UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarter ended: June 29, 2007
or
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 0-17592
WORLD MONITOR TRUST II – SERIES F
(Exact name of registrant as specified in its charter)
| Delaware | 13-4058320 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| 900 King Street, Suite 100, Rye Brook, New York | 10573 | |
| (Address of principal executive offices) | (Zip Code) |
(914) 307-7000
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer x
Indicate by check mark whether the Registrant is a shell company (ad defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
WORLD MONITOR TRUST II – SERIES F
INDEX TO QUARTERLY REPORT ON FORM 10Q
JUNE 29, 2007
PART I – FINANCIAL INFORMATION
| Item 1. | Financial Statements |
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK;
FINANCIAL STATEMENTS TO FOLLOW]
WORLD MONITOR TRUST II – SERIES F
FINANCIAL STATEMENTS
June 29, 2007
WORLD MONITOR TRUST II – SERIES F
STATEMENTS OF FINANCIAL CONDITION
June 29, 2007 (Unaudited) and December 31, 2006
June 29, 2007 | December 31, 2006 | |||||
ASSETS | ||||||
Cash in commodity trading accounts | $ | 229,413 | $ | 227,349 | ||
Investment in WMT Campbell Pool L.L.C. (99.89% and 99.86% of net asset value, respectively) | 28,375,409 | 30,437,482 | ||||
Redemption receivable from WMT Campbell Pool L.L.C. | 169,871 | 77,559 | ||||
Accounts receivable | 10,221 | 10,220 | ||||
Total assets | $ | 28,784,914 | $ | 30,752,610 | ||
LIABILITIES | ||||||
Accrued expenses | $ | 78,029 | $ | 51,258 | ||
Commissions payable | 164,556 | 179,987 | ||||
Redemption payable | 136,977 | 42,389 | ||||
Total liabilities | 379,562 | 273,634 | ||||
TRUST CAPITAL | ||||||
Limited interests (166,640.119 and 186,888.821 interests outstanding) at June 29, 2007 and December 31, 2006, respectively | 28,092,631 | 30,174,948 | ||||
Managing Owner interests (1,855.000 and 1,883 interests outstanding) at June 29, 2007 and December 31, 2006, respectively | 312,721 | 304,028 | ||||
Total trust capital | 28,405,352 | 30,478,976 | ||||
Total liabilities and trust capital | $ | 28,784,914 | $ | 30,752,610 | ||
Net Asset Value per Limited and Managing Owner Interest
June 29, 2007 | December 31, 2006 | ||
| $168.58 | $ | 161.46 | |
See accompanying notes.
-2-
WORLD MONITOR TRUST II – SERIES F
STATEMENTS OF OPERATIONS
For the Periods March 31, 2007 to June 29, 2007 and April 1, 2006 to June 30, 2006 and
January 1, 2007 to June 29, 2007 and January 1, 2006 to June 30, 2006
(Unaudited)
For the Period June 29, 2007 | For the Period to June 30, 2006 | For the Period June 29, 2007 | For the Period to June 30, 2006 | |||||||||||||
NET LOSS FROM TRUST OPERATIONS: | ||||||||||||||||
REVENUES | ||||||||||||||||
Interest income | $ | 2,622 | $ | 3,674 | $ | 4,694 | $ | 7,119 | ||||||||
Total revenues | 2,622 | 3,674 | 4,694 | 7,119 | ||||||||||||
EXPENSES | ||||||||||||||||
Brokerage commissions | 427,341 | 508,752 | 861,657 | 1,042,067 | ||||||||||||
General and administrative | 37,962 | 70,993 | 81,442 | 125,886 | ||||||||||||
Total expenses | 465,303 | 579,745 | 943,099 | 1,167,953 | ||||||||||||
NET LOSS FROM TRUST OPERATIONS | (462,681 | ) | (576,071 | ) | (938,405 | ) | (1,160,834 | ) | ||||||||
NET INCOME (LOSS) ALLOCATED FROM WMT CAMPBELL POOL L.L.C.: | ||||||||||||||||
REVENUES | ||||||||||||||||
Realized | 2,705,758 | (645,546 | ) | 2,303,053 | (1,304,136 | ) | ||||||||||
Change in unrealized | 882,468 | (1,262,222 | ) | (546,264 | ) | 1,256,414 | ||||||||||
Interest income | 324,492 | 419,911 | 655,253 | 824,542 | ||||||||||||
Total revenues (losses) | 3,912,718 | (1,487,857 | ) | 2,412,042 | 776,820 | |||||||||||
EXPENSES | ||||||||||||||||
Brokerage commissions and other transaction fees | 21,814 | 24,552 | 38,142 | 55,615 | ||||||||||||
General and administrative | 439 | 0 | 6,150 | 0 | ||||||||||||
Management fee | 142,377 | 168,692 | 286,983 | 345,608 | ||||||||||||
Total expenses | 164,630 | 193,244 | 331,275 | 401,223 | ||||||||||||
NET INCOME (LOSS) ALLOCATED FROM WMT CAMPBELL POOL L.L.C. | 3,748,088 | (1,681,101 | ) | 2,080,767 | 375,597 | |||||||||||
NET INCOME (LOSS) | $ | 3,285,407 | $ | (2,257,172 | ) | $ | 1,142,362 | $ | (785,237 | ) | ||||||
NET INCOME (LOSS) PER WEIGHTED AVERAGE LIMITED AND MANAGING OWNER INTEREST | ||||||||||||||||
Net income (loss) per weighted average Limited and Managing Owner interest | $ | 18.47 | $ | (10.49 | ) | $ | 6.25 | $ | (3.56 | ) | ||||||
Weighted average number of Limited and Managing Owner interests outstanding | 177,915 | 215,410 | 182,632 | 220,793 | ||||||||||||
See accompanying notes.
-3-
WORLD MONITOR TRUST II – SERIES F
STATEMENTS OF CHANGES IN TRUST CAPITAL
For the Periods January 1, 2007 to June 29, 2007 and
January 1, 2006 to June 30, 2006
(Unaudited)
| Interests | Limited Interests | Managing Owner Interests | Total | ||||||||||||
For the period January 1, 2007 to June 29, 2007 | |||||||||||||||
Trust capital at December 31, 2006 | 188,771.821 | $ | 30,174,948 | $ | 304,028 | $ | 30,478,976 | ||||||||
Net income for the period January 1, 2007 to June 29, 2007 | 0.000 | 1,129,417 | 12,945 | 1,142,362 | |||||||||||
Additions | 3.060 | 0 | 500 | 500 | |||||||||||
Redemptions | (20,279.762 | ) | (3,211,734 | ) | (4,752 | ) | (3,216,486 | ) | |||||||
Trust capital at June 29, 2007 | 168,495.119 | $ | 28,092,631 | $ | 312,721 | $ | 28,405,352 | ||||||||
For the period January 1, 2006 to June 30, 2006 | |||||||||||||||
Trust capital at December 31, 2005 | 233,497.673 | $ | 36,375,919 | $ | 379,044 | $ | 36,754,963 | ||||||||
Net loss for the period January 1, 2006 to June 30, 2006 | 0.000 | (777,616 | ) | (7,621 | ) | (785,237 | ) | ||||||||
Redemptions | (21,950.631 | ) | (3,444,195 | ) | (38,641 | ) | (3,482,836 | ) | |||||||
Trust capital at June 30, 2006 | 211,547.042 | $ | 32,154,108 | $ | 332,782 | $ | 32,486,890 | ||||||||
See accompanying notes.
-4-
WORLD MONITOR TRUST II - SERIES F
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 1.ORGANIZATION
| A. | General Description of the Trust |
World Monitor Trust II (the “Trust”) is a business trust organized under the laws of Delaware on April 22, 1999. The Trust consists of three separate and distinct series (“Series”): Series D, E and F. Series D, E and F commenced trading operations on March 13, 2000, April 6, 2000 and March 1, 2000, respectively, and each Series will continue to exist until terminated pursuant to the provisions of Article XIII of the Third Amended and Restated Declaration of Trust and Trust Agreement (the “Agreement”). The assets of each Series are segregated from those of the other Series, separately valued and independently managed. Each Series was formed to engage in the speculative trading of a diversified portfolio of futures, forward and options contracts and may, from time to time, engage in cash and spot transactions. The trustee of the Trust is Wilmington Trust Company.
Effective December 6, 2004, World Monitor Trust II Series F (“Series F”) contributed its net assets to WMT Campbell Pool L.L.C. (the “Company”) and received a Voting Membership Interest in the Company. The Company was formed to function as an aggregate trading vehicle. The sole members of the Company are Series F and World Monitor Trust II Series D (“Series D”). Preferred Investment Solutions Corp. (“Preferred” or the “Managing Owner”) is the Managing Owner of the Company and has been delegated administrative authority over the operations of the Company. The Company engages in the speculative trading of futures and forwards contracts. The financial statements of the Company, including the condensed schedule of investments, are included in Section II of these financial statements and should be read in conjunction with Series F’s financial statements.
Interests owned in one series of the Trust (Series D, E or F) were exchangeable, without any charge, for Interests of one or more other Series on a weekly basis as long as Limited Interests in those Series were being offered to the public. Exchanges were made at the applicable Series’ then current net asset value per Interest as of the close of business on the Friday immediately preceding the week in which the exchange request was effected. The exchange of Interests was treated as a redemption of Interests in one Series (with the related tax consequences) and the simultaneous purchase of Interests in the other Series. Series E and Series F are no longer offered to the public as those series substantially achieved their subscription maximums during June 2003 and July 2003, respectively. In addition, since July 2003, the offering of interests in Series D has been temporarily suspended. Accordingly, at this time, Interests may not be exchanged. Future redemptions will impact the amount of funds available for investment in commodity contracts in subsequent periods.
Redemptions are permitted on a weekly basis.
In the event that the estimated net asset value per Interest of a Series at the end of any business day, after adjustments for distributions and redemptions, declines by 50% or more since the commencement of trading activities or the first day of a fiscal year, the Series will automatically terminate.
-5-
WORLD MONITOR TRUST II - SERIES F
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Note 2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The statement of financial condition as of June 29, 2007, the statements of operations for the periods March 31, 2007 to June 29, 2007 (“Second Quarter 2007”), April 1, 2006 to June 30, 2006 (“Second Quarter 2006”), January 1, 2007 to June 29, 2007 (“Year-To-Date 2007”) and January 1, 2006 to June 30, 2006 (“Year-To-Date 2006”), and the statements of changes in trust capital for Year-To-Date 2007 and Year-To-Date 2006 are unaudited. In the opinion of the Managing Owner, the financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to state fairly the financial position of Series F as of June 29, 2007 and the results of its operations for the Second Quarter 2007, Second Quarter 2006, Year-To-Date 2007 and Year-To-Date 2006. The operating results for these interim periods may not be indicative of the results expected for a full year.
Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in Series F’s annual report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2006.
Series F has elected not to provide a Statement of Cash Flows as permitted by Statement of Financial Accounting Standards (“SFAS”) No. 102, “Statement of Cash Flows – Exemption of Certain Enterprises and Classification of Cash Flows from Certain Securities Acquired for Resale.”
In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting for uncertainty in tax positions. FIN 48 requires that Series F recognize in its financial statements, the impact of a tax position if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The provisions of FIN 48 were effective for fiscal years beginning after December 15, 2006, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. Preferred as Managing Owner of Series F evaluated the impact of adopting FIN 48 on Series F’s financial statements. In Preferred’s opinion, the adoption of FIN 48 had no material impact on Series F, as Series F’s tax position is based on established tax precedence for the tax treatment of investment partnerships as flow through tax entities.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The provisions of SFAS No. 157 are effective for fiscal years beginning after November 15, 2007. The Managing Owner is currently evaluating the impact of adopting SFAS No. 157 on Series F’s financial statements. At this time, the impact to Series F’s financial statements has not been determined.
Series F allocates profits and losses for both financial and tax reporting purposes to its Interest holders weekly on a pro rata basis based on each owner’s interests outstanding during the week. Distributions (other than redemptions of Interests) may be made at the sole discretion of the Managing Owner on a pro rata basis in accordance with the respective capital balances of the Interest holders. The Managing Owner has not and does not presently intend to make any distributions.
-6-
WORLD MONITOR TRUST II - SERIES F
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Note 3.FEES
Series F is allocated its proportionate share of the Company’s management fees on a pro rata basis based on Series F’s pro rata capital in the Company. Series F pays the Company’s trading advisor, Campbell & Company, Inc. (the “Company’s Trading Advisor” or “Campbell”), a quarterly incentive fee of 22% of “New High Net Trading Profits” (as defined in the Advisory Agreement). The incentive fee is accrued weekly and paid quarterly.
Note 4.RELATED PARTIES
Series F reimburses the Managing Owner or its affiliates for services they perform for Series F which include, but are not limited to: brokerage services; accounting and financial management; registrar, transfer and assignment functions; investor communications, printing and other administrative services. However, to the extent that general and administrative expenses exceed 1.5% of Series F’s net asset value during the year (with a maximum of 0.5% attributable to other than legal and audit expenses) such amounts are borne by the Managing Owner and its affiliates. Because general and administrative expenses exceeded such limitations at December 31, 2006, a portion of the expenses related to services provided by the Managing Owner for Series F, as of December 31, 2006 were borne by the Managing Owner and its affiliates. General and administrative expenses did not exceed such limitations during the Second Quarter 2007, Year-to-Date 2007, Second Quarter 2006 and Year-to-Date 2006.
The expenses incurred by Series F for services performed by the Managing Owner and its affiliates for Series F were:
| Second Quarter | Year-To-Date | |||||||||||
| 2007 | 2006 | 2007 | 2006 | |||||||||
Commissions | $ | 427,341 | $ | 508,752 | $ | 861,657 | $ | 1,042,067 | ||||
General and administrative | 8,833 | 7,708 | 22,195 | 14,944 | ||||||||
| $ | 436,174 | $ | 516,460 | $ | 883,852 | $ | 1,057,011 | |||||
Expenses payable to the Managing Owner and its affiliates (which are included in Accrued expenses payable and Commissions payable) as of June 29, 2007 and December 31, 2006 were $173,389 and $186,385, respectively.
Note 5.INVESTMENT IN WMT CAMPBELL POOL L.L.C.
Effective December 6, 2004, Series F invested a substantial portion of its assets in the Company. Series F’s investment in the Company represents approximately 71.43% and 69.69% of the net asset value of the Company at June 29, 2007 and December 31, 2006, respectively. The investment in the Company is subject to the Organization Agreement of the Company. The Company entered into an advisory agreement with Campbell to make the trading decisions for the Company. The Company’s Trading Advisor manages approximately 100% of the assets of the Company pursuant to its Financial, Metal & Energy Large Portfolio. Series F records its proportionate share of each item of income and expense from the investment in the Company in the statement of operations.
-7-
WORLD MONITOR TRUST II - SERIES F
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Note 5.INVESTMENT IN WMT CAMPBELL POOL L.L.C. (CONTINUED)
Summarized information for Series F’s investment in the Company is as follows:
| Net Asset Value December 31, 2006 | Gain | Redemptions | Net Asset Value June 29, 2007 | ||||||||||
WMT Campbell Pool L.L.C. | $ | 30,437,482 | $ | 2,080,767 | $ | (4,142,840 | ) | $ | 28,375,409 | ||||
Series F may make additional contributions to, or redemptions from, the Company on a weekly basis.
Note 6.DERIVATIVE INSTRUMENTS AND ASSOCIATED RISKS
Series F’s investment in the Company is subject to the market and credit risks of the futures contracts, options on futures contracts, forward currency contracts and other financial instruments held or sold short by the Company. Series F bears the risk of loss only to the extent of the market value of its investments and, in certain specific circumstances, distributions and redemptions received.
Series F has cash on deposit with financial institutions. In the event of a financial institution’s insolvency, recovery of cash on deposit may be limited to account insurance or other protection afforded such deposits. The Managing Owner 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. The Unitholders bear 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.
Series F’s futures commission merchant, in accepting orders for the purchase or sale of domestic futures contracts, is required by Commodity Futures Trading Commission (“CFTC”) regulations to separately account for and segregate as belonging to Series F all assets of Series F relating to domestic futures trading and is not allowed to commingle such assets with its other assets. At June 29, 2007 and December 31, 2006, such segregated assets totaled $209,527 and $85,612, respectively. Part 30.7 of the CFTC regulations also requires Series F’s futures commission merchant to secure assets of Series F related to foreign futures trading which totaled $(47) and $0 at June 29, 2007 and December 31, 2006, respectively. There are no segregation requirements for assets related to forward trading.
-8-
WORLD MONITOR TRUST II - SERIES F
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Note 7.FINANCIAL HIGHLIGHTS
The following information presents per interest operating performance data and other supplemental financial data for the Second Quarter 2007, Second Quarter 2006, Year-To-Date 2007 and Year-To-Date 2006. This information has been derived from information presented in the financial statements.
| Second Quarter | Year-To-Date | |||||||||||||||
| 2007 | 2006 | 2007 | 2006 | |||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
Per Interest Performance (for an interest outstanding throughout the entire period) | ||||||||||||||||
Net asset value per interest at beginning of period | $ | 149.99 | $ | 164.03 | $ | 161.46 | $ | 157.41 | ||||||||
Net realized gain (loss) and change in net unrealized gain (loss) on commodity transactions(1), (3) | 20.29 | (8.84 | ) | 10.49 | (0.50 | ) | ||||||||||
Interest income(1), (3) | 1.84 | 1.97 | 3.61 | 3.77 | ||||||||||||
Expenses(1), (3) | (3.54 | ) | (3.59 | ) | (6.98 | ) | (7.11 | ) | ||||||||
Net increase (decrease) for the period | 18.59 | (10.46 | ) | 7.12 | (3.84 | ) | ||||||||||
Net asset value per interest at end of period | $ | 168.58 | $ | 153.57 | $ | 168.58 | $ | 153.57 | ||||||||
Total Return(4) | ||||||||||||||||
Total return before incentive fees | 12.39 | % | (6.38 | )% | 4.41 | % | (2.44 | )% | ||||||||
Incentive fees | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | ||||||||
Total return after incentive fees | 12.39 | % | (6.38 | )% | 4.41 | % | (2.44 | )% | ||||||||
Supplemental Data | ||||||||||||||||
Ratios to average net asset value:(3) | ||||||||||||||||
Net investment loss before incentive fees(2), (5) | (4.28 | )% | (3.82 | )% | (4.24 | )% | (4.07 | )% | ||||||||
Incentive fees(4) | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | ||||||||
Net investment loss after incentive fees | (4.28 | )% | (3.82 | )% | (4.24 | )% | (4.07 | )% | ||||||||
Interest income(5) | 4.63 | % | 4.63 | % | 4.55 | % | 4.59 | % | ||||||||
Incentive fees(4) | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | ||||||||
Other expenses(5) | 8.91 | % | 8.45 | % | 8.79 | % | 8.66 | % | ||||||||
Total expenses | 8.91 | % | 8.45 | % | 8.79 | % | 8.66 | % | ||||||||
Total returns are calculated based on the change in value of an interest during the period. An individual interestholder’s total returns and ratios may vary from the above total returns and ratios based on the timing of redemptions.
(1) | Interest income per interest and expenses per interest are calculated by dividing interest income and expenses by the weighted average number of interests outstanding during the period. Net realized gain (loss) and change in net unrealized gain (loss) on commodity transactions is a balancing amount necessary to reconcile the change in net asset value per interest with the other per interest information. |
(2) | Represents interest income less total expenses (exclusive of incentive fees). |
(3) | Includes the Trust’s proportionate share of income and expenses of WMT Campbell Pool L.L.C. |
(4) | Not annualized. |
(5) | Annualized. |
-9-
SECTION II
FINANCIAL STATEMENTS
June 29, 2007
STATEMENTS OF FINANCIAL CONDITION
June 29, 2007 (Unaudited) and December 31, 2006
June 29, 2007 | December 31, 2006 | |||||
ASSETS | ||||||
Equity in broker trading accounts | ||||||
Cash in commodity trading accounts | $ | 38,185,293 | $ | 41,273,244 | ||
Interest receivable | 109,259 | 119,428 | ||||
Net unrealized gain on open contracts | 1,854,203 | 2,624,455 | ||||
Total assets | $ | 40,148,755 | $ | 44,017,127 | ||
LIABILITIES | ||||||
Commissions payable | $ | 4,047 | $ | 3,589 | ||
Management fee payable | 76,977 | 86,212 | ||||
Redemptions payable | 343,692 | 252,167 | ||||
Total liabilities | 424,716 | 341,968 | ||||
MEMBERS’ CAPITAL (Net Asset Value) | ||||||
Member D | 11,348,630 | 13,237,677 | ||||
Member F | 28,375,409 | 30,437,482 | ||||
Total members’ capital (Net Asset Value) | 39,724,039 | 43,675,159 | ||||
Total liabilities and members’ capital | $ | 40,148,755 | $ | 44,017,127 | ||
See accompanying notes.
