| TRADING ACTIVITIES AND RELATED RISKS | Note 10. TRADING ACTIVITIES AND RELATED RISKS The Trust engages in the speculative trading of U.S. and foreign futures contracts and forward currency contracts (collectively, "derivatives"). Specifically, the Trust 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. Market Risk 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. 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. 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 September 30, 2016 and December 31, 2015 is as follows: Type of Instrument * Statements of Financial Condition Location Asset Derivatives at September 30, 2016 Fair Value Liability Derivatives at September 30, 2016 Fair Value Net Agriculture Contracts Net unrealized gain (loss) on open futures contracts $ 15,396,589 $ (2,883,275 ) $ 12,513,314 Energy Contracts Net unrealized gain (loss) on open futures contracts 664,895 (2,751,084 ) (2,086,189 ) Metal Contracts Net unrealized gain (loss) on open futures contracts 6,928,408 (7,255,534 ) (327,126 ) Stock Indices Contracts Net unrealized gain (loss) on open futures contracts 3,748,382 (2,946,580 ) 801,802 Short-Term Interest Rate Contracts Net unrealized gain (loss) on open futures contracts 97,461 (277,923 ) (180,462 ) Long-Term Interest Rate Contracts Net unrealized gain (loss) on open futures contracts 4,862,300 (971,238 ) 3,891,062 Forward Currency Contracts Net unrealized gain (loss) on open forward currency contracts 24,568,608 (27,286,929 ) (2,718,321 ) Totals $ 56,266,643 $ (44,372,563 ) $ 11,894,080 * Derivatives not designated as hedging instruments under ASC 815 Type of Instrument * Statements of Financial Condition Location Asset Derivatives at December 31, 2015 Fair Value Liability Derivatives at December 31, 2015 Fair Value Net Agriculture Contracts Net unrealized gain (loss) on open futures contracts $ 4,246,840 $ (3,186,075 ) $ 1,060,765 Energy Contracts Net unrealized gain (loss) on open futures contracts 2,219,147 (11,868,078 ) (9,648,931 ) Metal Contracts Net unrealized gain (loss) on open futures contracts 2,238,119 (6,370,930 ) (4,132,811 ) Stock Indices Contracts Net unrealized gain (loss) on open futures contracts 974,091 (1,785,178 ) (811,087 ) Short-Term Interest Rate Contracts Net unrealized gain (loss) on open futures contracts 18,382 (765,703 ) (747,321 ) Long-Term Interest Rate Contracts Net unrealized gain (loss) on open futures contracts 2,669,840 (2,199,925 ) 469,915 Forward Currency Contracts Net unrealized gain (loss) on open forward currency contracts 52,468,667 (50,053,356 ) 2,415,311 Totals $ 64,835,086 $ (76,229,245 ) $ (11,394,159 ) * Derivatives not designated as hedging instruments under ASC 815 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 periods ended September 30, 2016 and 2015 is as follows: Type of Instrument Trading Gains (Losses) for the Three Months Ended September 30, 2016 Trading Gains (Losses) for the Three Months Ended September 30, 2015 Agriculture Contracts $ 7,727,273 $ (5,623,833 ) Energy Contracts (12,371,532 ) 14,609,064 Metal Contracts (5,845,334 ) 26,982,442 Stock Indices Contracts 11,672,523 (11,594,034 ) Short-Term Interest Rate Contracts (1,788,940 ) 4,049,678 Long Term Interest Rate Contracts (13,503,510 ) (8,394,913 ) Forward Currency Contracts (15,040,988 ) 19,978,260 Total $ (29,150,508 ) $ 40,006,664 Type of Instrument Trading Gains (Losses) for the Nine Months Ended September 30, 2016 Trading Gains (Losses) for the Nine Months Ended September 30, 2015 Agriculture Contracts $ (4,898,501 ) $ (25,812,905 ) Energy Contracts (35,449,754 ) (8,652,903 ) Metal Contracts (15,268,152 ) 12,024,859 Stock Indices Contracts (12,565,063 ) (6,453,029 ) Short-Term Interest Rate Contracts (5,604,922 ) 1,453,282 Long Term Interest Rate Contracts 46,001,412 (18,461,882 ) Forward Currency Contracts (21,913,543 ) 30,434,862 Total $ (49,698,523 ) $ (15,467,716 ) Line Item in the Statement of Operations Trading Gains (Losses) for the Three Months Ended September 30, 2016 Trading Gains (Losses) for the Three Months Ended September 30, 2015 Futures trading gains (losses): Realized** $ (2,432,212 ) $ (10,627,706 ) Change in unrealized (11,677,308 ) 30,656,110 Forward currency trading gains (losses): Realized (6,752,196 ) 8,664,461 Change in unrealized (8,288,792 ) 11,313,799 Total $ (29,150,508 ) $ 40,006,664 Line Item in the Statement of Operations Trading Gains (Losses) for the Nine Months Ended September 30, 2016 Trading Gains (Losses) for the Nine Months Ended September 30, 2015 Futures trading gains (losses): Realized** $ (56,206,851 ) $ (33,181,304 ) Change in unrealized 28,421,871 (12,721,274 ) Forward currency trading gains (losses): Realized (16,779,911 ) 43,532,041 Change in unrealized (5,133,632 ) (13,097,179 ) Total $ (49,698,523 ) $ (15,467,716 ) ** 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. For the three months ended September 30, 2016 and 2015, the monthly average of futures contracts bought and sold was approximately 90,500 and 88,000, respectively, and the monthly average of notional value of forward currency contracts was $5,411,700,000 and $4,931,200,000, respectively For the nine months ended September 30, 2016 and 2015, the monthly average of futures contracts bought and sold was approximately 102,200 and 98,100, respectively, and the monthly average of notional value of forward currency contracts was $5,370,000,000 and $5,083,000,000, respectively. Open contracts generally mature within three months; as of September 30, 2016, the latest maturity date for open futures contracts is December 2017 and the latest maturity date for open forward currency contracts is December 2016. However, the Trust intends to close all futures and forward currency contracts prior to maturity. Credit Risk 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. 