TRADING ACTIVITIES AND RELATED RISKS | 6 Months Ended |
Jun. 30, 2014 |
TRADING ACTIVITIES AND RELATED RISKS [Abstract] | ' |
TRADING ACTIVITIES AND RELATED RISKS | ' |
Note 10. TRADING ACTIVITIES AND RELATED RISKS |
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The Trust engages in the speculative trading of U.S. and foreign futures contracts and forward currency contracts (collectively, "derivatives"). Specifically, the Fund trades a portfolio focused on financial futures, which are instruments designed to hedge changes in interest rates, currency exchange rates, stock index values, metals, energy and agriculture values. The Trust is exposed to both market risk, the risk arising from changes in the fair value of the contracts, and credit risk, the risk of failure by another party to perform according to the terms of a contract. |
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Market Risk |
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For derivatives, risks arise from changes in the fair value of the contracts. Market movements result in frequent changes in the fair value of the Trust's open positions and, consequently, in its earnings and cash flow. The Trust's market risk is influenced by a wide variety of factors, including the level and volatility of exchange rates, interest rates, equity price levels, the fair value of financial instruments and contracts, the diversification effects among the Trust's open positions and the liquidity of the markets in which it trades. Theoretically, the Trust is exposed to a market risk equal to the notional contract value of futures and forward currency contracts purchased and unlimited liability on such contracts sold short. See Note 1. C. for an explanation of how the Trust determines its valuation for derivatives as well as the netting of derivatives. |
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The Trust adopted the provisions of ASC 815, Derivatives and Hedging, ("ASC 815"). ASC 815 provides enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments are accounted for, and how derivative instruments affect an entity's financial position, financial performance and cash flows. |
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The following tables summarize quantitative information required by ASC 815. The fair value of the Trust's derivatives by instrument type, as well as the location of those instruments on the Statements of Financial Condition, as of June 30, 2014 and December 31, 2013 are as follows: |
Type of Instrument * | | Statements of Financial | | Asset | | | Liability | | | Net | |
Condition Location | Derivatives at | Derivatives at |
| 30-Jun-14 | 30-Jun-14 |
| Fair Value | Fair Value |
Agriculture Contracts | | Net unrealized gain (loss) on open futures contracts | | $ | 4,950,491 | | | $ | (3,827,136 | ) | | $ | 1,123,355 | |
Energy Contracts | | Net unrealized gain (loss) on open futures contracts | | | 138,490 | | | | (1,847,427 | ) | | | (1,708,937 | ) |
Metal Contracts | | Net unrealized gain (loss) on open futures contracts | | | 8,677,790 | | | | (5,311,773 | ) | | | 3,366,017 | |
Stock Indices Contracts | | Net unrealized gain (loss) on open futures contracts | | | 4,950,329 | | | | (2,635,834 | ) | | | 2,314,495 | |
Short-Term Interest Rate Contracts | | Net unrealized gain (loss) on open futures contracts | | | 286,058 | | | | (608,352 | ) | | | (322,294 | ) |
Long-Term Interest Rate Contracts | | Net unrealized gain (loss) on open futures contracts | | | 7,754,673 | | | | (192,891 | ) | | | 7,561,782 | |
Forward Currency Contracts | | Net unrealized gain (loss) on open forward currency contracts | | | 27,877,472 | | | | (21,060,968 | ) | | | 6,816,504 | |
Totals | | | | $ | 54,635,303 | | | $ | (35,484,381 | ) | | $ | 19,150,922 | |
* Derivatives not designated as hedging instruments under ASC 815 | |
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Type of Instrument * | | Statements of Financial | | Asset | | | Liability | | | Net | |
Condition Location | Derivatives at | Derivatives at |
| 31-Dec-13 | 31-Dec-13 |
| Fair Value | Fair Value |
