5. DERIVATIVE FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK

The Trading Company seeks to achieve its investment objective by participation in the AHL Diversified Program directed on behalf of the Trading Company by the Advisor. The AHL Diversified Program is a price trend-following trading system, entirely quantitative in nature, and implements trading positions on the basis of statistical analyses of past price histories. The objective of the AHL Diversified Program is to deliver substantial capital growth for commensurate levels of volatility over the medium term, independent of the movement of the stock and bond markets, through the speculative trading, directly and indirectly, of physical commodities, futures contracts, spot and forward contracts, swaps and options on the foregoing, exchanges of futures for physical transactions and other investments on domestic and international exchanges and markets (including the interbank and over-the-counter markets (“OTC”)). The AHL Diversified Program trades globally in several market sectors, including, without limitation, currencies, bonds, energies, stock indices, interest rates, metals and agriculture.

All of the strategies and systems of the AHL Diversified Program are designed to target defined volatility levels rather than returns, and the investment process is underpinned by computer-supported analytical instruments and disciplined real-time risk and management information systems. A proprietary risk measurement method similar to the industry standard “value-at-risk” helps ensure that the rule-based decisions that drive the investment process remain within pre-defined risk parameters. Margin-to-equity ratios are monitored daily, and the level of exposure in each market is quantifiable at any time and is adjusted in accordance with market volatility. Market correlation is closely monitored to prevent over-concentration of risk and ensure optimal portfolio weightings. Market liquidity is examined with the objective of ensuring that the Trading Company will be able to initiate and close out trades as indicated by AHL Diversified Program’s systems at market prices, while brokerage selection and trade execution are continually monitored with the objective of ensuring quality market access.

Futures contracts, forward contracts and swap agreements are recorded on the trade date. Upon entering into futures contracts, forward contracts and swap agreements, the Trading Company may be required to deposit cash or collateral with the brokers. Gains or losses are realized when contracts are matured or closed. Unrealized gains or losses on open contracts and agreements (the difference between contract trade price and fair value) are reported in the Statements of Financial Condition.

Interest rate swaps relate to agreements taken out by the Trading Company with major brokers in which the Trading Company either receives or pays a floating rate of interest in return for paying or receiving, respectively, a fixed rate of interest, on the same notional amount for a specified period of time. In the normal course of business, the payment flows are netted against each other, with the difference being paid by one party to the other. Changes in the value of the interest rate swap agreements and amounts received or paid in connection with those changes, are recognized as realized trading gains/(losses) on closed contracts/agreements in the Statements of Operations. The risks related to trading in interest rate swaps include changes in market value and the possible inability of the counterparty to fulfill its obligations under the agreement. As of the period ended March 31, 2025, the Trading Company does not hold any open interest rate swap agreements.

The Trading Company may enter into short sales. In order to facilitate a short sale, the Trading Company borrows the applicable financial instrument from a broker or counterparty and delivers it to a buyer. A short sale by the Trading Company creates an obligation on the part of the Trading Company to thereafter purchase the financial instrument in the market at the prevailing market price and deliver it to the broker or counterparty from which it was borrowed. The Trading Company is exposed to the risk of loss to the extent that the price of a financial instrument sold short by the Trading Company increases from the time the Trading Company borrows the financial instrument to the time the Trading Company purchases it in the market to satisfy the Trading Company’s delivery obligation. Consequently, the ultimate cost to the Trading Company to acquire a financial instrument sold short may exceed the amount recognized in financial statements.

The Trading Company may enter into credit default swap agreements to provide a measure of protection against the default of an issuer (as buyer of protection) and/or gain credit exposure to an issuer to which it is not otherwise exposed (as seller of protection). Credit default swaps are agreements in which one party pays fixed periodic payments to a counterparty in consideration for a guarantee from the counterparty to make a specific payment should a negative credit event take place (e.g. default, bankruptcy, debt restructuring, etc.). The Trading Company may either buy or sell (write) credit default swaps. As a buyer, upon the occurrence of a specified negative credit event, the Trading Company will either receive from the seller an amount equal to the notional amount of the swap and deliver the referenced security or underlying securities comprising an index or receive a net settlement of cash equal to the notional amount of the swap less the agreed upon recovery value of the security or underlying securities comprising an index. As a seller (writer), upon the occurrence of a specified negative credit event, the Trading Company will either pay the buyer an amount equal to the notional amount of the swap and take delivery of the referenced security or underlying securities comprising an index or pay a net settlement of cash equal to the notional amount of the swap less the agreed upon recovery value of the security or underlying securities comprising an index. In the event of default by the counterparty, the Trading Company may recover amounts paid under the agreement either partially or in total by offsetting any payables and/or receivables with collateral held or pledged. The counterparty risk for centrally-cleared credit default swap agreements is generally lower than for credit default swap agreements not centrally-cleared. However, there can be no assurance that the clearing organization, or its members, will satisfy its obligations to the Trading Company.

