GLOBAL DIVERSIFIED FUTURES FUND L.P.
As of October 31, 2018, 4,405.8088 Limited Partnership Redeemable Units were outstanding.
Global Diversified Futures Fund L.P. (the Partnership) is a limited partnership organized under the partnership laws of the State of New York on June 15, 1998, to engage, directly or indirectly, in the speculative trading of a diversified portfolio of commodity interests, including futures, option, swap and forward contracts. The sectors traded include currencies, energy, grains, indices, metals, softs, U.S. and non-U.S. interest rates and livestock. The commodity interests that are traded by the Partnership, through its investment in the Fund (as defined below), are volatile and involve a high degree of market risk. The Partnership commenced trading on February 2, 1999. The General Partner (as defined below) may also determine to invest up to all of the Partnerships assets, directly or indirectly through its investment in the Fund (as defined below), in United States (U.S.) Treasury bills and/or money market mutual funds, including money market mutual funds managed by Morgan Stanley or its affiliates. The Partnership was authorized to sell up to 100,000 redeemable units of limited partnership interest (Redeemable Units) during its initial offering period. The Partnership no longer offers Redeemable Units for sale.
At September 30, 2018, all trading decisions for the Partnership are made by Aspect Capital Limited (Aspect) (the Advisor), which is a registered commodity trading advisor. The Partnership invests its assets indirectly through its investment in the Fund. Effective December 31, 2017, PGR Capital LLP (PGR) ceased to act as a commodity trading advisor to the Partnership. References herein to Advisor shall also include PGR, as appropriate.
During the reporting periods ended September 30, 2018 and 2017, the Partnerships/Funds commodity broker was Morgan Stanley & Co. LLC (MS&Co.), a registered futures commission merchant. JPMorgan Chase Bank, N.A. (JPMorgan) was also a foreign exchange forward counterparty for certain Funds. During prior periods included in this report, the Partnership/Funds also deposited a portion of their cash in non-trading bank accounts at JPMorgan.
As of September 30, 2018, the Partnership owned approximately 47.1% of the Fund. Prior to the close of business on December 31, 2017, the Partnership owned approximately 15.9% of the Fund. It is the Partnerships intention to continue to invest substantially all of its assets in the Fund. The performance of the Partnership is directly affected by the performance of the Fund.
The Funds trading of futures, forward, swap and option contracts, if applicable, on commodities is done primarily on U.S. commodity exchanges and foreign commodity exchanges. The Fund engages in such trading through a commodity brokerage account maintained with MS&Co. The Funds Statements of Financial Condition, Condensed Schedules of Investments and Statements of Income and Expenses and Changes in Partners Capital are included herein.
CMF Aspect Master Fund L.P. (Aspect Master or the Fund) has entered into a futures brokerage account agreement with MS&Co. Aspect Master entered into a foreign exchange brokerage account agreement with MS&Co. Prior to its liquidation as of the close of business on December 31, 2017, PGR Master Fund L.P. (PGR Master) also entered into a futures brokerage agreement with MS&Co. References herein to the Funds shall include PGR Master, as appropriate. The Partnership has also entered into a futures brokerage account agreement with MS&Co. The Partnership, through its investment in the Fund, pays MS&Co. (or will reimburse MS&Co. if previously paid) its allocable share of all trading fees for the clearing and, where applicable, execution of transactions as well as exchange, clearing, user, give-up, floor brokerage and National Futures Association fees (collectively, the clearing fees).
The Partnership has also entered into a selling agreement with Morgan Stanley Smith Barney LLC (doing business as Morgan Stanley Wealth Management) (Morgan Stanley Wealth Management) (as amended, the Selling Agreement). Pursuant to the Selling Agreement, Morgan Stanley Wealth Management receives a monthly ongoing selling agent fee equal to 2.0% per year of adjusted month-end net assets. The ongoing selling agent fee received by Morgan Stanley Wealth Management is shared with the properly registered/exempted financial advisers of Morgan Stanley Wealth Management who sell Redeemable Units in the Partnership.
Effective July 12, 2017, Aspect Master entered into certain agreements with JPMorgan in connection with trading in forward foreign currency contracts on behalf of Aspect Master and, indirectly, the Partnership. These agreements include a foreign exchange and bullion authorization agreement (FX Agreement), an International Swap Dealers Association, Inc. master agreement (Master Agreement), a schedule to the Master Agreement, a 2016 credit support annex for variation margin to the schedule and an institutional account agreement. Under the FX Agreement, JPMorgan will charge a fee on the aggregate foreign currency transactions entered into on behalf of Aspect Master during a month.
