| TRADING ACTIVITIES AND RELATED RISKS | Note 9. 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 March 31, 2020 and December 31, 2019 is as follows: Type of Instrument * Statements of Financial Condition Location Asset Derivatives at March 31, 2020 Fair Value Liability Derivatives at March 31, 2020 Fair Value Net Agriculture Contracts Net unrealized gain (loss) on open futures contracts $ 500,486 $ (439,339 ) $ 61,147 Energy Contracts Net unrealized gain (loss) on open futures contracts 850,234 (7,019 ) 843,215 Metal Contracts Net unrealized gain (loss) on open futures contracts 16,772,328 (10,579,842 ) 6,192,486 Stock Indices Contracts Net unrealized gain (loss) on open futures contracts 139,119 (1,892,075 ) (1,752,956 ) Short-Term Interest Rate Contracts Net unrealized gain (loss) on open futures contracts 268,261 (214,402 ) 53,859 Long-Term Interest Rate Contracts Net unrealized gain (loss) on open futures contracts 1,007,114 (1,342,852 ) (335,738 ) Forward Currency Contracts Net unrealized gain (loss) on open Forward Currency Contracts 54,499,080 (37,167,595 ) 17,331,485 Totals $ 74,036,622 $ (51,643,124 ) $ 22,393,498 * Derivatives not designated as hedging instruments under ASC 815 Type of Instrument * Statements of Financial Condition Location Asset Derivatives at December 31, 2019 Fair Value Liability Derivatives at December 31, 2019 Fair Value Net Agriculture Contracts Net unrealized gain (loss) on open futures contracts $ 193,039 $ (2,931,321 ) $ (2,738,282 ) Energy Contracts Net unrealized gain (loss) on open futures contracts 1,761,936 (275,743 ) 1,486,193 Metal Contracts Net unrealized gain (loss) on open futures contracts 5,593,742 (8,006,981 ) (2,413,239 ) Stock Indices Contracts Net unrealized gain (loss) on open futures contracts 1,340,862 (1,169,714 ) 171,148 Short-Term Interest Rate Contracts Net unrealized gain (loss) on open futures contracts 314,422 (1,080,128 ) (765,706 ) Long-Term Interest Rate Contracts Net unrealized gain (loss) on open futures contracts 1,421,030 (5,301,081 ) (3,880,051 ) Forward Currency Contracts Net unrealized gain (loss) on open Forward Currency Contracts 23,303,459 (25,967,136 ) (2,663,677 ) Totals $ 33,928,490 $ (44,732,104 ) $ (10,803,614 ) * Derivatives not designated as hedging instruments under ASC 815 The trading gains and losses of the Trust’s derivatives by instrument type, as well as the location of those gains and losses on the Statements of Operations, for the three months ended March 31, 2020 and 2019 is as follows: Type of Instrument Trading Gains/(Losses) for the Three Months Ended March 31, 2020 Trading Gains/(Losses) for the Three Months Ended March 31, 2019 Agriculture Contracts $ 3,712,427 $ 852,719 Energy Contracts 9,953,259 (4,099,499 ) Metal Contracts 8,243,449 (1,676,556 ) Stock Indices Contracts (44,993,303 ) 7,931,870 Short-Term Interest Rate Contracts 15,241,726 4,294,530 Long-Term Interest Rate Contracts 4,039,036 11,638,178 Forward Currency Contracts 25,151,024 (3,525,678 ) Total $ 21,347,618 $ 15,415,564 Line Item in the Statements of Operations Trading Gains/(Losses) for the Three Months Ended March 31, 2020 Trading Gains/(Losses) for the Three Months Ended March 31, 2019 Futures trading gains (losses): Realized** $ (17,005,356 ) $ 11,332,347 Change in unrealized 13,201,950 7,608,895 Forward currency trading gains (losses): Realized** 5,155,862 7,832,537 Change in unrealized 19,995,162 (11,358,215 ) Total $ 21,347,618 $ 15,415,564 ** For the three months ended March 31, 2020 and 2019, the amounts above include gains and losses on foreign currency cash balances at the futures brokers of $52,869 and $ 93,045, respectively; and gains and losses on spot trades in connection with forward currency trading at the interbank market makers of $1,697,113 and $ 0, respectively. For the three months ended and 2019, the monthly average of futures contracts bought and sold was approximately 59,900 and 49,200, respectively, and the monthly average of notional value of forward currency contracts was $2,326,700,000 and $3,493,300,000, respectively Open contracts generally mature within three months; as of March 31, 2020, the latest maturity date for open futures contracts is June 2021 and the latest maturity date for open forward currency contracts is June 2020. 