Agriculture Contracts | | Net unrealized gain (loss) on open futures contracts | | $ | 3,458,947 | | | $ | (1,515,754 | ) | | $ | 1,943,193 | |
Energy Contracts | | Net unrealized gain (loss) on open futures contracts | | | 49,766 | | | | (1,270,622 | ) | | | (1,220,856 | ) |
Metal Contracts | | Net unrealized gain (loss) on open futures contracts | | | 4,295,522 | | | | (5,323,594 | ) | | | (1,028,072 | ) |
Stock Indices Contracts | | Net unrealized gain (loss) on open futures contracts | | | 16,576,413 | | | | (170,779 | ) | | | 16,405,634 | |
Short-Term Interest Rate Contracts | | Net unrealized gain (loss) on open futures contracts | | | 863,795 | | | | (2,373,859 | ) | | | (1,510,064 | ) |
Long-Term Interest Rate Contracts | | Net unrealized gain (loss) on open futures contracts | | | 1,429,833 | | | | (282,656 | ) | | | 1,147,177 | |
Forward Currency Contracts | | Net unrealized gain (loss) on open forward currency contracts | | | 27,238,177 | | | | (23,596,891 | ) | | | 3,641,286 | |
Totals | | | | $ | 53,912,453 | | | $ | (34,534,155 | ) | | $ | 19,378,298 | |
* Derivatives not designated as hedging instruments under ASC 815 | |
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The trading gains and losses of the Trust's derivatives by instrument type, as well as the location of those gains and losses on the Statements of Operations, for the three months and six months ended June 30, 2014 and 2013 are as follows: |
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Type of Instrument | | Trading Gains (Losses) for | | | Trading Gains (Losses) for | | | | | | | |
the Three Months Ended | the Three Months Ended | | | | | | |
30-Jun-14 | 30-Jun-13 | | | | | | |
Agriculture Contracts | | $ | -2,157,719 | | | $ | 5,946 | | | | | | | |
Energy Contracts | | | (3,306,253 | ) | | | (1,774,082 | ) | | | | | | |
Metal Contracts | | | 1,541,064 | | | | 34,351,273 | | | | | | | |
Stock Indices Contracts | | | 18,439,489 | | | | 2,219,375 | | | | | | | |
Short-Term Interest Rate Contracts | | | (5,902,373 | ) | | | (2,373,625 | ) | | | | | | |
Long Term Interest Rate Contracts | | | 26,264,340 | | | | (1,763,449 | ) | | | | | | |
Forward Currency Contracts | | | (3,470,121 | ) | | | (680,248 | ) | | | | | | |
Total | | $ | 31,408,427 | | | $ | 29,985,190 | | | | | | | |
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Type of Instrument | | Trading Gains (Losses) for | | | Trading Gains (Losses) for | | | | | | | |
the Six Months Ended | the Six Months Ended | | | | | | |
30-Jun-14 | 30-Jun-13 | | | | | | |
Agriculture Contracts | | $ | (1,883,361 | ) | | $ | 1,063,510 | | | | | | | |
Energy Contracts | | | (17,136,078 | ) | | | (5,484,189 | ) | | | | | | |
Metal Contracts | | | (13,632,742 | ) | | | 42,345,309 | | | | | | | |
Stock Indices Contracts | | | (14,357,312 | ) | | | 20,135,253 | | | | | | | |
Short-Term Interest Rate Contracts | | | (8,153,339 | ) | | | (9,010,094 | ) | | | | | | |
Long Term Interest Rate Contracts | | | 30,067,400 | | | | (6,538,499 | ) | | | | | | |
Forward Currency Contracts | | | (15,050,807 | ) | | | 16,945,242 | | | | | | | |
Total | | $ | (40,146,239 | ) | | $ | 59,456,532 | | | | | | | |
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Line Item in the Statements of Operations | | Trading Gains (Losses) for | | | Trading Gains (Losses) for | | | | | | | |
the Three Months Ended | the Three Months Ended | | | | | | |
30-Jun-14 | 30-Jun-13 | | | | | | |
Futures trading gains (losses): | | | | | | | | | | | | |
Realized** | | $ | 27,241,848 | | | $ | 31,481,794 | | | | | | | |
Change in unrealized | | | 7,636,700 | | | | (816,356 | ) | | | | | | |
Forward currency trading gains (losses): | | | | | | | | | | | | | | |
Realized | | | (7,226,596 | ) | | | 2,610,906 | | | | | | | |
Change in unrealized | | | 3,756,475 | | | | (3,291,154 | ) | | | | | | |
Total | | $ | 31,408,427 | | | $ | 29,985,190 | | | | | | | |
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Line Item in the Statements of Operations | | Trading Gains (Losses) for | | | Trading Gains (Losses) for | | | | | | | |
the Six Months Ended | the Six Months Ended | | | | | | |
30-Jun-14 | 30-Jun-13 | | | | | | |
Futures trading gains (losses): | | | | | | | | | | | | |