The accompanying financial statements and accompanying notes are unaudited but, in the opinion of the General Partner, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Partnerships financial condition at September 30, 2018, and the results of its operations and changes in partners capital for the three and nine months ended September 30, 2018 and 2017. These financial statements present the results for interim periods and do not include all of the disclosures normally provided in annual financial statements. These financial statements should be read together with the financial statements and notes included in the Partnerships Annual Report on Form 10-K (the Form 10-K) filed with the Securities and Exchange Commission (the SEC) for the year ended December 31, 2017. The December 31, 2017 information has been derived from the audited financial statements as of and for the year ended December 31, 2017.
Profit Allocation. The General Partner and each limited partner of the Partnership share in the profits and losses of the Partnership in proportion to the amount of Partnership interest owned by each, except that no limited partner shall be liable for obligations of the Partnership in excess of its capital contributions and profits, if any, or net of distributions or redemptions and losses, if any.
Partnerships Investment. The Partnership carries its investment in the Fund at fair value based on the Funds net asset value per Redeemable Unit as calculated by the Fund.
on open contracts are/were included as a component of equity in the trading account on the Funds Statements of Financial Condition. Net realized gains or losses and net change in unrealized gains or losses are reported in the Partnership/Funds Statements of Income and Expenses. Aspect Master does not, and PGR Master did not, isolate the portion of the results of operations arising from the effect of changes in foreign exchange rates on investments from fluctuations from changes in market prices of investments held. Such fluctuations are included in total trading results in each Funds Statements of Income and Expenses.
Funds Cash. The Funds restricted cash is equal to the cash portion of assets on deposit to meet margin requirements, as determined by the exchange or counterparty, and required by MS&Co. At September 30, 2018 and December 31, 2017, the amount of cash held for margin requirements was $3,164,028 and $4,297,134, respectively. Cash that is not classified as restricted cash is therefore classified as unrestricted cash. The Funds restricted and unrestricted cash includes cash denominated in foreign currencies of $(56,426) (proceeds of $56,941) and $287,256 (cost of $284,558) as of September 30, 2018 and December 31, 2017, respectively.
Income Taxes. Income taxes have not been recorded as each partner is individually liable for the taxes, if any, on its share of the Partnerships income and expenses. The Partnership follows the guidance of ASC 740, Income Taxes, which prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of tax positions taken or expected to be taken in the course of preparing the Partnerships tax returns to determine whether the tax positions are more-likely-than-not of being sustained when challenged or when examined by the applicable taxing authority. Tax positions determined not to meet the more-likely-than-not threshold would be recorded as a tax benefit or liability in the Partnerships Statements of Financial Condition for the current year. If a tax position does not meet the minimum statutory threshold to avoid the incurring of penalties, an expense for the amount of the statutory penalty and interest, if applicable, shall be recognized in the Statements of Income and Expenses and Changes in Partners Capital in the period in which the position is claimed or expected to be claimed. The General Partner has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements. The Partnership files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The 2014 through 2017 tax years remain subject to examination by U.S. federal and most state tax authorities.
Investment Company Status. Effective January 1, 2014, the Partnership adopted Accounting Standards Update 2013-08, Financial Services  Investment Companies (Topic 946): Amendments to the Scope, Measurement and Disclosure Requirements and based on the General Partners assessment, the Partnership has been deemed to be an investment company since inception. Accordingly, the Partnership follows the investment company accounting and reporting guidance of Topic 946 and reflects its investments at fair value with unrealized gains and losses resulting from changes in fair value reflected in the Statements of Income and Expenses and Changes in Partners Capital.
Represents the change in net asset value per Redeemable Unit during the period before distribution of interest income to feeder funds.
Annualized (except for incentive fees).
Interest income allocated from Aspect Master less total expenses.
The above ratios and total return may vary for individual investors based on the timing of capital transactions during the period. Additionally, these ratios are calculated for the limited partner class using the limited partners share of income, expenses and average partners capital of the Partnership and include the income and expenses allocated from the Fund(s).
The Partnership was formed for the purpose of trading contracts in a variety of commodity interests, including derivative financial instruments and derivative commodity interests. The Partnership invests substantially all of its assets through a master/feeder structure. The Partnerships pro-rata share of the results of the Funds trading activities is shown in the Statements of Income and Expenses and Changes in Partners Capital.