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 March 31, 2020 and December 31, 2019 was $50,437,119 and $53,641,527, respectively, which equals approximately 16% and 17% of Net Asset Value, respectively. The cash deposited with the interbank market maker at March 31, 2020 and December 31, 2019 was $24,153,417 and 44,667,046, respectively, which equals approximately 8% and 14% of Net Asset Value, respectively. These amounts are included in cash and cash equivalents. Included in cash deposits with the futures brokers and interbank market maker at March 31, 2020 and December 31, 2019 was restricted cash for margin requirements of $1,700,164 and $34,464,229, respectively, which equals approximately 1% and 11% 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 by Counterparty As of March 31, 2020 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 $ 9,810,206 $ (7,450,207 ) $ 2,359,999 Futures contracts Goldman Sachs & Co. LLC 9,727,336 (7,025,322 ) 2,702,014 Forward currency contracts NatWest Markets plc 54,499,080 (37,167,595 ) 17,331,485 Total derivatives $ 74,036,622 $ (51,643,124 ) $ 22,393,498 Derivative Assets and Collateral Received by Counterparty As of March 31, 2020 Counterparty Net Amounts of Unrealized Gain in the Statements of Financial Condition Gross Amounts Not Offset in the Statements of Financial Condition Financial Instruments Cash Collateral Received Net Amount UBS Securities LLC $ 2,359,999 $ 0 $ 0 $ 2,359,999 Goldman Sachs & Co. LLC 2,702,014 0 0 2,702,014 NatWest Markets plc 17,331,485 0 0 17,331,485 Total $ 22,393,498 $ 0 $ 0 $ 22,393,498 Offsetting of Derivative Liabilities by Counterparty As of March 31, 2020 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 $ 7,450,207 $ (7,450,207 ) $ 0 Futures contracts Goldman Sachs & Co. LLC 7,025,322 (7,025,322 ) 0 Forward currency contracts NatWest Markets plc 37,167,595 (37,167,595 ) 0 Total derivatives $ 51,643,124 $ (51,643,124 ) $ 0 Derivative Liabilities and Collateral Pledged by Counterparty As of March 31, 2020 Counterparty Net Amounts of Unrealized loss in the Statements of Financial Condition Gross Amounts Not Offset in the Statements of Financial Condition Net Amount Financial Instruments Cash Collateral Pledged UBS Securities LLC $ 0 $ 0 $ 0 $ 0 Goldman Sachs & Co. LLC 0 0 0 0 NatWest Markets plc 0 0 0 0 Total $ 0 $ 0 $ 0 $ 0 Offsetting of Derivative Assets by Counterparty As of December 31, 2019 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 $ 5,396,065 $ (5,396,065 ) $ 0 Futures contracts Goldman Sachs & Co. LLC 5,228,966 (5,228,966 ) 0 Forward currency contracts NatWest Markets plc 23,303,459 (23,303,459 ) 0 Total derivatives $ 33,928,490 $ (33,928,490 ) $ 0 Derivative Assets and Collateral Received by Counterparty As of December 31, 2019 Counterparty Net Amounts of Unrealized Gain in the Statements of Financial Condition Gross Amounts Not Offset in the Statements of Financial Condition Financial Instruments Cash Collateral Received Net Amount UBS Securities LLC $ 0 $ 0 $ 0 $ 0 Goldman Sachs & Co. LLC 0 0 0 0 NatWest Markets plc 0 0 0 0 Total $ 0 $ 0 $ 0 $ 0 Offsetting of Derivative Liabilities by Counterparty As of December 31, 2019 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 $ 9,348,737 $ (5,396,065 ) $ 3,952,672 Futures contracts Goldman Sachs & Co. LLC 9,416,231 (5,228,966 ) 4,187,265 Forward currency contracts NatWest Markets plc 25,967,136 (23,303,459 ) 2,663,677 Total derivatives $ 44,732,104 $ (33,928,490 ) $ 10,803,614 Derivative Liabilities and Collateral Pledged by Counterparty As of December 31, 2019 Counterparty Net Amounts of Unrealized loss in the Statements of Financial Condition Gross Amounts Not Offset in the Statements of Financial Condition Financial Instruments Cash Collateral Pledged Net Amount UBS Securities LLC $ 3,952,672 $ 0 $ (3,952,672 ) $ 0 Goldman Sachs & Co. LLC 4,187,265 0 (4,187,265 ) 0 NatWest Markets plc 2,663,677 0 (2,663,677 ) 0 Total $ 10,803,614 $ 0 $ (10,803,614 ) $ 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. |