-13-
CONDENSED SCHEDULES OF INVESTMENTS
June 29, 2007 (Unaudited) and December 31, 2006
| June 29, 2007 | December 31, 2006 | |||||||||||||
Net Unrealized | Net Unrealized Gain (Loss) | Net Unrealized as a % of | Net Unrealized Gain (Loss) | |||||||||||
Futures Contracts | ||||||||||||||
Futures contracts purchased: | ||||||||||||||
Commodities | (0.04 | )% | $ | (14,487 | ) | (1.14 | )% | $ | (499,055 | ) | ||||
Interest rates | (0.03 | )% | (12,439 | ) | (0.11 | )% | (46,217 | ) | ||||||
Stock indices | 0.41 | % | 162,129 | 1.17 | % | 509,839 | ||||||||
Net unrealized gain (loss) on futures contracts purchased | 0.34 | % | 135,203 | (0.08 | )% | (35,433 | ) | |||||||
Futures contracts sold: | ||||||||||||||
Commodities | (0.05 | )% | (21,778 | ) | 0.10 | % | 45,153 | |||||||
Interest rates | 1.56 | % | 619,142 | 2.67 | % | 1,164,767 | ||||||||
Stock indicies | 0.00 | % | 1,251 | 0.00 | % | 0 | ||||||||
Net unrealized gain on futures contracts sold | 1.51 | % | 598,615 | 2.77 | % | 1,209,920 | ||||||||
Net unrealized gain on futures contracts | 1.85 | % | $ | 733,818 | 2.69 | % | $ | 1,174,487 | ||||||
Forward Contracts | ||||||||||||||
Forward contracts purchased: | ||||||||||||||
Net unrealized gain (loss) on forward contracts purchased | 4.51 | % | $ | 1,793,079 | (1.64 | )% | $ | (717,310 | ) | |||||
Net unrealized gain on over the counter contracts purchased | 0.01 | % | 5,779 | 0.00 | % | 0 | ||||||||
Forward contracts sold: | ||||||||||||||
Net unrealized gain (loss) on forward contracts sold | (1.70 | )% | (676,226 | ) | 4.96 | % | 2,167,278 | |||||||
Net unrealized loss on over the counter contracts sold | (0.01 | )% | (2,247 | ) | 0.00 | % | 0 | |||||||
Net unrealized gain on forward contracts | 2.81 | % | $ | 1,120,385 | 3.32 | % | $ | 1,449,968 | ||||||
Net unrealized gain on futures and forward contracts | $ | 1,854,203 | $ | 2,624,455 | ||||||||||
See accompanying notes.
-14-
STATEMENTS OF OPERATIONS
For the Periods March 31, 2007 to June 29, 2007 and April 1, 2006 to June 30, 2006 and
January 1, 2007 to June 29, 2007 and January 1, 2006 to June 30, 2006
(Unaudited)
For the Period June 29, 2007 | For the Period June 30, 2006 | For the Period June 29, 2007 | For the Period June 30, 2006 | ||||||||||||
REVENUES | |||||||||||||||
Realized | $ | 3,821,475 | $ | (681,036 | ) | $ | 3,243,942 | $ | (1,376,132 | ) | |||||
Change in unrealized | 1,274,340 | (1,332,028 | ) | (770,252 | ) | 1,329,080 | |||||||||
Interest income | 462,281 | 443,071 | 936,755 | 870,548 | |||||||||||
Total revenues | 5,558,096 | (1,569,993 | ) | 3,410,445 | 823,496 | ||||||||||
EXPENSES | |||||||||||||||
Commissions | 31,044 | 25,905 | 54,459 | 58,730 | |||||||||||
Management fee | 202,862 | 177,996 | 410,303 | 364,916 | |||||||||||
General and administrative | 620 | 0 | 8,812 | 0 | |||||||||||
Total expenses | 234,526 | 203,901 | 473,574 | 423,646 | |||||||||||
NET INCOME (LOSS) | $ | 5,323,570 | $ | (1,773,894 | ) | $ | 2,936,871 | $ | 399,850 | ||||||
See accompanying notes.
-15-
STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL (NET ASSET VALUE)
For the Periods January 1, 2007 to June 29, 2007 and
January 1, 2006 to June 30, 2006
(Unaudited)
| Members’ Capital | ||||||||||||
| Member D | Member F | Total | ||||||||||
For the period January 1, 2007 to June 29, 2007 | ||||||||||||
Balances at December 31, 2006 | $ | 13,237,677 | $ | 30,437,482 | $ | 43,675,159 | ||||||
Net income for the period January 1, 2007 to June 29, 2007 | 856,104 | 2,080,767 | 2,936,871 | |||||||||
Redemptions | (2,745,151 | ) | (4,142,840 | ) | (6,887,991 | ) | ||||||
Balances at June 29, 2007 | $ | 11,348,630 | $ | 28,375,409 | $ | 39,724,039 | ||||||
| Members’ Capital | ||||||||||||
| Member A | Member F | Total | ||||||||||
For the period January 1, 2006 to June 30, 2006 | ||||||||||||
Balances at December 31, 2005 | $ | 2,160,971 | $ | 36,596,444 | $ | 38,757,415 | ||||||
Net income for the period January 1, 2006 to June 30, 2006 | 24,253 | 375,597 | 399,850 | |||||||||
Redemptions | (400,504 | ) | (4,651,942 | ) | (5,052,446 | ) | ||||||
Balances at June 30, 2006 | $ | 1,784,720 | $ | 32,320,099 | $ | 34,104,819 | ||||||
See accompanying notes.
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NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 1.ORGANIZATION
| A. | General Description of the Company |
WMT Campbell Pool L.L.C. (the “Company”) is a limited liability company organized under the laws of Delaware on November 3, 2004 and commenced trading operations on December 6, 2004. The Company was formed to engage in the speculative trading of a diversified portfolio of futures contracts, options on futures contracts and forward currency contracts and may, from time to time, engage in cash and spot transactions. Preferred Investment Solutions Corp. (“Preferred”) is the Managing Member of the Company. The Company currently consists of two members: World Monitor Trust – Series D (“Member D”) and World Monitor Trust II – Series F (“Member F”) (collectively, the “Members”). World Monitor Trust – Series A (“Member A”) redeemed all of its membership interests in the Company as of August 25, 2006. Preferred is also the Managing Owner of each of the Members. Upon making the initial capital contribution, each Member received Voting Membership Interests.
The Company is a Member managed limited liability company that is not registered in any capacity with, or subject directly to regulation by the Commodity Futures Trading Commission or the United States Securities and Exchange Commission.
| B. | The Trading Advisor |
The Company entered into an advisory agreement with Campbell & Company, Inc. (the “Trading Advisor”) to make the trading decisions for the Company. The Trading Advisor manages approximately 100% of the assets of the Company pursuant to its Financial, Metal & Energy Large Portfolio.
Note 2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
| A. | Basis of Accounting |
The statement of financial condition, including the condensed schedule of investments, as of June 29, 2007, the statements of operations for the periods March 31, 2007 to June 29, 2007 (“Second Quarter 2007”), April 1, 2006 to June 30, 2006 (“Second Quarter 2006”), January 1, 2007 to June 29, 2007 (“Year-To-Date 2007”) and January 1, 2006 to June 30, 2006 (“Year-To-Date 2006”), and the statements of changes in members’ capital (net asset value) for Year-To-Date 2007 and Year-To-Date 2006, are unaudited. In the opinion of Preferred, such financial statements reflect all adjustments, which were of a normal and recurring nature, necessary for a fair presentation of financial position as of June 29, 2007, and the results of operations for the Second Quarter 2007, Second Quarter 2006, Year-To-Date 2007 and Year-To-Date 2006. The operating results for these interim periods may not be indicative of the results expected for a full year.
The financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America, which require the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
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WMT CAMPBELL POOL L.L.C.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Note 2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
| A. | Basis of Accounting (Continued) |
Commodity futures and foreign exchange transactions are reflected in the accompanying statement of financial condition on the trade date. Net unrealized gain or loss on open contracts (the difference between contract trade price and market price) is reflected in the financial statements in accordance with Financial Accounting Standards Board Interpretation No. 39 – “Offsetting of Amounts Related to Certain Contracts.” The market value of futures (exchange-traded) contracts is based upon the closing quotation on the various futures exchanges on which the contract is traded. The values which will be used by the Company for open forward and option positions will be provided by its administrator, who obtains market quotes from data vendors and third parties. Any change in net unrealized gain or loss during the current period is reported in the statement of operations. Realized gains and losses on transactions are recognized in the period in which the contracts are closed. Brokerage commissions include other trading fees and are charged to expense when incurred.
The Company has elected not to provide a Statement of Cash Flows as permitted by Statement of Financial Accounting Standards (“SFAS”) No. 102, “Statement of Cash Flows – Exemption of Certain Enterprises and Classification of Cash Flows from Certain Securities Acquired for Resale.”
Consistent with standard business practices in the normal course of business, the Company has provided general indemnifications to its Trading Advisor and others when they act, in good faith, in the best interests of the Company. The Company is unable to develop an estimate of the maximum potential amount of future payments that could potentially result from any hypothetical future claim, but expects the risk of having to make any payments under these general business indemnifications to be remote.
In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting for uncertainty in tax positions. FIN 48 requires that the Company recognize in its financial statements, the impact of a tax position if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The provisions of FIN 48 were effective for fiscal years beginning after December 15, 2006, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. Preferred as Managing Member of the Company evaluated the impact of adopting FIN 48 on the Company’s financial statements. In Preferred’s opinion, the adoption of FIN 48 had no material impact on the Company, as the Company’s tax position is based on established tax precedence for the tax treatment of investment partnerships as flow through tax entities.
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WMT CAMPBELL POOL L.L.C.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Note 2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
| A. | Basis of Accounting (Continued) |
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The provisions of SFAS No. 157 are effective for fiscal years beginning after November 15, 2007. Preferred is currently evaluating the impact of adopting SFAS No. 157 on the Company’s financial statements. At this time, the impact to the Company’s financial statements has not been determined.