The futures brokerage account agreements with MS&Co. give the Partnership and the Fund the legal right to net unrealized gains and losses on open futures and open forward contracts in the Statements of Financial Condition. The Fund nets, for financial reporting purposes, the unrealized gains and losses on open futures and open forward contracts in the Statements of Financial Condition as the criteria under ASC 210-20, Balance Sheet, have been met.
Trading and transaction fees are based on the number of trades executed by the Advisor for the Fund and the Partnerships percentage ownership of the Fund. All clearing fees paid to MS&Co. are borne by the Fund and allocated to the limited partners, including the Partnership.
All of the commodity interests owned by the Fund are held for trading purposes. The monthly average number of futures contracts traded during the three months ended September 30, 2018 and 2017 were 1,351 and 2,591, respectively. The monthly average number of futures contracts traded during the nine months ended September 30, 2018 and 2017 were 1,386 and 2,580, respectively. The monthly average number of metals forward contracts traded during the three months ended September 30, 2018 and 2017 were 108 and 192, respectively. The monthly average number of metals forward contracts traded during the nine months ended September 30, 2018 and 2017 were 118 and 224, respectively. The monthly average notional values of currency forward contracts traded during the three months ended September 30, 2018 and 2017 were $107,044,092 and $299,238,278, respectively. The monthly average notional values of currency forward contracts traded during the nine months ended September 30, 2018 and 2017 were $130,594,368 and $233,945,128, respectively.
The following tables summarize the gross and net amounts recognized relating to assets and liabilities of the Funds derivatives and their offsetting subject to master netting arrangements or similar agreements as of September 30, 2018 and December 31, 2017, respectively.
In the event of default by the Fund, MS&Co., the Funds commodity futures broker and a counterparty to certain of the Funds non-exchange-traded contracts, as applicable, and JPMorgan, as a counterparty to certain of the Funds non-exchange-traded contracts, has the right to offset the Funds obligation with the Funds cash and/or U.S. Treasury bills held by MS&Co. or JPMorgan, as applicable, thereby minimizing MS&Co.s and JPMorgans risk of loss. In certain instances, a counterparty may not post collateral and as such, in the event of default by such counterparty, the Fund is exposed to the amount shown in the Statements of Financial Condition. In the case of exchange-traded contracts, the Funds exposure to counterparty risk may be reduced since the exchanges clearinghouse interposes its credit between buyer and seller and the clearinghouses guarantee funds may be available in the event of a default.
The following tables indicate the Funds gross fair values of derivative instruments of futures and forward contracts as separate assets and liabilities as of September 30, 2018 and December 31, 2017, respectively.
This amount is in Net unrealized appreciation on open futures contracts in the Funds Statements of Financial Condition.
This amount is in Net unrealized depreciation on open forward contracts in the Funds Statements of Financial Condition.
This amount is in Net unrealized appreciation on open forward contracts in the Funds Statements of Financial Condition.
The following table indicates the Funds trading gains and losses, by market sector, on derivative instruments for the three and nine months ended September 30, 2018 and 2017, respectively.
This amount is in Total trading results in the Funds Statements of Income and Expenses and Changes in Partners Capital.
Funds Fair Value Measurements. Fair value is defined as the value that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to fair values derived from unobservable inputs (Level 3). The level in the fair value hierarchy within which the fair value measurement in its entirety falls shall be determined based on the lowest level input that is significant to the fair value measurement in its entirety.
Aspect Master considers, and PGR Master considered, prices for commodity futures, swap and options contracts to be based on unadjusted quoted prices in active markets for identical assets and liabilities (Level 1). The values of U.S. Treasury bills, non-exchange-traded forward, swap and certain options contracts for which market quotations are not readily available are priced by pricing services that derive fair values for those assets and liabilities from observable inputs (Level 2). As of September 30, 2018 and December 31, 2017 and for the periods ended September 30, 2018 and 2017, the Funds did not hold any derivative instruments that were priced at fair value using unobservable inputs through the application of the General Partners assumptions and internal valuation pricing models (Level 3).
On March 1, 2005, the assets allocated to Aspect for trading were invested in Aspect Master, a limited partnership organized under the partnership laws of the State of New York. Aspect Master permits accounts managed by Aspect using Aspects Diversified Program, a proprietary, systematic trading system, to invest together in one trading vehicle. The General Partner is also the general partner of Aspect Master. Individual and pooled accounts currently managed by Aspect, including the Partnership, are permitted to be limited partners of Aspect Master. The General Partner and Aspect believe that trading through this structure should promote efficiency and economy in the trading process.