These periodic payments received or made under swap agreements by the Trading Company are included in net realized trading gains/(losses) on closed contracts/agreements in the Statements of Operations. When the swap is terminated, the Trading Company will record a realized gain/(loss) equal to the difference between the proceeds from (or cost of) closing the transaction and the Trading Company’s basis in the contract, if any.

Swap transactions involve, to varying degrees, elements of credit and market risk in excess of the amounts recognized in the Statements of Financial Condition. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparty or the clearing organization to the agreements may default on its obligation to perform or disagree as to the meaning of the contractual terms in the agreements, and that there may be unfavorable changes in interest rates and/or market values associated with these transactions.

As of March 31, 2025 and December 31, 2024, the total fair value and notional amounts of credit default swaps on indices where the Trading Company is the seller is presented in the following table by contract terms:


	Fair Value and Notional Amounts by Contract Term
	March 31, 2025					December 31, 2024
	1-5 years					1-5 years
Credit spread (in basis points)	Fair Value			Notional Amount		Fair Value			Notional Amount
0-100	$	(142,158	)	$	132,761,500	$	(113,555	)	$	233,764,250
101-250		-			-		-			-
251-350		(109,320	)		27,042,500		(537,573	)		61,075,500
351-450		-			-	-			-
450+		-			-		-			-
Total	$	(251,478	)	$	159,804,000	$	(651,128	)	$	294,839,750

The notional amount represents the maximum potential pay out that the Trading Company could be required to make if a credit event were to occur under each agreement. The maximum payout amount may be offset by the subsequent sale, if any, of assets obtained via the execution of a payout event, upfront fees received upon entering into the contracts, or net amounts received from the settlement of offsetting purchased protection in credit default swap contracts entered into by the Trading Company for the same reference entity or entities. As at March 31, 2025 and December 31, 2024, all credit default swap contracts entered into by the Trading Company are on indices. The credit spread is generally indicative of the status of the underlying risk of default by the applicable reference entity or index and is likely to be different than the contractual spread on the credit default swap. Higher credit spreads are indicative of a higher likelihood of non-performance by the underlying reference entity.

During the three months ended March 31, 2025 and 2024, the Trading Company traded the following derivative contracts:


	For the three months ended March 31,
Number of contracts traded/settled	2025		2024
Exchange-traded futures contracts		28,553		26,436
Forward contracts		26,197		61,688
Swap agreements		339		180

As at March 31, 2025 and December 31, 2024, the gross notional value of open derivatives contracts is as follows:


Gross notional value of open contracts	March 31, 2025		December 31, 2024
Exchange-traded futures contracts	$	1,044,379,195	$	1,831,013,820
Commodity forwards	$	25	$	125
Forward contracts	$	1,004,117,362	$	2,052,749,878
Swap agreements	$	207,255,000	$	350,915,250

The trading activity of open future, forward and swap contracts as of March 31, 2025, December 31, 2024 and March 31, 2024 is indicative of the trading activity throughout the periods.

The Trading Company trades derivative financial instruments that involve varying degrees of market and credit risk. Market risks may arise from unfavorable changes in interest rates, foreign exchange rates, or the fair values of the instruments underlying the contracts. All contracts are stated at fair value, and changes in those values are reflected in the net change in unrealized trading appreciation/(depreciation) on open contracts/agreements in the Statements of Operations. Credit risk arises from the potential inability of counterparties to perform in accordance with the terms of a contract. The credit risk for OTC derivative contracts is limited to the net unrealized gain plus any collateral posted net of unrealized losses or upfront fees posted, if any, for each counterparty for which a netting agreement exists and is included in the Statements of Financial Condition. Upfront fees are listed in the Statements of Financial Condition as net premiums paid/received on credit default swap agreements and are shown net by counterparty for which a netting agreement exists. Counterparty relationships are governed by various contracts. These contracts can be based on industry standard agreements, such as International Swap and Derivatives Association agreements for OTC contracts. These agreements set forth each party’s basic rights, responsibilities, and duties. These agreements also contain information regarding financial terms and conditions, as well as termination and events of default provisions. Certain agreements contain provisions that require the Trading Company to post additional collateral upon the occurrence of specific credit risk related events or upon notice from the counterparty. As the Trading Company’s trading strategies are dependent upon the existence of these agreements, the Trading Company’s counterparties usually have multiple specified events under which they can terminate individual transactions or the entire agreement. These are most commonly related to declines in assets under management and performance below certain thresholds during a specified period. It is not guaranteed that counterparties will move to terminate individual transactions or entire agreements if a

