reported at fair value using Level 2 inputs.

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Swap Contracts. Certain Series of the Trust strategically invest a portion or all of their assets in total return swaps, selected at the direction of the Managing Owner. Swaps are privately negotiated contracts designed to provide investment returns linked to those produced by one or more investment products or indices. In a typical swap, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on one or more particular predetermined investments or instruments. The gross returns to be exchanged or “swapped” between parties are calculated with respect to a “notional amount” (i.e., the amount of value of the underlying asset used in computing the particular interest rate, return, or other amount to be exchanged) in a particular investment, or in a “basket” of securities. Swap contracts are reported at fair value upon daily reports from the counterparty. 

 

Investments in Private Investment Companies. Investments in private investment companies are valued utilizing the net asset values provided by the underlying private investment companies as a practical expedient. A Series applies the practical expedient to its investments in private investment companies on an investment-by-investment basis, and consistently with the Series’ entire position in a particular investment, unless it is probable that the Series will sell a portion of an investment at an amount different from the net asset value of the investment. 

 

The following table summarizes the instruments that comprise the Trust financial asset portfolio, by Series, measured at fair value on a recurring basis as of September 30, 2018 and December 31, 2017 segregated by the level of valuation inputs within the fair value hierarchy utilized to measure fair value.

 

September 30, 2018  Level 1 Inputs   Level 2 Inputs   Level 3 Inputs   Fair Value 
Open Trade Equity (Deficit)  $645,197   $(298,471)  $   $346,726 
Swap Contracts           18,908,412    18,908,412 
U.S. Treasury Securities   9,591,613            9,591,613 
                 
               Total 
December 31, 2017  Level 1 Inputs   Level 2 Inputs   Level 3 Inputs   Fair Value 
Open Trade Equity (Deficit)  $1,145,940   $422,474   $   $1,568,414 
Swap Contracts           21,208,838    21,208,838 
U.S. Treasury Securities   10,887,786            10,887,786 

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The changes in Level 3 assets measured at fair value on a recurring basis are summarized in the following tables. Swap contract asset gains and losses (realized/unrealized) included in earnings are classified in “realized and unrealized gain (loss) on investments – net unrealized gain/(loss) on swap contracts” on the statements of operations.

 

Swaps

 

   For the Nine months ended September 30, 2018 
Balance of recurring Level 3 assets as of January 1, 2018   21,208,838 
Total gains or losses (realized/unrealized):     
Included in earnings-realized    
Included in earnings-unrealized   799,575 
Proceeds from collateral reduction   (3,100,000)
Purchase of investments    
Sale of investments    
Transfers in and/or out of Level 3    
Balance of recurring Level 3 assets as of September 30, 2018   18,908,412 
     
   For the Year ended December 31, 2017 
Balance of recurring Level 3 assets as of January 1, 2017  $40,189,178 
Total gains or losses (realized/unrealized):     
Included in earnings-realized    
Included in earnings-unrealized   (402,290)
Proceeds from collateral reduction   (18,578,050)
Purchase of investments    
Sale of investments    
Transfers in and/or out of Level 3    
Balance of recurring Level 3 assets as of December 31, 2017  $21,208,838 

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The Trust assesses the levels of the investments at each measurement date, and transfers between levels are recognized on the actual date of the event or change in circumstances that caused the transfer in accordance with the Trust’s accounting policy regarding the recognition of transfers between levels of the fair value hierarchy. During the nine months ended September 30, 2018, the Trust did not transfer any assets between Levels 1, 2 and 3.

 

The total change in unrealized appreciation (depreciation) included in the statements of operations attributable to level 3 investments still held at September 30, 2018:

 

Swap contracts   $ 799,575  

 

The total change in unrealized appreciation (depreciation) included in the statements of operations attributable to level 3 investments still held at December 31, 2017:

 

Swap contracts   $ (402,290)  

 

4. Swaps Contracts

 

In addition to authorizing Trading Advisors to manage pre-determined investment levels of futures and forward contracts, certain Series of the Trust will strategically invest a portion or all of their assets in total return swaps, selected at the direction of the Managing Owner. Total return swaps are privately negotiated contracts designed to provide investment returns linked to those produced by one or more investment products or indices. In a typical total return swap, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on one or more particular predetermined investments or instruments. The gross returns to be exchanged or “swapped” between the parties are calculated with respect to a “notional amount” (i.e., the amount or value of the underlying asset used in computing the particular interest rate, return, or other amount to be exchanged) in a particular investment, or in a “basket” of securities.

 

The Trust’s investment in swaps will likely differ substantially over time due to cash flows, portfolio management decisions and market movements. The swaps serve to diversify the investment holdings of the Trust and to provide access to programs and advisors that would not be otherwise available to the Trust, and are not used for hedging purposes.

 

The Managing Owner follows a procedure in selecting well-established financial institutions which the Managing Owner, in its sole discretion, considers to be reputable, reliable, financially responsible and well established to act as swap counterparties. The procedure includes due diligence review of documentation on all new and existing financial institution counterparties prior to initiation of the relationship, and quarterly ongoing review during the relationship, to ensure that counterparties meet the Managing Owner’s minimum credit requirements, the counterparty average rating being no less than an investment grade rating as defined by the rating agencies. As of September 30, 2018 and December 31, 2017, approximately 1.46% or $1,180,900 and 3.80% or $4,284,450, respectively, of the Trust’s assets were deposited with over-the-counter counterparties in order to initiate and maintain swaps and is recorded as Swap Contracts, at fair value on the Statements of Financial Condition of the Trust. This cash held with the counterparty is not restricted.

 

The Trust strategically invests assets in one or more swaps linked to certain underlying investments or indices at the direction of the Managing Owner. The Trading Company in which the assets of the Trust will be invested will not own any of the investments or indices referenced by any swap entered into by the Trust. In addition, neither the swap counterparty nor any advisor referenced by any such swap is a Trading Advisor to the Trust.

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The Trust had invested in the following swap contracts as of and for the nine months ended September 30, 2018:

 

   XXXIV Balanced select swap  XXXV Diversified select swap  XXXVII L/S select swap  Brevan Howard
   Total Return Swap  Total Return Swap  Total Return Swap  Total Return Swap
Counterparty  DeutscheBank AG  DeutscheBank AG  DeutscheBank AG  DeutscheBank AG
Notional Amount  $11,735,292  $3,054,369  $653,610  $2,072,056
Termination Date  7/31/2023  7/31/2023  7/31/2023  3/27/2023
Cash Collateral  $86,000  $86,000  $29,950  $978,950
Swap Value  $9,764,185  $5,489,997  $441,992  $2,031,338
Investee Returns  Total Returns  Total Returns  Total Returns  Total Returns
Realized Gain/(Loss)  $0  $0  $0  $0
Change in Unrealized Gain/(Loss)  $509,226  $299,525  $74,903  ($84,079)
Fair Value as of September 30, 2018  $9,850,185  $5,575,997  $471,942  $3,010,288
Advance on swap appreciation  ($4,926,555)  ($2,500,000)  ($115,000)  ($1,900,000)

 

The Trust had invested in the following swap contracts as of and for the year ended December 31, 2017:

 

   XXXIV Balanced select swap  XXXV Diversified select swap  XXXVII L/S select swap  XXXIX Brevan Howard
   Total Return Swap  Total Return Swap  Total Return Swap  Total Return Swap
Counterparty  DeutscheBank AG  DeutscheBank AG  DeutscheBank AG  DeutscheBank AG
Notional Amount  $13,373,629  $4,651,155  $653,610  $2,072,056
Termination Date  8/2/2018  8/2/2018  8/7/2018  3/26/2018
Cash Collateral  $2,086,000  $1,186,000  $29,950  $982,500
Swap Value  $9,254,959  $5,190,472  $367,089  $2,111,867
Investee Returns  Total Returns  Total Returns  Total Returns  Total Returns
Realized Gain/(Loss)  $0  $0  $0  $0
Change in Unrealized Gain/(Loss)  ($84,491)  ($47,375)  $26,621  ($297,047)
Fair Value as of 12/31/2017  $11,340,959  $6,376,472  $397,039  $3,094,367
Advance on swap appreciation  ($4,926,555)  ($2,500,000)  ($115,000)  ($1,900,000)

 

5. Investments in Private Investment Companies

 

Investments in private investment companies represent cash and open trade equity invested in the private investment companies as well as the cumulative trading profits or losses allocated to the Trust by the Private Investment Companies. Private investment companies allocate trading profits or losses on the basis of the proportion of the Trust’s capital allocated for trading to each respective Private Investment Company, which bears no relationship to the amount of cash invested by the Trust in the Private Investment Companies. Investments in private investment companies are valued using the NAV provided by the underlying private investment.

 

The Galaxy Plus entities are made up a feeder funds in which the Trust invests and master trading entities into which the feeder funds invest. No investment held by the Galaxy Plus master trading entity is greater than 5% of the Trust’s total capital.

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The following table summarizes the Trust’s equity in earnings from each of the private investment companies during the three and nine months ended September 30, 2018 and 2017:

 

   Three Months Ended September 30, 2018   Three Months Ended September 30, 2017 
           Change in               Change in     
   Trading   Realized   Unrealized   Net Income   Trading   Realized   Unrealized   Net Income 
   Commissions   Gain/(Loss)   Gain/(Loss)   (Loss)   Commissions   Gain/(Loss)   Gain/(Loss)   (Loss) 
Galaxy Plus Fund - Aspect Feeder Fund (532) LLC  $(13,448)  $(89,558)  $130,963   $27,957   $(27,526)  $(83,578)  $219,283   $108,179 
Galaxy Plus Fund - Chesapeake Feeder Fund (518) LLC                   (22,467)   51,664    (95,593)   (66,396)
Galaxy Plus Fund - Doherty Feeder Fund (528) LLC   (21,883)   61,611    (36,452)   3,276    (29,346)   63,445    2,935    37,034 
Galaxy Plus Fund - Emil van Essen STP Feeder Fund (516) LLC   (178,875)   1,104,050    (1,538,861)   (613,686)   (222,560)   1,811,488    (935,550)   653,378 
Galaxy Plus Fund - Fort Contrarian Feeder Fund (510) LLC   (19,852)   35,043    62,055    77,246    (52,255)   (216,057)   556,885    288,573 
Galaxy Plus Fund - LRR Feeder Fund (522) LLC           (97,339)   (97,339)       (2,947)   (344,286)   (347,233)
Galaxy Plus Fund - QIM Feeder Fund (526) LLC   (59,105)   (298,023)   45,680    (311,448)   (90,999)   (1,103,456)   1,092,377    (102,078)
Galaxy Plus Fund - Quantmetrics Feeder Fund (527) LLC   (18,549)   55,948    (8,557)   28,842    (56,647)   (291,572)   (938)   (349,157)
Galaxy Plus Fund - Quest Feeder Fund (517) LLC   (14,086)   (92,604)   13,074    (93,616)   (17,531)   (39,564)   29,219    (27,876)
Galaxy Plus Fund - Quest FIT Feeder Fund (535) LLC           (256,019)   (256,019)           (91,259)   (91,259)
Galaxy Plus Fund - TT Feeder Fund (531) LLC   (39,323)   187,011    46,880    194,568            (244,467)   (244,467)
Galaxy Plus Fund - Welton GDP Feeder Fund (538) LLC   (171,382)   119,936    183,815    132,369    (297,366)   (732,794)   413,322    (616,838)
Total  $(536,503)  $1,083,414   $(1,454,761)  $(907,850)  $(816,697)  $(543,371)  $601,928   $(758,140)

 

   Nine Months Ended September 30, 2018   Nine Months Ended September 30, 2017 
           Change in               Change in     
   Trading   Realized   Unrealized   Net Income   Trading   Realized   Unrealized   Net Income 
   Commissions   Gain/(Loss)   Gain/(Loss)   (Loss)   Commissions   Gain/(Loss)   Gain/(Loss)   (Loss) 
Galaxy Plus Fund - Aspect Feeder Fund (532) LLC  $(81,572)  $(372,395)  $140,200   $(313,767)  $(111,211)  $(720,482)  $247,580   $(584,113)
Galaxy Plus Fund - Chesapeake Feeder Fund (518) LLC       (76,396)   68,413    (7,983)   (188,852)   (364,753)   528,870    (24,735)
Galaxy Plus Fund - Doherty Feeder Fund (528) LLC   (72,912)   (167,998)   (34,229)   (275,139)   (116,596)   304,648    (53,120)   134,932 
Galaxy Plus Fund - Emil van Essen STP Feeder Fund (516) LLC   (700,233)   2,033,337    (1,717,641)   (384,537)   (1,330,361)   4,599,674    304,067    3,573,380 
Galaxy Plus Fund - Fort Contrarian Feeder Fund (510) LLC   (73,829)   (116,736)   81,270    (109,295)   (220,929)   1,509,865    (59,134)   1,229,802 
Galaxy Plus Fund - LRR Feeder Fund (522) LLC   (804)   (62)   (152,150)   (153,016)   (570,790)   (2,947)   (1,389,486)   (1,963,223)
Galaxy Plus Fund - QIM Feeder Fund (526) LLC   (174,274)   (1,242,377)   108,280    (1,308,371)   (1,822,201)   5,221,007    393,843    3,792,649 
Galaxy Plus Fund - Quantmetrics Feeder Fund (527) LLC   (118,457)   (42,689)   9,173    (151,973)   (346,240)   498,355    339,271    491,386 
Galaxy Plus Fund - Quest Feeder Fund (517) LLC   (43,536)   (175,750)   19,406    (199,880)   (85,937)   2,436,910    (3,127,619)   (776,646)
Galaxy Plus Fund - Quest FIT Feeder Fund (535) LLC           (329,083)   (329,083)           (795,707)   (795,707)
Galaxy Plus Fund - TT Feeder Fund (531) LLC   (134,728)   39,795    (286,272)   (381,205)   (26,272)   455,907    (1,826,328)   (1,396,693)
Galaxy Plus Fund - Welton GDP Feeder Fund (538) LLC   (715,002)   (4,340,773)   379,408    (4,676,367)   (601,695)   (1,507,427)   (798,914)   (2,908,036)
Total   $(2,115,347)  $(4,462,044)  $(1,713,225)  $(8,290,616)  $(5,421,084)  $12,430,757   $(6,236,677)  $772,996 

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The Trust’s investments in private investment companies have certain redemption and liquidity restrictions which are described in the following table:

 

   Redemptions  Redemptions  Liquidity
   Notice Period  Permitted  Restrictions
Frontier Funds         
Multi-Strategy         
Galaxy Plus Fund - EvE STP Feeder Fund (516) LLC  24 hours  Daily  None
Galaxy Plus Fund - LRR Feeder Fund (522) LLC  24 hours  Daily  None
Galaxy Plus Fund - Quantmetrics Feeder Fund (527) LLC  24 hours  Daily  None
Galaxy Plus Fund - Welton GDP Feeder Fund (538) LLC  24 hours  Daily  None
Trend Following         
Galaxy Plus Fund - Aspect Feeder Fund (532) LLC  24 hours  Daily  None
Galaxy Plus Fund - Fort Contrarian Feeder Fund (510) LLC  24 hours  Daily  None
Galaxy Plus Fund - QIM Feeder Fund (526) LLC  24 hours  Daily  None
Galaxy Plus Fund - Quest Feeder Fund (517) LLC  24 hours  Daily  None
Galaxy Plus Fund - QuestFIT Feeder Fund (535) Segregated Portfolio  24 hours  Daily  None
Galaxy Plus Fund - TT Feeder Fund (531) LLC  24 hours  Weekly  None
Option Trading         
Galaxy Plus Fund - Doherty Feeder Fund (528) LLC  24 hours  Daily  None

 

6. Transactions with Affiliates

 

The Managing Owner contributes funds to the Trust in order to have a 1% interest in the aggregate capital, profits and losses and in return will receive units designated as general units in the Series of the Trust in which the Managing Owner invests such funds. The general units may only be purchased by the Managing Owner and may be subject to no advisory fees or management advisory fees at reduced rates. Otherwise, the general units hold the same rights as the limited units. The Managing Owner is required to maintain at least a 1% interest (“Minimum Purchase Commitment”) in the aggregate capital, profits and losses of the Trust so long as it is acting as the Managing Owner of the Trust. Such contribution was made by the Managing Owner before trading commenced for the Trust and will be maintained throughout the existence of the Trust, and the Managing Owner will make such purchases as are necessary to effect this requirement. Additionally, the Managing Owner agreed with certain regulatory bodies to maintain a 1% interest specifically in the Frontier Balanced Fund Class 1AP Units and Frontier Balanced Fund Class 2a Units, aggregated, and each of the Frontier Long/Short Commodity Fund, Frontier Diversified Fund, and Frontier Masters Fund. The 1% interest in these specific Series of the Trust is included in computing the Minimum Purchase Commitment in aggregate capital. In addition to the general units the Managing Owner receives in respect of its Minimum Purchase Commitment, the Managing Owner may purchase limited units in any Series as a Limited Owner. Principals of the Managing Owner or affiliates are allowed to own beneficial interests in the Trust, as well. All units purchased by the Managing Owner are held for investment purposes only and not for resale. The Managing Owner may make purchases or redemptions at any time on the same terms as any Limited Owner. The Trust has and will continue to have certain relationships with the Managing Owner and its affiliates.

