Closing of the Fund
During the first quarter, the Fund closed and began the process of redeeming all of its remaining investors. The Partnership Agreement provided that if the Fund's net asset value per Unit declines to 50% or less of the highest net asset value per Unit at the start of any fiscal year, the Fund will suspend trading and liquidate its securities and commodity interest positions. On
The decision to close the Fund was based primarily on two factors:
? The Fund's Trading Advisor, which has underperformed peers over the past few years, has continued to underperform its peers in 2014. The suspension of trading in January prevented further trading losses to the Fund for the latter half of January and in the subsequent months.
? Since the trading suspension in January, a majority of the limited partners have chosen to redeem from the Fund.
The Fund returned all capital to partners by
The Fund does not have any contractual obligations of the type contemplated by Item 303(a)(5) of Regulation S-K.
17 Results of Operations
The returns for Units for the six months ended
January saw a broad flight to safety, sparked by a sharp sell-off in emerging market currencies, as investors worried about the impact of Fed tapering and weak Chinese manufacturing on emerging economies. This heightened risk aversion quickly spread to developed markets, which saw declines in equity indices and rallies in bonds, gold and safe haven currencies. Meanwhile, in energy markets, natural gas prices surged due to freezing temperatures across the U.S.
January saw a reversal of many of the major trends from the fourth quarter of 2013, resulting in negative performance for the Fund's trend-following program. In fixed income markets, the Fund's short positions in
During the month, however, the Fund hit its predetermined stop-loss point, defined as a 50% decline from the highest NAV at the start of any calendar year. As a result, trading was suspended, all positions were closed out and a special redemption period was offered to investors. Overall, the Fund had a loss in January of 4.96%.
All futures trading was suspended during the month of February. The Fund incurred a loss on its fixed income securities, net of Fund expenses, of 0.26%.
The Fund incurred a small gain of 0.09% on its fixed income securities.
April through June
There was no activity for the Fund.
Spurred on by the resolution of the U.S. "fiscal cliff" negotiations, markets began 2013 with a strong risk appetite. This led to a rally in global equities and industrial commodities and caused a sell-off in safe haven bonds. In
The Fund started the year on a positive note, as it profited from long positions in stock indices and energy, as well as long positions in the euro and short positions in the Japanese yen. These gains were partially offset by losses in choppy agricultural commodity markets, many of which saw price reversals over the course of the month. Rising interest rates also led to losses for the Fund's long positions in fixed income markets. Overall, the Fund made a gain in January of 5.77%.
Although February began with a continuation of January's risk-seeking market trends, the second half of the month saw "risk-off" price reversals across many sectors. Weak European data signaled a region-wide economic contraction. The
The Fund entered February with "risk-on" exposures in many of the markets it trades, including long positions in equities, industrial commodities, the euro and high-yielding currencies. February's market reversals caused losses in a number of these positions. The largest losses came from energy, as oil prices fell late in the month on concerns over global demand as well as U.S. supply hitting a 20-year high due to shale fracking. Long positions in base metals also detracted from performance, as economic growth concerns caused price declines. The Fund did however make gains in the agricultural sector, as easing drought conditions in the Midwest
lowered wheat prices, helping the Fund's short position. In currencies, the Fund's profits from shorting the British pound sterling offset losses from being long the euro. Overall, the Fund finished the month with a loss of 5.36%.
In March, financial headlines were dominated by the banking crisis in
The Fund profited in the currency sector in March, particularly through long cross-rate positions in the Australian dollar against the Japanese yen, the pound sterling and the euro. The Fund also gained from a fall in industrial metals prices, with short positions in aluminum and copper, as investors worried about the impact of a clampdown on Chinese property speculation. In the agricultural sector, the Fund profited from short positions in coffee and sugar. Losses were incurred in energy through short crude oil positions. The Fund was slightly down in fixed income due to trend reversals in the U.S. and
In April, economic data in
The Fund entered the month with short positions in gold and copper, which profited on the decline in precious and base metals prices. The Fund also had a positive contribution from its long position in Japanese equities which continued to climb in an expansionary monetary environment. Partly offsetting these gains were losses from long exposures to declining oil markets, as well as from trend reversals in agricultural markets such as corn. Overall, the Fund finished the month with a profit of 1.77%.
In May, improving economic data in the U.S. drove stock indices higher, but also prompted the Fed to signal that it might soon taper its quantitative easing program. Fixed income markets reacted negatively to the prospect of a reduction in the Fed's
The Fund made gains in the equity sector on its long positions during the month, particularly in European indices. The Fund also profited in agricultural commodities through short positions in sugar and coffee. However, these were offset by losses in energy, where long positions in natural gas suffered as prices declined on higher than expected inventory levels. In the currencies sector, long positions in the Australian dollar and
In June, the Fed reaffirmed its desire to phase out its quantitative easing program as long as U.S. economic data continues to improve. Markets interpreted this as the beginning of the end of an era of ultra-easy monetary policy. As a result, global equities and bonds sold off sharply. Ironically, the largest stock market declines were not in the U.S. Prospective tightening by the U.S. Federal Reserve had a greater impact in
The Fund entered June with most of its portfolio in physical commodities. Trends in commodities proved to be stronger than in financial futures, which were hit by sharp trend reversals. The largest profit center for the Fund was in metals, where short positions in gold, as well as industrial metals, such as nickel and copper, gained as a result of the market decline. In bonds and interest rates, the Fund had established a short position in May, and was able to benefit from the continued sell-off in fixed income markets as a result of
the Fed's new policy stance. However, in equities, the Fund's long positions suffered as global indices fell, while choppy energy markets also led to losses. Overall, however, the Fund finished the month with a profit of 1.23%.
Off-Balance Sheet Risk
The term "off-balance sheet risk" refers to an unrecorded potential liability that, even though it does not appear on the balance sheet, may result in future obligation or loss. The Fund traded in futures contracts and was therefore a party to financial instruments with elements of off-balance sheet market and credit risk. At
Significant Accounting Estimates
A summary of the Fund's significant accounting policies are included in Note 1 to the Financial Statements.
The Fund's most significant accounting policy is the valuation of its assets invested in U.S. and foreign futures contracts, and fixed income investments. The Fund's futures contracts are exchange-traded, with the fair value of these contracts based on exchange settlement prices. The fair value of money market funds is based on quoted market prices for identical shares. U.S. Treasury securities are stated at fair value based on quoted market prices for identical assets in an active market. Notes of U.S. and foreign government sponsored enterprises, as well as certificates of deposit commercial paper and corporate notes, are stated at fair value based on quoted market prices for similar assets in an active market. Given the valuation sources, there is little judgment or uncertainty involved in the valuation of these assets, and it is unlikely that materially different amounts would be reported under different valuation methodologies or assumptions.