“trigger event” were to occur; however, it is their right to do so, and such a move could severely impact the Trading Company’s portfolio. At March 31, 2025 and December 31, 2024, the OTC contracts subject to such trigger events in a net liability position were the foreign currency forward contracts. The details of the net liability positions by counterparty are disclosed later in this note on the additional disclosures regarding the offsetting of derivative liabilities table. The ultimate amounts that may be required as payment to settle the derivative instruments in connection with the triggering of such credit contingency features as at March 31, 2025 and December 31, 2024, may differ from the net liability amounts recorded as at March 31, 2025 and December 31, 2024, and such differences can be material.

For exchange-traded futures contracts, the clearing organization functions as the central counterparty for each transaction and, therefore, bears the risk of settlement to and from counterparties, which mitigates the credit risk of these instruments.

As of March 31, 2025 and December 31, 2024, all credit default swaps held by the Trading Company are centrally cleared swaps.

The following table presents the fair value of the Trading Company’s derivative instruments:


	March 31, 2025
	Asset Derivatives			Liability Derivatives
Primary Risk Exposure	Statements of Financial Condition*	Fair Value		Statements of Financial Condition*	Fair Value
Open forward contracts Currencies	Gross unrealized trading appreciation on open forward contracts	$	8,923,844	Gross unrealized trading depreciation on open forward contracts	$	(10,961,482	)
Metals			10,489			(662,994	)
Total open forward contracts			8,934,333			(11,624,476	)
Open futures contracts Agricultural	Gross unrealized trading appreciation on open futures contracts		1,430,209	Gross unrealized trading depreciation on open futures contracts		(738,385	)
Currencies			-			(13,335	)
Energy			264,730			(1,339,221	)
Indices			259,730			(2,155,534	)
Interest rates			749,328			(424,940	)
Metals			1,260,107			(52,760	)
Total open futures contracts			3,964,104			(4,724,175	)
Open swap agreements Credit	Gross unrealized trading appreciation on open swap agreements		9,932	Gross unrealized trading depreciation on open swap agreements		(266,420	)
Total open swap agreements			9,932			(266,420	)
Total Derivatives		$	12,908,369		$	(16,615,071	)


	December 31, 2024
	Asset Derivatives			Liability Derivatives
Primary Risk Exposure	Statements of Financial Condition*	Fair Value		Statements of Financial Condition*	Fair Value
Open forward contracts Currencies	Gross unrealized trading appreciation on open forward contracts	$	18,320,534	Gross unrealized trading depreciation on open forward contracts	$	(7,193,717	)
Metals			278,487			(224,779	)
Total open forward contracts			18,599,021			(7,418,496	)
Open futures contracts Agricultural	Gross unrealized trading appreciation on open futures contracts		2,523,803	Gross unrealized trading depreciation on open futures contracts		(881,669	)
Currencies			227,263			-
Energy			153,874			(585,309	)
Indices			253,961			(1,487,792	)
Interest rates			1,756,020			(720,227	)
Metals			340,648			(203,185	)
Total open futures contracts			5,255,569			(3,878,182	)
Open swap agreements Credit	Gross unrealized trading appreciation on open swap agreements		1,412	Gross unrealized trading depreciation on open swap agreements		(703,235	)
Total open swap agreements			1,412			(703,235	)
Total Derivatives		$	23,856,002		$	(11,999,913	)

* Net cumulative unrealized appreciation/(depreciation) on futures contracts, forward contracts and centrally cleared swaps respectively, are reported in the Statements of Financial Condition.

