| 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 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, 2018 and December 31, 2017 is as follows: Type of Instrument * Statements of Financial Condition Location Asset Derivatives at September 30, 2018 Fair Value Liability Derivatives at September 30, 2018 Fair Value Net Agriculture Contracts Net unrealized gain (loss) on open futures contracts $ 3,250,765 $ (976,665 ) $ 2,274,100 Energy Contracts Net unrealized gain (loss) on open futures contracts 3,528,912 (307,415 ) 3,221,497 Metal Contracts Net unrealized gain (loss) on open futures contracts 4,911,278 (4,433,332 ) 477,946 Stock Indices Contracts Net unrealized gain (loss) on open futures contracts 4,901,654 (1,180,138 ) 3,721,516 Short-Term Interest Rate Contracts Net unrealized gain (loss) on open futures contracts 1,808,560 (121,488 ) 1,687,072 Long-Term Interest Rate Contracts Net unrealized gain (loss) on open futures contracts 1,970,554 (1,399,682 ) 570,872 Forward Currency Contracts Net unrealized gain (loss) on open forward currency contracts 7,181,092 (11,837,695 ) (4,656,603 ) Totals $ 27,552,815 $ (20,256,415 ) $ 7,296,400 * Derivatives not designated as hedging instruments under ASC 815 Type of Instrument * Statements of Financial Condition Location Asset Derivatives at December 31, 2017 Fair Value Liability Derivatives at December 31, 2017 Fair Value Net Agriculture Contracts Net unrealized gain (loss) on open futures contracts $ 3,638,592 $ (305,890 ) $ 3,332,702 Energy Contracts Net unrealized gain (loss) on open futures contracts 4,230,158 (1,767,097 ) 2,463,061 Metal Contracts Net unrealized gain (loss) on open futures contracts 6,733,650 (2,806,128 ) 3,927,522 Stock Indices Contracts Net unrealized gain (loss) on open futures contracts 6,430,613 (2,540,535 ) 3,890,078 Short-Term Interest Rate Contracts Net unrealized gain (loss) on open futures contracts 509,198 (498,702 ) 10,496 Long-Term Interest Rate Contracts Net unrealized gain (loss) on open futures contracts 853,564 (5,482,963 ) (4,629,399 ) Forward Currency Contracts Net unrealized gain (loss) on open forward currency contracts 17,067,988 (13,966,124 ) 3,101,864 Totals $ 39,463,763 $ (27,367,439 ) $ 12,096,324 * 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 and nine months ended September 30, 2018 and 2017 is as follows: Type of Instrument Trading Gains/(Losses) for the Three Months Ended September 30, 2018 Trading Gains/(Losses) for the Three Months Ended September 30, 2017 Agriculture Contracts $ 209,385 $ (13,357,258 ) Energy Contracts (1,590,094 ) (52,059 ) Metal Contracts (953,901 ) (4,473,131 ) Stock Indices Contracts 3,582,132 22,514,141 Short-Term Interest Rate Contracts 2,557,125 (1,128,656 ) Long-Term Interest Rate Contracts (7,102,904 ) 1,510,743 Forward Currency Contracts 2,238,536 8,927,904 Total $ (1,059,721 ) $ 13,941,684 Type of Instrument Trading Gains/(Losses) for the Nine Months Ended September 30, 2018 Trading Gains/(Losses) for the Nine Months Ended September 30, 2017 Agriculture Contracts $ (8,213,942 ) $ (24,397,575 ) Energy Contracts 11,573,037 (24,932,225 ) Metal Contracts (11,292,306 ) (1,893,044 ) Stock Indices Contracts (24,360,817 ) 99,950,270 Short-Term Interest Rate Contracts 8,473,271 (5,075,663 ) Long-Term Interest Rate Contracts (3,909,376 ) (23,100,013 ) Forward Currency Contracts 3,291,789 (26,133,679 ) Total $ (24,438,344 ) $ (5,581,929 ) Line Item in the Statements of Operations Trading Gains/(Losses) for the Three Months Ended September 30, 2018 Trading Gains/(Losses) for the Three Months Ended September 30, 2017 Futures trading gains (losses): Realized** $ (11,039,683 ) $ (35,573,374 ) Change in unrealized 7,741,426 40,587,154 Forward currency trading gains (losses): Realized 18,335,233 14,537,016 Change in unrealized (16,096,697 ) (5,609,112 ) Total $ (1,059,721 ) $ 13,941,684 Line Item in the Statements of Operations Trading Gains/(Losses) for the Nine Months Ended September 30, 2018 Trading Gains/(Losses) for the Nine Months Ended September 30, 2017 Futures trading gains (losses): Realized** $ (30,688,676 ) $ 13,162,248 Change in unrealized 2,958,543 7,389,502 Forward currency trading gains (losses): Realized 11,050,256 (12,867,578 ) Change in unrealized (7,758,467 ) (13,266,101 ) Total $ (24,438,344 ) $ (5,581,929 ) ** 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, 2018 and 2017, the monthly average of futures contracts bought and sold was approximately 38,200 and 50,900, respectively, and the monthly average of notional value of forward currency contracts was $1,961,100,000 and $2,290,900,000, respectively For the nine months ended September 30, 2018 and 2017, the monthly average of futures contracts bought and sold was approximately 41,700 and 64,300, respectively, and the monthly average of notional value of forward currency contracts was $2,086,700,000 and $2,602,900,000, respectively Open contracts generally mature within three months; as of September 30, 2018, the latest maturity date for open futures contracts is December 2019 and the latest maturity date for open forward currency contracts is December 2018. 