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. The Trust has a portion of its assets on deposit with PNC Bank. In the event of a financial institution's insolvency, recovery of the Trust's assets on deposit may be limited to account insurance or other protection afforded such deposits. Under the terms of the ISDA Agreement with RBS, 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. Under the terms of each of the master netting agreement with UBS Securities and Goldman Sachs, upon occurrence of a default by the Trust, as defined in respective account documents, UBS Securities and Goldman Sachs have 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. The amount of required margin and good faith deposits with the futures broker and interbank market maker usually range from 10% to 30% of Net Asset Value. The fair value of securities held to satisfy such requirements at September 30, 2016 and December 31, 2015 was $168,892,112 and $209,330,696, respectively, which equals 20% and 23% of Net Asset Value, respectively. The cash deposited with the interbank market maker at September 30, 2016 and December 31, 2015 was $79,610 and $147,386, respectively, which equals 0% and 0% of Net Asset Value, respectively. These amounts are included in cash. Included in cash deposits with the broker and interbroker market maker at September 30, 2016 and December 31, 2015 was restricted cash for margin requirements of $0 and $8,747,696, respectively, which equals 0% and 1 % of Net Asset Value, respectively. 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 at 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. Offsetting of Derivative Assets As of September 30, 2016 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 $ 15,876,796 $ (8,529,078 ) $ 7,347,718 Futures contracts Goldman Sachs 15,821,239 (8,556,556 ) 7,264,683 Forward currency contracts Royal Bank of Scotland 24,568,608 (24,568,608 ) 0 Total derivatives $ 56,266,643 $ (41,654,242 ) $ 14,612,401 Derivatives Assets and Collateral Received by Counterparty As of September 30, 2016 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 $ 7,347,718 $ 0 $ 0 $ 7,347,718 Goldman Sachs 7,264,683 0 0 7,264,683 Royal Bank of Scotland 0 0 0 0 Total $ 14,612,401 $ 0 $ 0 $ 14,612,401 Offsetting of Derivative Liabilities As of September 30, 2016 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 $ 8,529,078 $ (8,529,078 ) $ 0 Futures contracts Goldman Sachs 8,556,556 (8,556,556 ) 0 Forward currency contracts Royal Bank of Scotland 27,286,929 (24,568,608 ) 2,718,321 Total derivatives $ 44,372,563 $ (41,654,242 ) $ 2,718,321 Derivatives Liabilities and Collateral Pledged by Counterparty As of September 30, 2016 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 Goldman Sachs 0 0 0 0 Royal Bank of Scotland 2,718,321 (2,718,321 )* 0 0 Total $ 2,718,321 $ (2,718,321 ) $ 0 $ 0 * Represents a portion of the $51,923,267 fair value in the U.S. Treasury Bills held at the interbank market maker. Offsetting of Derivative Assets As of December 31, 2015 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 $ 6,203,954 $ (6,203,954 ) $ 0 Futures contracts Goldman Sachs 6,162,464 (6,162,464 ) 0 Forward currency contracts Royal Bank of Scotland 52,468,667 (50,053,356 ) 2,415,311 Total derivatives $ 64,835,085 $ (62,419,774 ) $ 2,415,311 Derivatives Assets and Collateral Received by Counterparty As of December 31, 2015 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 $ 0 $ 0 $ 0 $ 0 Goldman Sachs 0 0 0 0 Royal Bank of Scotland 2,415,311 0 0 2,415,311 Total $ 2,415,311 $ 0 $ 0 $ 2,415,311 Offsetting of Derivative Liabilities As of December 31, 2015 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 $ 13,056,095 $ (6,203,954 ) $ 6,852,141 Futures contracts Goldman Sachs 13,119,793 (6,162,464 ) 6,957,329 Forward currency contracts Royal Bank of Scotland 50,053,356 (50,053,356 ) 0 Total derivatives $ 76,229,244 $ (62,419,774 ) $ 13,809,470 Derivatives Liabilities and Collateral Pledged by Counterparty As of December 31, 2015 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 $ 6,852,141 $ 0 $ (6,852,141 ) $ 0 Goldman Sachs 6,957,329 0 (6,957,329 ) 0 Royal Bank of Scotland 0 0 0 0 Total $ 13,809,470 $ 0 $ (13,809,470 ) $ 0 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. 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. |