On September 1, 2016, the assets allocated to PGR for trading were invested in PGR Master, a limited partnership organized under the partnership laws of the State of Delaware. PGR Master permitted accounts managed by PGR using its Mayfair Program, a proprietary, systematic trading system, to invest together in one trading vehicle. The General Partner was also the general partner of PGR Master. Individual and pooled accounts managed by PGR, including the Partnership, were permitted to be limited partners of PGR Master. The General Partner and PGR believed that trading through this structure would promote efficiency and economy in the trading process. Effective the close of business on December 31, 2017, the Partnership fully redeemed its investment in PGR Master.
The General Partner is not aware of any other material changes to any of the trading programs discussed above or in Note 1, Organization during the fiscal quarter ended September 30, 2018.
The Funds trading of futures, forward, swap and option contracts, if applicable, on commodities is done primarily on U.S. and foreign commodity exchanges. The Fund engaged in such trading through commodity brokerage accounts maintained with MS&Co.
Generally, a limited partner in the Fund withdraws all or part of its capital contribution and undistributed profits, if any, from the Fund as of the end of any month (the Redemption Date) after a request has been made to the General Partner at least three days in advance of the Redemption Date. Such withdrawals are classified as a liability when the limited partner elects to redeem and informs the Fund. However, a limited partner may request a withdrawal as of the end of any day if such request is received by the General Partner at least three days in advance of the proposed withdrawal day.
Management fees, General Partner fees, ongoing selling agent fees and incentive fees are charged at the Partnership level. All clearing fees are borne by the Fund and allocated to the Funds limited partners including the Partnership. Professional fees are borne by the Fund and allocated to the Partnership, and also charged directly at the Partnership level.
Expenses to investors as a result of the investment in the Fund are approximately the same as they would be if the Partnership traded directly and redemption rights are not affected.
In the normal course of business, the Partnership, indirectly through its investment in the Fund, is party to financial instruments with off-balance sheet risk, including derivative financial instruments and derivative commodity instruments. These financial instruments may include forwards, futures, options and swaps whose values are based upon an underlying asset, index, or reference rate, and generally represent future commitments to exchange currencies or cash balances, to purchase or sell other financial instruments at specific terms at specified future dates, or, in the case of derivative commodity instruments, to have a reasonable possibility to be settled in cash, through physical delivery or with another financial instrument. These instruments may be traded on an exchange, swap-execution facility or over-the-counter (OTC). Exchange-traded instruments include futures and certain standardized forward, option and swap contracts. Certain swap contracts may also be traded on a swap execution facility or OTC. OTC contracts are negotiated between contracting parties and also include certain standardized forward, swap and option contracts. Each of these instruments is subject to various risks similar to those relating to the underlying financial instruments, including market and credit risk. In general, the risks associated with OTC contracts are greater than those associated with exchange-traded instruments because of the greater risk of default by the counterparty to an OTC contract. The General Partner estimates that at any given time approximately 30.1% to 42.0% of the Funds contracts are traded OTC.
Futures Contracts. Aspect Master trades, and PGR Master traded, futures contracts. A futures contract is a firm commitment to buy or sell a specified quantity of investments, currency or a standardized amount of a deliverable grade commodity, at a specified price on a specified future date, unless the contract is closed before the delivery date or if the delivery quantity is something where physical delivery cannot occur (such as the S&P 500 Index), whereby such contract is settled in cash. Payments (variation margin) may be made or received by the Fund each business day, depending on the daily fluctuations in the value of the underlying contracts, and are recorded as unrealized gains or losses by the Fund. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Transactions in futures contracts require participants to make both initial margin deposits of cash or other assets and variation margin deposits, through the futures broker, directly with the exchange on which the contracts are traded. Net realized gains (losses) and net change in unrealized gains (losses) on futures contracts are included in the Funds Statements of Income and Expenses and Changes in Partners Capital.
Forward Foreign Currency Contracts. Forward foreign currency contracts are those contracts where the Fund agrees to receive or deliver a fixed quantity of foreign currency for an agreed-upon price on an agreed-upon future date. Forward foreign currency contracts are valued daily, and the Funds net equity therein, representing unrealized gain or loss on the contracts as measured by the difference between the forward foreign exchange rates at the dates of entry into the contracts and the forward rates at the reporting date, is included in the Funds Statements of Financial Condition. Net realized gains (losses) and net change in unrealized gains (losses) on forward foreign currency contracts are recognized in the period in which the contract is closed or the changes occur, respectively, and are included in the Funds Statements of Income and Expenses and Changes in Partners Capital.
