G. Foreign Currency Transactions
The Trust’s functional currency is the U.S. dollar; however, it transacts business in currencies other than the U.S. dollar. Assets and liabilities denominated in currencies other than the U.S. dollar are translated into U.S. dollars at the rates in effect at the date of the Statements of Financial Condition. Income and expense items denominated in currencies other than the U.S. dollar are translated into U.S. dollars at the rates in effect during the period. Gains and losses resulting from the translation to U.S. dollars are reported in income.
H. Allocations
Income or loss (prior to calculation of the management fee, service fee, offering costs and performance fee) is allocated pro rata to each Series of units. Each Series of units is then charged the management fee, service fee, offering costs and performance fee applicable to such Series of units.
I. Recently Issued Accounting Pronouncements
In November 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which aims to reduce diversity in the presentation of restricted cash and restricted cash equivalents in the statement. The amendment is effective for the interim and annual reporting periods beginning after December 15, 2017. Management has evaluated the amendment and does not anticipate a material impact on the Trust’s financial statement disclosures
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which aims to improve the financial reporting of hedging relationships to better portray the economic results of risk management activity in the statement. The amendment is effective for the interim and annual reporting periods beginning after December 15, 2018. Management has evaluated the amendment and does not anticipate a material impact on the Trust's financial statement disclosures.
Note 2. MANAGING OPERATOR AND COMMODITY TRADING ADVISOR
The managing operator of the Trust is Campbell & Company which conducts and manages the business of the Trust. Campbell & Company is also the commodity trading advisor of the Trust.
Series A units and Series B units pay the managing operator a monthly management fee equal to 1/12 of 4% (4% annually) of the Net Assets (as defined) of Series A units and Series B units, respectively, as of the end of each month. Series D units pay the managing operator a monthly management fee equal to 1/12 of 2.75% (2.75% annually) of the Net Assets (as defined) of Series D units as of the end of each month. Series W units pay the managing operator a monthly management fee equal to 1/12 of 2% (2% annually) of the Net Assets (as defined) of Series W units as of the end of each month. Each Series of units will pay the managing operator a quarterly performance fee equal to 20% of the aggregate cumulative appreciation in Net Asset Value per Unit (as defined) exclusive of appreciation attributable to interest income on a Series-by-Series basis.
The performance fee is paid on the cumulative increase, if any, in the Net Asset Value per Unit over the highest previous cumulative Net Asset Value per Unit (commonly referred to as a High Water Mark). In determining the management fee and performance fee (the “fees”), adjustments shall be made for capital additions and withdrawals and Net Assets shall not be reduced by the fees being calculated for such current period. The performance fee is not subject to any clawback provisions. The fees are typically paid in the month following the month in which they are earned. The fees are paid from the available cash at the Trust’s bank, broker or cash management custody accounts.
Note 3. TRUSTEE
The trustee of the Trust is U.S. Bank National Association, a national banking corporation. The trustee has delegated to the managing operator the duty and authority to manage the business and affairs of the Trust and has only nominal duties and liabilities with respect to the Trust.
Note 4. ADMINISTRATOR
Northern Trust Hedge Fund Services LLC serves as the Administrator of the Trust. The Administrator receives fees at rates agreed upon between the Trust and the Administrator and is entitled to reimbursement of certain actual out-of- pocket expenses incurred while performing its duties. The Administrator’s primary responsibilities are portfolio accounting and fund accounting services.
Note 5. CASH MANAGER AND CUSTODIAN
PNC Capital Advisors, LLC serves as the cash manager under the Investment Advisory Agreement to manage and control the liquid assets of the Trust. PNC Capital Advisors, LLC is registered as an investment adviser with the SEC of the United States under the Investment Advisers Act of 1940.
The Trust has a custodial account at the Northern Trust Company (the “custodian”) and has granted the cash manager authority to make certain investments on behalf of the Trust provided such investments are consistent with the investment guidelines created by the managing operator. All securities purchased by the cash manager on behalf of the Trust will be held in its custody account at the custodian. The cash manager will have no beneficial or other interest in the securities and cash in such custody account.
Note 6. SERVICE FEE
Prior to March 1, 2017, the selling firms who sold Series W units received a monthly service fee equal to 1/12 of 0.25% of the month-end Net Asset Value (as defined) of the Series W units, totaling approximately 0.25% per year. Effective March 1, 2017, a monthly service fee will no longer be paid by the Series W units.
Note 7. DEPOSITS WITH FUTURES BROKERS
The Trust deposits assets with UBS Securities LLC and Goldman, Sachs & Co. as the futures brokers, subject to Commodity Futures Trading Commission regulations and various exchange and futures broker requirements. Margin requirements are satisfied by the deposit of U.S. Treasury Bills and cash with such futures brokers. The Trust typically earns interest income on its assets deposited with the futures brokers.
Note 8. DEPOSITS WITH INTERBANK MARKET MAKER
The Trust’s counterparty with regard to its forward currency transactions is the Royal Bank of Scotland PLC (“RBS”). The Trust has entered into an International Swaps and Derivatives Association Master Agreement (“ISDA Agreement”) with RBS which governs these transactions. The credit ratings reported by the three major rating agencies for RBS were considered investment grade as of September 30, 2017. Margin requirements are satisfied by the deposit of U.S. Treasury Bills and cash with RBS. The Trust typically earns interest income on its assets deposited with RBS.
Note 9. SUBSCRIPTIONS, DISTRIBUTIONS AND REDEMPTIONS
Investments in the Trust are made by subscription agreement, subject to acceptance by Campbell & Company.
The Trust is not required to make distributions, but may do so at the sole discretion of Campbell & Company. A unitholder may request and receive redemption of units owned, subject to restrictions in the Declaration of Trust and Trust Agreement. Units are transferable, but no market exists for their sale and none is expected to develop. Monthly redemptions are permitted upon ten (10) business days advance written notice to Campbell & Company.
Redemption fees, which are paid to Campbell & Company, apply to Series A units through the first twelve month- ends following purchase (the month-end as of which the unit is purchased is counted as the first month-end) as follows: 1.833% of Net Asset Value per unit redeemed through the second month-end, 1.666% of Net Asset Value per unit redeemed through the third month-end, 1.500% of Net Asset Value per unit redeemed through the fourth month- end, 1.333% of Net Asset Value per unit redeemed through the fifth month-end, 1.167% of Net Asset Value per unit redeemed through the sixth month-end, 1.000% of Net Asset Value per unit redeemed through the seventh month-end, 0.833% of Net Asset Value per unit redeemed through the eight month-end, 0.667% of Net Asset Value per unit redeemed through the ninth month-end, 0.500% of Net Asset Value per unit redeemed through the tenth month-end, 0.333% of Net Asset Value per unit redeemed through the eleventh month-end and 0.167% of Net Asset Value per unit redeemed through the twelfth month end. For the nine months ended September 30, 2017 and 2016, Campbell & Company received redemption fees of $13,391 and $22,461, respectively.