 

Expenses

 

Management Fees—Each Series of Units pays to the Managing Owner a monthly management fee equal to a percentage of the notional assets of such Series allocated to Trading Companies, calculated on a daily basis. The percentage basis of the fees varies and are in line with the amounts being disclosed below. In addition, the Managing Owner receives a monthly management equal to a certain percentage of the assets in the Galaxy Plus entities attributable to such Series’ (including notional assets), calculated on a monthly basis. The management fees attributable to Galaxy Plus entities are included in unrealized gain/(loss) on private investment companies on the Statements of Operations. The total amount of assets of a Series allocated to Trading Advisors and/or reference programs, including (i) actual funds deposited in accounts directed by the Trading Advisors or deposited as margin in respect of swaps or other derivative instruments referencing a reference program plus (ii) any notional equity allocated to the Trading Advisors and any reference programs, is referred to herein as the “notional assets” of the Series. The annual rate of the management fee is: 0.5% for the Frontier Balanced Fund Class 1 and Class 2, 1.0% for the Frontier Balanced Fund Class 1AP, Class 2a and Class 3a, 2.0% for the Frontier Winton Fund, Frontier Long/Short Commodity Fund Class 1a, Class 2a and Class 3a and Frontier Masters Fund, 0.75% for Frontier Diversified Fund, 2.5% for the Frontier Heritage Fund and Frontier Select Fund, and 3.5% for the Frontier Long/Short Commodity Fund Class 2 and Class 3. The Managing Owner may pay all or a portion of such management fees to the Trading Advisor(s) and/or waive (up to the percentage specified) any such management fee to the extent any related management fee is paid by a trading company or estimated management fee is embedded in a swap or other derivative instrument. Any management fee embedded in a swap or other derivative instrument may be greater or less than the management fee that would otherwise be charged to the Series by the Managing Owner.

 

As of the date of this report, for a Series that has invested in a swap, the Managing Owner or Trading Advisor(s) do not receive any management fees directly from the Series for such swap, and instead the relevant Trading Advisor receives compensation via the fees embedded in the swap. As of September 30, 2018, the range of management fees embedded based on fair value of swaps in (i) swaps owned by Frontier Diversified Fund was 1.00% per annum, (ii) swaps owned by Frontier Balanced Fund was 1.00% per annum, (iii) swaps owned by Frontier Long/Short Commodity Fund was 1.50% per annum, and (iv) swaps owned by Frontier Heritage Fund was 1.00% per annum, and the Managing Owner has waived the entire management fee due to it from those Series in respect of such Series’ investment in swaps. In each case, the embedded management fee was accrued on the relevant notional amount of the swap.

 

83

 

The management fee as a percentage of the applicable Series’ notional assets will be greater than the percentage of the applicable Series’ net asset value to the extent that the notional assets of the Series exceeds its net asset value. The Managing Owner expects that the notional assets of each Series will generally be maintained at a level in excess of the net asset value of such Series and such excess may be substantial to the extent the Managing Owner deems necessary to achieve the desired level of volatility.

 

Trading Fees— In connection with each Series’ trading activities the Frontier Balanced Fund, Frontier Select Fund, Frontier Winton Fund and Frontier Heritage Fund pays to the Managing Owner an FCM Fee of up to 2.25% per annum of notional assets allocated to the trading advisors, including through investments in commodity pools available on the Galaxy Plus Platform, and any reference programs of the applicable Series. The Frontier Diversified Fund, Frontier Long/Short Commodity Fund and Frontier Masters Fund pays to the Managing Owner an FCM Fee of up to 2.25% of notional assets allocated to the trading advisors, including through investments in commodity pools available on the Galaxy Plus Platform, and a custodial/due diligence fee of 0.12% of such Series’ NAV, calculated daily.

 

Incentive Fees— Some Series pay to the Managing Owner an incentive fee of a certain percentage of new net trading profits generated in the Trading Companies by such Series, monthly or quarterly. In addition, the Managing Owner receives a quarterly incentive fee of a certain percentage of new net trading profits generated in the Galaxy Plus entities that have been allocated to the Series. The incentive fees attributable to Galaxy Plus entities are included in unrealized gain/(loss) on private investment companies on the Statements of Operations. Because the Frontier Balanced Fund, Frontier Diversified Fund, Frontier Masters Fund, Frontier Heritage Fund, Frontier Select Fund, and Frontier Long/Short Commodity Fund may each employ multiple Trading Advisors, these Series will pay the Managing Owner a monthly incentive fee calculated on a Trading Advisor by Trading Advisor basis. It is therefore possible that in any given period the Series may pay incentive fees to the Managing Owner for one or more Trading Advisors while each of these Series as a whole experiences losses. The incentive fee is 25% for the Frontier Balanced Fund and the Frontier Diversified Fund and 20% for the Frontier Winton Fund, Frontier Heritage Fund, Frontier Select Fund, Frontier Long/Short Commodity Fund and Frontier Masters Fund. The Managing Owner may pay all or a portion of such incentive fees to the Trading Advisor(s) for such Series. As of the date of this report, for a Series that has invested in a swap, the Managing Owner or Trading Advisor(s) do not receive any incentive fees directly from the Series for such swap, and instead the relevant Trading Advisor receives compensation via the fees embedded in the swap. As of September 30, 2018, the range of incentive fees as a percentage of net new trading profits on swaps embedded in (i) swaps owned by Frontier Diversified Fund was 20-25% per annum, (ii) swaps owned by Frontier Balanced Fund was 20-25% per annum, (iii) swaps owned by Frontier Long/Short Commodity Fund was 25% per annum, and (iv) swaps owned by Frontier Heritage Fund was 15% per annum, and the Managing Owner has waived the entire incentive fee due to it from those Series in respect of such Series’ investment in swaps.

84

 

Service Fees—In addition, with respect to Class 1 and Class 1a Units of each Series of the Trust, as applicable, the Series pays monthly or quarterly to the Managing Owner a service fee of up to 3% and 2% annually, for the closed Series and open Series, respectively, which the Managing Owner pays to selling agents of the Trust.

 

As of September 30, 2018, the Trust had a payable to the Managing Owner in the amounts of $10,897, $79,601, $22,088, $107,758, and $238,073 for incentive fees, management fees, interest, service fees, and trading fees, respectively.

 

As of December 31, 2017, the Trust had a payable to the Managing Owner in the amounts of $53,036, $90,972, $26,007, $334,485 and $148,445 for incentive fees, management fees, interest, trading fees, and service fees, respectively.

 

For the three months ended September 30, 2018 the Trust paid the Managing Owner $10,897, $189,058, $387,003 and $733,788 for incentive fees, management fees, service fees, and trading fees, respectively.

 

For the three months ended September 30, 2017 the Trust paid the Managing Owner $0, $297,987, $556,766 and $1,080,095 for incentive fees, management fees, service fees, and trading fees, respectively.

 

For the nine months ended September 30, 2018 the Trust paid the Managing Owner $159,306, $650,179, $1,264,101 and $2,366,003 for incentive fees, management fees, service fees, and trading fees, respectively.

 

For the nine months ended September 30, 2017 the Trust paid the Managing Owner $(205,571), $1,263,162, $1,989,777 and $4,206,610 for incentive fees, management fees, service fees, and trading fees, respectively.

 

With respect to the service fees, the initial service fee (for the first 12 months) relating to a purchase of Units by an investor is prepaid by the Managing Owner to the relevant selling agent in the month following such purchase and is reimbursed therefore by the Series monthly in arrears in an amount based upon a corresponding percentage of NAV, calculated daily. Consequently, the Managing Owner bears the risk and enjoys the benefit of the upside potential of any difference between the amount of the initial service fee prepaid by it and the amount of the reimbursement thereof, which may result from variations in NAV over the following 12 months. For the three months ended September 30, 2018 and 2017, amounts received or receivable from the Managing Owner for the difference in monthly service fees from the prepaid initial service fees were $0 and $0, respectively.

 

Aggregate interest income from all sources, including U.S. Treasury Securities assets net of premiums and cash held at clearing brokers, of up to the first 2% (annualized) is paid to the Managing Owner by the Frontier Balanced Fund (Class 1 and Class 2), Frontier Long/Short Commodity Fund (Class 2 and Class 3), Frontier Winton Fund, Frontier Select Fund, and Frontier Heritage Fund. For the Frontier Diversified Fund, Frontier Long/Short Commodity Fund (Class 1a, Class 2a, Class 3a only), Frontier Masters Fund, and Frontier Balanced Fund (Class 1AP, Class 2a and Class 3a) 100% of the interest is retained by the respective Series. During the nine months ended September 30, 2018 and 2017, the Trust received $124,430 and paid $349,196, respectively, of such interest income from/to the Managing Owner. Such amounts are not included in the consolidated statements of operations of the Trust. All other interest income is recorded by the Trust on the consolidated statements of operations.

85

 

7. Financial Highlights

 

The following information presents the financial highlights of the Trust for the three and nine months ended September 30, 2018 and 2017. This data has been derived from the information presented in the consolidated financial statements.

 

Three months ended

 

   2018   2017 
Ratios to average net assets (1)          
Net investment gain/(loss) (1)   -6.10%   -5.76%
Expenses before incentive fees (3)   6.37%   5.89%
Expenses after incentive fees (3)   6.38%   5.89%
           
Total return before incentive fees (2)   -3.17%   -1.18%
Total return after incentive fees (2)   -3.18%   -1.18%

 

Nine months ended

 

   2018   2017 
Ratios to average net assets (1)          
Net investment gain/(loss) (1)   -6.07%   -5.73%
Expenses before incentive fees (3)   6.15%   6.01%
Expenses after incentive fees (3)   6.32%   5.89%
           
Total return before incentive fees (2)   -13.04%   -4.92%
Total return after incentive fees (2)   -13.20%   -4.80%

 

(1)Annualized with the exception of incentive fees.
(2)Total returns are not annualized.
(3)Expense ratios do not reflect interest allocated to the Managing Owner as such expenses are not included in the Consolidated Statements of Operations of the Trust. See footnote 5.

 

The Trust financial highlights are calculated based upon the Trust’s consolidated financial statements. The consolidated Trust does not issue units and therefore the financial highlights do not disclose any unitized data.

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8. Derivative Instruments and Hedging Activities

 

The Trust’s primary business is to engage in speculative trading of a diversified portfolio of futures, forwards (including interbank foreign currencies), options contracts and other derivative instruments (including swap contracts). The Trust does not enter into or hold positions for hedging purposes as defined under ASC 815. The detail of the fair value of the Trust’s derivatives by instrument types as of September 30, 2018 and December 31, 2017 is included in the Consolidated Condensed Schedules of Investments. See Note 4 for further disclosure related to the Trust’s positions in swap contracts.

 

For the three months ended September 30, 2018 and September 30, 2017, the monthly average of forwards, options and futures contracts bought was approximately 764 and 2,416, respectively and sold was approximately 544 and 1,936, respectively.

 

For the nine months ended September 30, 2018 and September 30, 2017, the monthly average of forwards, options and futures contracts bought was approximately 2,819 and 8,053, respectively and sold was approximately 2,375 and 7,774, respectively.

87

 

The following tables summarize the trading revenues for the three and nine months ended September 30, 2018 and 2017 by sector:

 

Realized Trading Revenue from Futures, Forwards and Options
for the Three Months Ended September 30, 2018

 

Type of contract

 

Metals  $234,519 
Currencies   520,493 
Energies   (25,579)
Agriculturals   198,513 
Interest rates   (298,384)
Stock indices   546,293 
Realized trading income/(loss)(1)  $1,175,855 

 

Realized Trading Revenue from Futures, Forwards and Options
for the Three Months Ended September 30, 2017

 

Type of contract

 

Metals  $(415,539)
Currencies   693,018 
Energies   (471,279)
Agriculturals   (562,795)
Interest rates   (99,299)
Stock indices   661,692 
Realized trading income/(loss)(1)  $(194,202)

 

(1)Amounts recorded in the Statements of Operations under Net realized gain/(loss) on futures, forwards, and options

 

Unrealized Trading Revenue from Futures, Forwards and Options
for the Three Months Ended September 30, 2018

 

Type of contract

 

Metals  $(235,504)
Currencies   (538,221)
Energies   60,010 
Agriculturals   (160,030)
Interest rates   84,141 
Stock indices   76,487 
Change in unrealized trading income/(loss)(1)  $(713,117)

 

Unrealized Trading Revenue from Futures, Forwards and Options
for the Three Months Ended September 30, 2017

 

Type of contract

 

Metals  $36,050 
Currencies   (478,195)
Energies   213,027 
Agriculturals   264,443 
Interest rates   (147,197)
Stock indices   803,166 
Change in unrealized trading income/(loss)(1)  $691,294 

 

(1)Amounts recorded in the Statements of Operations under Net change in open trade equity/(deficit)

88

 

Realized Trading Revenue from Futures, Forwards and Options
for the Nine Months Ended September 30, 2018

 

Type of contract

 

Metals  $1,012,647 
Currencies   (985,268)
Energies   1,048,526 
Agriculturals   287,301 
Interest rates   1,723 
Stock indices   (227,965)
Realized trading income/(loss)(1)  $1,136,964 

 

Realized Trading Revenue from Futures, Forwards and Options
for the Nine Months Ended September 30, 2017

 

Type of contract

 

Metals  $(1,700,436)
Currencies   (1,131,814)
Energies   (2,238,664)
Agriculturals   (82,409)
Interest rates   (2,491,165)
Stock indices   7,433,107 
Realized trading income/(loss)(1)  $(211,381)

 

(1)Amounts recorded in the Statements of Operations under Net realized gain/(loss) on futures, forwards, and options

 

Unrealized Trading Revenue from Futures, Forwards and Options
for the Nine Months Ended September 30, 2018

 

Type of contract

 

Metals  $(474,681)
Currencies   (425,578)
Energies   (313,242)
Agriculturals   65,596 
Interest rates   (30,149)
Stock indices   (49,303)
Change in unrealized trading income/(loss)(1)  $(1,227,357)

 

Unrealized Trading Revenue from Futures, Forwards and Options
for the Nine Months Ended September 30, 2017

 

Type of contract

 

Metals  $(151,493)
Currencies   (1,472,515)
Energies   (105,818)
Agriculturals   (81,250)
Interest rates   (1,085,406)
Stock indices   716,949 
Change in unrealized trading income/(loss)(1)  $(2,179,533)

 

(1)Amounts recorded in the Statements of Operations under Net change in open trade equity/(deficit)

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Certain financial instruments and derivative instruments are eligible for offset in the statements of financial condition under GAAP. The Trust’s open trade equity/(deficit), options written, and receivables from futures commission merchants (each, an “FCM”) are subject to master netting arrangements and collateral arrangements and meet the GAAP guidance to qualify for offset. A master netting arrangement with a counterparty creates a right of offset for amounts due to and from that same counterparty that is enforceable in the event of a default or bankruptcy. The Trust’s policy is to recognize amounts subject to master netting arrangements on a net basis on the consolidated statements of financial condition.