Cash represents amounts deposited with clearing brokers, a portion of which are restricted for purposes of meeting margin requirements, which typically range from 0% to 35% of the notional amounts of the derivatives traded. The Company receives interest on all cash balances held by the clearing brokers at prevailing interest rates.
| B. | Income Taxes |
The Company is treated as a partnership for Federal income tax purposes. As such, the Company is not required to provide for, or pay, any Federal or state income taxes. Income tax attributes that arise from its operations are passed directly to the Members. The Company may be subject to other state and local taxes in jurisdictions in which it operates.
| C. | Capital Accounts |
The Company accounts for subscriptions, allocations and redemptions on a per member capital account basis.
The Company allocates profits and losses, prior to calculation of the incentive fee, for both financial and tax reporting purposes to its Members weekly on a pro rata basis based on each Member’s pro rata capital in the Company during the week. Each Member is then charged with the applicable incentive fee. Distributions (other than redemptions of capital) may be made at the sole discretion of the Members on a pro rata basis in accordance with the Members’ respective capital balances. The Company has not and does not presently intend to make any distributions.
| D. | Foreign Currency Transactions |
The Company’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 statement of financial condition. Income and expense items denominated in currencies other than U.S. dollars 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 operations currently.
Note 3.FEES
| A. | Organizational, General and Administrative Costs |
Under the WMT Campbell Pool L.L.C. Organization Agreement, Preferred may allocate administrative costs of the Company to the Members. Administrative costs include legal, audit, postage and other routine third party administrative costs.
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WMT CAMPBELL POOL L.L.C.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Note 3.FEES (CONTINUED)
| B. | Management Fees |
The Company pays the Trading Advisor a management fee at an annual rate of 2% of the Company’s Net Assets determined as of the close of business each Friday. The sum of the amounts determined each Friday will be paid monthly. For purposes of determining the management fee, any distributions, redemptions or reallocation of assets made as of the last Friday of each week shall be added back to the assets and there shall be no reduction for (i) the weekly management fees calculated or (ii) any accrued but unpaid incentive fees due the Trading Advisor.
Note 4.INCOME TAXES
There have been no differences between the tax basis and book basis of Members’ capital since inception of the Company.
Note 5.DEPOSITS WITH COMMODITY BROKER
The Company deposits funds with a commodity broker subject to CFTC regulations and various exchange and commodity broker requirements. Margin requirements are satisfied by the deposit of cash with such commodity broker. The Company earns interest income on assets deposited with the commodity broker.
Note 6.SUBSCRIPTIONS, DISTRIBUTIONS AND REDEMPTIONS
Investments in the Company are made subject to the terms of the Organization Agreement.
The Company is not required to make distributions, but could do so at the discretion of the Members. A Member can request and receive redemption of capital, subject to the terms in the Organization Agreement.
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WMT CAMPBELL POOL L.L.C.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Note 7.DERIVATIVE INSTRUMENTS AND ASSOCIATED RISKS
The Company is exposed to various types of risks associated with the derivative instruments and related markets in which it invests. These risks include, but are not limited to, risk of loss from fluctuations in the value of derivative instruments held (market risk) and the inability of counterparties to perform under the terms of the Company’s investment activities (credit risk).
Market Risk
Trading in futures and forward contracts (including foreign exchange) involves entering into contractual commitments to purchase or sell a particular commodity at a specified date and price. The gross or face amount of the contracts, which is typically many times that of the Company’s net assets being traded, significantly exceeds the Company’s future cash requirements since the Company intends to close out its open positions prior to settlement. As a result, the Company is generally subject only to the risk of loss arising from the change in the value of the contracts. As such, the Company considers the “fair value” of its derivative instruments to be the net unrealized gain or loss on the contracts. The market risk associated with the Company’s commitments to purchase commodities is limited to the gross or face amount of the contract held. However, when the Company enters into a contractual commitment to sell commodities, it must make delivery of the underlying commodity at the contract price and then repurchase the contract at prevailing market prices or settle in cash. Since the repurchase price to which a commodity can rise is unlimited, entering into commitments to sell commodities exposes the Company to unlimited risk.
Market risk is influenced by a wide variety of factors, including government programs and policies, political and economic events, the level and volatility of interest rates, foreign currency exchange rates, the diversification effect among the derivative instruments the Company holds and the liquidity and inherent volatility of the markets in which the Company trades.
Credit Risk
When entering into futures or forward contracts, the Company is exposed to credit risk that the counterparty to the contract will not meet its obligations. The counterparty for futures contracts traded on United States and most foreign futures exchanges is the clearinghouse associated with the particular exchange. In general, a clearinghouse is backed by its corporate members 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 (i.e., some foreign exchanges), it is normally backed by a consortium of banks or other financial institutions. On the other hand, there is concentration risk on forward transactions entered into by the Company, as the Company’s forward broker is the sole counterparty. The Company has entered into a master netting agreement with its forward broker and, as a result, when applicable, presents unrealized gains and losses on open forward positions as a net amount in the statements of financial condition. The amount at risk associated with counterparty non-performance of all of the Company’s contracts is the net unrealized gain included in the statements of financial condition; however, counterparty non-performance on only certain of the Company’s contracts may result in greater loss than non-performance on all of the Company’s contracts. There can be no assurance that any counterparty, clearing member or clearinghouse will meet its obligations to the Company.
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WMT CAMPBELL POOL L.L.C.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Note 7.DERIVATIVE INSTRUMENTS AND ASSOCIATED RISKS (CONTINUED)
Credit Risk (Continued)
Preferred attempts to minimize both credit and market risks by requiring the Company and its Trading Advisor to abide by various trading limitations and policies. Preferred monitors compliance with these trading limitations and policies, which include, but are not limited to, executing and clearing all trades with creditworthy counterparties; limiting the amount of margin or premium required for any one commodity or all commodities combined; and generally limiting transactions to contracts which are traded in sufficient volume to permit the taking and liquidating of positions. Additionally, pursuant to the Advisory Agreement among the Company, Preferred and the Trading Advisor, the Company shall automatically terminate the Trading Agreement, if the net asset value allocated to the Trading Advisor declines by 40% from the value at the beginning of any year or since the effective date of the Advisory Agreement. The decline in net asset value is after giving effect for distributions, subscriptions and redemptions.
The Company’s futures commission merchant, in accepting orders for the purchase or sale of domestic futures contracts, is required by Commodity Futures Trading Commission (“CFTC”) regulations to separately account for and segregate as belonging to the Company all assets of the Company relating to domestic futures trading and is not allowed to commingle such assets with its other assets. At June 29, 2007 and December 31, 2006, such segregated assets totaled $23,034,329 and $29,693,922, respectively. Part 30.7 of the CFTC regulations also requires the Company’s futures commission merchant to secure assets of the Company related to foreign futures trading which totaled $4,254 and $(47,030) at June 29, 2007 and December 31, 2006, respectively. There are no segregation requirements for assets related to forward trading.
As of June 29, 2007, all open futures contracts mature within nine months.
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WMT CAMPBELL POOL L.L.C.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Note 8.FINANCIAL HIGHLIGHTS
The following information presents the financial highlights of the Company for the Second Quarter 2007, Second Quarter 2006, Year-To-Date 2007 and Year-To-Date 2006. This information has been derived from information presented in the financial statements.
| Second Quarter 2007 | Year-To-Date 2007 | |||||||||||
| Member D | Member F | Member D | Member F | |||||||||
Total return(1) | 14.24 | % | 14.24 | % | 7.84 | % | 7.84 | % | ||||
Total expenses (2) | (2.34 | )% | (2.33 | )% | (2.29 | )% | (2.29 | )% | ||||
Net investment income(2) | 2.27 | % | 2.26 | % | 2.24 | % | 2.24 | % | ||||
| Second Quarter 2006 | Year-To-Date 2006 | |||||||||||
| Member A | Member F | Member A | Member F | |||||||||
Total return(1) | (4.97 | )% | (4.97 | )% | 1.25 | % | 1.08 | % | ||||
Total expenses (2) | (2.12 | )% | (2.12 | )% | (2.23 | )% | (2.22 | )% | ||||
Net investment income(2) | 2.49 | % | 2.49 | % | 2.34 | % | 2.35 | % | ||||
Total returns and ratios to average net asset value are calculated for Members’ capital taken as a whole. An individual Member’s total returns and ratios may vary from the above returns and ratios based on the timing of redemptions.
(1) | Not annualized and includes realized and unrealized gains (losses) on securities transactions. |
(2) | Annualized. |
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| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
This report on Form 10Q (the “Report”) for the quarter ending June 29, 2007 (“Second Quarter 2007”) includes forward-looking statements that reflect the current expectations of Preferred Investment Solutions Corp. (“Managing Owner”), the managing owner of World Monitor Trust II – Series F (“Registrant”), about the future results, performance, prospects and opportunities of Registrant. The Managing Owner has tried to identify these forward-looking statements by using words such as “may,” “will,” “expect,” “anticipate,” “believe,” “intend,” “should,” “estimate” or the negative of those terms or similar expressions. These forward-looking statements are based on information currently available to the Managing Owner and are subject to a number of risks, uncertainties and other factors, both known, such as those described in this Report, and unknown, that could cause Registrant’s actual results, performance, prospects or opportunities to differ materially from those expressed in, or implied by, these forward-looking statements.
You should not place undue reliance on any forward-looking statements. Except as expressly required by the Federal securities laws, the Managing Owner undertakes no obligation to publicly update or revise any forward-looking statements or the risks, uncertainties or other factors described in this Report, as a result of new information, future events or changed circumstances or for any other reason after the date of this Report.
Introduction
General
World Monitor Trust II (the “Trust”) is a business trust organized under the laws of Delaware on April 22, 1999. The Trust consists of three separate and distinct series (“Series”): Series D, Series E and Series F. Series D, E and F commenced trading operations on March 13, 2000, April 6, 2000 and March 1, 2000, respectively, and each Series will continue to exist until terminated pursuant to the provisions of Article XIII of the Third Amended and Restated Declaration of Trust and Trust Agreement (the “Trust Agreement”). The assets of each Series are segregated from those of the other Series, separately valued and independently managed. Each Series was formed to engage in the speculative trading of a diversified portfolio of futures, forward and options contracts, and may, from time to time, engage in cash and spot transactions. The trustee of the Trust is Wilmington Trust Company. The Managing Owner serves as the managing owner of the Trust and each Series, including Registrant. Registrant was formed to engage in the speculative trading of commodity futures and forward contracts. The Registrant’s fiscal year for book and tax purposes ends on December 31.
Registrant is engaged solely in the business of commodity futures and forward trading; therefore, presentation of industry segment information is not applicable.