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 futures and forward contracts, 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, 2017 and December 31, 2016 is as follows:
Type of Instrument * | Statements of Financial Condition Location | | Asset Derivatives at September 30, 2017 Fair Value | | | Liability Derivatives at September 30, 2017 Fair Value | | | Net | |
| Agriculture Contracts | Net unrealized gain (loss) on open futures contracts | | $ | 1,816,290 | | | $ | (964,552 | ) | | $ | 851,738 | |
| Energy Contracts | Net unrealized gain (loss) on open futures contracts | | | 1,308,516 | | | | (103,603 | ) | | | 1,204,913 | |
| Metal Contracts | Net unrealized gain (loss) on open futures contracts | | | 2,871,772 | | | | (4,516,961 | ) | | | (1,645,189 | ) |
| Stock Indices Contracts | Net unrealized gain (loss) on open futures contracts | | | 12,979,715 | | | | (704,239 | ) | | | 12,275,476 | |
| Short-Term Interest Rate Contracts | Net unrealized gain (loss) on open futures contracts | | | 548,250 | | | | (248,008 | ) | | | 300,242 | |
| Long-Term Interest Rate Contracts | Net unrealized gain (loss) on open futures contracts | | | 2,544,841 | | | | (4,470,433 | ) | | | (1,925,592 | ) |
| Forward Currency Contracts | Net unrealized gain (loss) on open forward currency contracts | | | 10,757,037 | | | | (18,135,803 | ) | | | (7,378,766 | ) |
| Totals | | | $ | 32,826,421 | | | $ | (29,143,599 | ) | | $ | 3,682,822 | |
* Derivatives not designated as hedging instruments under ASC 815
Type of Instrument * | Statements of Financial Condition Location | | Asset Derivatives at December 31, 2016 Fair Value | | | Liability Derivatives at December 31, 2016 Fair Value | | | Net | |
| Agriculture Contracts | Net unrealized gain (loss) on open futures contracts | | $ | 5,066,010 | | | $ | (3,189,403 | ) | $ | 1,876,607 | |
| Energy Contracts | Net unrealized gain (loss) on open futures contracts | | | 2,494,222 | | | | (138,066 | ) | | 2,356,156 | |
| Metal Contracts | Net unrealized gain (loss) on open futures contracts | | | 1,118,907 | | | | (7,285,751 | ) | | (6,166,844 | ) |
| Stock Indices Contracts | Net unrealized gain (loss) on open futures contracts | | | 7,600,744 | | | | (3,653,485 | ) | | 3,947,259 | |
| Short-Term Interest Rate Contracts | Net unrealized gain (loss) on open futures contracts | | | 223,914 | | | | (709,598 | ) | | (485,684 | ) |
| Long-Term Interest Rate Contracts | Net unrealized gain (loss) on open futures contracts | | | 3,543,933 | | | | (1,399,341 | ) | | 2,144,592 | |
| Forward Currency Contracts | Net unrealized gain (loss) on open forward currency contracts | | | 16,315,362 | | | | (10,428,027 | ) | | 5,887,335 | |
| Totals | | | $ | 36,363,092 | | | $ | (26,803,671 | ) | $ | 9,559,421 | |
* Derivatives not designated as hedging instruments under ASC 815
The trading revenue 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 nine months ended September 30, 2017 and 2016 is as follows:
| Type of Instrument | | Trading Gains/(Losses) for the Three Months Ended September 30, 2017 | | | Trading Gains/(Losses) for the Three Months Ended September 30, 2016 | |
| Agriculture Contracts | | $ | (13,357,258 | ) | | $ | 7,727,273 | |
| Energy Contracts | | | (52,059 | ) | | | (12,371,532 | ) |
| Metal Contracts | | | (4,473,131 | ) | | | (5,845,334 | ) |
| Stock Indices Contracts | | | 22,514,141 | | | | 11,672,523 | |
| Short-Term Interest Rate Contracts | | | (1,128,656 | ) | | | (1,788,940 | ) |
| Long-Term Interest Rate Contracts | | | 1,510,743 | | | | (13,503,510 | ) |
| Forward Currency Contracts | | | 8,927,904 | | | | (15,040,988 | ) |
| Total | | $ | 13,941,684 | | | $ | (29,150,508 | ) |
| Type of Instrument | | Trading Gains/(Losses) for the Nine Months Ended September 30, 2017 | | | Trading Gains/(Losses) for the Nine Months Ended September 30, 2016 | |
| Agriculture Contracts | | $ | (24,397,575 | ) | | $ | (4,898,501 | ) |
| Energy Contracts | | | (24,932,225 | ) | | | (35,449,754 | ) |
| Metal Contracts | | | (1,893,044 | ) | | | (15,268,152 | ) |
| Stock Indices Contracts | | | 99,950,270 | | | | (12,565,063 | ) |
| Short-Term Interest Rate Contracts | | | (5,075,663 | ) | | | (5,604,922 | ) |
| Long-Term Interest Rate Contracts | | | (23,100,013 | ) | | | 46,001,412 | |
| Forward Currency Contracts | | | (26,133,679 | ) | | | (21,913,543 | ) |
| Total | | $ | (5,581,929 | ) | | $ | (49,698,523 | ) |
| Line Item in the Statements of Operations | | Trading Gains/(Losses) for the Three Months Ended September 30, 2017 | | | Trading Gains/(Losses) for the Three Months Ended September 30, 2016 | |
| Futures trading gains (losses): | | | | | | |
| Realized** | | $ | (35,573,374 | ) | | $ | (2,432,212 | ) |
| Change in unrealized | | | 40,587,154 | | | | (11,677,308 | ) |
| Forward currency trading gains (losses): | | | | | | | | |
| Realized | | | 14,537,016 | | | | (6,752,196 | ) |
| Change in unrealized | | | (5,609,112 | ) | | | (8,288,792 | ) |
| Total | | $ | 13,941,684 | | | $ | (29,150,508 | ) |
| Line Item in the Statements of Operations | | Trading Gains/(Losses) for the Nine Months Ended September 30, 2017 | | | Trading Gains/(Losses) for the Nine Months Ended September 30, 2016 | |
| Futures trading gains (losses): | | | | | | |
| Realized** | | $ | 13,162,248 | | | $ | (56,206,851 | ) |
| Change in unrealized | | | 7,389,502 | | | | 28,421,871 | |
| Forward currency trading gains (losses): | | | | | | | | |
| Realized | | | (12,867,578 | ) | | | (16,779,911 | ) |
| Change in unrealized | | | (13,266,101 | ) | | | (5,133,632 | ) |
| Total | | $ | (5,581,929 | ) | | $ | (49,698,523 | ) |
** 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 brokers.
For the three months ended September 30, 2017 and 2016, the monthly average of futures contracts bought and sold was approximately 50,900 and 90,500, respectively, and the monthly average of notional value of forward currency contracts was $2,290,900,000 and $5,411,700,000, respectively.
For the nine months ended September 30, 2017 and 2016, the monthly average of futures contracts bought and sold was approximately 64,300 and 102,200, respectively, and the monthly average of notional value of forward currency contracts was $2,602,900,000 and $5,370,000,000, respectively.
Open contracts generally mature within three months; as of September 30, 2017, the latest maturity date for open futures contracts is December 2018 and the latest maturity date for open forward currency contracts is December 2017. 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, 2017 and December 31, 2016 was $142,592,135 and $148,721,267, respectively, which equals approximately 26% and 20% of Net Asset Value, respectively. The cash deposited with the interbank market maker at September 30, 2017 and December 31, 2016 was $156,896 and $63,587, respectively, which equals approximately 0% and 0% of Net Asset Value, respectively. These amounts are included in cash. There was no restricted cash as of September 30, 2017 and December 31, 2016.