London Metals Exchange Forward Contracts. Metal contracts traded on the London Metals Exchange (LME) represent a firm commitment to buy or sell a specified quantity of aluminum, copper, lead, nickel, tin or zinc. LME contracts traded by the Fund are cash settled based on prompt dates published by the LME. Variation margin may be made or received by the Fund each business day, depending on the daily fluctuations in the value of the underlying contracts, and are recorded as unrealized gains or losses by the Fund. A contract is considered offset when all long positions have been matched with a like number of short positions settling on the same prompt date. When the contract is closed at the prompt date, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Transactions in LME contracts require participants to make both initial margin deposits of cash or other assets and variation margin deposits, through the broker, directly with the LME. Net realized gains (losses) and net change in unrealized gains (losses) on metal contracts are included in the Funds Statements of Income and Expenses and Changes in Partners Capital.
Market risk is the potential for changes in the value of the financial instruments traded by the Fund due to market changes, including interest and foreign exchange rate movements and fluctuations in commodity or security prices. Market risk is directly impacted by the volatility and liquidity in the markets in which the related underlying assets are traded. The Partnership/Fund are exposed to a market risk equal to the value of the futures and forward contracts held and unlimited liability on such contracts sold short.
Credit risk is the possibility that a loss may occur due to the failure of a counterparty to perform according to the terms of a contract. The Partnerships/Funds risk of loss in the event of a counterparty default is typically limited to the amounts recognized in the Statements of Financial Condition and is not represented by the contract or notional amounts of the instruments. The Partnerships/Funds risk of loss is reduced through the use of legally enforceable master netting agreements with counterparties that permit the Partnership/Fund to offset unrealized gains and losses and other assets and liabilities with such counterparties upon the occurrence of certain events. The Partnership/Fund have credit risk and concentration risk, as MS&Co., an MS&Co. affiliate or JPMorgan are counterparties or brokers with respect to the Partnerships/Funds assets. Credit risk with respect to exchange-traded instruments is reduced to the extent that, through MS&Co. or an MS&Co. affiliate, the Partnerships/Funds counterparty is an exchange or clearing organization.
The General Partner monitors and attempts to mitigate the Partnerships/Funds risk exposure on a daily basis through financial, credit and risk management monitoring systems, and accordingly, believes that it has effective procedures for evaluating and limiting the credit and market risks to which the Partnership/Fund may be subject. These monitoring systems generally allow the General Partner to statistically analyze actual trading results with risk-adjusted performance indicators and correlation statistics. In addition, online monitoring systems provide account analysis of futures, forward and option contracts by sector, margin requirements, gain and loss transactions and collateral positions.
The majority of these financial instruments mature within one year of the inception date. However, due to the nature of the Funds business, these instruments may not be held to maturity.
In the ordinary course of business, the Fund enters into contracts and agreements that contain various representations and warranties and which provide general indemnifications. The Funds maximum exposure under these arrangements cannot be determined, as this could include future claims that have not yet been made against the Fund. The Fund considers the risk of any future obligation relating to these indemnifications to be remote.
The Partnership does not have, nor does it expect to have, any capital assets. The Partnership does not engage in sales of goods or services. Its only assets are its investment in the Fund, redemptions receivable from the Fund and cash. The Fund does not engage in sales of goods or services. The Funds only assets are its cash at bank and equity in trading account, consisting of unrestricted cash, restricted cash, net unrealized appreciation on open futures contracts, net unrealized appreciation on open forward contracts and investment in U.S. Treasury bills at fair value, if applicable. Because of the low margin deposits normally required in commodity futures trading, relatively small price movements may result in substantial losses to the Partnership. While substantial losses could lead to a material decrease in liquidity, no such illiquidity occurred during the third quarter of 2018.
The Funds investment in futures, forwards and options may, from time to time, be illiquid. Most U.S. futures exchanges limit fluctuations in prices during a single day by regulations referred to as daily price fluctuation limits or daily limits. Trades may not be executed at prices beyond the daily limit. If the price for a particular futures or option contract has increased or decreased by an amount equal to the daily limit, positions in that futures or option contract can neither be taken nor liquidated unless traders are willing to effect trades at or within the limit. Futures prices have occasionally moved the daily limit for several consecutive days with little or no trading. These market conditions could prevent the Fund from promptly liquidating its futures or option contracts and result in restrictions on redemptions.
There is no limitation on daily price movements in trading forward contracts on foreign currencies. The markets for some world currencies have low trading volume and are illiquid, which may prevent the Fund from trading in potentially profitable markets or prevent the Fund from promptly liquidating unfavorable positions in such markets, subjecting it to substantial losses. Either of these market conditions could result in restrictions on redemptions. For the periods covered by this report, illiquidity has not materially affected the Partnerships assets.