Effective December 6, 2004, contributed its net assets to WMT Campbell Pool, L.L.C. (the “Trading Vehicle”), a Delaware limited liability company. Registrant received a voting membership interest in the Trading Vehicle, which was formed to function as an aggregate trading vehicle for its members. Registrant and Series D are the sole members of the Trading Vehicle. The Managing Owner is the managing owner of Registrant and Series D and has been delegated administrative authority over the operations of the Trading Vehicle. The Trading Vehicle engages in the speculative trading of futures and forwards contracts. The Trading Vehicle has entered into an advisory agreement (the “Advisory Agreement”) with Campbell & Company, Inc. (the “Trading Advisor”), whereby the Trading Advisor makes the trading decisions for the Trading Vehicle and, in turn, Registrant. All references herein to Registrant’s relationship with the Trading Advisor shall, unless the context states otherwise, refer to Registrant’s relationship with the Trading Advisor through Registrant’s investment in the Trading Vehicle. The financial statements of the Trading Vehicle, including the condensed schedules of investments, are included in Section II of Registrant’s financial statements and should be read in conjunction with Registrant’s financial statements.
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Managing Owner and its Affiliates
Preferred has been the managing owner of Registrant since October 1, 2004. Prior to that date, Prudential Securities Futures Management Inc. served as managing owner of Registrant. The term Managing Owner, as used herein, refers either to Prudential Securities Futures Management Inc. or Preferred, depending upon the applicable period discussed.
The Managing Owner is required to maintain at least a 1% interest in Registrant so long as it is acting as Registrant’s Managing Owner.
Competition
The Managing Owner and its affiliates have formed, and may continue to form, various entities to engage in the speculative trading of futures and forward contracts that have certain of the same investment policies as Registrant.
Registrant does not currently, and does not intend in the future to, solicit the sale of additional Interests. As such, Registrant does not compete with other entities to attract new fund participants. However, to the extent that a Trading Advisor recommends similar or identical trades to Registrant and other accounts that it manages, Registrant may compete with those accounts, as well as with other market participants, for the execution of the same or similar trades.
Employees
Registrant has no employees. Management and administrative services for Registrant are performed by the Managing Owner or third parties pursuant to the Trust Agreement, as further discussed in Notes 3 and 4 to Registrant’s financial statements included in its annual report for the year ended December 31, 2006 (“Registrant’s 2006 Annual Report”), which is filed as an exhibit to Registrant’s Form 10-K for the fiscal year ended December 31, 2006.
Critical Accounting Policies
Preparation of the financial statements and related disclosures in compliance with accounting principles generally accepted in the United States of America requires the application of appropriate accounting rules and guidance. Applying these policies requires the Managing Owner to make judgments, estimates and assumptions in connection with the preparation of Registrant’s financial statements. Actual results may differ from the estimates used.
The Managing Owner has evaluated Registrant’s financial statements and related disclosures and has determined that the policies discussed below are critical accounting policies because they involve estimates, judgments and assumptions that are particularly complex, subjective or uncertain. For further discussion of Registrant’s significant accounting policies, see Note 2 to Registrant’s financial statements for the year ended December 31, 2006, which is filed as an exhibit to Registrant’s annual report on Form 10K for the fiscal year ended December 31, 2006.
The valuation of Registrant’s investments that are not traded on a United States or internationally recognized futures exchange is a critical accounting policy. The market values of futures (exchange traded) contracts is verified by Registrant’s administrator, which obtains valuation data from third party data providers such as Bloomberg and Reuters and compares those prices with Registrant’s clearing broker. The market value of currency swap and forward (non-exchange traded) contracts is extrapolated on a forward basis from the spot prices quoted as of 3 PM on the last business day of the reporting period. All values assigned by the administrator and confirmed by the Managing Owner are final and conclusive as to all of Registrant’s unitholders.
As such, if actual results vary from estimates used, they are not anticipated to have a material impact on the financial statements and related disclosures.
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Registrant records all investments at fair value in its financial statements, with changes in fair value reported as a component of Trading Profits (Losses) in the Statements of Operations. Generally, fair values are based on quoted market prices; however, in certain circumstances, significant judgments and estimates are involved in determining fair value in the absence of an active market closing price.
New Accounting Pronouncements
In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting for uncertainty in tax positions. FIN 48 requires that Registrant recognize in its financial statements the impact of a tax position if that position is more likely than not of being sustained on audit based on the technical merits of the position. The provisions of FIN 48 were effective for fiscal years beginning after December 15, 2006, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. The Managing Owner evaluated the impact of adopting FIN 48 on Registrant’s financial statements. In the Managing Owner’s opinion, the adoption of FIN 48 had no material impact on Registrant, as Registrant’s tax position is based on established tax precedence for the tax treatment of investment partnerships as flow through tax entities.
In September 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements”, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The provisions of SFAS No. 157 are effective for fiscal years beginning after November 15, 2007. The Managing Owner is currently evaluating the impact of adopting SFAS No. 157 on Registrant’s financial statements. At this time, the impact to Registrant’s financial statements has not been determined.
Liquidity and Capital Resources
Registrant commenced operations on March 1, 2000 with gross proceeds of $5,185,012 allocated to commodities trading. Additional contributions raised through the continuous offering of limited interests (“Limited Interests”) and general interests (“General Interests” and, together with the Limited Interests, “Interests”) of beneficial ownership in Registrant for the period from March 1, 2000 (commencement of operations) to December 31, 2003 resulted in additional gross proceeds to Registrant of $45,240,236. Registrant’s Interests were offered until it substantially achieved its subscription maximum of $50,000,000 Limited Interests in July 2003.
For Second Quarter 2007, the period January 1, 2007 to June 29, 2007 (“Year-To-Date 2007”), the period April 1, 2006 to June 30, 2006 (“Second Quarter 2006”), the period January 1, 2006 to June 30, 2006 (“Year-To-Date 2006”), the period March 26, 2005 to June 24, 2005 (“Second Quarter 2005”) and the period January 1, 2005 to June 24, 2005 (“Year-To-Date 2005”) there were no subscriptions of Limited Interests.
For Second Quarter 2007, Second Quarter 2006 and Second Quarter 2005, there were no subscriptions of General Interests. For Year-To-Date 2007, Year-To-Date 2006 and Year-To-Date 2005, subscriptions of General Interests were $500, $0 and $0, respectively.
Interests in Registrant may be redeemed on a weekly basis. Redemptions of Limited Interests for Second Quarter 2007, Year-To-Date 2007 and for the period from March 1, 2000 (commencement of operations) to June 29, 2007 were $2,658,563, $3,211,734 and $31,722,263, respectively. Redemptions of Limited Interests for Second Quarter 2006, Year-To-Date 2006 and for the period from March 1, 2000 (commencement of operations) to June 30, 2006 were $1,419,404, $3,444,195 and $25,085,424, respectively. Redemptions of Limited Interests for Second Quarter 2005, Year-To-Date 2005 and for the period from March 1, 2000 (commencement of operations) to June 24, 2005 were $997,985, $2,050,629 and $18,162,503, respectively.
Redemptions of General Interests for Second Quarter 2007, Year-To-Date 2007 and for the period from March 1, 2000 (commencement of operations) to June 29, 2007 were $2,793, $4,752 and $276,413, respectively. Redemptions of General Interests for Second Quarter 2006, Year-To-Date 2006 and for the
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period from March 1, 2000 (commencement of operations) to June 30, 2006 were $13,380, $38,641 and $228,589, respectively. Redemptions of General Interests for Second Quarter 2005, Year-To-Date 2005 and for the period from March 1, 2000 (commencement of operations) to June 24, 2005 were $0, $0 and $130,473, respectively.
Future redemptions will impact the amount of funds available for investment in commodity contracts in subsequent periods.
Limited Interests may no longer be exchanged for Limited Interests in Series E or Series F, nor may Limited Interests in Series E or Series F be exchanged for Limited Interests in Registrant.
Effective December 6, 2004, Registrant contributed its net assets to the Trading Vehicle. At June 30, 2007, 100% of Registrant’s net assets were allocated to commodities trading through its investment in the Trading Vehicle. A significant portion of Registrant’s net assets invested in the Trading Vehicle was held in cash, which was used as margin for trading in commodities. In as much as the sole business of Registrant is to trade in commodities, Registrant continues to own such liquid assets to be used as margin. The clearing broker credits the Trading Vehicle (and, in turn, Registrant, as a member of the Trading Vehicle) with interest income earned in its accounts with the clearing broker during each month.
The commodities contracts may be subject to periods of illiquidity because of market conditions, regulatory considerations and other reasons. For example, commodity exchanges limit fluctuations in certain commodity futures contract prices during a single day by regulations referred to as “daily limits.” During a single day, no trades may be executed at prices beyond the daily limit. Once the price of a futures contract for a particular commodity has increased or decreased by an amount equal to the daily limit, positions in the commodity can neither be taken nor liquidated unless traders are willing to effect trades at or within the limit. Commodity futures prices have occasionally moved the daily limit for several consecutive days with little or no trading. Such market conditions could prevent the Trading Vehicle (and, in turn, Registrant) from promptly liquidating its commodity futures positions.
Since Registrant’s business is to trade futures and forward contracts (through its investment in the Trading Vehicle), its capital is at risk due to changes in the value of these contracts (market risk) or the inability of counterparties to perform under the terms of the contracts (credit risk). Registrant’s exposure to market risk is influenced by a number of factors including the volatility of interest rates and foreign currency exchange rates, the liquidity of the markets in which the contracts are traded and the relationships among the contracts held. The inherent uncertainty of Registrant’s speculative trading as well as the development of drastic market occurrences could result in losses considerably beyond Registrant’s experience to date and could ultimately lead to a loss of all of substantially all of investors’ capital. The Managing Owner attempts to minimize these risks by requiring Registrant, the Trading Vehicle and the Trading Advisor to abide by various trading limitations and policies, which include limiting margin amounts, trading only in liquid markets and permitting the use of stop loss provisions. For a further discussion of the credit and market risks associated with Registrant’s futures and forward contracts, see Note 7 to Registrant’s financial statements for the year ended December 31, 2006, which is filed as an exhibit to Registrant’s annual report on Form 10K for the fiscal year ended December 31, 2006.
Registrant does not have, nor does it expect to have, any capital assets.