The following table presents the impact of derivative instruments on the Statements of Operations:


	For the three months ended March 31,
	2025			2024
	Gain/(Loss) on			Gain/(Loss) on
Location of gain or loss recognized in income on derivatives	derivatives			derivatives
Forward contracts
Currencies	$	4,890,792		$	(4,935,700	)
Metals		(118,115	)		(839,213	)
Net realized trading gains/(losses) on closed contracts/agreements	$	4,772,677		$	(5,774,913	)
Currencies	$	(13,164,454	)	$	10,196,787
Metals		(706,213	)		(35,717	)
Net change in unrealized trading appreciation/(depreciation) on open contracts/agreements	$	(13,870,667	)	$	10,161,070
Futures contracts
Agricultural	$	54,224		$	5,093,160
Currencies		(87,214	)		(23,581	)
Energy		(1,729,796	)		1,181,751
Indices		1,258,556			9,903,101
Interest rates		(4,464,614	)		(1,332,661	)
Metals		1,478,518			(2,043,040	)
Net realized trading gains/(losses) on closed contracts/agreements	$	(3,490,326	)	$	12,778,730
Agricultural	$	(950,312	)	$	(748,518	)
Currencies		(240,598	)		36,283
Energy		(643,057	)		2,119,144
Indices		(661,972	)		2,915,128
Interest rates		(711,405	)		(1,631,558	)
Metals		1,069,885			937,890
Net change in unrealized trading appreciation/(depreciation) on open contracts/agreements	$	(2,137,459	)	$	3,628,369
Swap agreements
Credit default swaps	$	(843,368	)	$	3,602,257
Net realized trading gains/(losses) on closed contracts/agreements	$	(843,368	)	$	3,602,257
Credit default swaps	$	510,899		$	(1,576,502	)
Net change in unrealized trading appreciation/(depreciation) on open contracts/agreements	$	510,899		$	(1,576,502	)

Amounts in the table above exclude foreign exchange spot contracts.

As described above, the Trading Company may enter into netting agreements with its derivative contract counterparties whereby the Trading Company may, under certain circumstances, offset with the counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment. As at March 31, 2025 and December 31, 2024, the Trading Company was subject to netting agreements that allowed for amounts owed between the Trading Company and its counterparty to be netted. The party that has the larger payable pays the excess of the larger amount over the smaller amount to the other party. The netting agreements do not apply to amounts owed to or from different counterparties.

The following table provides additional disclosures regarding the offsetting of derivative assets presented in the Statements of Financial Condition:


								Gross Amounts Not Offset in the Statements of Financial Condition
	Gross Amounts of Recognized Assets		Gross Amount offset in the Statements of Financial Condition			Net Amounts of Assets presented in the Statements of Financial Condition		Financial Instruments		Cash Collateral Received		Net Amount
As at March 31, 2025
Open futures contracts
Bank of America Merrill Lynch	$	2,240,002	$	(2,233,061	)	$	6,941	$	-	$	-	$	6,941
Goldman Sachs		421,699		(421,699	)		-		-		-		-
J.P. Morgan Chase		1,302,403		(575,556	)		726,847		-		-		726,847
Total Open futures contracts	$	3,964,104	$	(3,230,316	)	$	733,788	$	-	$	-	$	733,788
Open forward contracts
BNP Paribas	$	426,053	$	(376,931	)	$	49,122	$	-	$	-	$	49,122
BNY Mellon		44,044		(12,124	)		31,920		-		-		31,920
Citigroup		2,891,228		(2,891,228	)		-		-		-	-
HSBC		3,790,109		(3,499,862	)		290,247		-		-		290,247
J.P. Morgan Chase		10,489		(10,489	)		-		-		-		-
Natwest f/k/a Royal Bank of Scotland		1,772,410		(1,772,410	)		-		-		-		-
Total Open forward contracts	$	8,934,333	$	(8,563,044	)	$	371,289	$	-	$	-	$	371,289
Open swap agreements
Goldman Sachs	$	9,932	$	(9,932	)	$	-	$	-	$	-	$	-
Total Open swap agreements	$	9,932	$	(9,932	)	$	-	$	-	$	-	$	-
As at December 31, 2024
Open futures contracts
Bank of America Merrill Lynch	$	3,010,620	$	(1,853,245	)	$	1,157,375	$	-	$	-	$	1,157,375
Goldman Sachs		192,543		(192,543	)		-		-		-		-
J.P. Morgan Chase		2,052,406		(905,673	)		1,146,733		-		-		1,146,733
Total Open futures contracts	$	5,255,569	$	(2,951,461	)	$	2,304,108	$	-	$	-	$	2,304,108
Open forward contracts
BNP Paribas	$	151,311	$	(151,311	)	$	-	$	-	$	-	$	-
BNY Mellon		42,871		-			42,871		-		-		42,871
Citigroup		2,818,627		(1,147,156	)		1,671,471		-		-		1,671,471
HSBC		13,029,081		(3,889,022	)		9,140,059		-		-		9,140,059
J.P. Morgan Chase		278,487		(224,779	)		53,708		-		-		53,708
Natwest f/k/a Royal Bank of Scotland		2,278,644		(1,976,446	)		302,198		-		-		302,198
Total Open forward contracts	$	18,599,021	$	(7,388,714	)	$	11,210,307	$	-	$	-	$	11,210,307
Open swap agreements
Goldman Sachs	$	1,412	$	(1,412	)	$	-	$	-	$	-	$	-
Total Open swap agreements	$	1,412	$	(1,412	)	$	-	$	-	$	-	$	-