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 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, 2017 |
| Type of Instrument | Counterparty | | Gross Amounts of Recognized Assets | | | Gross Amounts Offset in the Statements of Financial Condition | | | Net Amounts of Unrealized Gain Presented in the Statements of Financial Condition | |
| Futures contracts | UBS Securities LLC | | $ | 11,046,135 | | | $ | (5,518,211 | ) | | $ | 5,527,924 | |
| Futures contracts | Goldman Sachs | | | 11,023,249 | | | | (5,489,585 | ) | | | 5,533,664 | |
| Forward currency contracts | Royal Bank of Scotland | | | 10,757,037 | | | | (10,757,037 | ) | | | 0 | |
| Total derivatives | | | $ | 32,826,421 | | | $ | (21,764,833 | ) | | $ | 11,061,588 | |
| Derivatives Assets and Collateral Received by Counterparty |
| As of September 30, 2017 |
| | | | | | Gross Amounts Not Offset in the Statements of Financial Condition | | | | |
Counterparty | | Net Amounts of Unrealized Gain in the Statements of Financial Condition | | | Financial Instruments | | | Cash Collateral Received | | | Net Amount | |
| UBS Securities LLC | | $ | 5,527,924 | | | $ | 0 | | | $ | 0 | | | $ | 5,527,924 | |
| Goldman Sachs | | | 5,533,664 | | | | 0 | | | | 0 | | | | 5,533,664 | |
| Royal Bank of Scotland | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| Total | | $ | 11,061,588 | | | $ | 0 | | | $ | 0 | | | $ | 11,061,588 | |
| Offsetting of Derivative Liabilities |
| As of September 30, 2017 |
| Type of Instrument | Counterparty | | Gross Amounts of Recognized Liabilities | | | Gross Amounts Offset in the Statements of Financial Condition | | | Net Amounts of Unrealized Loss Presented in the Statements of Financial Condition | |
| Futures contracts | UBS Securities LLC | | $ | 5,518,211 | | | $ | (5,518,211 | ) | | $ | 0 | |
| Futures contracts | Goldman Sachs | | | 5,489,585 | | | | (5,489,585 | ) | | | 0 | |
| Forward currency contracts | Royal Bank of Scotland | | | 18,135,803 | | | | (10,757,037 | ) | | | 7,378,766 | |
| Total derivatives | | | $ | 29,143,599 | | | $ | (21,764,833 | ) | | $ | 7,378,766 | |
| Derivatives Liabilities and Collateral Pledged by Counterparty |
As of September 30, 2017 |
| | | | | Gross Amounts Not Offset in the Statements of Financial Condition | | | | |
Counterparty | | Net Amounts 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 | | | 7,378,766 | | | | (7,378,766 | )* | | | 0 | | | | 0 | |
| Total | | $ | 7,378,766 | | | $ | (7,378,766 | ) | | $ | 0 | | | $ | 0 | |
* Represents a portion of the $60,323,956 fair value in the U.S. Treasury Bills held at the interbank market maker.
| Offsetting of Derivative Assets |
| As of December 31, 2016 |
| Type of Instrument | Counterparty | | Gross Amounts of Recognized Assets | | | Gross Amounts Offset in the Statements of Financial Condition | | | Net Amounts of Unrealized Gain Presented in the Statements of Financial Condition | |
| Futures contracts | UBS Securities LLC | | | 10,038,562 | | | $ | (8,236,421 | ) | | $ | 1,802,141 | |
| Futures contracts | Goldman Sachs | | | 10,009,168 | | | | (8,139,223 | ) | | | 1,869,945 | |
| Forward currency contracts | Royal Bank of Scotland | | | 16,315,362 | | | | (10,428,027 | ) | | | 5,887,335 | |
| Total derivatives | | | $ | 36,363,092 | | | $ | (26,803,671 | ) | | $ | 9,559,421 | |
| Derivatives Assets and Collateral Received by Counterparty |
| As of December 31, 2016 |
| | | | | | Gross Amounts Not Offset in the Statements of Financial Condition | | | | |
| Counterparty | | Net Amounts of Unrealized Gain in the Statements of Financial Condition | | | Financial Instruments | | | Cash Collateral Received | | | Net Amount | |
| UBS Securities LLC | | $ | 1,802,141 | | | $ | 0 | | | $ | 0 | | | $ | 1,802,141 | |
| Goldman Sachs | | | 1,869,945 | | | | 0 | | | | 0 | | | | 1,869,945 | |
| Royal Bank of Scotland | | | 5,887,335 | | | | 0 | | | | 0 | | | | 5,887,335 | |
| Total | | $ | 9,559,421 | | | $ | 0 | | | $ | 0 | | | $ | 9,559,421 | |
| Offsetting of Derivative Liabilities |
| As of December 31, 2016 |
| Type of Instrument | Counterparty | | Gross Amounts of Recognized Liabilities | | | Gross Amounts Offset in the Statements of Financial Condition | | | Net Amounts of Unrealized Loss Presented in the Statements of Financial Condition | |
| Futures contracts | UBS Securities LLC | | $ | 8,236,421 | | | $ | (8,236,421 | ) | | $ | 0 | |
| Futures contracts | Goldman Sachs | | | 8,139,223 | | | | (8,139,223 | ) | | | 0 | |
| Forward currency contracts | Royal Bank of Scotland | | | 10,428,027 | | | | (10,428,027 | ) | | | 0 | |
| Total derivatives | | | $ | 26,803,671 | | �� | $ | (26,803,671 | ) | | $ | 0 | |
| Derivatives Liabilities and Collateral Pledged by Counterparty |
| As of December 31, 2016 |
| | | | | | Gross Amounts Not Offset in the Statements of Financial Condition | | | | |
| Counterparty | | Net Amounts 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 | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| Total | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 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.
Note 11. INDEMNIFICATIONS
In the normal course of business, the Trust enters into contracts and agreements that contain a variety of representations and warranties which provide general indemnifications. The Trust’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Trust that have not yet occurred. The Trust expects the risk of any future obligation under these indemnifications to be remote.
Note 12. INTERIM FINANCIAL STATEMENTS
The Statements of Financial Condition, including the Condensed Schedules of Investments, as of September 30, 2017 and December 31, 2016, the Statements of Operations and Financial Highlights for the three months and nine months ended September 30, 2017 and 2016, and the Statements of Cash Flows and Changes in Unitholders’ Capital (Net Asset Value) for the nine months ended September 30, 2017 and 2016 are unaudited. In the opinion of management, such financial statements reflect all adjustments, which were of a normal and recurring nature, necessary for a fair presentation of financial position as of September 30, 2017 and December 31, 2016, the results of operations and financial highlights for the three months and nine months ended September 30, 2017 and 2016, and cash flows and changes in unitholders’ capital (Net Asset Value) for the nine months ended September 30, 2017 and 2016.
Note 13. SUBSEQUENT EVENTS
Management of the Trust has evaluated subsequent events through the date the financial statements were filed. There are no subsequent events to disclose or record.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Introduction
The Campbell Fund Trust (the “Trust”) is a business trust organized on January 2, 1996 under the Delaware Business Trust Act, which was replaced by the Delaware Statutory Trust Act as of September 1, 2002. The Trust is a successor to the Campbell Fund Limited Partnership (formerly known as the Commodity Trend Fund) which began trading operations in January 1972. The Trust currently trades in the U.S. and international futures and forward markets under the sole direction of Campbell & Company, LP, the managing operator of the Trust. Specifically, the Trust trades in a diverse array of global assets, including global interest rates, stock indices, currencies and commodities. The Trust is an actively managed account with speculative trading profits as its objective.
Effective August 31, 2008, the Trust began offering Series A, Series B, and Series W Units. The units in the Trust prior to that date became Series B Units. Series B Units are only available for additional investment by existing holders of Series B Units. Effective August 1, 2017, the Trust began offering Series D units.