 

The following tables present gross and net information about the Trust’s assets and liabilities subject the master netting arrangements as disclosed on the consolidated statements of financial condition as of September 30, 2018 and December 31, 2017:

 

As of September 30, 2018

 

           Net Amounts 
       Gross Amounts   Presented in the 
   Gross Amounts of   offset in the   Statements of 
   recognized   Statements of   Financial 
   Derivative Assets   Financial   Condition 
Open Trade Equity/(Deficit)  $1,593,779   $(1,247,053)  $346,726 
Swap Contracts   18,908,412        18,908,412 

 

As of December 31, 2017

 

           Net Amounts 
       Gross Amounts   Presented in the 
       offset in the   Consolidated 
   Gross Amounts   Consolidated   Statements of 
   of recognized   Statements of   Financial 
   Derivative Assets   Financial Condition   Condition 
Open Trade Equity/(Deficit)  $2,758,014   $(1,189,600)  $1,568,414 
Swap Contracts   21,208,838        21,208,838 

 

9. Trading Activities and Related Risks

 

The purchase and sale of futures and options on futures contracts require margin deposits with FCMs. Additional deposits may be necessary for any loss on contract value. The CEA requires an FCM to segregate all customer transactions and assets from the FCM’s proprietary activities. A customer’s cash and other property (for example, U.S. treasury bills) deposited with an FCM are considered commingled with all other customer funds subject to the FCM’s segregation requirements. In the event of an FCM’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 the total of cash and other property deposited.

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The term “off-balance sheet risk” refers to an unrecorded potential liability that, even though it does not appear on the statements of financial condition, may result in future obligation or loss in excess of the amount paid by the Series for a particular investment. Each Trading Company and Galaxy Plus entity expects to trade in futures, options, forward and swap contracts and will therefore be a party to financial instruments with elements of off-balance sheet market and credit risk. In entering into these contracts, there exists a market risk 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 positions held by a Trading Company or Galaxy Plus entity in respect of any Series at the same time, and if the Trading Advisor(s) of such Trading Company or Galaxy Plus entity are unable to offset such futures interests positions, such Trading Company or Galaxy Plus entity could lose all of its assets and the holders of Units of such Series would realize a 100% loss. The Managing Owner will seek to minimize market risk through real-time monitoring of open positions and the level of diversification of each Trading Advisor’s portfolio. It is anticipated that any Trading Advisor’s margin-to-equity ratio will typically not exceed approximately 35% although the actual ratio could be higher or lower from time to time.

 

In addition to market risk, trading futures, forward and swap contracts entails credit risk that a counterparty will not be able to meet its obligations to a Trading Company or Galaxy Plus entity. The counterparty for futures contracts traded in the United States 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 credit risk. In cases where the clearinghouse is not backed by the clearing members, like some foreign exchanges, it is normally backed by a consortium of banks or other financial institutions. Some non-U.S. exchanges, in contrast to U.S. exchanges, are principals’ markets in which performance is the responsibility only of the individual counterparty with whom the Trading Company has entered into the transaction, and not of the exchange or clearing corporation. In these kinds of markets, there is risk of bankruptcy or other failure or refusal to perform by the counterparty.

 

In the case of forward contracts traded on the interbank market and swaps, neither is traded 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 credit risk. The Managing Owner expects the Trading Advisors to trade only with those counterparties which it believes to be creditworthy. All positions of each Trading Company will be valued each day on a mark-to-market basis. There can be no assurance that any clearing member, clearinghouse or other counterparty will be able to meet its obligations to any Trading Company.

 

The Managing Owner has established procedures to actively monitor and minimize market and credit risks. The Limited Owners bear the risk of loss only to the extent of the market value of their respective investments and, in certain specific circumstances, distributions and redemptions received.

 

10. Indemnifications and Guarantees

 

The Trust has entered into agreements, which provide for the indemnification of futures clearing brokers, and commodity trading advisers, among others, against losses, costs, claims and liabilities arising from the performance of their individual obligations under such agreements, except for gross negligence, bad faith or willful misconduct. The Trust has had no prior claims or payments pursuant to these agreements. The Trust’s individual maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Trust that have not yet occurred. However, based on experience the Trust expects the risk of loss to be remote. Maximum exposure is unfulfilled obligations of the Trust up to the amount of equity at risk with Morgan Stanley & Co. LLC. The Trust has not recorded any liability for the guarantees in the accompanying financial statements as it expects any possibility of losses to be remote. The Trust has not recorded any liability for the indemnifications in the accompanying financial statements as it expects any possibility of losses to be remote.

 

11. Subsequent Events

 

From October 1, 2018 through November 19, 2018, the Trust paid $3,073,186 in redemptions.

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Item 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Introduction

 

The following discussion and analysis contain forward-looking statements about the Managing Owner’s expectations of what may happen in the future. Forward-looking statements are based on a number of assumptions and estimates that are inherently subject to significant risks and uncertainties, and our results could differ materially from the results anticipated by our forward-looking statements as a result of many known or unknown factors, including, but not limited to, those factors discussed in “Risk Factors.” See also the “Special Note About Forward-Looking Statements” set forth at the beginning of this report.

 

The following discussion and tables should be read in conjunction with our unaudited consolidated financial statements and notes thereto included in this quarterly report and our 2017 Annual Report on Form 10-K for the year ended December 31, 2017.

 

Overview

 

The Trust is a Delaware statutory trust formed on August 8, 2003. The Trust is a multi-advisor commodity pool, as described in CFTC Regulation § 4.10(d)(2). The Trust is authorized to issue multiple Series of Units, pursuant to the requirements of the Trust Act. The assets of each Series are held and accounted for in separate and distinct records separately from the assets of other Series. The Trust is managed by the Managing Owner, and its term will expire on December 31, 2053 (unless terminated earlier in certain circumstances). 

 

The Trust, with respect to each Series of Units, engages in the speculative trading of a diversified portfolio of futures, forward (including interbank foreign currencies) and options contracts and other derivative instruments (including swaps). The Trust allocates funds to affiliated Trading Companies and Galaxy Plus entities, each of which has one-year renewable contracts with its own independent Trading Advisor(s) that will manage all or a portion of the applicable Trading Company’s or Galaxy Plus entity’s assets, and make the trading decisions for the assets of each Series vested in such Trading Company or Gemini Plus entity. The assets of each Trading Company and Galaxy Plus entity will be segregated from the assets of each other Trading Company and Galaxy Plus entity. The Trust has an investment objective of increasing the value of the Units over the long term (capital appreciation), while controlling risk and volatility; further, to offer exposure to the investment programs of individual Trading Advisors and to specific instruments (currencies). For additional overview of the Trust’s structure and business activities, see Item 1.

 

All management fees, incentive fees, service fees, risk analysis fee (for closed Series only) and trading fees of the Trust are paid to the Managing Owner. It is the responsibility of the Managing Owner to pay all Trading Advisor management and incentive fees, selling agent service fees and all other operating expenses and continuing offering costs of the Trust. Only management fees and incentive fees related to assets allocated through Trading Companies are included in expense on the Statement of Operations. The Series are all charged management and incentive fees on the assets allocated through the Galaxy Plus entities. Those fees are included in unrealized gain/(loss) on private investment companies on the Statements of Operations. As of the date of this report, for a Series that has invested in a swap, the Managing Owner or Trading Advisor(s) do not receive any incentive fees directly from the Series for such swap, and instead the relevant Trading Advisor receives compensation via the fees embedded in the swap. In each case, the embedded incentive fee was accrued based on the net new trading profits of the swap. The Series are also charged management and incentive fees on assets allocated to swaps. Such fees are embedded in the fair value of the swap and are included in net unrealized gain (loss) on swap contracts on the Statements of Operations. Embedded in the swap fair value is management and incentive fees being paid to Trading Advisors. As of September 30, 2018, the management fees and range of incentive fees by Trading Company were as follows:

 

Trading Company  Management Fee  Incentive Fee
Frontier Trading Company XXXIV LLC  1%  20-25%
Frontier Trading Company XXXV LLC  1%  20-25%
Frontier Trading Company XXXVII LLC  1.5%  25%
Frontier Trading Company XXXIX LLC  1%  15%

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For further discussion of fees paid by the Trust, see Item 1-Notes 2 and 6 “Significant Accounting Policies” and “Transactions with Affiliates”, respectively, in the Notes to Financial Statements (unaudited)

 

Critical Accounting Policies and Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires the Managing Owner to adopt accounting policies and make estimates and assumptions that affect amounts reported in the Trust’s financial statements. The Trust’s most significant accounting policy, described below, includes the valuation of its futures and forward contracts, options contracts, swap contracts, U.S. treasury securities and investments in unconsolidated Trading Companies and Galaxy Plus entities, the majority of these investments are exchange traded contracts valued upon exchange settlement prices or non-exchange traded contracts and obligations with valuation based on third-party quoted dealer values on the Interbank market.

 

The Trust’s other significant accounting policies are described in detail in Note 2 of the financial statements.

 

Investment Transactions and Valuation

 

The Managing Owner has evaluated the nature and type of transactions processed and estimates that it makes in preparing the Trust’s financial statements and related disclosures and has adopted Accounting Standard Codification ( “ASC”) 820, Fair Value Measurements and Disclosure, and implemented the framework for measuring fair value for assets and liabilities.

 

The Trust utilizes valuation techniques that are consistent with the market approach per the requirement of ASC 820 for the valuation of futures (exchange traded) contracts, forward (non-exchange traded) contracts, option contracts, swap contracts and other non-cash assets. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The Trust applies the valuation techniques in a consistent manner for each asset or liability. The Trust records all investments at fair value in its Statements of Financial Condition, with changes in fair value reported as a component of net gain/(loss) on investments in the Statements of Operations.

 

Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the assets or liabilities. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the financial asset or liability based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the financial asset or liability based on the best information available in the circumstances.

 

In addition, the Trust monitors counterparty credit risk and incorporates any identified risk factors when assigning input levels to underlying financial assets or liabilities. In that regard ASC 820 establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical financial assets and the lowest priority to unobservable inputs. A full disclosure of the fair value hierarchy is presented in Note 3 of the financial statements—Fair Value Measurements.

 

Selection and Replacement of Trading Advisors

 

The Managing Owner is responsible for the selection, retention and termination of the trading advisors and reference programs on behalf of each Series. The actual allocation among trading advisors for each Series will vary based upon the relative trading performance of the trading advisors and/or reference programs, and the Managing Owner may otherwise vary such percentages from time to time in its sole discretion. The Managing Owner will adjust its allocations and rebalance the portfolio of any Series among trading advisors to maintain weightings that it believes will most likely achieve capital growth within the investment guidelines of the relevant Series.

 

The Managing Owner utilizes certain quantitative and qualitative analysis in connection with the identification, evaluation and selection of the trading advisors. The Managing Owner’s proprietary and commercial analytical software programs and comprehensive trading advisor database provide the quantitative basis for the trading advisor selection, portfolio implementation process, and ongoing risk management, monitoring, and review.

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The Managing Owner’s research department is continually refining ways to assimilate vast amounts of trading advisor performance data and due-diligence information. The proprietary and commercial database of alternative investment programs is always increasing. Research team members regularly interact with trading advisors throughout the due diligence and monitoring process. Only those programs that have met strict quantitative and qualitative review are considered as potential managers of client assets. Following is a summary of the quantitative and qualitative analysis:

 

Quantitative Analysis

 

The Managing Owner’s analytical software system applies a variety of statistical measures towards the evaluation of current and historical advisor performance data. Statistical measures include but are not limited to: (1) risk/reward analysis, (2) time window analysis, (3) risk analysis, (4) correlation analysis, (5) statistical overlays and (6) performance cycle analysis.

 

Qualitative Analysis

 

Although quantitative analysis statistically identifies the top performing trading advisors, qualitative analysis plays a major role in the trading advisor evaluation and final selection process. Each trading advisor in the Managing Owner’s top decile universe initially undergoes extensive qualitative review by the Managing Owner’s research department, as well as continual monitoring. This analysis generally includes, but is not limited to: (1) preliminary information and due diligence, (2) background review, (3) extensive due diligence questionnaires and (4) written review and periodic updates. This information allows a thorough review of each trading advisor’s trading philosophy, trading systems and corporate structure.

 

Multi-Manager Approach

 

A multi-manager approach to portfolio management provides diversification of trading advisors and access to broader global markets. Multiple trading advisors can provide diversification across trading methodologies, trading time horizons, and markets traded. Additionally, multi-manager portfolios tend to provide a greater level of professional management with ongoing risk management and review. The result can be more consistent returns with lower volatility.

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The trading system of each of the major commodity Trading Advisors and the means by which the Series access those Trading Advisors are as follows:

 

Major Commodity Trading Advisor  Trading System Style  Accessed Through
       
Aspect Capital Limited  Systematic  Galaxy Plus
Beach Horizon  Systematic  Trading Company
BH-DG Systematic Trading LLP  Systematic  Swap
Crabel Capital Partners LLPC  Systematic  Swap
Doherty Advisors, LLC  Discretionary  Galaxy Plus
Emil Van Essen, LLC  Discretionary  Galaxy Plus
Fort, L.P.  Systematic  Galaxy Plus
H2O Asset Management  Systematic  Swap
J E Moody & Company  Systematic  Swap
Landmark Trading Company  Discretionary  Galaxy Plus
Quantitative Investment Management, LLC  Systematic  Galaxy Plus
Quantmetrics Capital Management LLP  Systematic  Galaxy Plus
Quest Partners LLC  Systematic  Galaxy Plus
Red Oak Commodity Advisors, Inc.  Discretionary  Galaxy Plus
Rosetta Capital Management, LLC  Discretionary  Galaxy Plus
Transtrend B.V.  Systematic  Galaxy Plus
Welton Investment Partners LLC  Systematic  Galaxy Plus
Winton Capital Management Ltd.  Systematic  Trading Company

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As of September 30, 2018, the allocation of the assets of each applicable Series of the Trust between the Trading Advisors was as follows:

 

       Frontier                     
   Frontier   Long/Short   Frontier   Frontier       Frontier   Frontier 
   Diversified   Commodity   Masters   Balanced   Frontier   Winton   Heritage 
Advisor  Fund   Fund   Fund   Fund   Select Fund   Fund   Fund 
Aspect Capital Limited   3%           4%            
Beach Horizon               4%            
BH-DG Systematic Trading LLP                   25%       20%
Crabel Capital Partners, LLPC   5%           4%            
Doherty   5%           4%            
Emil Van Essen, LLC   12%   22%   28%   10%            
Fort, L.P.   13%           10%            
H2O Asset Management   12%           15%            
J E Moody & Company       15%                    
Landmark   1%   7%       1%            
Quantitative Investment Management, LLC   13%           13%            
Quantmetrics Capital Management LLP   10%           10%            
Quest Partners LLC   3%           1%            
Red Oak Commodity Advisors, Inc.       10%                    
Rosetta Capital Management, LLC       22%                    
Transtrend B.V.           14%       30%        
Welton Investment Partners LLC   13%   22%   29%   13%   46%       40%
Winton Capital Management Ltd.   12%       29%   10%       100%   40%

 

Liquidity and Capital Resources

 

The Trust will raise additional capital only through the sale of Units offered pursuant to the continuing offering, and does not intend to raise any capital through borrowing. Due to the nature of the Trust’s business, it makes no capital expenditures and has no capital assets that are not operating capital or assets.

 

The Managing Owner is responsible for the payment of all of the ordinary expenses associated with the organization of the Trust and the offering of each Series of Units, except for the initial and ongoing service fee, if any, and no Series will be required to reimburse these expenses. As a result, 100% of each Series’ offering proceeds are initially available for that Series’ trading activities.