Market Overview
Following is a market overview for Second Quarter 2007 and Second Quarter 2006:
Second Quarter 2007
In the US, generally tame inflation readings in the second quarter appeared to lessen the pressure on the US Federal Reserve (“Fed”) and the most recent Federal Open Market Committee (“FOMC”) statement pointed to relatively balanced risks. The Fed Chairman, Ben Bernanke, former chairman Alan Greenspan and others have issued statements that the subprime situation, while clearly a concern, should not prove to be a major contagion.
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Inflation news was encouraging, with Core Consumer Prices rising well within the Fed’s comfort zone. The headline Producer Price Index’s (“PPI”) rise was slightly worrisome, but the more-closely-watched Core PPI’s rise was more benign. Industrial Production was flat overall while Capacity Utilization dipped slightly. Retail sales jumped in May, with the largest gain in sixteen months. Gasoline, auto supplies, building supplies and clothing led the charge as consumers still appeared mostly undaunted. Leading indicators increased slightly in May, suggesting the economy is weathering the housing and gasoline price storm. On the manufacturing side, the Philly Fed Index saw its highest reading in two years.
Overall, the employment picture in the second quarter continued to look quite healthy. Nonfarm payrolls rose in May while the unemployment rate is forecast to remain unchanged. Average hourly earnings rose slightly.
Housing persists as the US economy’s primary risk. During the second quarter, signs of slight improvements seen in May were absent in June. For the first five months of the year, both housing permits and housing starts were off more than 25%. The South, considered the engine of growth for the housing sector, provided the weakest performance during the second quarter. The Home Builders Confidence Index fell to a sixteen-year low in June. Existing home sales also fell slightly and existing home inventories rose. Prices in the ten largest US cities are declining at the fastest pace in sixteen years.
Predictions for third quarter Gross Domestic Product (“GDP”), a measure of economic growth, are seen higher. The International Monetary Fund issued a report stating that the US economy remained close to the 2% annualized GDP “stall speed.” However, while the inflation picture might dictate against a Fed rate cut, this economic growth scenario is seen by many to counter a rate hike.
Foreign interest rate yields have been rising across the board. The European Union (“EU”), Great Britain, Switzerland and New Zealand all raised rates in the second quarter. The Reserve Bank of Australia remained unchanged, but its statements were seen as hawkish. Many market participants view the Bank of Japan to remain on hold after its recent first quarter increase.
Currencies:The US dollar saw a record low against the euro during the second quarter. Rising European interest rates encouraged demand for the euro. EU economic data for the most part continue to indicate solid growth and a modest inflation threat. Central bank diversification into the euro was also a positive factor. The British pound sterling also rose against the dollar during the quarter. Inflation concerns, capacity constraints and elevated housing prices have led the Bank of England to maintain a hawkish tone, including a second quarter rate hike and expectations of more to come during the third quarter. The country’s new prime minister, Gordon Brown, was quickly tested by a series of terror attacks, but the pound showed little reaction.
During the quarter, the Japanese yen was pressured by the US dollar and also on a carry trade basis against the Australian and New Zealand dollars. Japanese economic data has been moderate, with little hint of inflation. The Peoples Bank of China continues to drain liquidity and increase interest rates gradually. It has made mild concessions to the US, but is moving slowly regarding reform. The Chinese yuan had its strongest quarter since the dollar link was eliminated in 2005. The Australian dollar continues to be firm, and recent upward GDP revisions have rekindled inflation fears. New Zealand raised rates to 8.00% in May, citing consumer inflation. The Canadian dollar reached a thirty-year high against the US Dollar in the second quarter.
Energies:After trading between $60 and $65 for much of the second quarter, crude broke out to the upside in June, topping $70 for the first time in nine months. Concerns surrounding product availability, refinery utilization, geopolitical factors including Venezuelan nationalization, Nigerian unrest, Iran’s nuclear program and Hamas aggression, along with a terror threat in the UK, all served to push prices higher. In addition, refinery utilization at the end of June stood well under the seasonal norm.
Heating oil mirrored crude’s June breakout and ended the quarter over 5% higher. Distillate inventories are now substantially below last season’s levels. A series of refinery outages that have been slow to get back on line have placed supplies at dangerously low levels, particularly with the peak hurricane season
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not yet reached. Distillate fuel demand is up almost 4% from 2006 levels. Reformulated gasoline prices rose over 10% during the quarter overall and prices at the pump peaked in late May. Consumer resistance seemed limited during the second quarter.
Trading patterns were volatile and natural gas prices fell over 16% during the second quarter as supply built and the weather held extremely benign.
Grains:Corn prices were extremely volatile during the quarter. The June USDA Supply and Demand Report caused prices to increase, only to drop on the heels of a bullish Planted Acreage Report, which inferred that more acres of corn would be planted in the season ahead than in any other period since the mid 1940’s, when the US attempted to feed post-war Europe. Wheat prices reached their highest prices in more than a decade during the last trading session of the second quarter. This strength came as a result of a continually tightening global demand, which has been exacerbated by the worst drought seen in Australia in more than 100 years. The USDA Planted Acreage Report showed that as a result of higher prices, more than a 5% increase in wheat had been sown this season, consistent with the Intentions Report. From the Intentions Report, and the data gleaned from the estimates of other crops, it is apparent that corn acreage was increased at the expense of beans and cotton and that wheat plantings were consistent. Soybean prices were volatile during the quarter, rocked by the Planted Acreage Report that revealed that soybean acreage had been reduced by approximately 15%. Cotton prices climbed steadily during the quarter due to a tightening supply/demand scenario. The Report also revealed that cotton acreage would be cut by 27% from the previous season.
Indices:US stocks ended the quarter higher overall, but off their highs late reached during the quarter. Strength in foreign equities, hectic M&A activity, forecast earnings and solid global growth lent support. The recent spike to 5.32% in the benchmark 10-Year note could prove to be a high for an extended period and many market participants feel that the latest FOMC minutes suggest that the Fed will remain on hold for an extended period. The summer season is upon the market, M&A activity appears to have slowed somewhat and the markets continue to watch the subprime sector with caution.
In Europe, it was a good quarter for the three largest indices, the German DAX, French CAC and UK FTSE, and for the region in general. All three major industries scored seven-year highs during the second quarter while closing somewhat below those levels. Even the specter of higher interest rates from the European Central Bank and the Bank of England failed to meaningfully diminish enthusiasm, but the weaker US markets and the terror issue in the UK did weigh on market psychology during the final days of June as the euro bourses turned in a mixed June performance.
Asian equity indices also scored second quarter gains and, like Europe, attracted significant foreign capital flows. The Shanghai market was particularly volatile during the quarter but had a clear upside bias as it ended June. Japan was aided by decent economic data as well as low inflation and the prospect of no imminent rate hike from the Bank of Japan. The Hang Seng finished higher and the Australian All Ordinaries were able to withstand hawkish comments from the Reserve Bank of Australia and soar to record levels.
Interest Rates:June proved a volatile month for US treasuries, on the back of substantial risk aversion mentality. They became the asset of choice as subprime issues, including the Bear Stearns/Merrill Lynch situation took center stage. However, generally tame inflation readings appeared to lessen pressure on the Fed and the most recent FOMC statement pointed to relatively balanced risks.
Sharply higher foreign rates were a factor in rising yields, but that lessened to some degree in the final weeks of the quarter. The EU, UK and Switzerland all hiked rates in the second quarter. The Reserve Bank of Australia sounded hawkish as the quarter ended. The Bank of Japan remained unchanged, after raising rates in the first quarter. Yields on the 10-year German Bund hit a new high during the quarter.
Metals:Volatile copper prices closed well over their first quarter close. A series of labor problems in Chile, Peru, Mexico and Canada were particularly supportive in the final half of June. LME spreads remain in backwardation, indicating supply tightness. Refined consumption continues to grow faster than production. Aluminum prices were quiet during the quarter. In contrast, nickel prices were quite volatile,
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plunging over 20% in June alone, after being one of the top performers of the Dow Jones/AIG Index. Warehouse stocks are still low, but they have been steadily rising and stainless steel demand has decreased somewhat. Zinc prices continue to fall, down over 20% for the year to date, despite overall strong global demand. Lead prices were higher in the second quarter on tight inventories and strong demand. China, the world’s largest lead producer, imposed a 10% tax on overseas sales. Tin prices finished the quarter slightly off their mid-March eighteen-year high. Gold prices were defensive during most of the second quarter, down slightly overall. Heavy selling from European central banks was a particular negative. Volatility was a watchword for silver during the quarter as funds moved in and out of the metal with most of the activity on the sell side during the final half of June as indicated in CFTC data. Platinum finished up slightly overall for the quarter. Global industrial demand has been solid, with strong jewelry demand and an increase in autocatalytic usage spurred by a growing diesel market. Palladium also ended the quarter slightly higher. South African labor concerns lent support to prices.
Softs:An increased sugar supply from Brazil was the latest bearish report for the commodity. Last year’s high prices, which encouraged increased production, are now taking their toll on prices. Coffee prices also fell during the second quarter, due to similarly rising inventories and favorable Brazilian weather. Cocoa prices rose to a four-year high after an attack on the prime minister of the Ivory Coast, pointing out how severe the country’s unrest is and restoring the “war premium” that had temporarily been lost in the cocoa market. Live cattle prices fell slightly during the second quarter and are down slightly year to date. Lower corn prices were noted in May and June, after cattle ranchers suffered with high feed prices for much of the year. An easing in the hype surrounding ethanol helped push corn prices lower. Cattle is now in peak-demand barbeque season and exports continue to be strong. Inventories are ample but show some evidence of decline. Live hog prices were volatile in the second quarter and ended the first half of the year down over 5% overall.
Second Quarter 2006
News from the Federal Reserve (“Fed”) and its new chairman, Ben Bernanke, dominated the markets in the second quarter of 2006. Chairman Bernanke appears fully committed to fighting inflation and has quickly eliminated speculation that he might take a softer stance than his predecessor. The Fed continued to raise rates throughout the quarter. The Fed minutes have repeatedly stated that the Federal Open Market Committee’s (“FOMC”) actions will be data dependent and to this point that means the rate hike cycle is likely to continue at least for one addition meeting. As global liquidity and geopolitical concerns arose during the second quarter, U.S. Treasury yields found safe haven support.
Inflation and housing were again the major factors within the U.S. economic landscape. As gasoline prices continued to rise, inflation data drew particular attention. The housing market was somewhat mixed and the outlook remains uncertain. Despite these factors, final first quarter Gross Domestic Product (“GDP”) was revised upwards to 5.3% from the original 4.6%. However, the impact of a weaker housing sector and high gasoline and energy prices may be starting to take a toll, as the preliminary GDP for the second quarter was lower than expected at 2.5%.