Realized** | | $ | (21,692,838 | ) | | $ | 33,933,854 | | | | | | | |
Change in unrealized | | | (3,402,594 | ) | | | 8,577,436 | | | | | | | |
Forward currency trading gains (losses): | | | | | | | | | | | | | | |
Realized | | | (18,226,025 | ) | | | 31,790,826 | | | | | | | |
Change in unrealized | | | 3,175,218 | | | | (14,845,584 | ) | | | | | | |
Total | | $ | (40,146,239 | ) | | $ | 59,456,532 | | | | | | | |
**Amounts differ from the amounts on the Statements of Operations as the amounts above do not include gains and losses on foreign currency cash balances at the futures broker. |
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For the three months ended June 30, 2014 and 2013, the monthly average of futures contracts bought and sold was approximately 86,100 and 79,400, respectively, and the monthly average of notional value of forward currency contracts was $5,623,600,000 and $3,802,000,000, respectively. |
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For the six months ended June 30, 2014 and 2013, the monthly average of futures contracts bought and sold was approximately 91,100 and 75,400, respectively, and the monthly average of notional value of forward currency contracts was $6,199,400,000 and $3,969,800,000, respectively. |
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Open contracts generally mature within twelve months; as of June 30, 2014, the latest maturity date for open futures contracts is September 2015 and the latest maturity date for open forward currency contracts is September 2014. However, the Trust intends to close all futures and offset all foreign currency contracts prior to maturity. |
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Credit Risk |
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The Trust trades futures contracts on exchanges that require margin deposits with the futures broker. Additional deposits may be necessary for any loss on contract value. The Commodity Exchange Act requires a futures broker to segregate all customer transactions and assets from such futures broker’s proprietary activities. A customer’s cash and other property (for example, U.S. Treasury Bills) deposited with a futures broker are considered commingled with all other customer funds subject to the futures broker’s segregation requirements. In the event of a futures broker’s insolvency, recovery may be limited to a pro rata share of segregated funds available. It is possible that the recovered amount could be less than total cash and other property deposited. |
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The Trust trades forward currency contracts in unregulated markets between principals and assumes the risk of loss from counterparty nonperformance. Accordingly, the risks associated with forward currency contracts are generally greater than those associated with exchange traded contracts because of the greater risk of counterparty default. Additionally, the trading of forward currency contracts typically involves delayed cash settlement. |
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The Trust has entered into an International Swaps and Derivatives Association Master Agreement (“ISDA Agreement”) with RBS. Under the terms of the ISDA agreement, upon the designation of an Event of Default, as defined in the ISDA Agreement, the non-defaulting party may set-off any sum or obligation owed by the defaulting party to the non-defaulting party against any sum or obligation owed by the non-defaulting party to the defaulting party. If any sum or obligation is unascertained, the non-defaulting party may in good faith estimate that sum or obligation and set-off in respect to that estimate, accounting to the other party when such sum or obligation is ascertained. |
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Under the terms of the agreement similar to a master netting agreement with UBS Securities, upon occurrence of a default by the Trust, as defined in respective account documents, UBS Securities has the right to close out any or all open contracts held in the Trust’s account; sell any or all of the securities held; and borrow or buy any securities, contracts or other property for the Trust’s account. The Trust would be liable for any deficiency in its account resulting from such transactions. |