 

A portion of each Trading Company’s assets is used as margin to maintain that Trading Company’s forward currency contract positions, and another portion is deposited in cash in segregated accounts in the name of each Trading Company maintained for each Trading Company at the clearing brokers in accordance with CFTC segregation requirements. At September 30, 2018, cash deposited at the clearing brokers was $11,472,343 for the Trust. The clearing brokers are expected to credit each Trading Company with approximately 80%-100% of the interest earned on its average net assets on deposit with the clearing brokers each month. Currently, with the Federal Funds target rate at 2.00% to 2.25%, this amount is estimated to be 2.00%. In an attempt to increase interest income earned, the Managing Owner also may invest the non-margin assets in U.S. government securities which include any security issued or guaranteed as to principal or interest by the U.S., or by a person controlled by or supervised by and acting as an instrumentality of the government of the U.S. pursuant to authority granted by Congress or any certificate of deposit for any of the foregoing, including U.S. treasury bonds, U.S. treasury bills and issues of agencies of the U.S. government, and certain cash items such as money market funds and time deposits. Aggregate interest income from all sources, including assets held at clearing brokers, of up to 2.00% (annualized) is paid to the Managing Owner by the Frontier Balanced Fund (Class 1 and Class 2 only), Frontier Winton Fund, Frontier Select Fund, and Frontier Heritage Fund. For the Frontier Diversified Fund, Frontier Long/Short Commodity Fund (Class 1a, Class 2a, Class 3a only), Frontier Masters Fund and Frontier Balanced Fund (Class 1AP, Class 2a and Class 3a), 20% of the total interest allocated to the Series was paid to the Managing Owner from January 1, 2017 through April 28, 2017; thereafter 100% of the interest is retained by the respective Series. The amount reflected in the financial statements for the Trust and Series are disclosed on a net basis. Due to some classes not exceeding the 2% paid to the Managing Owner, amounts earned by those classes may be zero.

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Approximately 10% to 30% of the Trust’s assets are expected to be committed as required margin for futures contracts and forwards and options trading and held by the respective broker, although the amount committed may vary significantly. Such assets are maintained in the form of cash or U.S. treasury bills in segregated accounts with the futures broker pursuant to the Commodity Exchange Act and regulations there under. Approximately 2% to 6% of the Trust’s assets are expected to be deposited with over-the-counter counterparties in order to initiate and maintain forward and swap contracts. Such assets are not held in segregation or otherwise regulated under the Commodity Exchange Act, unless such over-the-counter counterparty is registered as a futures commission merchant. These assets are held either in U.S. government securities or short-term time deposits with U.S.-regulated bank affiliates of the over-the-counter counterparties. The remaining approximately 64% to 88% of the Trust’s assets will normally be invested in cash equivalents and short-term investments, such as money market funds and time deposits and held by the clearing broker, the over-the-counter counterparties and by U.S. federally chartered banks. As of September 30, 2018, total cash and cash equivalents held at banking institutions were $65,101 for the Frontier Diversified Fund, $35,548 for the Frontier Masters Fund, $32,954 for the Frontier Long/Short Commodity Fund, $105,108 for the Frontier Balanced Fund, $22,923 for the Frontier Select Fund, $344,707 for the Frontier Winton Fund, and $59,065 for the Frontier Heritage Fund.

 

As a commodity pool, the Trust has large cash positions. Such cash positions are used to pay margin for the trading of futures, forwards and options, and also to pay redemptions. Generally, the Trust has not been forced to liquidate positions to fund redemptions. During the three months ended September 30, 2018, the Trust was able to pay all redemptions.

 

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. Each Trading Company trades in futures, forward and swap 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 market risk 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 held by a Trading Company in respect of any Series at the same time, and if the Trading Advisor(s) of such Trading Company are unable to offset such futures interests positions, such Trading Company could lose all of its assets and the holders of Units of such Series would realize a 100% loss. The Managing Owner seeks to minimize market risk through monitoring of open positions and the level of diversification of each Trading Advisor’s portfolio. It is anticipated that any Trading Advisor’s margin-to-equity ratio will typically not exceed approximately 35% although the actual ratio could be higher or lower from time to time.

 

In addition to market risk, trading futures, forward and swap contracts entails credit risk which is the risk that a counterparty will not be able to meet its obligations to a Trading Company. 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 credit risk. In cases where the clearinghouse is not backed by the clearing members, like some foreign exchanges, it is normally backed by a consortium of banks or other financial institutions. Some non-U.S. exchanges, in contrast to U.S. exchanges are principals’ markets in which performance is the responsibility only of the individual counterparty with whom the Trading Company has entered into the transaction and not of the exchange or clearing corporation. In these kinds of markets, there is risk of bankruptcy or other failure or refusal to perform by the counterparty.

 

In the case of forward contracts and swaps traded on the interbank market, neither is traded on an exchange. 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 credit risk. The Managing Owner expects the Trading Advisors to trade only with those counterparties which it believes to be creditworthy. All positions of each Trading Company are valued each day on a mark-to-market basis. There can be no assurance that any clearing member, clearinghouse or other counterparty will be able to meet its obligations to any Trading Company.

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The Trust has entered into agreements, which provide for the indemnification of futures clearing brokers, currency trading companies, and commodity trading advisers, among others, against losses, costs, claims and liabilities arising from the performance of their individual obligations under such agreements, except for gross negligence or bad faith. The Trust has had no prior claims or payments pursuant to these agreements. The Trust’s individual maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Trust that have not yet occurred. However, based on experience the Trust expects the risk of loss to be remote.

 

Disclosure of Contractual Obligations

 

The business of the Trust is the speculative trading of commodity interests. The majority of the Trust’s futures and forward positions, which may be categorized as “purchase obligations” under Item 303 of Regulation S-K, are short-term. That is, they are held for less than one year. Because the Trust does not enter into other long-term debt obligations, capital lease obligations, operating lease obligations or other long-term liabilities that would otherwise be reflected on the Trust’s Statement of Financial Condition, a table of contractual obligations has not been presented.

 

Results of Operations

 

Series Returns and Other Information

 

The returns for each Series and Class of Units for the three months ended September 30, 2018 and 2017, and related information, are discussed below. The activities of the Trust on a consolidated basis are explained through the activity of the underlying Series. Please refer to the discussion of the Series activities in relation to the Trust on a consolidated basis.

 

Each Series had exposure to commodity interest positions within one or more sectors during the three months ended September 30, 2018 and 2017. The performance of each Series was impacted over the course of the periods by, among other things, the relative performance of the relevant sector or sectors and the commodities within those sectors, the changing allocations among, and the specific positions taken by the Series’ Trading Advisors in, the relevant sector(s) and commodities, and the timing of entries and exits. For certain of the Series, a sector attribution chart has been included at the end of the relevant discussion. Each chart depicts the performance of the relevant Series’ positions within each of the relevant sectors (determined by the Managing Owner using monthly gross return and NAV figures, with various adjustments to net out a proportional allocation of the fees and expenses chargeable to the Series) during the periods presented.

 

Three months ended September 30, 2018 Compared to Three Months Ended September 30, 2017.

 

Frontier Diversified Fund

 

The Frontier Diversified Fund— Class 1 NAV lost 3.55% and lost 1.46%, respectively, for the three months ended September 30, 2018 and 2017, net of fees and expenses; the Frontier Diversified Fund—Class 2 NAV lost 3.12% and lost 1.03%, respectively for the three months ended September 30, 2018 and 2017, net of fees and expenses; the Frontier Diversified Fund—Class 3 NAV lost 3.07% and lost 0.96%, respectively for the three months ended September 30, 2018 and 2017.

 

For the three months ended September 30, 2018, the Frontier Diversified Fund recorded net loss on investments of $403,356, net investment loss of $174,822, and total expenses of $184,192 resulting in a net decrease in Owners’ capital from operations of $578,178. For the three months ended September 30, 2017, the Frontier Diversified Fund recorded net gain on investments of $68,284 net investment loss of $257,720, net investment income of $1,825 and total expenses of $259,545 resulting in a net decrease in Owners’ capital from operations of $189,436.

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Please see additional discussion under “Nine Months Ended September 30, 2018 Compared to Nine Months Ended September 30, 2017 –Frontier Diversified Fund.”

 

Frontier Masters Fund

 

The Frontier Masters Fund—Class 1 NAV lost 2.14% and lost 2.91% for the three months ended September 30, 2018 and 2017 net of fees and expenses; the Frontier Masters Fund —Class 2 NAV lost 1.71% and lost 2.50% for the three months ended September 30, 2018 and 2017, net of fees and expenses; the Frontier Masters Fund—Class 3 NAV lost 1.64% and lost 2.43% for the three months ended September 30, 2018 and 2017, net of fees and expenses.

 

For the three months ended September 30, 2018, the Frontier Masters Fund recorded net loss on investments of $10,638, net investment loss of $124,728, and total expenses of $129,435, resulting in a net decrease in Owners’ capital from operations of $135,366. For the three months ended September 30, 2017, the Frontier Masters Fund recorded net loss on investments of $106,063, net investment loss of $184,502, and total expenses of $197,676, resulting in a net decrease in Owners’ capital from operations of $290,565.

 

Please see additional discussion under “Nine Months Ended September 30, 2018 Compared to Nine Months Ended September 30, 2017— Frontier Masters Fund.”

 

Frontier Long/Short Commodity Fund

 

The Frontier Long/Short Commodity Fund—Class 2 NAV lost 2.80% and lost 0.03%, respectively, for the three months ended September 30, 2018 and 2017 net of fees and expenses; the Frontier Long/Short Commodity Fund —Class 3 NAV lost 2.80% and lost 0.02% respectively for the three months ended September 30, 2018 and 2017 net of fees and expenses; the Frontier Long/Short Commodity Fund —Class 1a NAV lost 6.48% and lost 0.44% respectively, for the three months ended September 30, 2018 and 2017 net of fees and expenses; the Frontier Long/Short Commodity Fund —Class 2a NAV lost 6.06% and lost 0.03% respectively, for the three months ended September 30, 2018 and 2017 net of fees and expenses; the Frontier Long/Short Commodity Fund Class 3a NAV lost 6.00% and lost 0.03%, respectively, for the three months ended September 30, 2018 and 2017, net of fees and expenses.

 

For the three months ended September 30, 2018, the Frontier Long/Short Commodity Fund recorded net loss on investments of $111,396, net investment loss of $16,476, and total expenses of $19,652, resulting in a net decrease in Owners’ capital from operations of $127,872. For the three months ended September 30, 2017, the Frontier Long/Short Commodity Fund recorded net gain on investments of $72,790, net investment loss of $40,336, and total expenses of $40,336, resulting in a net increase in Owners’ capital from operations of $32,454.

 

Please see additional discussion under “Nine Months Ended September 30, 2018 Compared to Nine Months Ended September 30, 2017 – Frontier Long/Short Commodity Fund.”

 

Frontier Balanced Fund

 

The Frontier Balanced Fund—Class 1 NAV lost 4.31% and lost 1.26%, respectively, for the three months ended September 30, 2018 and 2017, net of fees and expenses; the Frontier Balanced Fund —Class 2 NAV lost 3.59% and lost 0.51%, respectively, for the three months ended September 30, 2018 and 2017, net of fees and expenses; the Frontier Balanced Fund —Class 2a NAV lost 3.56% and lost 0.48%, respectively, for the three months ended September 30, 2018 and 2017, net of fees and expenses; the Frontier Balanced Fund —Class 3a NAV lost 3.56% and lost 0.48%, respectively, for the three months ended September 30, 2018 and 2017, net of fees and expenses; the Frontier Balanced Fund —Class 1AP NAV lost 3.59% and lost 0.52% for the three months ended September 30, 2018 and 2017, net of fees and expenses.

 

For the three months ended September 30, 2018, the Frontier Balanced Fund recorded net loss on investments of $1,017,197 net investment loss of $579,502, and total expenses of $590,094, resulting in a net decrease in Owners’ capital from operations of $1,596,699. For the three months ended September 30, 2017, the Frontier Balanced Fund recorded net gain on investments of $367,405 net investment loss of $808,362, and total expenses of $816,616, resulting in a net decrease in Owners’ capital from operations of $440,957.

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Please see additional discussion under “Nine Months Ended September 30, 2018 Compared to Nine Months Ended September 30, 2017 – Frontier Balanced Fund.”

 

Frontier Select Fund

 

The Frontier Select Fund—Class 1 NAV gained 0.88% and lost 5.50%, respectively, for the three months ended September 30, 2018 and 2017, net of fees and expenses; the Frontier Select Fund —Class 2 NAV gained 1.65% and lost 4.78% respectively for the three months ended September 30, 2018 and 2017, net of fees and expenses; the Frontier Select Fund —Class 1AP NAV gained 1.64% and lost 4.68%, respectively, for the three months ended September 30, 2018 and 2017.

 

For the three months ended September 30, 2018, the Frontier Select Fund recorded net gain on investments of $97,395, net investment loss of $59,225 and total expenses of $59,225, resulting in a net increase in Owners’ capital from operations of $38,170. For the three months ended September 30, 2017, the Frontier Select Fund recorded net loss on investments of $246,729, net investment loss of $86,152 and total expenses of $86,152, resulting in a net decrease in Owners’ capital from operations of $332,881.

 

Please see additional discussion under “Nine Months Ended September 30, 2018 Compared to Nine Months Ended September 30, 2017 – Frontier Select Fund.”

 

Frontier Winton Fund

 

The Frontier Winton Fund—Class 1 NAV lost 1.78% and lost 1.24%, respectively, for the three months ended September 30, 2018 and 2017, net of fees and expenses; the Frontier Winton Fund —Class 2 NAV gained 1.34% and lost 0.48%, respectively, for the three months ended September 30, 2018 and 2017, net of fees and expenses; the Frontier Winton Fund —Class 1AP NAV lost 1.00% and lost 4.11%, respectively, for the three months ended September 30, 2018 and 2017.

 

For the three months ended September 30, 2018, the Frontier Winton Fund recorded net gain on investments of $66,648, net investment loss of $254,280, and total expenses of $254,280, resulting in a net decrease in Owners’ capital from operations of $187,632. For the three months ended September 30, 2017, the Frontier Winton Fund recorded net gain on investments of $440,557, net investment loss of $422,546, and total expenses of $442,278 resulting in a net decrease in Owners’ capital from operations of $196,414, after non-controlling interests of $214,425.

 

Please see additional discussion under “Nine Months Ended September 30, 2018 Compared to Nine Months Ended September 30, 2017 – Frontier Winton Fund.”

 

Frontier Heritage Fund

 

The Frontier Heritage Fund—Class 1 NAV lost 1.54% and lost 2.74%, respectively, for the three months ended September 30, 2018 and 2017 net of fees and expenses; the Frontier Heritage Fund —Class 2 NAV lost 0.80% and lost 2.02%, respectively for the three months ended September 30, 2018 and 2017, net of fees and expenses; the Frontier Heritage Fund —Class 1AP NAV lost 0.76% and lost 2.01%, respectively, for the three months ended September 30, 2018 and 2017.

 

For the three months ended September 30, 2018, the Frontier Heritage Fund recorded net gain on investments of $22,592, net investment loss of $85,602, and total expenses of $85,602, resulting in a net decrease in Owners’ capital from operations of $66,140, after non-controlling interests of $3,130 For the three months ended September 30, 2017, the Frontier Heritage Fund recorded net gain on investments of $27,074, net investment loss of $120,882, and total expenses of $120,882, resulting in a net decrease in Owners’ capital from operations of $147,535, after non-controlling interests of $53,727.

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Please see additional discussion under “Nine Months Ended September 30, 2018 Compared to Nine Months Ended September 30, 2017 – Frontier Heritage Fund.”

 

Nine months ended September 30, 2018 Compared to Nine Months Ended September 30, 2017.

 

Frontier Diversified Fund

 

2018

 

The Frontier Diversified Fund— Class 1 NAV lost 10.27% and lost 5.44%, respectively, for the nine months ended September 30, 2018 and 2017, net of fees and expenses; the Frontier Diversified Fund—Class 2 NAV lost 9.08% and lost 4.24%, respectively for the nine months ended September 30, 2018 and 2017, net of fees and expenses; the Frontier Diversified Fund—Class 3 NAV lost 8.92% and lost 4.06%, respectively for the nine months ended September 30, 2018 and 2017.