The Eurozone continued to experience economic improvement in the second quarter. However, like the U.S., the third quarter may present a somewhat less buoyant picture. The euro turned in a strong quarter benefiting from central bank currency diversification. Interest rates were a primary focus as the European Central Bank (“ECB”) hiked rates by 25 basis points to 2.75% at its June meeting with further increases anticipated later in the year. An ongoing pattern of improved economic data was noted, particularly from Germany. In the U.K., the Bank of England (“BOE”) made no rate changes; economic data was fairly decent but showed some strain as the third quarter began.
In Japan, speculation that the Bank of Japan (“BOJ”) would finally end its “zero interest rate” policy proved correct as they imposed a 0.25% rate during the first week of July. Japan was at the forefront of the short-lived liquidity crisis, which instigated a sell-off in global assets during the second quarter, and their equity market fell approximately 9%. Other Asian equity markets saw a similar fate with Korea, Hong Kong and Shanghai also experiencing weakness. Despite the temporary disruption, overall economic data from Japan, and the region in general, showed an improved tone. China’s growth continues to be
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strong, as second quarter GDP rose to a 10 year high of 11.2%. The Bank of China raised interest rates in April in an attempt to harness growth and its inflationary implications. Further rate hikes are expected.
The Canadian economy has been moving at a brisk pace all year and the Bank of Canada has steadily raised rates. However, the statement at the conclusion of its most recent meeting suggests that a pause may be on the horizon. The Canadian dollar strengthened in the second quarter of 2006 and Canada’s economic fortunes seem bright.
Currencies:Interest rates were the primary drivers of the currency sector in the second quarter of 2006. The U.S. dollar suffered against the euro as the ECB appears to be at the beginning of its rate hike cycle and the Fed appears to be close to the end. Additionally, a continued pattern of improving economic data in the Eurozone was noted throughout the quarter, particularly from Germany, the leading driver of the region’s growth. The euro also benefited from central bank currency diversification away from the U.S. dollar as the global reserve currency, as Russia, China, Sweden, and the United Arab Emirates were prominent in this trend, which is expected to continue. Despite this pressure, the U.S. dollar attracted flight to safety support in mid June when the Korean missile crisis emerged.
In Japan, the focus was also on interest rates, as market participants attempted to discern when the BOJ would end its long standing “zero interest rate” policy. The BOJ drained liquidity throughout the quarter in preparation for this eventuality. The Japanese economy continues to improve, as highlighted by one of the most watched economic indicators, the Tankan Report, which was released at the end of June and the second quarter saw the definitive conclusion of the nation’s deflationary era. The yen was pressured a bit in late June by the scandal surrounding BOJ Governor Fukui.
The Chinese yuan traded at 7.999 to the U.S. dollar in late June compared to 8.017 at the end of the first quarter and has gained slightly over 1% since its 2.1% revaluation in July 2005. Recent comments from Bank of China officials have hinted at a potentially faster pace, but the markets have lent little credence to this statement.
Energies:The energy sector was volatile in the second quarter of 2006. Crude ended the quarter around $74 per barrel, up approximately 8.5% from the end of the previous quarter. Geopolitical uncertainty regarding Iran, North Korea and Nigeria were supportive of crude. Additional support is coming from increased demand from China and India. The price at the pump for unleaded gasoline remains high, but demand continued to display a relatively inelastic pattern. The only component of the sector that fell was natural gas. With plenty of supply, moderate temperatures and a slow start to the hurricane season, prices of natural gas continued their downward slide.
Grains:The sector was mixed for the quarter. On the production side of the equation, weather played the single largest role in corn prices for the second quarter. On a week-by-week basis, as chances for seasonally beneficial precipitation ebbed and flowed, corn prices moved higher and lower respectively. The start of the period found the corn market firmly ensconced in an uptrend that began at the end of calendar year 2005, but prices fell off sharply in June after the release of a U.S. Department of Agriculture (“USDA”) Supply/Demand Report that raised questions about the demand for corn. The decline in corn prices, along with many other commodity markets, may have had its roots in a consumption-restricting announcement made by the Chinese government. The statement made was that internal growth needed to be slowed, in light of a too-rapidly expanding economy. The graphic profile of the wheat market is almost identical as that seen in corn. For most of the second quarter, soybean prices moved sideways. Due to China’s dependence on Brazilian soybean imports, the tightening credit situation in China will likely not have as great a bearing on U.S. soybean prices.
Indices:By and large, global equity indices were lower in the second quarter of 2006 versus the first quarter of 2006. For most of the quarter, U.S. stocks suffered from the uncertainty surrounding the interest rate environment and from fears that the U.S. economy was slowing, mainly due to higher energy prices and a softer housing sector. The S&P 500 ended the quarter down 1.9% and the NASDAQ ended the quarter down 7.2%. Going forward U.S. equities are likely to remain highly sensitive to any events that might alter the outlook for the Fed, particularly inflation related data.
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European markets had been strong for most of the year prior to the sell-off in May. Foreign money flows into Europe slowed significantly in May and were still at a somewhat reduced level in June. The German DAX ended the quarter down 4.8%, the French CAC 40 was down 4.9% and the British FTSE was down 2.2%.
Asian markets were very volatile, particularly in May and June, as a liquidity crunch was experienced in Japan and in various other sectors around the region. Indications of higher interest rates in Japan, Korea and China in coming months provided a negative tone, but the flow of economic data took on a positive tone and bodes well for the rest of the year. Japan’s Nikkei was down 9.1% for the quarter and Korea’s Kospi was down 4.7%. Australia’s All Ordinaries closed out the quarter down approximately 1%, but the strength in resource issues aided this market and the outlook for Australia is positive.
Interest Rates:U.S. Treasuries were in a rally mode for much of May and June as the markets evaluated the new Fed under Ben Bernanke. The FOMC appeared to be taking on a more aggressively anti-inflationary tone as the quarter progressed, with the Chairman and numerous Fed Governors focusing on the threat of inflation. After closing out the first quarter at 4.85%, the yield on the 10-year Treasury Note moved over 5.26% in mid June on the market view that that the Fed would continue to raise rates through the August meeting and possibly beyond. The softer tone of the statement accompanying the 25 basis point rate hike at the end of June caught the markets by surprise. While still recognizing the risk of inflation, the Fed gave greater credence to the potential for some economic slowing, and appeared to put into question the prospect of a further rate hike in August. As June concluded, the yield on the 10-year Treasury Note stood at 5.145%.
Outside of the U.S., the ECB raised rates 25 basis points in June to 2.75%. Statements by ECB President Jean Claude Trichet regarding inflation were mixed throughout the quarter, but were leaning towards the tightening side as June ended and additional ECB rate hikes are expected later this summer. Trichet has emphasized that inflation will remain elevated and that there is a risk of a surge in consumer prices. European data, particularly from Germany remains buoyant. The 10-year German Bund was yielding 4.07% at the end of June while the 30-year stood at 4.31%.
In the first week of July, the BOJ officially ended its “zero interest rate” policy by imposing a 0.25% rate, finally putting an end to the speculation that was rampant throughout the second quarter. Other Asian banks, including the Bank of Korea, raised rates in June and there are growing indications that the Bank of China will embark on a tightening bias to temper the expected 10% plus GDP growth and its inflationary potential. The Bank of Canada raised rates another 25 basis points but the accompanying statement hinted at a pause. The Reserve Bank of Australia held rates at 5.75% but there is speculation of an increase.
Metals:Gold had been in an upside surge for the entire year until things finally came to an end, at least temporarily, in late May. Global liquidity tightness, particularly in the Far East, which impacted other commodities as well as the equity and fixed income markets, served as a clear negative for gold and essentially put an end to the rally. Geopolitical concerns surrounding Iran, Iraq and Korea have been supportive for gold and are likely to aid the bull case in coming weeks. In addition, reserve asset diversification is likely to persist. Russia, China and Sweden, along with the United Arab Emirates and other petro-nations were active in that regard during the second quarter. Petrodollars have been flowing into gold for much of the year, although that slowed somewhat in June. Silver followed a similar pattern to gold, retaining its dependent relationship with the yellow metal.
The entire base metal complex was very volatile during the second quarter. Copper ended the quarter up 37% from the previous quarter, as labor and production problems in Mexico, Chile and Zambia added to the bullish scenario. With China forecast to see 10% plus GDP growth in 2006, the demand side of the equation still looks strong, as it does for most of Asia as well as the U.S. and Europe. Mines still lack the ability to significantly ramp up production, giving copper a solid fundamental base. After surging nearly 17% in May, zinc lost 15% in June but it is still up more than 75% for the year. Fundamentally, zinc presents the strongest picture among all the base metals as it faces a significant production deficit. Nickel rallied strongly for the quarter as well. While its fundamentals have improved, as stainless steel demand increased, the recent highs are vastly ahead of reasonable value.
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Softs:The sector was mixed for the second quarter, with several markets experiencing significant sell-offs in May. Sugar had been extremely firm in the first quarter through mid second quarter, before undergoing a correction in May. Following a weak performance in May, which saw sugar decline over 11%, prices rebounded in June. However, the outlook is uncertain, as the weather in Brazil’s sugar producing areas has been crop friendly after a period of dry conditions. Coffee prices also fell in May, losing 10%. Brazilian weather has been excellent, which weighed on sentiment throughout the second quarter. The harvest has been moving at a brisk pace and at 35% complete for the season, is ahead of schedule. The second quarter saw cocoa prices trend higher. The Ivory Coast was the focus after the disarmament process broke down yet again. Cattle scored gains in May and June as the USDA announced an agreement with Japan to restart U.S. beef exports to that nation. Hogs also put in a strong June, as Far Eastern demand remained brisk.
Sector Performance
Due to the nature of Registrant’s trading activities, a period-to-period comparison of its trading results is not meaningful. However, a discussion of Registrant’s trading results for the major sectors in which Registrant traded for Second Quarter 2007 and Second Quarter 2006 are presented below.
Second Quarter 2007
Currencies: (+) Losses were experienced in: Australian dollar; Canadian dollar; Singapore dollar; South African rand; euro versus Japanese yen and British pound; and Swiss franc. Gains were made in: Japanese yen; British pound; euro; Mexican peso; and New Zealand dollar.
Energies: (-) Losses were experienced in Brent crude, crude oil, heating oil and gasoline. Gains were made in gas oil and natural gas.