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The amount of required margin and good faith deposits with the futures broker and interbank market makers usually range from 10% to 30% of Net Asset Value. The fair value of securities held to satisfy such requirements at June 30, 2014 and December 31, 2013 was $126,999,150 and $158,099,263, respectively, which equals 22% and 23% of Net Asset Value, respectively. The cash deposited with interbank market makers at June 30, 2014 and December 31, 2013 was $71,139 and $53,349, respectively, which equals 0% and 0% of Net Asset Value, respectively. These amounts are included in cash. There was no restricted cash at June 30, 2014 or December 31, 2013. |
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Set forth below are tables which disclose both gross information and net information about instruments and transactions eligible for offset in the Statements of Financial Condition and instruments and transactions that are subject to an agreement similar to a master netting agreement as well as amounts related to financial collateral (including U.S. Treasury Bills and cash collateral) held at clearing brokers and counterparties. Margin reflected in the Collateral tables is limited to the net amount of unrealized loss to each counterparty. Actual margin amounts required at each counterparty are based on the notional amounts or the number of contracts outstanding and may exceed the margin presented in the Collateral tables. |
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Offsetting of Derivative Assets | | | | | | | | | | | | | | |
As of June 30, 2014 | | | | | | | | | | | | | | |
Type of Instrument | Counterparty | | | Gross Amount of Recognized Assets | | | Gross Amounts Offset in the Statements of Financial Condition | | | Net Amount of Unrealized Gain Presented in the | | | | |
Statements of Financial Condition | | | | |
Futures contracts | UBS Securities LLC | | $ | 26,757,831 | | $ | -14,423,413 | | $ | 12,334,418 | | | | |
Forward currency contracts | Royal Bank of Scotland | | | 27,877,472 | | | -21,060,968 | | | 6,816,504 | | | | |
Total derivatives | | | $ | 54,635,303 | | $ | -35,484,381 | | $ | 19,150,922 | | | | |
Derivatives Assets and Collateral Received by Counterparty | | | | | | | | | | | | | | |
As of June 30, 2014 | | | | | | | | | | | |
| | | | | Gross Amounts Not Offset in the Statements of Financial Condition | | | | | | |
Counterparty | | Net Amount of Unrealized Gain in the Statements of Financial Condition | | | Financial Instruments | | | Cash Collateral Received | | | Net Amount | | | |
UBS Securities LLC | $ | 12,334,418 | | $ | 0 | | $ | 0 | | $ | 12,334,418 | | | |
Royal Bank of Scotland | | 6,816,504 | | | 0 | | | 0 | | | 6,816,504 | | | |
Total | $ | 19,150,922 | | $ | 0 | | $ | 0 | | $ | 19,150,922 | | | |
Offsetting of Derivative Liabilities | | | | | | | | | | | | | | |
As of June 30, 2014 | | | | | | | | | | | | | | |
Type of Instrument | Counterparty | | | Gross Amount of Recognized Liabilities | | | Gross Amounts Offset in the Statements of Financial Condition | | | Net Amount of Unrealized Loss Presented in the | | | | |
Statements of Financial Condition | | | | |
Futures contracts | UBS Securities LLC | | $ | 14,423,413 | | $ | -14,423,413 | | $ | 0 | | | | |
Forward currency contracts | Royal Bank of Scotland | | | 21,060,968 | | | -21,060,968 | | | 0 | | | | |
Total derivatives | | | $ | 35,484,381 | | $ | -35,484,381 | | $ | 0 | | | | |
Derivatives Liabilities and Collateral Pledged by Counterparty | | | | | | | | | | | | | | |
As of June 30, 2014 | | | | | | | | | | | |
| | | | | Gross Amounts Not Offset in the Statements of Financial Condition | | | | | | |
Counterparty | | Net Amount of Unrealized Loss in the Statements of Financial Condition | | | Financial Instruments | | | Cash Collateral Pledged | | | Net Amount | | | |
UBS Securities LLC | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | | |
Royal Bank of Scotland | | 0 | | | 0 | | | 0 | | | 0 | | | |