 

For the nine months ended September 30, 2018, the Frontier Diversified Fund recorded net loss on investments of $1,380,601 net investment loss of $523,024, and total expenses of $550,432 resulting in a net decrease in Owners’ capital from operations of $1,903,625. The NAV per Unit, Class 1, decreased from $116.41 at December 31, 2017 to $104.46 as of September 30, 2018. The NAV per Unit, Class 2, decreased from $135.19 at December 31, 2017 to $122.91 as of September 30, 2018. The NAV per Unit, Class 3 decreased from $125.68 at December 31, 2017 to $114.47 as of September 30, 2018. Total Class 1 subscriptions and redemptions for the period were $0 and $354,495, respectively. Total Class 2 subscriptions and redemptions for the period were $0 and $933,695, respectively. Total Class 3 subscriptions and redemptions for the period were $0 and $1,330,409, respectively. Ending capital at September 30, 2018 was $1,740,332 for Class 1, $7,861,937 for Class 2 and $7,342,192 for Class 3. Ending capital at December 31, 2017 was $2,332,222 for Class 1, $9,632,746 for Class 2 and $9,501,719 for Class 3.

 

The Frontier Diversified Fund may have both long and short exposure to the Interest Rates, Currencies, Stock Indices, Energies, Metals and Commodities sectors.

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Two sectors traded in the Frontier Diversified Fund were profitable in Q3 2018 and two were profitable YTD. Metals and Currencies were profitable for Q3 2018 while Energies, Interest Rates, Agriculturals and Stock Indices finished negative for the quarter. Currencies and Energies were profitable for YTD while Interest Rates, Metals, Agriculturals and Stock Indices finished negative YTD.

 

In terms of major CTA performance Fort, Welton and Winton finished positive for the quarter. Aspect, Crabel, Emil Van Essen, H20, Quantitative Investment Management, Quantmetrics and Quest Partners were negative for the quarter.

 

Crabel and Emil Van Essen were positive YTD while Aspect, Fort, H2O, Quantitative Investment Management, Quantmetrics, Welton and Winton were negative YTD.

107

 

2017

 

The Frontier Diversified Fund— Class 1 NAV lost 5.44% and gained 0.23%, respectively, for the nine months ended September 30, 2017 and 2016, net of fees and expenses; the Frontier Diversified Fund—Class 2 NAV lost 4.24% and gained 1.57%, respectively for the nine months ended September 30, 2017 and 2016, net of fees and expenses; the Frontier Diversified Fund—Class 3 NAV lost 4.06% and gained 1.76%, respectively for the nine months ended September 30, 2017 and 2016.

 

For the nine months ended September 30, 2017, the Frontier Diversified Fund recorded net gain on investments of $1,411,439 net investment loss of $1,173,289, and total expenses of $1,272,511 resulting in a net increase in Owners’ capital from operations of $238,150. The NAV per Unit, Class 1, decreased from $116.43 at December 31, 2016 to $110.10 as of September 30, 2017. The NAV per Unit, Class 2, decreased from $132.94 at December 31, 2016 to $127.30 as of September 30, 2017. The NAV per Unit, Class 3 decreased from $123.27 at December 31, 2016 to $118.27 as of September 30, 2017. Total Class 1 subscriptions and redemptions for the period were $3,063 and $1,652,836 respectively. Total Class 2 subscriptions and redemptions for the period were $599,571 and $30,047,952, respectively. Total Class 3 subscriptions and redemptions for the period were $1,357,356 and $4,472,986, respectively. Ending capital at September 30, 2017 was $3,352,300 for Class 1, $9,547,801 for Class 2 and $9,595,656 for Class 3. Ending capital at December 31, 2016 was $5,189,420 for Class 1, $38,231,581 for Class 2 and $13,050,390 for Class 3.

 

The Frontier Diversified Fund may have both long and short exposure to the Interest Rates, Currencies, Stock Indices, Energies, Metals and Commodities sectors.

 

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Two of the six sectors traded in the Frontier Diversified Fund were profitable in Q3 2017 and two of the six were profitable YTD. Energies and Stock Indices were profitable for Q3 2017 while Metals, Currencies, Agriculturals and Interest Rates finished negative for the quarter. Energies and Stock Indices were profitable for YTD while Metals, Currencies, Agriculturals and Interest Rates finished negative YTD

 

In terms of major CTA performance Emil Van Essen, Fort, H20 and QIM finished positive for the quarter. Aspect, Chesapeake, Crabel, Quantmetrics, Quest, Welton and Winton were negative for the quarter

 

Emil Van Essen, Fort, H20 and QIM was positive YTD while Aspect, Chesapeake, Crabel, Quantmetrics, Quest, Welton and Winton were negative YTD.

109

 

Frontier Masters Fund

 

2018

 

The Frontier Masters Fund—Class 1 NAV lost 15.29% and lost 9.23%, respectively, for the nine months ended September 30, 2018 and 2017 net of fees and expenses; the Frontier Masters Fund —Class 2 NAV lost 14.17%, and lost 8.45%, respectively for the nine months ended September 30, 2018 and 2017, net of fees and expenses; the Frontier Masters Fund—Class 3 NAV lost 14.00% and lost 8.33%, respectively, for the nine months ended September 30, 2018 and 2017, net of fees and expenses.

 

For the nine months ended September 30, 2018, the Frontier Masters Fund recorded net loss on investments of $1,270,952, net investment loss of $437,149, and total expenses of $458,590, resulting in a net decrease in Owners’ capital from operations of $1,708,101. The NAV per Unit, Class 1, decreased from $114.74 at December 31, 2017 to $97.20 as of September 30, 2018. The NAV per Unit, Class 2, decreased from $133.27 at December 31, 2017 to $114.39 as of September 30, 2018. The NAV per Unit, Class 3, decreased from $124.40 at December 31, 2017 to $106.99 as of September 30, 2018. Total Class 1 subscriptions and redemptions for the period were $0 and $299,860, respectively. Total Class 2 subscriptions and redemptions for the period were $0 and $1,477,167, respectively. Total Class 3 subscriptions and redemptions for the period were $0 and $1,679,341, respectively. Ending capital at September 30, 2018 was $2,102,479 for Class 1, $1,532,527 for Class 2 and $3,157,665 for Class 3. Ending capital at December 31, 2017 was $2,913,542 for Class 1, $3,538,600 for Class 2 and $5,504,998 for Class 3.

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The Frontier Masters Fund may have both long and short exposure to the Interest Rates, Currencies, Stock Indices, Energies, Metals and Commodities sectors.

 

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Four of the six sectors traded in the Frontier Masters Fund were profitable in Q3 2018 and one of the six was profitable YTD. Agriculturals, Metals, Currencies and Stock Indices were profitable for Q3 2018 while Energies and Interest Rates finished negative for the quarter. Energies were profitable YTD while Metals, Currencies, Agriculturals, Interest Rates and Stock Indices finished negative YTD.

 

In terms of major CTA performance Emil Van Essen finished positive for the quarter. Welton, Transtrend and Winton were negative for the quarter. Emil Van Essen, Transtrend, Welton and Winton were negative YTD.

116

 

2017

 

The Frontier Masters Fund—Class 1 NAV lost 11.87% and gained 5.47%, respectively, for the nine months ended September 30, 2017 and 2016 net of fees and expenses; the Frontier Masters Fund —Class 2 NAV lost 10.74%, and gained 6.87% respectively, for the nine months ended September 30, 2017 and 2016, net of fees and expenses; the Frontier Masters Fund—Class 3 NAV lost 10.56% and gained 7.08%, respectively, for the nine months ended September 30, 2017 and 2016, net of fees and expenses.

 

For the nine months ended September 30, 2017, the Frontier Masters Fund recorded net loss on investments of $871,687 net investment loss of $680,300, and total expenses of $752,891, resulting in a net decrease in Owners’ capital from operations of $1,551,987. The NAV per Unit, Class 1, decreased from $112.80 at December 31, 2016 to $99.41 as of September 30, 2017. The NAV per Unit, Class 2, decreased from $128.78 at December 31, 2016 to $114.95 as of September 30, 2017. The NAV per Unit, Class 3, decreased from $119.89 at December 31, 2016 to $107.23 as of September 30, 2017. Total Class 1 subscriptions and redemptions for the period were $2,610 and $1,976,359, respectively. Total Class 2 subscriptions and redemptions for the period were $65,000 and $2,102,200, respectively. Total Class 3 subscriptions and redemptions for the period were $1,571,804 and $1,272,628, respectively. Ending capital at September 30, 2017 was $2,949,731 for Class 1, $3,194,222 for Class 2 and $5,761,594 for Class 3. Ending capital at December 31, 2016 was $5,361,626 for Class 1, $5,657,562 for Class 2 and $6,150,119 for Class 3.

117

 

The Frontier Masters Fund may have both long and short exposure to the Interest Rates, Currencies, Stock Indices, Energies, Metals and Commodities sectors.

 

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Three of the six sectors traded in the Frontier Masters Fund were profitable in Q3 2017 and two of the six were profitable YTD. Metals, Energies and Stock Indices were profitable for Q3 2017 while Currencies, Agriculturals and Interest Rates finished negative for the quarter. Energies and Stock Indices were profitable for YTD while Metals, Currencies, Agriculturals and Interest Rates finished negative YTD

 

In terms of major CTA performance Emil Van Essen and Winton finished positive for the quarter. Chesapeake, Transtrend and Welton were negative for the quarter

 

Emil Van Essen was positive YTD while Chesapeake, Transtrend, Welton and Winton were negative YTD.

118

 

Frontier Long/Short Commodity Fund

 

2018

 

The Frontier Long/Short Commodity Fund—Class 2 NAV lost 10.59% and lost 10.20%, respectively, for the nine months ended September 30, 2018 and 2017, net of fees and expenses; the Frontier Long/Short Commodity Fund —Class 3 NAV lost 10.60% and lost 6.70% respectively for the nine months ended September 30, 2018 and 2017, net of fees and expenses; the Frontier Long/Short Commodity Fund —Class 1a NAV lost 18.64% and lost 10.26% respectively, for the nine months ended September 30, 2018 and 2017, net of fees and expenses; the Frontier Long/Short Commodity Fund —Class 2a NAV lost 17.57% and lost 9.76% respectively, for the nine months ended September 30, 2018 and 2017, net of fees and expenses; the Frontier Long/Short Commodity Fund Class 3a NAV lost 17.40% and lost 7.17%, respectively, for the nine months ended September 30, 2018 and 2017, net of fees and expenses.

 

For the nine months ended September 30, 2018, the Frontier Long/Short Commodity Fund recorded net loss on investments of $419,317, net investment loss of $56,293, and total expenses of $66,928, resulting in a net decrease in Owners’ capital from operations of $475,610. The NAV per Unit, Class 2, decreased from $115.81 at December 31, 2017 to $103.54 as of September 30, 2018. The NAV per Unit, Class 3, decreased from $115.81 at December 31, 2017 to $108.62 as of September 30, 2018. The NAV per Unit, Class 1a, decreased from $81.35 at December 31, 2017 to $66.19 as of September 30, 2018. The NAV per Unit, Class 2a, decreased from $93.59 at December 31, 2017 to $77.15 as of September 30, 2018. The NAV per Unit, Class 3a, decreased from $97.99 at December 31, 2017 to $80.94 as of September 30, 2018. Total Class 2 redemptions for the period were $114,112. Total Class 3 redemptions for the period were $215,389. Total Class 1a redemptions were $79,178. Class 2a redemptions for the period were $96,591. Class 3a subscriptions and redemptions for the period were $0 and $263,745 respectively. Ending capital at September 30, 2018 was $127,697 for Class 2, $2,010,934 for Class 3, $23,320 for Class 1a, $282,810 for Class 2a and $564,666 for Class 3a. Ending capital at December 31, 2017 was $258,900 for Class 2, $2,472,994 for Class 3, $107,619 for Class 1a, $442,644 for Class 2a and $971,895 for Class 3a.

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The Frontier Long/Short Commodity Fund may have both long and short exposure to the Base Metals, Energies, Grains, Meats, Precious Metals, Financials and Softs sectors, although the majority of the exposure will typically be in the Energies, Metals and Softs sectors.

 

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None of the seven sectors traded in the Frontier Long/Short Commodity Fund were profitable in Q3 2018 and None of the seven were profitable YTD. Energies, Base Metals, Grains, Meats, Precious Metals, Softs and Financials finished negative for the quarter. Energies, Base Metals, Grains, Meats, Precious Metals Softs and Financials finished negative YTD.

 

In terms of major CTA performance JE Moody finished positive for the quarter. Emil Van Essen, Red Oak, Rosetta and Welton were negative for the quarter

 

JE Moody and Rosetta were positive YTD while, Emil Van Essen, Red Oak and Welton were negative YTD.

129

 

2017

 

The Frontier Long/Short Commodity Fund—Class 2 NAV lost 10.22% and lost 4.95%, respectively, for the nine months ended September 30, 2017 and 2016, net of fees and expenses; the Frontier Long/Short Commodity Fund —Class 3 NAV lost 6.70% and lost 4.06% respectively for the nine months ended September 30, 2017 and 2016, net of fees and expenses; the Frontier Long/Short Commodity Fund —Class 1a NAV lost 10.26% and lost 5.30% respectively, for the nine months ended September 30, 2017 and 2016, net of fees and expenses; the Frontier Long/Short Commodity Fund —Class 2a NAV lost 9.76% and lost 4.16% respectively, for the nine months ended September 30, 2017 and 2016, net of fees and expenses; the Frontier Long/Short Commodity Fund Class 3a NAV lost 7.17% and lost 3.17%, respectively, for the nine months ended September 30, 2017 and 2016, net of fees and expenses.

 

For the nine months ended September 30, 2017, the Frontier Long/Short Commodity Fund recorded net loss on investments of $231,314, net investment loss of $131,706, and total expenses of $131,706, resulting in a net decrease in Owners’ capital from operations of $363,020. The NAV per Unit, Class 2, decreased from $129.56 at December 31, 2016 to $116.32 as of September 30, 2017. The NAV per Unit, Class 3, decreased from $130.80 at December 31, 2016 to $122.04 as of September 30, 2017. The NAV per Unit, Class 1a, decreased from $92.78 at December 31, 2016 to $83.26 as of September 30, 2017. The NAV per Unit, Class 2a, decreased from $105.67 at December 31, 2016 to $95.36 as of September 30, 2017. The NAV per Unit, Class 3a, decreased from $107.50 at December 31, 2016 to $99.79 as of September 30, 2017. Total Class 2 redemptions for the period were $460,379. Total Class 3 redemptions for the period were $1,665,875. Total Class 1a redemptions were $1,783,854. Class 2a redemptions for the period were $450,732. Class 3a subscriptions and redemptions for the period were $1,051,248 and $847,983 respectively. Ending capital at September 30, 2017 was $323,267 for Class 2, $2,558,912 for Class 3, $130,409 for Class 1a, $467,824 for Class 2a and $1,264,520 for Class 3a. Ending capital at December 31, 2016 was $808,363 for Class 2, $4,405,863 for Class 3, $1,913,595 for Class 1a, $963,195 for Class 2a and $1,174,511 for Class 3a.

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The Frontier Long/Short Commodity Fund may have both long and short exposure to the Base Metals, Energies, Grains, Meats, Precious Metals, Financials and Softs sectors, although the majority of the exposure will typically be in the Energies, Metals and Softs sectors.

 

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Four of the seven sectors traded in the Frontier Long/Short Commodity Fund was profitable in Q3 2017 and three of the seven were profitable YTD. Base Metal, Energies and Precious Metals were profitable for Q3 2017 while Grains, Softs and Financials finished negative for the quarter. Energies, Meats and Precious Metals was profitable for YTD while Base Metals, Grains, Softs and Financials finished negative YTD

 

In terms of major CTA performance Emil Van Essen, JE Moody and Red Oak finished positive for the quarter. Chesapeake, Rosetta and Welton were negative for the quarter.

 

Emil Van Essen and Red Oak were positive YTD while Chesapeake, JE Moody, Rosetta and Welton were negative YTD.

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Frontier Balanced Fund

 

2018

 

The Frontier Balanced Fund—Class 1 NAV lost 11.88% and lost 4.90%, respectively, for the nine months ended September 30, 2018 and 2017, net of fees and expenses; the Frontier Balanced Fund —Class 2 NAV lost 9.86% and lost 2.74%, respectively, for the nine months ended September 30, 2018 and 2017, net of fees and expenses; the Frontier Balanced Fund —Class 2a NAV lost 9.84% and lost 2.14%, respectively, for the nine months ended September 30, 2018 and 2017, net of fees and expenses; the Frontier Balanced Fund —Class 3a NAV lost 9.84% and 2.41%, respectively, for the nine months ended September 30, 2018 and 2017, net of fees and expenses; the Frontier Balanced Fund —Class 1AP NAV lost 9.92% and lost 2.25% for the nine months ended September 30, 2018 and 2017, net of fees and expenses. 