As of September 30, 2017, the aggregate capitalization of the Trust was $546,896,316 with Series A, Series B, Series D and Series W comprising $410,206,353, $71,688,457, $117,000 and $64,884,506, respectively, of the total. The Net Asset Value per Unit was $2,452.27 for Series A, $2,656.39 for Series B, $1,000.00 for Series D and $2,774.22 for Series W.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the reporting period. Management believes that the estimates utilized in preparing the financial statements are reasonable and prudent; however, actual results could differ from those estimates. The Trust’s significant accounting policies are described in detail in Note 1 of the Financial Statements.
The Trust records all investments at fair value in its financial statements, with changes in fair value reported as a component of realized and change in unrealized trading gain (loss) in the Statements of Operations. Generally, fair values are based on market prices; however, in certain circumstances, estimates are involved in determining fair value in the absence of an active market closing price (i.e., forward contracts which are traded in the inter-bank market).
Capital Resources
The Trust will raise additional capital only through the sale of Units offered pursuant to the continuing offering, and does not intend to raise any capital through borrowing. Due to the nature of the Trust’s business, it will make no capital expenditures and will have no capital assets which are not operating capital or assets.
The Trust generally maintains 60% to 75% of its net asset value in cash, cash equivalents or other liquid positions in its cash management program over and above that needed to post as collateral for trading. These funds are available to meet redemptions each month. After redemptions and additions are taken into account each month, the trade levels of the Trust are adjusted and positions in the instruments the Trust trades are added or liquidated on a pro-rata basis to meet those increases or decreases in trade levels.
Liquidity
Most United States futures exchanges limit fluctuations in futures contracts prices during a single day by regulations referred to as “daily price fluctuation limits” or “daily limits.” During a single trading day, no trades may be executed at prices beyond the daily limit. Once the price of a futures contract has reached the daily limit for that day, positions in that contract can neither be taken nor liquidated. Futures prices have occasionally moved to the daily limit for several consecutive days with little or no trading. Similar occurrences could prevent the Trust from promptly liquidating unfavorable positions and subject the Trust to substantial losses which could exceed the margin initially committed to such trades. In addition, even if futures prices have not moved the daily limit, the Trust may not be able to execute futures trades at favorable prices, if little trading in such contracts is taking place. Other than these limitations on liquidity, which are inherent in the Trust’s futures trading operations, the Trust’s assets are expected to be highly liquid.
The entire offering proceeds, without deductions, will be credited to the Trust’s bank, custodial and/or cash management accounts. The Trust meets margin requirements for its trading activities by depositing cash and U.S. government securities with the futures broker and the over-the-counter counterparty. This does not reduce the risk of loss from trading activities. The Trust receives all interest earned on its assets. No other person shall receive any interest or other economic benefits from the deposit of Trust assets.
Approximately 10% to 30% of the Trust’s assets normally are committed as required margin for futures contracts and held by the futures brokers, although the amount committed may vary significantly. Such assets are maintained in the form of cash or U.S. Treasury Bills in segregated accounts with the futures brokers pursuant to the Commodity Exchange Act and regulations thereunder. Approximately 5% to 15% of the Trust’s assets are deposited with the over-the-counter counterparty in order to initiate and maintain forward contracts. Such assets are not held in segregation or otherwise regulated under the Commodity Exchange Act, unless such over-the-counter counterparty is registered as a futures commission merchant. These assets are held either in U.S. government securities or short- term time deposits with U.S.-regulated bank affiliates of the over-the-counter counterparty.
The managing operator deposits the majority of those assets of the Trust that are not required to be deposited as margin with the futures brokers and over-the-counter counterparties in a custodial account with Northern Trust Company. The assets deposited in the custodial account with Northern Trust Company are segregated. Such custodial account constitutes approximately 60% to 75% of the Trust’s assets and are invested directly by PNC Capital Advisors, LLC (“PNC”). PNC is registered with the SEC as an investment adviser under the Investment Advisers Act of 1940. PNC does not guarantee any interest or profits will accrue on the Trust’s assets in the custodial account. PNC invest the assets according to agreed upon investment guidelines that first preserve capital, second allow for sufficient liquidity, and third provide a yield beyond the risk-free rate. Investments can include, but are not limited to, (i) U.S. Government Securities, Government Agency Securities, Municipal Securities, banker acceptances and certificates of deposits; (ii) commercial paper; (iii) short-term investment grade corporate debt; and (iv) Asset Backed Securities.
The Trust occasionally receives margin calls (requests to post more collateral) from its futures brokers or over-the- counter counterparty, which are met by moving the required portion of the assets held in the custody account at Northern Trust to the margin accounts. In the past three years, the Trust has not needed to liquidate any position as a result of a margin call.
The Trust’s assets are not and will not be, directly or indirectly, commingled with the property of any other person in violation of law or invested in or loaned to Campbell & Company or any affiliated entities.
Off-Balance Sheet Risk
The term “off-balance sheet risk” refers to an unrecorded potential liability that, even though it does not appear on the balance sheet, may result in future obligation or loss. The Trust trades in futures and forward contracts and is therefore a party to financial instruments with elements of off-balance sheet market and credit risk. In entering into these contracts there exists a risk to the Trust, market risk, that such contracts may be significantly influenced by market conditions, such as interest rate volatility, resulting in such contracts being less valuable. If the markets should move against all of the futures interests positions of the Trust at the same time, and if the Trust’s trading advisor was unable to offset futures interests positions of the Trust, the Trust could lose all of its assets and the Unitholders would realize a 100% loss. Campbell & Company, the managing operator (who also acts as trading advisor), minimizes market risk through real-time monitoring of open positions, diversification of the portfolio and maintenance of a margin-to-equity ratio that rarely exceeds 30% however, these precautions may not be effective in limiting the risk of loss.
In addition to market risk, in entering into futures and forward contracts there is a credit risk that a counterparty will not be able to meet its obligations to the Trust. The counterparty for futures contracts traded in the United States and on most foreign exchanges is the clearinghouse associated with such exchange. In general, clearinghouses are backed by the corporate members of the clearinghouse who are required to share any financial burden resulting from the non-performance by one of their members and, as such, should significantly reduce this credit risk. In cases where the clearinghouse is not backed by the clearing members, like some foreign exchanges, it is normally backed by a consortium of banks or other financial institutions.
In the case of forward contracts, which are traded on the interbank market rather than on exchanges, the counterparty is generally a single bank or other financial institution, rather than a group of financial institutions; thus there may be a greater counterparty credit risk. Campbell & Company trades for the Trust only with those counterparties which it believes to be creditworthy. All positions of the Trust are valued each day at fair value. There can be no assurance that any clearing member, clearinghouse or other counterparty will be able to meet its obligations to the Trust.
Disclosures About Certain Trading Activities that Include Non-Exchange Traded Contracts Accounted for at Fair Value
The Trust invests in futures and forward currency contracts. The market value of futures (exchange-traded) contracts is determined by the various futures exchanges, and reflects the settlement price for each contract as of the close of the last business day of the reporting period. The fair value of forward (non-exchange traded) contracts is extrapolated on a forward basis from the spot prices quoted as of 3:00 P.M. (E.T.) of the last business day of the reporting period.
Results of Operations
The returns for the nine months ended September 30, 2017 and 2016 for Series A were (3.98)% and (8.50)%, Series B were (3.62)% and (8.16)% and Series W were (2.56)% and (7.28)%, respectively.