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 brokers. 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 NatWest, 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, 2018 and December 31, 2017 was $59,929,888 and $98,517,542, respectively, which equals approximately 16% and 18% of Net Asset Value, respectively. The cash deposited with the interbank market maker at September 30, 2018 and December 31, 2017 was $44,854,336 and $265,952, respectively, which equals approximately 12% and 0% of Net Asset Value, respectively. These amounts are included in cash and cash equivalents. Included in cash deposits with the brokers and interbroker market maker at September 30, 2018 and December 31, 2017 was restricted cash for margin requirements of $33,937,069 and $936,583, respectively, which equals approximately 9% and 0% 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 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, 2018 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 $ 10,248,802 $ (4,442,104 ) $ 5,806,698 Futures contracts Goldman Sachs 10,122,921 (3,976,616 ) 6,146,305 Forward currency contracts NatWest Markets plc 7,181,092 (7,181,092 ) 0 Total derivatives $ 27,552,815 $ (15,599,812 ) $ 11,953,003 Derivative Assets and Collateral Received by Counterparty As of September 30, 2018 Net Amounts of Unrealized Gain in the Statements of Financial Condition Gross Amounts Not Offset in the Statements of Financial Condition Counterparty Financial Instruments Cash Collateral Received Net Amount UBS Securities LLC $ 5,806,698 $ 0 $ 0 $ 5,806,698 Goldman Sachs 6,146,305 0 0 6,146,305 NatWest Markets plc 0 0 0 0 Total $ 11,953,003 $ 0 $ 0 $ 11,953,003 Offsetting of Derivative Liabilities As of September 30, 2018 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 $ 4,442,104 $ (4,442,104 ) $ 0 Futures contracts Goldman Sachs 3,976,616 (3,976,616 ) 0 Forward currency contracts NatWest Markets plc 11,837,695 (7,181,092 ) 4,656,603 Total derivatives $ 20,256,415 $ (15,599,812 ) $ 4,656,603 Derivative Liabilities and Collateral Pledged by Counterparty As of September 30, 2018 Net Amounts of Unrealized Loss in the Statements of Financial Condition Gross Amounts Not Offset in the Statements of Financial Condition Counterparty Financial Instruments Cash Collateral Pledged Net Amount UBS Securities LLC $ 0 $ 0 $ 0 $ 0 Goldman Sachs 0 0 0 0 NatWest Markets plc 4,656,603 0 (4,656,603 ) 0 Total $ 4,656,603 $ 0 $ (4,656,603 ) $ 0 Offsetting of Derivative Assets As of December 31, 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 $ 11,246,678 $ (6,805,740 ) $ 4,440,938 Futures contracts Goldman Sachs 11,149,097 (6,595,575 ) 4,553,522 Forward currency contracts NatWest Markets plc 17,067,988 (13,966,124 ) 3,101,864 Total derivatives $ 39,463,763 $ (27,367,439 ) $ 12,096,324 Derivative Assets and Collateral Received by Counterparty As of December 31, 2017 Net Amounts of Unrealized Gain in the Statements of Financial Condition Gross Amounts Not Offset in the Statements of Financial Condition Counterparty Financial Instruments Cash Collateral Received Net Amount UBS Securities LLC $ 4,440,938 $ 0 $ 0 $ 4,440,938 Goldman Sachs 4,553,522 0 0 4,553,522 NatWest Markets plc 3,101,864 0 0 3,101,864 Total $ 12,096,324 $ 0 $ 0 $ 12,096,324 Offsetting of Derivative Liabilities As of December 31, 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 $ 6,805,740 $ (6,805,740 ) $ 0 Futures contracts Goldman Sachs 6,595,575 (6,595,575 ) 0 Forward currency contracts NatWest Markets plc 13,966,124 (13,966,124 ) 0 Total derivatives $ 27,367,439 $ (27,367,439 ) $ 0 Derivative Liabilities and Collateral Pledged by Counterparty As of December 31, 2017 Net Amounts of Unrealized Loss in the Statements of Financial Condition Gross Amounts Not Offset in the Statements of Financial Condition Counterparty Financial Instruments Cash Collateral Pledged Net Amount UBS Securities LLC $ 0 $ 0 $ 0 $ 0 Goldman Sachs 0 0 0 0 NatWest Markets plc 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. |