Total | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | | |
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Offsetting of Derivative Assets | | | | | | | | | | | | | | |
As of December 31, 2013 | | | | | | | | | | | | | | |
Type of Instrument | Counterparty | | | Gross Amount of Recognized Assets | | | Gross Amounts Offset in the Statements of Financial Condition | | | Net Amount of Unrealized Gain Presented in the | | | | |
Statements of Financial Condition | | | | |
Futures contracts | UBS Securities LLC | | $ | 26,674,276 | | $ | -10,937,264 | | $ | 15,737,012 | | | | |
Forward currency contracts | Royal Bank of Scotland | | | 27,238,177 | | | -23,596,891 | | | 3,641,286 | | | | |
Total derivatives | | | $ | 53,912,453 | | $ | -34,534,155 | | $ | 19,378,298 | | | | |
Derivatives Assets and Collateral Received by Counterparty | | | | | | | | | | | | | | |
As of December 31, 2013 | | | | | | | | | | | |
| | | | | Gross Amounts Not Offset in the Statements of Financial Condition | | | | | | |
Counterparty | | Net Amount of Unrealized Gain in the Statements of Financial Condition | | | Financial Instruments | | | Cash Collateral Received | | | Net Amount | | | |
UBS Securities LLC | $ | 15,737,012 | | $ | 0 | | $ | 0 | | $ | 15,737,012 | | | |
Royal Bank of Scotland | | 3,641,286 | | | 0 | | | 0 | | | 3,641,286 | | | |
Total | $ | 19,378,298 | | $ | 0 | | $ | 0 | | $ | 19,378,298 | | | |
Offsetting of Derivative Liabilities | | | | | | | | | | | | | | |
As of December 31, 2013 | | | | | | | | | | | | | | |
Type of Instrument | Counterparty | | | Gross Amount of Recognized Liabilities | | | Gross Amounts Offset in the Statements of Financial Condition | | | Net Amount of Unrealized Loss Presented in the | | | | |
Statements of Financial Condition | | | | |
Futures contracts | UBS Securities LLC | | $ | 10,937,264 | | $ | -10,937,264 | | $ | 0 | | | | |
Forward currency contracts | Royal Bank of Scotland | | | 23,596,891 | | | -23,596,891 | | | 0 | | | | |
Total derivatives | | | $ | 34,534,155 | | $ | -34,534,155 | | $ | 0 | | | | |
Derivatives Liabilities and Collateral Pledged by Counterparty | | | | | | | | | | | | | | |
As of December 31, 2013 | | | | | | | | | | | |
| | | | | Gross Amounts Not Offset in the Statements of Financial Condition | | | | | | |
Counterparty | | Net Amount of Unrealized Loss in the Statements of Financial Condition | | | Financial Instruments | | | Cash Collateral Pledged | | | Net Amount | | | |
UBS Securities LLC | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | | |
Royal Bank of Scotland | | 0 | | | 0 | | | 0 | | | 0 | | | |
Total | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | | |
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Campbell & Company has established procedures to actively monitor market risk and minimize credit risk, although there can be no assurance that it will, in fact, succeed in doing so. Campbell & Company's basic market risk control procedures consist of continuously monitoring open positions, diversification of the portfolio and maintenance of a margin-to-equity ratio that rarely exceeds 30%. Campbell & Company's attempt to manage the risk of the Trust's open positions is essentially the same in all market categories traded. Campbell & Company applies risk management policies to its trading which generally limit the total exposure that may be taken per "risk unit" of assets under management. In addition, Campbell & Company follows diversification guidelines (often formulated in terms of the balanced volatility between markets and correlated groups), as well as reducing position sizes dynamically in response to trading losses. Campbell & Company controls the risk of the Trust's non-trading fixed income instruments by limiting the duration of such instruments and requiring a minimum credit quality of the issuers of those instruments. |
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Campbell & Company seeks to minimize credit risk primarily by depositing and maintaining the Trust's assets at financial institutions and brokers which Campbell & Company believes to be credit worthy. The unitholder bears 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. |