 

For the nine months ended September 30, 2018, the Frontier Balanced Fund recorded net loss on investments of $3,185,079 net investment loss of $1,975,859, and total expenses of $2,011,395, resulting in a net decrease in Owners’ capital from operations of $5,160,938. The NAV per Unit, Class 1, decreased from $135.96 at December 31, 2017 to $119.81 as of September 30, 2018. The NAV per Unit, Class 1AP, decreased from $150.56 at December 31, 2017 to $135.63 as of September 30, 2018. The NAV per Unit, Class 2, decreased from $202.90 at December 31, 2017 to $182.90 as of September 30, 2018. The NAV per Unit, Class 2a, decreased from $175.77 at December 31, 2017 to $158.48 as of September 30, 2018. The NAV per Unit, Class 3a, decreased from $175.18 at December 31, 2017 to $157.94 as of September 30, 2018. Total Class 1 subscriptions and redemptions for the period were $0 and $6,038,368 respectively. Total Class 1AP redemptions for the period were $111,300. Total Class 2 subscriptions and redemptions for the period were $0 and $1,514,640, respectively. Total Class 2a subscriptions and redemptions for the period were $0 and $75,968, respectively. Total Class 3a redemptions for the period were $348,080. Ending capital at September 30, 2018 was $28,460,992 for Class 1, $431,663 for Class 1AP, $4,815,402 for Class 2, $368,147 for Class 2a, and $906,681 for Class 3a. Ending capital at December 31, 2017 was $38,744,003 for Class 1, $601,247 for Class 1AP, $6,977,027 for Class 2, $529,931 for Class 2a and $1,379,971 for Class 3a.

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The Frontier Balanced Fund may have both long and short exposure to the Interest Rates, Currencies, Stock Indices, Energies, Metals and Commodities sectors.

 

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Two of the six sectors traded in the Frontier Balanced Fund were profitable in Q3 2018 and two of the six were profitable YTD. Metals and Agriculturals were profitable for Q3 2018 while Currencies and Energies were profitable YTD. Energies, Interest Rates, Currencies and Stock Indices were negative for the quarter, while Agriculturals, Interest Rates, Metals and Stock Indices finished negative YTD.

 

In terms of major CTA performance Fort, Welton and Winton finished positive for the quarter. Aspect, Beach Horizon, Crabel, Emil Van Essen, H20, Quantmetrics and Quantitative Investment Management were negative for the quarter.

 

Crabel and Winton were positive YTD while Aspect, Beach Horizon, Emil Van Essen, Fort, H20, Quantitative Investment Management, Quantmetrics and Welton were negative YTD.

143

 

2017

 

The Frontier Balanced Fund—Class 1 NAV lost 4.90% and gained 1.94%, respectively, for the nine months ended September 30, 2017 and 2016, net of fees and expenses; the Frontier Balanced Fund —Class 2 NAV lost 2.74% and gained 4.28%, respectively, for the nine months ended September 30, 2017 and 2016, net of fees and expenses; the Frontier Balanced Fund —Class 2a NAV lost 2.41% and gained 4.82%, respectively, for the nine months ended September 30, 2017 and 2016, net of fees and expenses; the Frontier Balanced Fund —Class 3a NAV lost 2.41% and gained 4.82%, respectively, for the nine months ended September 30, 2017 and 2016, net of fees and expenses; the Frontier Balanced Fund —Class 1AP NAV lost 2.75% and gained 4.28% for the nine months ended September 30, 2017 and 2016, net of fees and expenses.

 

 For the nine months ended September 30, 2017, the Frontier Balanced Fund recorded net gain on investments of $1,312,398 net investment loss of $3,028,545, and total expenses of $3,037,960, resulting in a net decrease in Owners’ capital from operations of $1,716,147. The NAV per Unit, Class 1, decreased from $134.80 at December 31, 2016 to $128.20 as of September 30, 2017. The NAV per Unit, Class 1AP, decreased from $144.97 at December 31, 2016 to $140.98 as of September 30, 2017. The NAV per Unit, Class 2, decreased from $194.99 at December 31, 2016 to $189.64 as of September 30, 2017. The NAV per Unit, Class 2a, decreased from $169.05 at December 31, 2016 to $164.98 as of September 30, 2017. The NAV per Unit, Class 3a, decreased from $168.49 at December 31, 2016 to $164.42 as of September 30, 2017. Total Class 1 subscriptions and redemptions for the period were $34,027 and $15,765,084 respectively. Total Class 1AP redemptions for the period were $92,739. Total Class 2 subscriptions and redemptions for the period were $4,937 and $15,256,156, respectively. Total Class 2a subscriptions and redemptions for the period were $123,835 and $122,954, respectively. Total Class 3a redemptions for the period were $323,956. Ending capital at September 30, 2017 was $39,265,876 for Class 1, $570,654 for Class 1AP, $7,448,454 for Class 2, $501,231 for Class 2a, and $1,398,919 for Class 3a. Ending capital at December 31, 2016 was $56,955,371 for Class 1, $677,181 for Class 1AP, $22,401,557 for Class 2, $516,256 for Class 2a and $1,749,006 for Class 3a.

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The Frontier Balanced Fund may have both long and short exposure to the Interest Rates, Currencies, Stock Indices, Energies, Metals and Commodities sectors. 

 

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Two of the six sectors traded in the Frontier Balanced Fund were profitable in Q3 2017 and one of the six was profitable YTD. Energies and Stock Indices were profitable for Q3 2016 while Metals, Currencies, Agriculturals and Interest Rates finished negative for the quarter. Stock Indices were profitable YTD while Currencies, Energies, Agriculturals and Interest Rates finished negative YTD.

 

In terms of major CTA performance Emil Van Essen, Fort and H20 finished positive for the quarter. Aspect, Beach Horizon, Crabel, QIM, Quantmetrics, Welton and Winton were negative for the quarter.

 

Emil Van Essen, Fort, H20 and QIM were positive YTD while Aspect, Beach Horizon, Crabel, Quantmetrics, Welton and Winton were negative YTD.

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Frontier Select Fund

 

2018

 

The Frontier Select Fund—Class 1 NAV lost 16.46% and lost 20.84%, respectively, for the nine months ended September 30, 2018 and 2017, net of fees and expenses; the Frontier Select Fund —Class 2 NAV lost 14.56% and lost 19.06% respectively for the nine months ended September 30, 2018 and 2017, net of fees and expenses; the Frontier Select Fund —Class 1AP NAV lost 14.57% and 19.06%, respectively, for the nine months ended September 30, 2018 and 2017. 

 

For the nine months ended September 30, 2018, the Frontier Select Fund recorded net loss on investments of $865,762, net investment loss of $197,890, and total expenses of $197,890, resulting in a net decrease in Owners’ capital from operations of $1,063,652. The NAV per Unit, Class 1, decreased from $90.27 at December 31, 2017 to $75.41 as of September 30, 2018. The NAV per Unit, Class 1AP, decreased from $100.02 at December 31, 2017 to $85.45 as of September 30, 2018. The NAV per Unit, Class 2, decreased from $132.73 at December 31, 2017 to $113.40 as of September 30, 2018. Total Class 1 subscriptions and redemptions for the period were $0 and $813,081 respectively. Total Class 1AP redemptions for the period were $3,144. Total Class 2 subscriptions and redemptions for the period were $0 and $525,844, respectively. Ending capital at September 30, 2018 was $4,179,762 for Class 1, $17,905 for Class 1AP and $198,540 for Class 2. Ending capital at December 31, 2017 was $5,912,980 for Class 1, $23,354 for Class 1AP and $865,594 for Class 2.

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The Frontier Select Fund may have both long and short exposure to the Interest Rates, Currencies, Stock Indices, Energies, Metals, Hybrids and Commodities sectors.

 

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Four of the six sectors traded in the Frontier Select Fund were profitable in Q3 2018 and two of the six were profitable YTD. Metals, Currencies, Agriculturals and Stock Indices were positive while Energies and Interest Rates were negative for the quarter. Energies and Interest Rates were profitable YTD while Metals, Currencies Agriculturals and Stock Indices finished negative YTD.

 

In terms of major CTA performance, Transtrend finished positive for the quarter and Brevan Howard and Welton finished negative. There was no positive CTA performance in the Frontier Select Fund YTD.

153

 

2017

 

The Frontier Select Fund—Class 1 NAV lost 20.84% and gained 6.54%, respectively, for the nine months ended September 30, 2017 and 2016, net of fees and expenses; the Frontier Select Fund —Class 2 NAV lost 19.06% and gained 8.98% respectively for the nine months ended September 30, 2017 and 2016, net of fees and expenses; the Frontier Select Fund —Class 1AP NAV lost 19.06% and gained 8.98%, respectively, for the nine months ended September 30, 2017 and 2016.

 

For the nine months ended September 30, 2017, the Frontier Select Fund recorded net loss on investments of $2,000,503, net investment loss of $417,969, and total expenses of $417,969, resulting in a net decrease in Owners’ capital from operations of $1,985,844, after non-controlling interests of $432,628. The NAV per Unit, Class 1, decreased from $94.06 at December 31, 2016 to $74.46 as of September 30, 2017. The NAV per Unit, Class 1AP, decreased from $101.16 at December 31, 2016 to $81.88 as of September 30, 2017. The NAV per Unit, Class 2, decreased from $134.25 at December 31, 2016 to $108.66 as of September, 2017. Total Class 1 subscriptions and redemptions for the period were $1,467 and $3,380,914 respectively. Total Class 1AP redemptions for the period were $6,074. Total Class 2 subscriptions and redemptions for the period were $98,345 and $527,352, respectively. Ending capital at September 30, 2017 was $5,422,744 for Class 1, $19,118 for Class 1AP and $739,805 for Class 2. Ending capital at December 31, 2016 was $10,540,702 for Class 1, $29,897 for Class 1AP and $1,411,440 for Class 2.

154

 

The Frontier Select Fund may have both long and short exposure to the Interest Rates, Currencies, Stock Indices, Energies, Metals, Hybrids and Commodities sectors.

 

(BAR CHART)

155

 

(BAR CHART)

 

Three of the six sectors traded in the Frontier Select Fund were profitable in Q3 2017 and one of the six were profitable YTD. Metals, Energies and Stock Indices were positive while Currencies, Agriculturals and Interest Rates were negative for the quarter. Stock Indices were profitable YTD while Metals, Currencies, Energies, Agriculturals and Interest Rates finished negative YTD.

 

In terms of major CTA performance, Brevan Howard finished positive for the quarter and negative YTD. Transtrend and Welton finished negative for both the quarter and YTD.

156

 

Frontier Winton Fund

 

2018

 

The Frontier Winton Fund—Class 1 NAV lost 8.21% and lost 7.90%, respectively, for the nine months ended September 30, 2018 and 2017, net of fees and expenses; the Frontier Winton Fund —Class 2 NAV lost 4.76% and lost 5.82%, respectively, for the nine months ended September 30, 2018 and 2017, net of fees and expenses; the Frontier Winton Fund —Class 1AP NAV lost 6.19% and lost 5.82%, respectively, for the nine months ended September 30, 2018 and 2017.

 

For the nine months ended September 30, 2018, the Frontier Winton Fund recorded net loss on investments of $338,678, net investment loss of $855,067, and total expenses of $855,067, resulting in a net decrease in Owners’ capital from operations of $1,193,745. The NAV per Unit, Class 1, decreased from $159.08 at December 31, 2017 to $146.02 as of September 30, 2018. The NAV per Unit, Class 1AP, decreased from $176.44 at December 31, 2017 to $165.51 as of September 30, 2018. The NAV per Unit, Class 2, decreased from $216.50 at December 31, 2017 to $206.20 as of September 30, 2018. Total Class 1 subscriptions and redemptions for the period were $0 and $2,251,329, respectively. There were no subscriptions or redemptions for Class 1AP. Total Class 2 subscriptions and redemptions for the period were $0 and $1,129,083, respectively. Ending capital at September 30, 2018 was $9,745,132 for Class 1, $35,337 for Class 1AP, and $495,023 for Class 2. Ending capital at December 31, 2017 was $13,102,614 for Class 1, $37,761 for Class 1AP and $1,709,275 for Class 2.

157

 

The Frontier Winton Fund may have both long and short exposure to the Interest Rates, Currencies, Stock Indices, Energies, Metals and Commodities sectors.

 

(BAR CHART)

158

 

(BAR CHART)

159

 

(BAR CHART)

 

One of the six sectors traded in the Frontier Winton Fund was profitable in Q3 2018 and two of the six were profitable YTD. Agriculturals were positive while Currencies, Metals, Energies, Interest Rates and Stock Indices were negative for the quarter. Energies and Agriculturals are positive YTD while Metals, Currencies, Interest Rates and Stock Indices were negative YTD.

160

 

2017

 

The Frontier Winton Fund—Class 1 NAV lost 7.90% and lost 0.58%, respectively, for the nine months ended September 30, 2017 and 2016, net of fees and expenses; the Frontier Winton Fund —Class 2 NAV lost 5.82% and gained 1.70%, respectively, for the nine months ended September 30, 2017 and 2016, net of fees and expenses; the Frontier Winton Fund —Class 1AP NAV lost 5.82% and gained 1.70%, respectively, for the nine months ended September 30, 2017 and 2016.

 

For the nine months ended September 30, 2017, the Frontier Winton Fund recorded net loss on investments of $865,453, net investment loss of $1,512,144, and total expenses of $1,531,876, resulting in a net decrease in Owners’ capital from operations of $2,025,481, after non-controlling interests of $352,116. The NAV per Unit, Class 1, decreased from $154.51 at December 31, 2016 to $142.30 as of September 30, 2017. The NAV per Unit, Class 1AP decreased from $166.17 at December 31, 2016 to $156.50 as of September 30, 2017. Class 2, decreased from $210.98 at December 31, 2016 to $198.70 as of September 30, 2017. Total Class 1 subscriptions and redemptions for the period were $16,141 and $6,612,116 respectively. There were no subscriptions or redemptions for Class 1AP. Total Class 2 subscriptions and redemptions for the period were $267,829 and $631,501, respectively. Ending capital at September 30, 2017 was $12,330,314 for Class 1, $33,413 for Class 1AP, and $10,417,671 for Class 2. Ending capital at December 31, 2016 was $20,248,935 for Class 1, $35,478 for Class 1AP and $11,446,113 for Class 2.

161

 

The Frontier Winton Fund may have both long and short exposure to the Interest Rates, Currencies, Stock Indices, Energies, Metals and Commodities sectors.

 

(BAR CHART)

 

One of the six sectors traded in the Frontier Winton Fund was profitable in Q3 2017 and one was positive YTD.. Stock Indices were positive while Metals, Currencies, Energies, Agriculturals and Interest Rates were negative for the quarter. Stock Indices are positive YTD while Metals, Currencies, Energies, Agriculturals and Interest Rates are negative YTD.

162

 

Frontier Heritage Fund

 

2018

 

The Frontier Heritage Fund—Class 1 NAV lost 16.59% and lost 11.36%, respectively, for the nine months ended September 30, 2018 and 2017 net of fees and expenses; the Frontier Heritage Fund —Class 2 NAV lost 14.69% and lost 9.37%, respectively for the nine months ended September 30, 2018 and 2017, net of fees and expenses; the Frontier Heritage Fund —Class 1AP NAV lost 14.67% and lost 9.37%, respectively, for the nine months ended September 30, 2018 and 2017. 