The Partnerships capital consists of the capital contributions of the partners, as increased or decreased by realized and/or unrealized gains or losses on trading and by expenses, interest income and redemptions of Redeemable Units and distributions of profits, if any.
For the nine months ended September 30, 2018, the Partnerships capital decreased 20.5% from $6,470,236 to $5,142,310. This decrease was attributable to a net loss of $413,414, coupled with redemptions of 744.5210 limited partner Redeemable Units totaling $899,512 and 12.1960 General Partner Redeemable Units totaling $15,000. Future redemptions can impact the amount of funds available for investment in the Fund in subsequent periods.
The Funds capital consists of the capital contributions of the partners as increased or decreased by net realized and/or unrealized gains or losses on futures trading, interest income, expenses, subscriptions, redemptions and distributions of profits, if any.
For the nine months ended September 30, 2018, the Funds capital decreased 25.9% from $14,696,911 to $10,895,763. This decrease was attributable to redemptions totaling $6,187,518, distribution of interest income to feeder funds, including the Partnership, totaling $103,768 and net loss of $303,089 which was partially offset by subscriptions totaling $2,793,227. Future redemptions can impact the amount of funds available for investment in commodity contract positions in subsequent periods.
The preparation of financial statements in conformity with GAAP requires the General Partner to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the reporting period. The General Partner believes that the estimates utilized in preparing the financial statements are reasonable. As a result, actual results could differ from those estimates. The Partnerships significant accounting policies are described in detail in Note 2, Basis of Presentation and Summary of Significant Accounting Policies, of the Financial Statements.
The Partnership/Fund record all investments at fair value in its financial statements, with changes in fair value reported as a component of net realized gains (losses) and net change in unrealized gains (losses) in the Statements of Income and Expenses and Changes in Partners Capital.
During the Partnerships third quarter of 2018, the net asset value per Redeemable Unit decreased 1.2% from $1,160.62 to $1,146.65 as compared to a decrease of 2.2% in the third quarter of 2017. The Partnership experienced a net trading gain before fees and expenses in the third quarter of 2018 of $19,112. Gains were primarily attributable to the Funds trading of commodity futures in energy, U.S. interest rates, metals and softs and were partially offset by losses in currencies, grains, indices, non-U.S. interest rates and livestock. The Partnership experienced a net trading loss before fees and expenses in the third quarter of 2017 of $34,228. Losses were primarily attributable to the Funds trading of commodity futures in currencies, grains, U.S. and non-U.S. interest rates, livestock, metals and softs and were partially offset by gains in energy and indices.
The most notable losses were incurred within the currency sector during July and September from positions in the euro versus the U.S. dollar as competing geopolitical and economic tensions resulted in choppy price action for the European currency. Within the global interest rate markets, losses were experienced during July and September from long positions in European fixed income futures. Additional losses within the interest rate sector were incurred during August from short positions in U.S. fixed income futures as growing political turmoil surrounding the Trump Administration raised demand for the safety of government debt. Further losses were recorded within the global stock index sector during September from long futures positions in Asian equity indices as prices fell amid the uncertain impact of the U.S. and Chinese trade dispute. The Partnerships losses for the quarter were offset by gains achieved within the energy sector during August and September from long positions in crude oil and its refined products as global supply shortfalls pushed prices higher. Gains within the metals markets were primarily recorded during August from short positions in copper futures as continued trade tensions between the U.S. and China weighed on prices. Additional gains within the metals sector during August were achieved from positions in gold and silver futures. Within the agricultural sector, gains were experienced during August from short positions in coffee and soybean futures as prices declined amid positive growing conditions in South America and the U.S.
During the Partnerships nine months ended September 30, 2018, the net asset value per Redeemable Unit decreased 7.1% from $1,234.46 to $1,146.65 as compared to a decrease of 14.3% during the nine months ended September 30, 2017. The Partnership experienced a net trading loss before fees and expenses during the nine months ended September 30, 2018 of $145,567. Losses were primarily attributable to the Funds trading of commodity futures in currencies, grains, indices, non-U.S. interest rates, livestock and metals and were partially offset by gains in energy, U.S. interest rates and softs. The Partnership experienced a net trading loss before fees and expenses during the nine months ended September 30, 2017 of $839,019. Losses were primarily attributable to the Funds trading of commodity futures in currencies, grains, energy, U.S. and non-U.S. interest rates and metals and were partially offset by gains in livestock, indices and softs.