2017 (For the Nine Months Ended September 30)
Of the (3.98)% return for nine months ended September 30, 2017 for Series A, approximately (0.91)% was due to trading losses (before commissions) and approximately (3.94)% due to brokerage fees, management fees, offering costs and operating costs, offset by approximately 0.87% due to investment income earned by Series A.
Of the (3.62)% return for nine months ended September 30, 2017 for Series B, approximately (0.91)% was due to trading losses (before commissions) and approximately (3.58)% due to brokerage fees, management fees and operating costs, offset by approximately 0.87% due to investment income earned by Series B.
Of the (2.56)% return for nine months ended September 30, 2017 for Series W, approximately (0.91)% was due to trading losses (before commissions) and approximately (2.52)% due to brokerage fees, management fees, service fees, offering costs and operating costs, offset by approximately 0.87% due to investment income earned by Series W.
During the nine months ended September 30, 2017, the Trust accrued management fees in the amount of $18,739,913 and paid management fees in the amount of $19,450,216. No performance fees were accrued or paid during this period.
An analysis of the (0.91)% gross trading losses for the Trust by sector is as follows:
| Sector | | % Gain (Loss) | |
| Commodities | | | (7.85 | )% |
| Currencies | | | (3.57 | ) |
| Interest Rates | | | (4.22 | ) |
| Stock Indices | | | 14.73 | |
| | | (0.91 | )% |
FX and commodity losses offset gains in stock indexes and led to a down January as losses came from foreign exchange, commodity, and interest rate positions while stock index holdings produced some partially offsetting gains. Foreign exchange (FX) produced some of the largest losses during the month. Positioning within FX was broadly long the US dollar versus most other major currencies. Following the election of Donald Trump, the US dollar strengthened and our trading systems generally aligned positioning with that momentum. However, January saw a reversal of this trend as investors pared back their bullish bets on the greenback amid worries that President Trump was focusing more on protectionism than on pro-growth economic policies. Our FX holdings suffered as a result of this broad reversal in the US dollar. Commodity holdings added to the January losses. Within the energy sub-sector, long positioning on gasoline produced losses amid bearish inventory data. Short soybean holdings, part of the grains sub-sector, experienced losses due to a weakening US dollar and flood conditions in Argentina. In the softs sub-sector, a short on coffee saw losses due to a stronger Brazilian real and a downgrade to Brazil’s output forecast. Some partially offsetting gains came from the industrial metals sub-sector. Long positioning on zinc, copper, and aluminum all saw gains amid a combination of bullish fundamentals, especially from China, and some supply disruptions. Interest rate holdings also produced losses. Long holdings on the German 10-year note saw declines as bond prices fell amid rising inflation in the Eurozone. Inflation reached a 4-year high and approached the ECB’s stated 2% target. Stock index holdings contributed some offsetting gains. Long holdings across our universe of global stock indexes benefited from a continuation of the rally that started with the election of Trump and his expected reflationary policies. Concerns over President Trump’s Executive Order limiting some immigration into the US capped gains late in the month as some investors became unnerved by the action.
Gains in stock indexes, FX, and interest rates led to a profitable February as profits came from stock indexes, foreign exchange, and interest rate positions while commodity holdings produced some partially offsetting losses for the Trust. Stock index holdings contributed some of the strongest gains to the Trust. Long holdings across the Trust’s universe of global stock indexes benefited from generally better than expected economic data. The Bloomberg US indicator of economic surprises reached its strongest level since 2012. Solid fourth quarter 2016 corporate earnings reports also helped to fuel the rally, along with a steadily improving US labor market. Stock markets continued to look past the new Trump administration’s lack of policy implementation details and focused more on the potential benefits that tax reform, deregulation, and infrastructure spending might provide to global economies. Foreign exchange (FX) produced some additional gains as the Trust’s models took advantage of the mixed performance among the developed and emerging FX markets. Long positioning on higher-yielding currencies, such as the South African rand which rallied over 3% in February, proved profitable. A short position on the euro also showed a gain when it weakened on the back of French election concerns in the EU. Interest rate holdings also produced profits. Long positioning on longer-dated instruments within Germany provided some of the best gains. German 5-year and 10-year notes both rallied on a flight to quality move as investors grew more concerned about the spring French Presidential election. Marine Le Pen, the head of the far-right French Front National Party who has threatened to try to pull France out of the EU if elected, rose in the polls during the month. Commodity holdings modestly detracted from the February gains for the Trust. Profits from precious metals (mostly from silver) and industrial metals (mostly from aluminum) were more than offset by losses in the other sub- sectors. Grains were one of the worst performing sub-sectors as a short position on wheat suffered as the market rose to a 7-month high amid tight global ending stock projections.
Mixed performance across the asset classes traded led to a down March as losses came from interest rate, foreign exchange, and commodity positions while stock index holdings produced some partially offsetting gains. Interest rate holdings produced some of the largest losses during the month. Long positioning on instruments within Germany sold off on higher EU inflation readings and as investors grew more comfortable that anti-EU political populism in France and the Netherlands was stalling. Short positioning within the US was hurt when fixed income instruments reversed the recent downtrend mid-month amid a less hawkish Federal Open Market Committee (“FOMC”) message communicated after their decision to hike interest rates on March 15th. Foreign exchange produced some additional losses as our models failed to successfully navigate a choppy month of price action for the US dollar. For example, long positioning on the New Zealand dollar (kiwi) suffered early in the month as that currency weakened against the US dollar leading up to the mid-month FOMC meeting which was widely expected to be hawkish. Our models then flipped to short the kiwi only to see the currency begin to strengthen when the US dollar sold off on the more dovish than expected message delivered by the Federal Reserve. Commodity holdings modestly detracted from the Trust during March. Some of the largest monthly losses came from the energy, precious metal, industrial metal, and meat sub-sectors. Partially offsetting gains were found in the soft commodity and grain sub-sectors, with some of the best profits coming from sugar and wheat. Stock index holdings contributed the strongest profits to the Trust during the month. Some of the best gains were found via long positions on European stock indexes which benefited from the ongoing global reflation trade and dampening concerns around anti-EU political populism in the region. Our models also saw success in Asia as long positioning within Australia, Hong Kong, and Taiwan proved profitable as ongoing improvements in the Chinese economy, linked with enduring hopes for US tax reform and infrastructure spending, supported shares around the globe.
April gains came from stock index, foreign exchange, and interest rate holdings while commodities produced some partially offsetting losses for the Trust. Stock index holdings contributed the strongest profits to the Trust during the month. Global stock markets generally shook off new tensions with North Korea and a US cruise-missile strike on targets in Syria. A market-friendly French election outcome, above-trend US earnings growth, and movement on a number of policies by the White House all provided a positive offset to the worrisome news. Long positioning on global stock indexes benefitted from the gains shown by equities during the month with some of the best profits coming from the United States and Hong Kong. Foreign exchange holdings added to the Trust gains during April. A short position on the Canadian dollar (versus the US dollar) benefitted as the loonie fell in value after President Trump announced a planned tariff on softwood lumber imports from Canada and also threatened to withdraw from the North American Free Trade Agreement (NAFTA). Some partially offsetting losses were seen from a short on the euro (versus the US dollar) when currency markets cheered the French election outcome and sent the euro sharply higher late in the month. Interest rate positions produced some additional profits. Long positioning on 10- year notes in Canada and Japan saw some of the best monthly gains within the sector as yields fell in those countries which sent bond prices higher. Commodity holdings produced losses during the month. Long positioning on crude suffered when that market saw a price drop as record US crude stockpiles began to raise doubts about OPEC’s ability to curtail a global supply glut. Long holdings on the industrial metals showed losses when an unwind of the global reflation trade pushed commodity prices lower. Some gains were found in long positioning on live cattle which saw sharp price gains amid supply concerns following declines in slaughter estimates and a drop in cold storage inventories.