 

For the nine months ended September 30, 2018, the Frontier Heritage Fund recorded net loss on investments of $695,930, net investment loss of $304,427, and total expenses of $304,427, resulting in a net decrease in Owners’ capital from operations of $959,592, after non-controlling interests of $40,765. The NAV per Unit, Class 1, decreased from $121.19 at December 31, 2017 to $101.10 as of September 30, 2018. The NAV per Unit, Class 1AP, decreased from $134.28 at December 31, 2017 to $114.58 as of September 30, 2018. The NAV per Unit, Class 2, decreased from $179.70 at December 31, 2017 to $153.31 as of September 30, 2018. Total Class 1 subscriptions and redemptions for the period were $0 and $783,919, respectively. Total Class 1AP redemptions were 4,081. Total Class 2 subscriptions and redemptions for the period were $0 and $7,000, respectively. Ending capital at September 30, 2018 was $3,805,123 for Class 1, $1,011 for Class 1AP and $641,900 for Class 2. Ending capital at December 31, 2017 was $5,435,871 for Class 1, $6,083 for Class 1AP and $760,672 for Class 2.

163

 

The Frontier Heritage Fund may have both long and short exposure to the Interest Rates, Currencies, Stock Indices, Energies, Metals and Commodities sectors.

 

(BAR CHART)

164

 

(BAR CHART)

165

 

(BAR CHART)

166

 

(BAR CHART)

167

 

(BAR CHART)

168

 

(BAR CHART)

 

Three of the six sectors traded in the Frontier Heritage Fund were profitable in Q3 2018 and one of the six was profitable YTD. Currencies, Agriculturals and Interest Rates were positive while Energies, Metals and Stock Indices were negative for the quarter. Currencies were profitable YTD while Metals, Agriculturals, Energies and Interest Rates finished negative YTD.

 

In terms of major CTA performance, Winton was positive for Q3 while Welton and Brevan Howard were both negative for the quarter and Welton, Brevan Howard and Winton were negative YTD.

169

 

2017

 

The Frontier Heritage Fund—Class 1 NAV lost 11.36% and gained 0.30%, respectively, for the nine months ended September 30, 2017 and 2016 net of fees and expenses; the Frontier Heritage Fund —Class 2 NAV lost 9.37% and gained 2.60%, respectively for the nine months ended September 2017 and 2016, net of fees and expenses; the Frontier Heritage Fund —Class 1AP NAV lost 9.37% and gained 2.60%, respectively, for the nine months ended September 30, 2017 and 2016.

 

For the nine months ended September 30, 2017, the Frontier Heritage Fund recorded net loss on investments of $725,978, net investment loss $445,913, and total expenses of $445,913, resulting in a net decrease in Owners’ capital from operations of $922,727, after non-controlling interests of $249,164. The NAV per Unit, Class 1, decreased from $119.58 at December 31, 2016 to $105.99 as of September 30, 2017. The NAV per Unit, Class 1AP, decreased from $128.60 at December 31, 2016 to $116.55 as of September 30, 2017. The NAV per Unit, Class 2, decreased from $172.10 at December 31, 2016 to $155.97 as of September 30, 2017. Total Class 1 subscriptions and redemptions for the period were $9,861 and $1,808,099, respectively. There were no subscriptions or redemptions for Class 1AP. Total Class 2 subscriptions and redemptions for the period were $24,575 and $1,856,707, respectively. Ending capital at September 30, 2017 was $4,964,672 for Class 1, $5,280 for Class 1AP and $734,224 for Class 2. Ending capital at December 31, 2016 was $7,507,072 for Class 1, $5,826 for Class 1AP and $2,744,375 for Class 2.

 

The Frontier Heritage Fund may have both long and short exposure to the Interest Rates, Currencies, Stock Indices, Energies, Metals, and Commodities sectors.

 

(BAR CHART)

170

 

(BAR CHART)

 

Two of the six sectors traded in the Frontier Heritage Fund were profitable in Q3 2017 and one of the six was profitable YTD. Energies and Stock Indices were positive while Metals, Currencies, Agriculturals and Interest Rates were negative for the quarter. Stock Indices were profitable YTD while Metals, Currencies, Energies, Agriculturals and Interest Rates finished negative YTD.

 

In terms of major CTA performance, Brevan Howard finished positive for the quarter and negative YTD. Welton and Winton finished negative for both the quarter and YTD.

171

 

ITEM  3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

The Trust is a speculative commodity pool. The market sensitive instruments which are held by the Trading Companies or Galaxy Plus entities in which the Series are invested are acquired for speculative trading purposes and all or a substantial amount of the Series’ 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 Series’ main line of business.

 

Market movements result in frequent changes in the fair market value of each Trading Company’s open positions and, consequently, in each Series of the Trust’s earnings and cash flow. The Trading Companies’ and Galaxy Plus entities’ and consequently the Series’ 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 open positions and the liquidity of the markets in which trades are made.

 

Each Trading Company and Galaxy Plus entity 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 past performance for any Series is not necessarily indicative of the future results of such Series.

 

Additional risk of trading loss from investment in an unaffiliated Trading Company may result from the Managing Owner’s inability to directly control or stop trading in the event of exercise of certain withdrawal provisions in the investment agreement.

 

The Trading Companies’ and Galaxy Plus entities’ and consequently the Series’ primary market risk exposures as well as the strategies used and to be used by the 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 Trust’s and the Managing Owner’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 Trading Companies and Galaxy Plus entities and consequently the Trust. There can be no assurance that the Trading Companies’ and Galaxy Plus entities’ 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 a Series.

 

Quantitative Market Risk 

 

Trading Risk

 

The Series’ approximate risk exposure in the various market sectors traded by its trading advisors is quantified below in terms of value at risk. Due to the Series’ mark-to-market accounting, any loss in the fair value of the Series’ (through the Trading Companies and Galaxy Plus entities) open positions is directly reflected in the Series’ earnings, realized or unrealized gain/loss.

 

Exchange maintenance margin requirements have been used by the Trust as the measure of its value at risk. Maintenance 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% to 99% of any one-day interval. The maintenance margin levels are established by brokers, 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. Maintenance margin has been used rather than the more generally available initial margin, because initial margin includes a credit risk component that is not relevant to value at risk.

 

In the case of market sensitive instruments that are not exchange-traded, including Currencies and some energy products and Metals, the margin requirements for the equivalent futures positions have been used as value at risk. In those cases in which a futures-equivalent margin is not available, dealers’ margins have been used.

 

In the case of contracts denominated in foreign Currencies, the value at risk figures include foreign currency margin amounts converted into U.S. dollars with an incremental adjustment to reflect the exchange rate risk inherent to the Series, which is valued in U.S. dollars, in expressing value at risk in a functional currency other than U.S. dollars. In quantifying each Series’ 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 Series’ positions held through the Trading Companies and Galaxy Plus entities are rarely, if ever, 100% positively correlated have not been reflected.

172

 

Value at Risk by Market Sectors

 

The following tables present the trading value at risk associated with each Series’ exposure to open positions (as held by the Trading Companies) by market sector as of September 30, 2018 and December 31, 2017. All open position trading risk exposures of the Series have been included in calculating the figures set forth below.

 

DOMESTIC EXPOSURE            
Frontier Diversified Fund:            
                 
   September 30, 2018   December 31, 2017 
   VALUE   % OF TOTAL   VALUE   % OF TOTAL 
   AT RISK   CAPITALIZATION   AT RISK   CAPITALIZATION 
MARKET SECTOR                    
Interest Rates  $5,722,256    33.77%  $6,395,053    29.79%
Currencies   161,794    0.95%   63,093    0.29%
Stock Indices   174    0.00%   34,558    0.16%
Metals   52,302    0.31%   218,878    1.02%
Agriculturals/Softs   29,337    0.17%   14,196    0.07%
Energy   13,940    0.08%   66,604    0.31%
Total:  $5,979,803    35.29%  $6,792,381    31.64%
                     
Frontier Long/Short Commodity Fund:               
                     
   September 30, 2018   December 31, 2017 
   VALUE   % OF TOTAL   VALUE   % OF TOTAL 
   AT RISK   CAPITALIZATION   AT RISK   CAPITALIZATION 
MARKET SECTOR                    
Interest Rates  $402,975    13.39%  $397,039    9.33%
Currencies       0.00%       0.00%
Stock Indices       0.00%       0.00%
Metals       0.00%       0.00%
Agriculturals/Softs       0.00%       0.00%
Energy       0.00%       0.00%
Total:  $402,975    13.39%  $397,039    9.33%
                     
Frontier Masters Fund:                
                     
   September 30, 2018   December 31, 2017 
   VALUE   % OF TOTAL   VALUE   % OF TOTAL 
   AT RISK   CAPITALIZATION   AT RISK   CAPITALIZATION 
MARKET SECTOR                    
Interest Rates  $16,772    0.25%  $10,512    0.09%
Currencies   147,028    2.16%   35,692    0.30%
Stock Indices   158    0.00%   19,550    0.16%
Metals   47,528    0.70%   123,822    1.04%
Agriculturals/Softs   26,660    0.39%   8,031    0.07%
Energy   12,668    0.19%   37,679    0.32%
Total:  $250,814    3.69%  $235,286    3.38%
                     
Frontier Balanced Fund:                
                     
   September 30, 2018   December 31, 2017 
   VALUE   % OF TOTAL   VALUE   % OF TOTAL 
   AT RISK   CAPITALIZATION   AT RISK   CAPITALIZATION 
MARKET SECTOR                    
Interest Rates  $10,421,896    29.79%  $11,368,274    23.64%
Currencies   1,382,093    3.95%   167,215    0.35%
Stock Indices   20,350    0.06%   51,406    0.11%
Metals   112,015    0.32%   462,467    0.96%
Agriculturals/Softs   71,287    0.20%   70,758    0.15%
Energy   49,393    0.14%   222,766    0.46%
Total:  $12,057,034    34.47%  $12,342,887    25.67%
                     
Frontier Select Fund:                
                     
   September 30, 2018   December 31, 2017 
   VALUE   % OF TOTAL   VALUE   % OF TOTAL 
   AT RISK   CAPITALIZATION   AT RISK   CAPITALIZATION 
MARKET SECTOR                    
Interest Rates  $981,739    22.33%  $1,500,264    22.06%
Currencies       0.00%       0.00%
Stock Indices       0.00%       0.00%
Metals       0.00%       0.00%
Agriculturals/Softs       0.00%       0.00%
Energy       0.00%       0.00%
Total:  $981,739    22.33%  $1,500,264    22.06%
                     
Frontier Winton Fund:                
                     
   September 30, 2018   December 31, 2017 
   VALUE   % OF TOTAL   VALUE   % OF TOTAL 
   AT RISK   CAPITALIZATION   AT RISK   CAPITALIZATION 
MARKET SECTOR                    
Interest Rates  $77,151    0.75%  $61,564    0.41%
Currencies   676,328    6.58%   209,040    1.40%
Stock Indices   727    0.01%   114,498    0.77%
Metals   218,630    2.13%   725,189    4.85%
Agriculturals/Softs   122,636    1.19%   47,034    0.31%
Energy   58,273    0.57%   220,673    1.48%
Total:  $1,153,745    11.23%  $1,377,999    9.22%
                     
Frontier Heritage Fund:                
                     
   September 30, 2018   December 31, 2017 
   VALUE   % OF TOTAL   VALUE   % OF TOTAL 
   AT RISK   CAPITALIZATION   AT RISK   CAPITALIZATION 
MARKET SECTOR                    
Interest Rates  $1,057,366    21.21%  $1,606,116    23.68%
Currencies   124,664    2.50%   40,791    0.60%
Stock Indices   134    0.00%   22,343    0.33%
Metals   40,299    0.81%   141,511    2.09%
Agriculturals/Softs   22,605    0.45%   9,178    0.14%
Energy   10,741    0.22%   43,061    0.63%
Total:  $1,255,809    25.18%  $1,863,001    27.47%

173

 

FOREIGN EXPOSURE             
Frontier Diversified Fund             
                 
   September 30, 2018   December 31, 2017 
   VALUE   % OF TOTAL   VALUE   % OF TOTAL 
   AT RISK   CAPITALIZATION   AT RISK   CAPITALIZATION 
MARKET SECTOR                    
Interest Rates  $17,411    0.10%  $20,044    0.09%
Currencies   582    0.00%   29,397    0.14%
Stock Indices   6,362    0.04%   29,331    0.14%
Metals       0.00%       0.00%
Agriculturals/Softs   5,267    0.03%   3,343    0.02%
Total:  $30,111    0.18%  $83,811    0.39%
                     
Frontier Long/Short Commodity Fund                
                     
   September 30, 2018   December 31, 2017 
   VALUE   % OF TOTAL   VALUE   % OF TOTAL 
   AT RISK   CAPITALIZATION   AT RISK   CAPITALIZATION 
MARKET SECTOR                    
Interest Rates  $    0.00%  $    0.00%
Currencies       0.00%       0.00%
Stock Indices       0.00%       0.00%
Metals       0.00%       0.00%
Agriculturals/Softs       0.00%       0.00%
Total:  $    0.00%  $    0.00%
                     
Frontier Masters Fund                
                     
   September 30, 2018   December 31, 2017 
   VALUE   % OF TOTAL   VALUE   % OF TOTAL 
   AT RISK   CAPITALIZATION   AT RISK   CAPITALIZATION 
MARKET SECTOR                    
Interest Rates  $15,822    0.23%  $11,339    0.09%
Currencies   529    0.01%   16,630    0.14%
Stock Indices   5,782    0.09%   16,593    0.14%
Metals       0.00%       0.00%
Agriculturals/Softs   4,787    0.07%   1,891    0.02%
Energy   444    0.01%   960    0.01%
Total:  $27,363    0.40%  $47,413    0.40%
                     
Frontier Balanced Fund:                
                     
   September 30, 2018   December 31, 2017 
   VALUE   % OF TOTAL   VALUE   % OF TOTAL 
   AT RISK   CAPITALIZATION   AT RISK   CAPITALIZATION 
MARKET SECTOR                    
Interest Rates  $73,868    0.21%  $57,304    0.12%
Currencies   1,120    0.00%   43,214    0.09%
Stock Indices   37,881    0.11%   54,910    0.11%
Metals       0.00%       0.00%
Agriculturals/Softs   16,596    0.05%   17,823    0.04%
Energy   940    0.00%   2,495    0.01%
Total:  $130,405    0.37%  $175,746    0.37%
                     
Frontier Select Fund:                
                     
   September 30, 2018   December 31, 2017 
   VALUE   % OF TOTAL   VALUE   % OF TOTAL 
   AT RISK   CAPITALIZATION   AT RISK   CAPITALIZATION 
MARKET SECTOR                    
Interest Rates  $    0.00%  $    0.00%
Currencies       0.00%       0.00%
Stock Indices       0.00%       0.00%
Metals       0.00%       0.00%
Agriculturals/Softs       0.00%       0.00%
Energy       0.00%       0.00%
Total:  $    0.00%  $    0.00%
                     
Frontier Winton Fund:                
                     
   September 30, 2018   December 31, 2017 
   VALUE   % OF TOTAL   VALUE   % OF TOTAL 
   AT RISK   CAPITALIZATION   AT RISK   CAPITALIZATION 
MARKET SECTOR                    
Interest Rates  $72,781    0.71%  $66,410    0.44%
Currencies   2,432    0.02%   97,397    0.65%
Stock Indices   26,596    0.26%   97,179    0.65%
Metals       0.00%       0.00%
Agriculturals/Softs   22,018    0.21%   11,075    0.07%
Energy   2,043    0.02%   5,623    0.04%
Total:  $125,868    1.22%  $277,684    1.86%
                     
Frontier Heritage Fund:                
                     
   September 30, 2018   December 31, 2017 
   VALUE   % OF TOTAL   VALUE   % OF TOTAL 
   AT RISK   CAPITALIZATION   AT RISK   CAPITALIZATION 
MARKET SECTOR                    
Interest Rates  $13,415    0.27%  $12,959    0.19%
Currencies   448    0.01%   19,006    0.28%
Stock Indices   4,902    0.10%   18,963    0.28%
Metals       0.00%       0.00%
Agriculturals/Softs   4,058    0.08%   2,161    0.03%
Energy   376    0.01%   1,097    0.02%
Total:  $23,201    0.47%  $54,186    0.80%

174

 

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

 

The face value of the market sector instruments held on behalf of the Series is typically many times the applicable maintenance margin requirement, which generally ranges between approximately 1% and 10% of contract face value, as well as many times the capitalization of the Series. The magnitude of each Series’ open positions creates a risk of ruin not typically found in most other investment vehicles. Because of the size of their positions, certain market conditions, although unusual, but historically recurring from time to time, could cause a Series to incur severe losses over a short period of time. The value at risk table above, as well as the past performance of the Series, gives no indication of this risk of severe losses.