The most notable losses were incurred within the currency sector during February and May as the U.S. dollar strengthened against most of its global peers. Further currency losses were experienced during July and September from positions in the euro. Losses within the global stock index sector were incurred during February from long positions in global stock indices as prices reversed sharply lower early in the month after previously trending higher for several months. Losses in equity indices were also experienced during September from long positions in Asian equity index futures. Losses within the global interest rate sector were primarily incurred during May from short positions in U.S. and European fixed income futures as bond prices spiked. Additional losses in the interest rate sector were recorded July and September from long positions in European fixed income futures.
In the metals, losses were recorded from positions in the industrial metals during March and April. During May, long positions in cocoa futures incurred losses as prices fell dramatically. Smaller losses in the agricultural markets were experienced due to grains trading in January, April, and May. A portion of the Partnerships losses during the first nine months of the year was offset by gains achieved during January, March, April, May, August, and September from long positions in crude oil and its refined products as global supply shortfalls and geopolitical tensions in the Middle East and Russia pushed prices higher.
Commodity markets are highly volatile. Broad price fluctuations and rapid inflation increase the risks involved in commodity trading, but also increase the possibility of profit. The profitability of the Fund depends on the existence of major price trends and the ability of the Advisor to correctly identify those price trends. Price trends are influenced by, among other things, changing supply and demand relationships, weather, governmental, agricultural, commercial and trade programs and policies, national and international political and economic events and changes in interest rates. To the extent that market trends exist and the Advisor is able to identify them, the Fund expects to increase capital through operations.
Interest income on 80% of the average daily equity maintained in cash in the Partnerships (or the Partnerships allocable portion of the Funds) brokerage account during each month is earned at the rate equal to the monthly average of the 4-week U.S. Treasury bill discount rate. For the avoidance of doubt, the Partnership/Fund will not receive interest on amounts in the futures brokerage account that are committed to margin. Any interest earned on the Partnerships and/or the Funds account in excess of the amounts described above, if any, will be retained by MS&Co. and/or shared with the General Partner. All interest earned on U.S. Treasury bills and money market mutual fund securities will be retained by the Partnership and/or the Fund, as applicable. Any interest income earned on collateral or excess cash deposited by the Fund and held by JPMorgan in its capacity as the Funds forward foreign currency counterparty will be retained by the Fund, and the Partnership will receive its allocable portion of such interest from the Fund. Interest income for the three and nine months ended September 30, 2018 increased by $5,529 and $20,234, respectively, as compared to the corresponding periods in 2017. The increase in interest income was primarily due to higher 4-week U.S. Treasury bill discount rates along with additional interest income earned on U.S. Treasury bills during the three and nine months ended September 30, 2018 as compared to the corresponding periods in 2017. The amount of interest income earned by the Partnership/Fund depends on (1) the average daily equity maintained in cash in the Partnerships/Funds accounts, (2) the amount of U.S. Treasury bills and/or money market mutual fund securities held by the Partnership and/or the Fund and (3) interest rates over which none of the Partnership, the Fund, MS&Co. or JPMorgan has control.
Ongoing selling agent fees are calculated as a percentage of the Partnerships adjusted net asset value as of the end of each month and are affected by trading performance and redemptions. Accordingly, they must be compared in relation to the fluctuations in the monthly net asset values. Ongoing selling agent fees for the three and nine months ended September 30, 2018 decreased by $6,743 and $25,308, respectively, as compared to the corresponding periods in 2017. The decrease in ongoing selling agent fees is due to lower average net assets during the three and nine months ended September 30, 2018 as compared to the corresponding periods in 2017.
Management fees are calculated as a percentage of the Partnerships adjusted net asset value as of the end of each month and are affected by trading performance and redemptions. Accordingly, they must be compared in relation to the fluctuations in the monthly net asset values. Management fees for the three and nine months ended September 30, 2018 decreased by $2,804 and $10,851, respectively, as compared to the corresponding periods in 2017. The decrease in the management fees was due to lower average net assets during the three and nine months ended September 30, 2018 as compared to the corresponding periods in 2017.
General Partner fees are paid to the General Partner for administering the business and affairs of the Partnership including, among other things, (i) selecting, appointing and terminating the Partnerships commodity trading advisors and (ii) monitoring the activities of the commodity trading advisors. These fees are calculated as a percentage of the Partnerships adjusted net asset value as of the end of each month and are affected by trading performance and redemptions. Accordingly, they must be analyzed in relation to the fluctuations in the monthly net asset values. General Partner fees for the three and nine months ended September 30, 2018 decreased by $2,956 and $11,167, respectively, as compared to the corresponding periods in 2017. The decrease in General Partner fees was due to lower average net assets during the three and nine months ended September 30, 2018 as compared to the corresponding periods in 2017.