May shows losses caused by foreign exchange and commodity positions, while stock index and interest rate holdings produced partially offsetting gains for the Trust. Foreign exchange holdings produced some of the largest losses during May. Long positioning on the US dollar against most developed currencies drove the decline. An ongoing unwind of the Trump-induced reflation-trade, linked with some mixed US economic data and generally stronger European data, conspired to send the greenback lower during the month. The political turmoil that gripped Washington DC added to the US dollar angst while a soothing of political tensions in Europe, due to the election of Emmanuel Macron in France, helped support European currencies. Commodity holdings also produced losses during the month. Long positioning on natural gas suffered when that market saw a price drop as mild weather in the US reduced demand and as a new trade agreement with China is expected to encourage US drillers to produce more of the commodity. A short cocoa position suffered amid flood conditions and unrest in the Ivory Coast which sent prices higher. The grains produced some partially offsetting gains as a short soybean position profited from a sell-off in that market due to continued concerns surrounding increased South American planting expectations and steady US planting progress. Long holdings on global stock indexes contributed some of the strongest profits to the Trust. Some of the best gains were seen in Hong Kong and the US as technology stocks performed particularly well. Improving global growth, linked with still-accommodative central banks and ongoing hope the Trump administration will ultimately get tax reform and infrastructure spending passed, kept the buy-the-dip mentality firmly in place. Interest rate positions produced additional profits. Long positioning on 10-year notes in Canada, Australia, and Germany produced gains as central banks in those regions indicated they planned to remain patient with their accommodative policies.
The Trust showed a loss in June led down by Interest Rate Holdings as losses came from interest rate, commodities and foreign exchange positions, while stock index holdings had little impact on the Trust’s profit & loss (P&L) during the month. Interest rate positions produced the largest losses for the Trust during June. Long positioning on European, Australian, United Kingdom, and Canadian interest rate notes were some of the worst performing markets within the sector for the Trust. Late in the month, Mario Draghi, President of the European Central Bank (ECB), gave a speech at the opening of the ECB’s Forum on Central Banking which heightened expectations for monetary policy tapering in Europe. In subsequent days, several other major central banks, such as the Bank of England (BOE) and the Bank of Canada (BOC), also delivered more hawkish messages. The US has already embarked on a series of interest rate hikes and the Federal Open Market Committee (FOMC) has indicated that more hikes are likely to come. The specter of an end to ultra-loose monetary policy on both sides of the Atlantic triggered a widespread sell-off in global fixed income markets which sent global yields higher and had a detrimental impact on the Trust. Commodity holdings produced additional losses during June. Some of the worst losses came from short positioning on wheat which rose amid declines in crop conditions, strong export sales, and a weaker US dollar. Partially-offsetting gains were found in short energy positions as the crude complex saw a broad-based sell-off. Short soft commodity holdings benefitted from a decline fueled by ample supply expectations. Foreign exchange markets also contributed to losses this month. Long holdings on the US dollar against the Canadian dollar was one of the worst performing FX positions. The loonie appreciated about 4% versus the US dollar as the BOC kick- started the theme of policy normalization which led to losses. Long holdings on global stock indexes ended the month showing little impact on the Trust. Early month gains were given back late in June as investors were unnerved by the global rise in rates which pushed many markets down from recent highs.
The Trust showed a gain in July led by foreign exchange and stock index positions, while commodity and interest rate holdings produced partially offsetting losses during the month. Foreign exchange positions produced some of the strongest monthly gains for the Trust. Broad-based US dollar weakness during July was the result of expectations that the US Federal Reserve would have to pause their recent path of higher interest rates due to weaker inflation readings for the US economy. In addition, the unpredictability of the Trump administration and the general inability of the US Congress to make progress on any substantive policy priorities weighed on the US currency. Some of the best gains were found in long positioning on the Australian dollar, euro, Canadian dollar, and Norwegian krone (all versus short US dollars). Long holdings on global stock indexes also contributed to profits. Some of the best returns were found in Hong Kong, the United States, India, and the Netherlands. Second quarter earnings reports were generally stronger than expected and a less hawkish US Federal Reserve both provided a tailwind for stocks. Equities saw a period of unusually low volatility with the S&P VIX index touching an all-time low during July. Commodity holdings produced some of the largest losses during July. A short soybean holding drove losses in the grains sub-sector as the market rallied amid lowered crop conditions. A short position on silver was hurt amid higher demand and a weaker US dollar which conspired to send the price of the precious metal higher. In the softs sub-sector, a coffee short suffered as that market advanced to a 3-month high amid the weaker dollar and falling expectations for the Brazilian crop. Small offsetting gains were found in the energy sub-sector where a long on gasoline benefited from higher prices as crude inventories showed a contraction during the month. Interest rate positions produced some smaller losses for the Trust. Choppy price action was difficult for the trading systems to navigate as rate markets grappled with changing central bank messaging and a consolidation of the sharp sell-off seen in June.
The Trust showed a gain in August led by interest rate and commodity holdings, while foreign exchange and stock index positions produced some partially offsetting losses during the month. Interest rate positions produced the best gains for the Trust. Long positioning on German and Japanese long-term interest rate notes contributed some of the best sector gains. Early in the month, a spike in demand for safe-haven assets drove bond prices higher amid new threats by North Korea to launch missiles at the US territory of Guam. Later in the month, bonds benefitted again when North Korea launched a missile that flew over Japan, triggering a new round of safety-seeking trades. Commodity holdings produced some additional profits during August. Long positioning on copper and zinc experienced gains on the back of strengthening Chinese demand and improving macro conditions. Short wheat positions also produced profits as those markets sold-off amid steady harvest progress and improved crop ratings. The Trust experienced some partially offsetting losses in the energies, precious metals, and meats sub-sectors. Foreign exchange positions produced losses for the Trust. Long positioning on the New Zealand dollar (versus the US dollar) suffered when that country’s central bank took a more dovish tone in the monetary policy statement they issued early in August. The head of their central bank, Graeme Wheeler, then continued to jaw-bone down the currency in speeches later in the month. Long positioning on the British pound (versus the US dollar) also caused losses when that currency fell in value as UK economic data lagged Europe and prospects for higher UK interest rates diminished. Global stock indexes also contributed to losses during the month. Short positioning on the S&P 500 Volatility Index (also known as the VIX) produced losses for the Trust as that index shot up more than 30% amid the North Korean missile threats early in August. Some partially offsetting gains were found in a long holding on the Hang Seng Index in Hong Kong which continued its strong year-to-date uptrend.