 

Non-Trading Risk

 

The Series have non-trading market risk on their foreign cash balances not needed for margin. However, these balances, as well as the market risk they represent, are immaterial. The Series also have non-trading market risk as a result of investing a portion of their available assets in U.S. government securities which include any security issued or guaranteed as to principal or interest by the U.S., or by a person controlled by or supervised by and acting as an instrumentality of the government of the U.S. pursuant to authority granted by Congress of the U.S. or any certificate of deposit for any of the foregoing, including U.S. treasury bonds, U.S. treasury bills and issues of agencies of the U.S. government and certain cash items such as money market funds, certificates of deposit (under three months) and time deposits. The market risk represented by these investments is also immaterial.

 

Qualitative Market Risk

 

The following are the primary trading risk exposures of the Series of the Trust as of September 30, 2018, by market sector.

 

Interest Rates

 

Interest rate risk is one of the principal market exposures of each Series. Interest rate movements directly affect the price of interest rate futures positions held and indirectly the value of a Trading Company’s stock index and currency positions. Interest rate movements in one country as well as relative interest rate movements between countries materially impact profitability. The primary interest rate exposure is to interest rate fluctuations in the U.S. and the other G-7 countries. However, the Trading Companies and Galaxy Plus entities also may take futures positions on the government debt of smaller nations. The Managing Owner anticipates that G-7 interest rates will remain the primary market exposure of each Trading Company and Galaxy Plus entities and accordingly of each Series for the foreseeable future. The changes in interest rates which are expected to have the most effect on the Series are changes in long-term, as opposed to short-term rates. Most of the speculative positions to be held by the Trading Companies and Galaxy Plus entities will be in medium- to long-term instruments. Consequently, even a material change in short-term rates is expected to have little effect on the Series if the medium- to long-term rates remain steady. Aggregate interest income from all sources, including assets held at clearing brokers, of up to 2% (annualized) is paid to the Managing Owner by the Frontier Balanced Fund (Class 1 and Class 2 only), Frontier Winton Fund, Frontier Select Fund and Frontier Heritage Fund. For the Frontier Diversified Fund, Frontier Long/Short Commodity Fund (Class 1a, Class 2a, Class 3a only), Frontier Masters Fund and Frontier Balanced Fund (Class 1AP, Class 2a and Class 3a), 20% of the total interest allocated to each Series was paid to the Managing Owner from January 1, 2017 through April 28, 2017; thereafter 100% of the interest is retained by the respective Series.

 

Currencies

 

Exchange rate risk is a significant market exposure of each Series of the Trust in general. For each Series of the Trust in general, currency exposure is to exchange rate fluctuations, primarily fluctuations that disrupt the historical pricing relationships between different Currencies and currency pairs. These fluctuations are influenced by interest rate changes as well as political and general economic conditions. The Trading Advisors on behalf of a Series trade in a large number of Currencies, including cross-rates, which are positions between two Currencies other than the U.S. dollar. The Managing Owner does not anticipate that the risk profile of the Series’ currency sector will change significantly in the future.

175

 

Stock Indices

 

For each Series, its primary equity exposure is equity price risk in the G-7 countries as well as other smaller jurisdictions. Each Series of the Trust is primarily exposed to the risk of adverse price trends or static markets in the major U.S., European and Japanese indices.

 

Metals

 

For each Series, its Metals market exposure is fluctuations in the price of both precious Metals, including gold and silver, as well as base Metals including aluminum, copper, nickel and zinc. Some Metals, such as gold, are used as surrogate stores of value, in place of hard currency and thus have currency or interest rate risk associated with them relative to their price in a specific currency. Other Metals, such as silver, platinum, copper and steel, have substantial industrial applications and may be subject to forces affecting industrial production and demand.

 

Agriculturals/Softs

 

Each Series may also invest in raw commodities and may thus have exposure to agricultural price movements, which are often directly affected by severe or unexpected weather conditions or by political events in countries that comprise significant sources of commodity supply.

 

Energy

 

For each Series its primary energy market exposure is in oil, gas and other energy product price movements, often resulting from political developments and ongoing conflicts in the Middle East. Oil and gas prices can be volatile and substantial profits and losses have been and are expected to continue to be experienced in this market.

 

Other Trading Risks

 

As a result of leverage, small changes in the price of a Trading Company’s positions may result in substantial losses for a Series. Futures, forwards and options are typically traded on margin. This means that a small amount of capital can be used to invest in contracts of much greater total value. The resulting leverage means that a relatively small change in the market price of a contract can produce a substantial loss. Like other leveraged investments, any purchase or sale of a contract may result in losses in excess of the amount invested in that contract. The Trading Companies and Galaxy Plus entities may lose more than their initial margin deposits on a trade.

 

The Trading Companies’ and Galaxy Plus entities’ trading is subject to execution risks. Market conditions may make it impossible for the Trading Advisors to execute a buy or sell order at the desired price, or to close out an open position. Daily price fluctuation limits are established by the exchanges and approved by the CFTC. When the market price of a contract reaches its daily price fluctuation limit, no trades can be executed at prices outside the limit. The holder of a contract may therefore be locked into an adverse price movement for several days or more and lose considerably more than the initial margin put up to establish the position. Thinly traded or illiquid markets also can make it difficult or impossible to execute trades. The Trading Advisor’s positions are subject to speculative limits. The CFTC and domestic exchanges have established speculative position limits on the maximum futures position which any person, or group of persons acting in concert, may hold or control in particular futures contracts or options on futures contracts traded on U.S. commodity exchanges. Under current regulations, other accounts of the Trading Advisors are combined with the positions held by them on behalf of the applicable Trading Company and Galaxy Plus entity for position limit purposes. This trading could preclude additional trading in these commodities by the Trading Advisors for the accounts of the Series.

 

Systematic strategies do not consider fundamental types of data and do not have the benefit of discretionary decision making. The assets of the Series are allocated to Trading Advisors that rely on technical, systematic strategies that do not take into account factors external to the market itself (although certain of these strategies may have minor discretionary elements incorporated into their systematic strategy). The widespread use of technical trading systems frequently results in numerous trading advisors attempting to execute similar trades at or about the same time, altering trading patterns and affecting market liquidity. Furthermore, the profit potential of trend-following systems may be diminished by the changing character of the markets, which may make historical price data (on which technical programs are based) only marginally relevant to future market patterns. Systematic strategies are developed on the basis of a statistical analysis of market prices. Consequently, any factor external to the market itself that dominates prices that a discretionary decision maker may take into account may cause major losses for a systematic strategy. For example, a pending political or economic event may be very likely to cause a major price movement, but a systematic strategy may continue to maintain positions indicated by its trading method that might incur major losses if the event proved to be adverse.

176

 

However, because certain of the Trading Advisors’ strategies involve some discretionary aspects in addition to their technical factors, certain of the Trading Advisors may occasionally use discretion in investing the assets of a Trading Company. For example, the Trading Advisors often use discretion in selecting contracts and markets to be followed. In exercising such discretion, such Trading Advisor may take positions opposite to those recommended by the Trading Advisor’s trading system or signals. Discretionary decision making may also result in a Trading Advisor failing to capitalize on certain price trends or making unprofitable trades in a situation where another trader relying solely on a systematic approach might not have done so. Furthermore, such use of discretion may not enable the relevant Series of the Trust to avoid losses and in fact, such use of discretion may cause such Series to forego profits which it may have otherwise earned had such discretion not been used.

 

Cyber Risks and Security

 

The Trust’s business requires it to use and store investor, employee and business partner personally identifiable information (“PII”). This may include, among other information, names, addresses, phone numbers, email addresses, contact preferences, tax identification numbers and payment account information.

 

The Trust requires user names and passwords in order to access its information technology systems. The Trust also uses encryption and authentication technologies designed to secure the transmission and storage of data and prevent access to Trust data or accounts. These security measures are subject to third-party security breaches, employee error, malfeasance, faulty password management, or other irregularities. To help protect investors and the Trust, the Trust monitors accounts and systems for unusual activity and may freeze accounts under suspicious circumstances.

 

The Trust devotes significant resources to network security, data encryption and other security measures to protect its systems and data, but these security measures cannot provide absolute security. To the extent the Trust was to experience a breach of its systems and was unable to protect sensitive data, such a breach could materially damage business partner and investor relationships. Moreover, if a computer security breach affects the Trust’s systems or results in the unauthorized release of PII, the Trust’s reputation and brand could be materially damaged and the Trust could be exposed to a risk of loss or litigation and possible liability. While the Trust maintains insurance coverage that, subject to policy terms and conditions and subject to a significant self-insured retention, is designed to address certain aspects of cyber risks, such insurance coverage may be insufficient to cover all losses or all types of claims that may arise in the continually evolving area of cyber risk.

 

Qualitative Disclosures Regarding Means of Managing Risk Exposure

 

The means by which the Managing Owner attempts to manage the risk of the Trust’s open positions is essentially the same in all market categories traded. The Managing Owner applies risk management policies to trading which generally are designed to limit the total exposure of assets under management. In addition, the Managing Owner follows diversification guidelines which are often formulated in terms of the balanced volatility between markets and correlated groups.

 

ITEM  4.CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Under the supervision and with the participation of the management of the Managing Owner, including its Chairman and Chief Financial Officer, the Trust evaluated the effectiveness of the design and operation of the disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), for the Trust and each Series as of September 30, 2018 (the “Evaluation Date”). 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. Based upon their evaluation, the Chairman and Chief Financial Officer of the Managing Owner concluded that, as of the Evaluation Date, the disclosure controls and procedures for the Trust and each Series were effective to provide reasonable assurance that they are timely alerted to the material information relating to the Trust and each Series required to be included in the Trust’s periodic SEC filing.

177

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in the Trust’s internal control over financial reporting for the quarter ended September 30, 2018.

 

Scope of Exhibit 31 Certifications

 

The certification of the Chairman and Chief Financial Officer of the Managing Owner included as Exhibit 31.1 to this Form 10-Q applies not only to the Trust as a whole but also to each Series individually.

 

PART II. OTHER INFORMATION

 

ITEM 1.LEGAL PROCEEDINGS.

 

There are no material legal proceedings pending against the Trust, or any of the Series.

 

ITEM  1A.RISK FACTORS.

 

The sections each entitled “Risk Factors” in the Prospectuses filed pursuant to Rule 424(b)(3) (File Nos. 333-210313 and 333-155800) are incorporated by reference into this section.

 

ITEM  2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

The following table provides information regarding the sale of unregistered Units by the Trust for the nine months ended September 30, 2018. The number of Units listed below for each transaction is the aggregate number of Units in the particular Series of the Trust purchased in such transaction. The consideration listed below for each transaction is, except as otherwise noted, the aggregate amount of cash paid for the Units purchased. For each transaction reported below, the price per Unit was NAV per Unit at the time of the transaction and the Managing Owner of the Trust was the purchaser of the Units. No underwriting discount or sales commission was paid or received with respect to any of the transactions reported below. The Trust claims an exemption from registration of each of the transactions listed below under Section 4(a)(2) of the Securities Act of 1933, as amended, as a sale by an issuer not involving a public offering.

          
SERIES  DATE  UNITS  CONSIDERATION
NONE         

 

One hundred percent of the offering proceeds from the sale of Units are initially available for the Series’ trading activities.

 

ITEM 3.DEFAULTS UPON SENIOR SECURITIES.

 

None

 

ITEM  4.MINE SAFETY DISCLOSURES.

 

Not applicable.

 

ITEM  5.OTHER INFORMATION.

 

None

178

 

ITEM  6.EXHIBITS.

 

Exhibits (numbered in accordance with Item 601 of Regulation S-K)

   
31.1 Certification of Principal Executive Officer of the Managing Owner pursuant to Rules 13a-14(a) and 15(d)-14(a) of the Securities Exchange Act of 1934 (furnished herewith)
   
32.1 Certification pursuant to 18 U.S.C. Section 1350, as enacted by Section 906 of The Sarbanes- Oxley Act of 2002. (furnished herewith)
   
32.2 Certification pursuant to 18 U.S.C. Section 1350, as enacted by Section 906 of The Sarbanes- Oxley Act of 2002. (furnished herewith)
   
32.3 Certification pursuant to 18 U.S.C. Section 1350, as enacted by Section 906 of The Sarbanes- Oxley Act of 2002. (furnished herewith)
   
32.4 Certification pursuant to 18 U.S.C. Section 1350, as enacted by Section 906 of The Sarbanes- Oxley Act of 2002. (furnished herewith)
   
32.5 Certification pursuant to 18 U.S.C. Section 1350, as enacted by Section 906 of The Sarbanes- Oxley Act of 2002. (furnished herewith)
   
32.6 Certification pursuant to 18 U.S.C. Section 1350, as enacted by Section 906 of The Sarbanes- Oxley Act of 2002. (furnished herewith)
   
32.7 Certification pursuant to 18 U.S.C. Section 1350, as enacted by Section 906 of The Sarbanes- Oxley Act of 2002. (furnished herewith)
   
32.8 Certification pursuant to 18 U.S.C. Section 1350, as enacted by Section 906 of The Sarbanes- Oxley Act of 2002. (furnished herewith)
   
101 Financials in XBRL format

179

 

SIGNATURES

 

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

       
    Frontier Funds
    (Registrant)
       
Date: November 19, 2018   By: /s/ PATRICK J. KANE
     

Patrick J. Kane

      Chairman, Chief Financial Officer, Chief Accounting Officer and Managing Member of Frontier Fund Management LLC, the Managing Owner of Frontier Funds

180

 

SIGNATURES

 

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

       
    Frontier Balanced Fund,
    a Series of Frontier Funds
    (Registrant)
       
Date: November 19, 2018   By: /s/ PATRICK J. KANE
     

Patrick J. Kane

      Chairman, Chief Financial Officer, Chief Accounting Officer and Managing Member of Frontier Fund Management LLC, the Managing Owner of Frontier Funds

181

 

SIGNATURES

 

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

       
    Frontier Heritage Fund,
    a Series of Frontier Funds
    (Registrant)
       
Date: November 19, 2018   By:

/s/ PATRICK J. KANE

      Patrick J. Kane
      Chairman and Chief Financial Officer of Frontier Fund Management LLC, the Managing Owner of Frontier Funds

182

 

SIGNATURES

 

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

       
    Frontier Winton Fund,
    a Series of Frontier Funds
    (Registrant)
       
Date: November 19, 2018   By: /s/ PATRICK J. KANE
     

Patrick J. Kane

      Chairman and Chief Financial Officer of Frontier Fund Management LLC, the Managing Owner of Frontier Funds

183

 

SIGNATURES

 

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

       
    Frontier Select Fund,
   

a Series of Frontier Funds

(Registrant)

       
Date: November 19, 2018   By:

/s/ PATRICK J. KANE

      Patrick J. Kane
      Chairman and Chief Financial Officer of Frontier Fund Management LLC, the Managing Owner of Frontier Funds

184

 

SIGNATURES

 

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

       
   

Frontier Long/Short Commodity Fund,

a Series of Frontier Funds

(Registrant)

       
Date: November 19, 2018   By:

/s/ PATRICK J. KANE

      Patrick J. Kane
     

Chairman and Chief Financial Officer of Frontier Fund Management LLC, the Managing Owner of Frontier Funds

185

 

SIGNATURES

 

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

     
  Frontier Diversified Fund,
  a Series of Frontier Funds
  (Registrant)
     
Date: November 19, 2018 By:

/s/ PATRICK J. KANE

    Patrick J. Kane
   

Chairman and Chief Financial Officer of Frontier Fund Management LLC, the Managing Owner of Frontier Funds

186

 

SIGNATURES

 

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

     
  Frontier Masters Fund,
  a Series of Frontier Funds
  (Registrant)
     
Date: November 19, 2018 By:

/s/ PATRICK J. KANE

    Patrick J. Kane
   

Chairman and Chief Financial Officer of Frontier Fund Management LLC, the Managing Owner of Frontier Funds

187