Incentive fees are based on the new trading profits generated by the Advisor as defined in the management agreement among the Partnership, the General Partner and the Advisor and are payable annually. There were no incentive fees paid for the three and nine months ended September 30, 2018 and 2017. To the extent the Advisor incurs a loss for the Partnership, the Advisor will not be paid incentive fees until such Advisor recovers any net loss incurred by the Advisor and earns additional new trading profits for the Partnership.
In allocating substantially all of the assets of the Partnership to the Advisor, the General Partner considers, among other factors, the Advisors past performance, trading style, volatility of markets traded and fee requirements. The General Partner may modify or terminate the allocation of assets to the Advisor and allocate assets to additional advisors at any time.
All or substantially all of the Partnerships assets are subject to the risk of trading loss through its investment in the Fund. The Partnership/Fund are speculative commodity pools. The market sensitive instruments held by them are acquired for speculative trading purposes, and all or substantially all of the Partnerships/Funds 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 Funds main lines of business.
Market movements result in frequent changes in the fair value of the Partnerships/Funds open contracts and, consequently in their earnings and cash balances. The Partnerships/Funds market risks are influenced by a wide variety of factors, including the level and volatility of interest rates, exchange rates, equity price levels, the market value of financial instruments and contracts, the diversification effects of the Partnerships/Funds open contracts and the liquidity of the markets in which they trade.
The Partnership/Fund rapidly acquire and liquidate 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 Partnerships/Funds past performances are not necessarily indicative of their future results.
The following quantitative disclosures regarding the Funds market risk exposures contain forward-looking statements within the meaning of the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act)). All quantitative disclosures in this section are deemed to be forward-looking statements for purposes of the safe harbor, except for statements of historical fact.
The Fund accounts for open positions on the basis of fair value accounting principles. Any losses in the market value of the Funds open positions are directly reflected in the Partnerships earnings and cash flow.
The Funds risk exposure in the market sectors traded by the Advisor is estimated below in terms of Value at Risk. Please note that the Value at Risk model is used to numerically quantify market risk for historic reporting purposes only and is not utilized by either the General Partner or the Advisor in their daily risk management activities.
Value at Risk is a measure of the maximum amount which the Fund could reasonably be expected to lose in a given market sector. However, the inherent uncertainty of the Funds speculative trading and the recurrence in the markets traded by the Fund of market movements far exceeding expectations could result in actual trading or non-trading losses far beyond the indicated Value at Risk or the Funds experiences to date (i.e., risk of ruin). In light of the foregoing, as well as the risks and uncertainties intrinsic to all future projections, the inclusion of the quantification in this section should not be considered to constitute any assurance or representation that the Funds losses in any market sector will be limited to Value at Risk or by the Funds attempts to manage its market risks.
Exchange margin requirements have been used by the Fund as the measure of its Value at Risk. Margin requirements are set by exchanges to equal or exceed the maximum losses reasonably expected to be incurred in the fair value of any given contract in 95%-99% of any one-day interval. The margin levels are established by dealers and exchanges using historical price studies as well as an assessment of current market volatility (including the implied volatility of the options on a given futures contract) and economic fundamentals to provide a probabilistic estimate of the maximum expected near-term one-day price fluctuation.
Value at Risk tables represent a probabilistic assessment of the risk of loss in market risk sensitive instruments. The Advisor currently trades the Partnerships assets indirectly in master fund managed accounts established in the name of the Fund over which they have been granted limited authority to make trading decisions. The following tables indicate the trading Value at Risk associated with the Funds open positions by market category as of September 30, 2018 and December 31, 2017, and the highest, lowest and average value during the three months ended September 30, 2018 and during the twelve months ended December 31, 2017. All open position trading risk exposures of the Fund have been included in calculating the figures set forth below. There has been no material change in the trading Value at Risk information previously disclosed in the Partnerships Annual Report on Form 10-K for the year ended December 31, 2017.
3.1  Certificate of Amendment of the Certificate of Limited Partnership as filed in the Office of the Secretary of State of the State of New York, dated November 6, 2018 (filed herewith).
3.2  Amendment No. 4 to the Limited Partnership Agreement, dated November 6, 2018 (filed herewith).