September shows losses from foreign exchange, commodity, and interest rate holdings, while stock index positions produced some partially offsetting gains during the month. Foreign exchange positions produced losses for the Trust. Short US dollar positioning against a variety of developed market and emerging market currencies drove the Trust declines. The US dollar began to strengthen post the September 20th Federal Open Market Committee (FOMC) interest rate meeting. On balance, the FOMC communication was more hawkish than expected. Later in the month, several FOMC members reinforced the hawkish rhetoric which cemented expectations for one more interest rate hike in 2017 which fueled the US dollar higher, hurting the Trust. Commodity holdings produced additional losses during September. The biggest sub-sector losses were found within the industrial metals complex. Long positioning on copper and nickel suffered due to the stronger US dollar and amid several bearish developments in China. Long positioning on gasoline also led to losses when that market sold-off as the impact from Hurricane Harvey on the Gulf Coast refinery infrastructure was less severe than originally expected. Interest rate positions created further losses for the Trust. Long positioning on German government notes produced some of the largest losses within the sector. German notes fell in tandem with US notes as a reflation trade fueled by President Trump’s tax overhaul plan generally pushed global yields higher. Global stock indexes contributed some partially offsetting gains for the Trust. Long positioning in Japan, the United States, and continental Europe produced some of the best gains. A weaker yen helped boost shares in Japan. In the US, shares traded higher as prospects for tax reform trumped two major hurricanes and threats from North Korea. A still accommodative European central bank and the reelection of Chancellor Angela Merkel in Germany kept a strong tailwind behind stocks in that region.
2016 (For the Nine Months Ended September 30)
Of the (8.50)% year to date return for Series A, approximately (5.21)% due to trading losses (before commissions) and approximately (3.92)% due to brokerage fees, management fees, operating costs and offering costs, offset by approximately 0.63% due to investment income earned by Series A.
Of the (8.16)% year to date return for Series B, approximately (5.21)% due to trading losses (before commissions) and approximately (3.58)% due to brokerage fees, management fees, and operating costs, offset by approximately 0.63% due to investment income earned by Series B.
Of the (7.28)% year to date return for Series W, approximately (5.21)% due to trading losses (before commissions) and approximately (2.70)% due to brokerage fees, management fees, service fees, operating costs and offering costs, offset by approximately 0.63% due to investment income earned by Series W.
During the nine months ended September 30, 2016, the Trust accrued management fees in the amount of $26,035,522 and paid management fees in the amount of $26,315,570. No performance fees were accrued or paid during this period.
An analysis of the (5.21)% gross trading loss for the Trust for the nine months ended September 30, 2016 by sector is as follows:
| Sector | | % Gain (Loss) | |
| Commodities | | | (5.93 | )% |
| Currencies | | | (2.49 | ) |
| Interest Rates | | | 4.64 | |
| Stock Indices | | | (1.43 | ) |
| | | | (5.21 | )% |
The Trust showed a gain during January as profits came from foreign exchange, interest rate, and commodity holdings while stock indexes provided small offsetting losses during the month. Foreign exchange positions from both trend following and non-trend strategies produced some of the best gains. Long US dollar positioning versus short commodity currencies, such as the Mexican peso, Canadian dollar, and South African rand, showed gains as the commodity sell-off continued, especially within the energy complex. Short positioning on the British pound versus the US dollar also benefitted as global growth concerns reduced the likelihood of a Bank of England interest rate hike and on heightened speculation of a UK exit from the European Union (the so-called “BREXIT”). Interest rate positions provided additional gains to the Trust during January, particularly from the non-trend systems. Long positioning on both long-dated and short-dated instruments experienced profits. The sharp sell-off in global stock indexes fueled safe-haven buying in interest rate products. In addition, ongoing dovish commentary from global central banks added to the upward price pressure. In fact, near month-end, the Bank of Japan adopted a new, and unexpected, negative interest rate policy that fueled additional buying of global interest rate markets. Some additional gains during the month came from commodity positions, with both trend and non-trend strategies contributing. Short positioning within the energy complex, namely on WTI and Brent, produced some of the best gains. Oil prices touched a 12-year low during the month as Iranian export sanctions were lifted which only added to the persistent oversupply within global markets as world demand continued to wane. Short positioning on copper returned profits as that metal saw lower prices amid ongoing economic weakness within China. A short position on gold produced some offsetting losses as risk-off sentiment produced safe-haven buying of the metal. Stock indexes showed losses as long positioning from the trend systems suffered amid the steep sell-off in equities as global growth concerns persisted to start the New Year.
February for the Trust comprised of profits from interest rate, commodity, and stock index holdings while foreign exchange positions provided some offsetting losses during the month. Interest rate positions provided some of the best gains to the Trust during February, particularly from the non-trend systems. Long positioning on long-dated instruments experienced profits, while short-dated products saw small losses. The best sector gains were found within Germany and the UK. Concerns about European bank stocks were a major contributor to the risk-off sentiment during February which provided a tailwind to interest rate markets in the region. Anxieties over a possible BREXIT also drove safe-haven buying. Additional gains during the month came from commodity positions, with both trend and non-trend strategies contributing. Shorts within the energy complex, namely on natural gas, produced some of the best gains. Natural gas prices fell to a 17-year low amid milder temperatures and abundant production. Short positioning on the grains, especially corn and wheat, benefitted when prices dropped due to weaker export sales and healthy global supplies. Short positions on gold and silver produced some offsetting sector losses as the risk-off environment produced safe-haven buying of those metals. Stock index holdings showed a very small gain. A short position on the Hang Seng index in Hong Kong was one of the best performing trades as that index fell amid ongoing concerns over the health of the Chinese economy. Foreign exchange positions from both trend following and non-trend strategies produced losses for the Trust. February saw some very choppy price action within the various currency pairs making for a difficult trading environment. The Trust was short the Japanese yen versus the US dollar and experienced losses when the yen strengthened despite the Bank of Japan’s recent negative interest rate policy announcement. Trend following systems saw some offsetting gains from a short on the British pound as BREXIT concerns drove the currency to new multi-year lows.
The Trust declined in March due to losses driven by commodity positioning, while foreign exchange, interest rate and stock index holdings had only a slightly negative impact during the month. Commodity positions from both the trend and non-trend systems provided some of the biggest losses during March. Short positioning across the petroleum complex suffered when those markets moved higher in response to an Organization of the Petroleum Exporting Countries (“OPEC”) announcement that the organization had scheduled a mid-April meeting to discuss output levels. Natural gas shorts hurt the Trust as well as that product rallied amid larger than expected inventory draws. Short holdings on the grain markets also led to losses with soybeans being one of the worst performers. Strong exports, political tensions in Brazil, and lower inventory projections were all behind the move higher. Coffee shorts also suffered as the political tensions in Brazil drove prices up. Foreign exchange positions added small additional losses. Long positioning on the Australian dollar produced profits as a dovish U.S. Federal Reserve and ultra-loose policies in Japan and Europe collectively boosted the appeal of higher yielding currencies. A short on the British pound produced some offsetting losses as that currency experienced an oversold bounce fueled in part by a more dovish US Fed. Interest rate holdings had a slightly negative impact on the monthly P&L. Price action during March was very choppy making it difficult for some systems to find and hold profitable trades. The first half of the month saw fixed income prices chop lower as stock prices moved higher. The second half of the month saw a sharp reversal higher as the US Fed took a more dovish than expected stance on interest rate policy. Stock index holdings also had only a slightly negative monthly P&L impact. Global equity indexes generally moved higher during March as commodity prices bounced and global central banks continued to provide an accommodative backdrop for stocks. The Trust held a mix of long and short holdings leading to offsetting gains and losses that left the sector nearly flat at month-end.