The following table provides additional disclosures regarding the offsetting of derivative liabilities presented in the Statements of Financial Condition:


								Gross Amounts Not Offset in the Statements of Financial Condition
	Gross Amounts of Recognized Liabilities		Gross Amount Offset in the Statements of Financial Condition			Net Amounts of Liabilities Presented in the Statements of Financial Condition		Financial Instruments		Cash Collateral Pledged			Net Amount
As at March 31, 2025
Open futures contracts
Bank of America Merrill Lynch	$	2,233,061	$	(2,233,061	)	$	-	$	-	$	-		$	-
Goldman Sachs		1,915,558		(421,699	)		1,493,859		-		-			1,493,859
J.P. Morgan Chase		575,556		(575,556	)		-		-		-			-
Total Open futures contracts	$	4,724,175	$	(3,230,316	)	$	1,493,859	$	-	$	-		$	1,493,859
Open forward contracts
BNP Paribas	$	376,931	$	(376,931	)	$	-	$	-	$	-		$	-
BNY Mellon		12,124		(12,124	)		-		-		-			-
Citigroup		4,071,914		(2,891,228	)		1,180,686		-		-			1,180,686
HSBC		3,499,862		(3,499,862	)		-		-		-			-
J.P. Morgan Chase		662,994		(10,489	)		652,505		-		-			652,505
Natwest f/k/a Royal Bank of Scotland		3,000,651		(1,772,410	)		1,228,241		-		-			1,228,241
Total Open forward contracts	$	11,624,476	$	(8,563,044	)	$	3,061,432	$	-	$	-		$	3,061,432
Open swap agreements
Barclays	$	31,153	$	-		$	31,153	$	-	$	-		$	31,153
Goldman Sachs		235,267		(9,932	)		225,335		-		-			225,335
Total Open swap agreements	$	266,420	$	(9,932	)	$	256,488	$	-	$	-		$	256,488
As at December 31, 2024
Open futures contracts
Bank of America Merrill Lynch	$	1,853,245	$	(1,853,245	)	$	-	$	-	$	-		$	-
Goldman Sachs		1,119,264		(192,543	)		926,721		-		(926,721	)		-
J.P. Morgan Chase		905,673		(905,673	)		-		-		-			-
Total Open futures contracts	$	3,878,182	$	(2,951,461	)	$	926,721	$	-	$	(926,721	)	$	-
Open forward contracts
BNP Paribas	$	181,093	$	(151,311	)	$	29,782	$	-	$	(29,782	)	$	-
Citigroup		1,147,156		(1,147,156	)		-		-		-			-
HSBC		3,889,022		(3,889,022	)		-		-		-			-
J.P. Morgan Chase		224,779		(224,779	)		-		-		-			-
Natwest f/k/a Royal Bank of Scotland		1,976,446		(1,976,446	)		-		-		-			-
Total Open forward contracts	$	7,418,496	$	(7,388,714	)	$	29,782	$	-	$	(29,782	)	$	-
Open swap agreements
Barclays	$	113,489	$	-		$	113,489	$	-	$	(113,489	)	$	-
Goldman Sachs		244,921		(1,412	)		243,509		-		(243,509	)		-
J.P. Morgan Chase		344,825		-			344,825		-		(344,825	)		-
Total Open swap agreements	$	703,235	$	(1,412	)	$	701,823	$	-	$	(701,823	)	$	-

Only the amount of the collateral up to the net amount of liabilities presented in the Statements of Financial Condition is disclosed above.

MAN AHL DIVERSIFIED I LP 10-Q