The Trust showed a decline in April. Losses came from interest rate, commodity, stock index, and foreign exchange holdings. Interest rate holdings had the largest negative impact on the monthly P&L with both trend following and non-trend systems suffering. Fixed income prices saw a sharp reversal lower during the month which hurt long positioning within the Trust. Increasing inflation expectations amid a sharp bounce in crude oil prices, which have rallied over 60% from the decade-plus low seen in February, pushed interest rate yields higher and prices lower. Tentative signs that Chinese economic activity was beginning to stabilize only added to the downward pressure as money rotated to riskier assets, such as stocks and commodities. Commodity positions from both the trend and non-trend systems also provided losses to the Trust during April. Short positioning on the energies, industrial metals, soft commodities, and grain markets all contributed to the losses. Many markets in each of these sub-sectors saw sharp intra-month reversals to the upside fueled by short covering amid a revived “risk-on” environment. A weaker US dollar also contributed upward momentum to many of the dollar-denominated commodity markets. Some offsetting gains came from long positioning on silver which benefitted from the weaker US dollar and low inventory levels and short holdings on the cattle complex as those markets retreated on the back of slow seasonal demand and oversupply concerns. Stock index holdings showed a negative monthly P&L impact, especially from the trend models. Global equity indexes generally moved higher during April as commodity prices bounced and global central banks continued to provide an accommodative backdrop for stocks. Foreign exchange positions added additional losses. Short positioning on the British pound versus the US dollar showed losses when the pound strengthened as fears began to subside that the United Kingdom might vote to exit the European Union at a planned referendum in June (the so-called BREXIT).
Losses in commodities and foreign exchange left the Trust with a decline in May, while interest rate and stock index holdings produced gains. Commodity positions from both the trend and non-trend models provided losses to the Trust. Long holdings on gold and silver both suffered as the US dollar strengthened during the month. Short positioning within the energy complex generated losses as the price of crude rallied on back of the supply and demand equilibrium showing tentative signs of rebalancing. In the meats, short cattle positions suffered as those markets rose amid signs of increased demand. Small offsetting profits were found within the grains sub-sector as a long soybean position profited due to strong US export sales and South American crop concerns. Foreign exchange positions from both the trend and non-trend systems also showed losses during May. After weakening for several months in a row, the US dollar steadily strengthened throughout most of the month hurting the Trust’s short dollar positions against a variety of currencies. Front-end US yields repriced higher as the Fed reminded markets through multiple channels that all FOMC meetings going forward are “live” with respect to potential policy change, fueling US dollar strength. Interest rate holdings had one of the largest positive impacts on the monthly P&L with both trend following and non-trend systems showing gains. Long positioning on long-dated markets in Europe, Australia, and the UK produced some of the best gains. A mix of weaker economic data, dovish central bank actions, and concern over the late June UK referendum to leave the Euro-zone (i.e. “BREXIT”) all helped to push prices higher in those regions during May. Stock index holdings showed a positive monthly P&L impact, especially from the non-trend models. The faster-reacting non-trend systems were able to successfully navigate the choppy price action seen in many of the global stock indexes. A short position on the S&P 500 volatility index benefitted from the general risk- on environment in the second half of the month which pushed that index sharply lower.
The Trust showed a profit in June as gains came from interest rate and commodity markets, while stock index and foreign exchange holdings produced some losses. Interest rate holdings had the largest positive impact on the monthly P&L with both trend following and non-trend systems showing gains. Long positions across global interest rate markets showed strong profits, especially within Europe. United Kingdom voters surprised and shocked markets worldwide with their decision to leave the European Union. The so-called BREXIT sparked a risk-off reaction globally, with government bond futures among the largest beneficiaries, as investors accepted record low bond yields in multiple markets in exchange for the safety of government paper. Commodity positions from the trend models provided some additional gains. Long positioning on the precious metals was one of the best performing sub-sectors. The flight to safety triggered by the UK BREXIT vote along with dampened expectations of additional US FOMC interest rate hikes this year pushed gold and silver prices sharply higher. The grains sub- sector contributed additional profits led by a long soybean holding which rose amid a bullish June crop report. Short positioning on natural gas produced some offsetting losses as lower average inventories, as calculated by the US EIA, helped contribute to a short squeeze in that market. Stock index holdings produced some of the largest monthly losses with both the trend following and non-trend systems contributing. Long global stock index exposure suffered from risk-off selling caused by the uncertainty that the UK BREXIT vote created. In addition, a short position on the CBOE volatility index future produced losses amid the sharp spike in volatility due to the UK referendum. Foreign exchange positions showed some small losses during June. Mixed FX positioning against the US dollar led to mostly offsetting gains and losses. Profits were seen on a long Japanese yen position which strengthened in a flight-to safety trade. Losses were produced by positioning on the Euro which saw choppy price action leading up to and after the surprising BREXIT decision.
The Trust showed a profit in July with gains from stock index, commodity, and interest rate markets, while foreign exchange holdings produced some small losses. Stock index holdings produced some of the largest monthly gains with both the trend following and non-trend systems contributing. Global equity markets shook off the fear and uncertainty created by the UK’s decision to leave the European Union and produced strong gains during July. Long positioning within the Trust across global stock indexes benefitted from the higher prices with holdings in Australia, the UK, Canada, Germany, and Taiwan producing some of the best performance. Generally better than expected Q2 earnings results, attractive dividend yields, and the expectation that global central banks will keep rates lower for longer all offset terror attacks, a coup attempt in Turkey, and uncertainty over the US presidential election. Commodity positions from both the trend and non-trend models provided some additional gains to the Trust. Short positioning across the energy complex was profitable with both gasoline and WTI crude producing some of the best returns. Inventory reports during the month showed that supply was plentiful leading to lower prices. Precious metals added to gains within the sector as long positioning benefitted from a slightly weaker US dollar and ongoing accommodation from the US Federal Reserve. Some offsetting losses were produced within the grain sub-sector. A long position on soybeans suffered from weaker demand amid robust crop expectations. Interest rate holdings had a positive impact on the monthly P&L with trend following systems showing gains. Long positioning on long-dated interest rate markets produced some of the best profits. Holdings in Australia benefitted from an accommodative central bank that is grappling with persistently low inflation readings and uncertainty around the newly elected Prime Minister’s effectiveness given his very narrow victory. Foreign exchange positioning produced small losses driven by non-trend following strategies. Choppy price action and a mix of long and short positioning versus the US dollar led to the muted P&L within the FX sector overall.
Decline in August came from losses primarily in commodity, foreign exchange, and interest rate positions, while stock index positions closed the month flat. Commodity holdings from the trend models provided some of the largest losses to the Trust. Positioning within the energy and precious metal sub-sectors caused a bulk of the damage. Short positioning within the energy complex suffered from concerns that OPEC might try to rein in production at an informal meeting scheduled for September which helped fuel a short squeeze. Long holdings on precious metals also caused losses as growing expectations for higher interest rates in the US led to a sell-off in both gold and silver. The Trust did receive some offsetting gains from a short position on wheat which saw its price decline to a 10-year low on abundant supply. Foreign exchange positions from both trend following and non-trend following strategies also showed losses during August. Some of the largest monthly losses were seen in the euro, Mexican peso, and Australian dollar (all versus the US dollar). Choppy price action in the euro and peso created a difficult environment for our systems to trade profitably. A multi-month uptrend in the Aussie dollar produced losses when that currency experienced a price reversal beginning in the middle of the month. Interest rate holdings had a negative impact on the monthly P&L with trend following and non-trend systems both showing losses. Long positioning, especially within the US, suffered from a better than expected July US employment report released early in the month. A growing stream of comments from US Federal Reserve members signaling their willingness to potentially raise interest rates at one of three remaining 2016 FOMC meetings also pressured interest rate markets lower, sending yields higher. Stock index P&L was relatively flat as a long position within Australia was hurt by a sell-off in the financial, mining, and telecommunication sectors. Some offsetting gains were found in a long position within Hong Kong which rose in value on better than expected earnings and amid the news that the long- planned stock-trading link between Hong Kong and China was officially approved.