Indices: (+) Gains were made in All Ordinaries, CAC 40, DAX, DJ Stoxx 50, FTSE 100, Hang Seng, NASDAX 100, Nikkei and the Taiwan indices. Losses were experienced in the IBEX Plus 35 and the S&P 500 mini indices.
Interest Rates: (+) Losses were experienced in Canadian bonds, Japanese Government Bonds and Short Sterling. Gains were made in Australian T-Bills and 10-year and 3-year Bonds, Canadian Bankers Acceptances, Euribor, Eurodollar, Euroswiss, German 2-year Bonds, German Bobl, German Bund, London Gilt and U.S. Treasury Notes and Bonds.
Metals: (-) Losses were experienced in gold and zinc. Gains were made during this quarter from positions in copper.
Second Quarter 2006
Currencies: (-) Long positions in the Australian dollar, and short positions in the Canadian dollar, Japanese yen, and Swiss franc contributed to losses in the second quarter of 2006.
Energies: (+) Profits on long and short positions in heating oil, and long positions in Brent crude resulted in a gain for the second quarter of 2006.
Indices: (-) Long positions in the S&P 500, the IBEX 35 and the Nikkei, as well as long and short positions in the DAX, and the DJ STOXX contributed to losses in the second quarter.
Interest Rates: (+) The interest rate sector was up for the second quarter of 2006. Short positions in Euribor, Eurodollar, Short Sterling and U.S. Treasury Notes and Bonds contributed to the sector’s profits for the quarter.
Metals: (+) The sector generated net profits for the second quarter of 2006 on gains in long gold, copper and zinc positions.
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Results of Operations
The net asset value (“Net Asset Value”) per Interest as of June 29, 2007 was $168.58, an increase of 4.41% from the December 31, 2006 Net Asset Value per Interest of $161.46 and an increase of 12.39% from the March 30, 2007 Net Asset Value per Interest of $149.99. The Net Asset Value per Interest as of June 30, 2006 was $153.57, a decrease of 2.44% from the December 31, 2005 Net Asset Value per Interest of $157.41 and a decrease of 6.38% from the March 31, 2006 Net Asset Value per Interest of $164.03. The Net Asset Value per Interest as of June 24, 2005 was $155.47, an increase of 8.20% from the December 31, 2004 Net Asset Value per Interest of $143.69 and an increase of 14.67% from the March 25, 2005 Net Asset Value per interest of $135.58. Past performance is not necessarily indicative of future results.
Registrant’s trading gains before commissions and related fees during Second Quarter 2007 and Year-To-Date 2007 were approximately $3,588,000 and $1,757,000, respectively. Registrant’s trading (losses) before commissions and related fees during Second Quarter 2006 and Year-To-Date 2006 were approximately $(1,908,000) and $(48,000), respectively. Registrant’s trading gains before commissions and related fees during Second Quarter 2005 and Year-To-Date 2005 were approximately $5,640,000 and $4,100,000, respectively.
Registrant’s net assets decreased during Second Quarter 2007 and Year-To-Date 2007 in comparison to Second Quarter 2006 and Year-To-Date 2006 primarily due to the effect of redemptions, which were partly offset by positive trading performance. Registrant’s net assets decreased for Second Quarter 2006 and Year-To-Date 2006 compared to Second Quarter 2005 and Year-To-Date 2005 due to the effect of redemptions and negative trading performance. Registrant’s net assets for Second Quarter 2005 and Year-To-Date 2005 decreased in comparison to Second Quarter of 2004 and Year-To-Date 2004 due to the effect of redemptions, offset in part by positive trading performance.
Interest income is earned on the average balances maintained with the clearing broker at competitive interest rates and, therefore, varies weekly according to interest rates, trading performance and redemptions. Interest income during Second Quarter 2007 and Year-To-Date 2007 was approximately $327,000 and $660,000, respectively, a decrease of approximately $96,000 and $172,000, respectively, as compared to Second Quarter 2006 and Year-To-Date 2006, primarily due to reduced average net asset levels. Interest income during Second Quarter 2006 and Year-To-Date 2006 increased by approximately $170,000 and $366,000, respectively, as compared to Second Quarter 2005 and Year-To-Date 2005, primarily due to higher interest rates. Interest income during Second Quarter 2005 and Year-To-Date 2005 increased by approximately $139,000 and $232,000, respectively, as compared to Second Quarter 2004 and Year-To-Date 2004, primarily due to higher interest rates.
Commissions are calculated on Registrant’s Net Asset Value at the end of each week and therefore, vary according to weekly trading performance and redemptions. Other transaction fees consist of National Futures Association, exchange and clearing fees as well as floor brokerage costs and give-up charges, which are based on the number of trades the Trading Advisor executes, as well as which exchange, clearing firm or bank on, or through, which the contract is traded. Commissions and other transaction fees during the Second Quarter 2007 and Year-To-Date 2007 were approximately $449,000 and $900,000, respectively, a decrease of approximately $84,000 and $198,000, respectively, as compared to Second Quarter 2006 and Year-To-Date 2006, primarily due to reduced average net asset levels. Commissions and other transaction fees during Second Quarter 2006 and Year-To-Date 2006 decreased by approximately $55,000 and $58,000, respectively, as compared to Second Quarter 2005 and Year-To-Date 2005, primarily due to a decrease in net assets. Commissions and other transaction fees during Second Quarter 2005 and Year-To-Date 2005 decreased by approximately $134,000 and $320,000, respectively, as compared to Second Quarter 2004 and Year-To-Date 2004, primarily due to a decrease in net assets.
Management fees are calculated on the net asset value of Registrant’s investment in the Trading Vehicle at the end of each week, and therefore, are affected by weekly trading performance and redemptions. Management fees during Second Quarter 2007 and Year-To-Date 2007 were approximately $142,000 and $287,000, respectively, a decrease of approximately $26,000 and $59,000, respectively, as
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compared to Second Quarter 2006 and Year-To-Date 2006, primarily due to reduced average net asset levels. Management fees during Second Quarter 2006 and Year-To-Date 2006 decreased by approximately $21,000 and $16,000, respectively, as compared to Second Quarter 2005 and Year-To-Date 2005, primarily due to a decrease in net assets. Management fees during Second Quarter 2005 and Year-To-Date 2005 decreased by approximately $44,000 and $121,000, respectively, as compared to Second Quarter 2004 and Year-To-Date 2004, primarily due to a decrease in net assets.
Incentive fees are based on the “New High Net Trading Profits” (as defined in the Advisory Agreement) generated by the Trading Advisor, are accrued weekly and are ultimately determined as of the close of business on the last Friday of each calendar quarter. No Incentive fees were earned during Second Quarter 2007, Year-To-Date 2007, Second Quarter 2006, Year-To-Date 2006, Second Quarter 2005 or Year-To-Date 2005.
General and administrative expenses during Second Quarter 2007 and Year-To-Date 2007 were approximately $38,000 and $88,000, respectively. General and administrative expenses during Second Quarter 2006 and Year-To-Date 2006 were approximately $71,000 and $126,000, respectively. General and administrative expenses during Second Quarter 2005 and Year-To-Date 2005 were approximately $600 and $108,000, respectively. These expenses include accounting, audit, tax, and legal fees, as well as printing and postage costs related to reports sent to limited owners. To the extent that general and administrative expenses exceed 1.5% of Registrant’s Net Asset Value during the year (with a maximum of 0.50% attributable to other than legal and audit expenses), such amounts are borne by the Managing Owner and its affiliates. No such expenses exceeded these limits during the Second Quarter 2007, Year-To-Date 2007, Second Quarter 2006, Year-To-Date 2006, Second Quarter 2005 and Year-To-Date 2005.
Inflation
Inflation has had no material impact on the operations or on the financial condition of Registrant from inception through June 29, 2007.
Off-Balance Sheet Arrangements and Contractual Obligations
As of June 29, 2007, Registrant had not utilized special purpose entities to facilitate off-balance sheet financing arrangements and has no loan guarantee arrangements or off-balance sheet arrangements of any kind other than agreements entered into in the normal course of business, which may include indemnification provisions related to certain risks service providers, such as our accountants, undertake in performing services which are in the best interests of Registrant. While Registrant’s exposure under such indemnification provisions cannot be estimated, these general business indemnifications are not expected to have a material impact on Registrant’s financial position.
Registrant’s contractual obligations are with the Managing Owner and the Trading Vehicle and, as a result of its investment in the Trading Vehicle, with the Trading Advisor and the Trading Vehicle’s commodity broker. Management fees payable by the Registrant to the Trading Advisor and the Managing Owner are calculated as a fixed percentage of Registrant’s Net Asset Value. Incentive fees payable by the Registrant to the Trading Advisor are at a fixed rate, calculated as a percentage of the Registrant’s “New High Net Trading Profits”. As such, the Managing Owner cannot anticipate the amounts to be paid for future periods as Net Asset Values and “New High Net Trading Profits” are not known until a future date. Commissions payable to the Trading Vehicle’s commodity broker are based on a cost per executed trade plus a fixed percentage of net assets and, as such, the Managing Owner cannot anticipate the amount that will be required under the brokerage agreement, as the level of executed trades are not known until a future date. These agreements are effective for one-year terms, renewable automatically for additional one-year terms unless terminated. Additionally, these agreements may be terminated by either party thereto for various reasons. For a further discussion of Registrant’s contractual obligations, see Notes 1 and 3 to Registrant’s financial statements for the year ended December 31, 2006, which is filed as an exhibit to Registrant’s annual report on Form 10K for the fiscal year ended December 31, 2006.
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| Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Introduction
Past Results Not Necessarily Indicative of Future Performance
Registrant is a speculative commodity pool. The market sensitive instruments held by it are acquired for speculative trading purposes, and substantially all of Registrant’s assets are subject to the risk of trading loss. Unlike an operating company, the risk of market sensitive instruments is integral, not incidental, to Registrant’s main line of business.
Market movements result in frequent changes in the fair market value of Registrant’s open positions and, consequently, in its earnings and cash flow. Registrant’s market risk is influenced by a wide variety of factors, including the level and volatility of interest rates, exchange rates, equity price levels, the market value of financial instruments and contracts, the diversification effects among Registrant’s open positions and the liquidity of the markets in which it trades.
Registrant rapidly acquires and liquidates both long and short positions in a wide range of different markets. Consequently, it is not possible to predict how a particular futures market scenario will affect performance, and Registrant’s past performance is not necessarily indicative of its future results.
“Value at Risk” is a measure of the maximum amount which Registrant could reasonably be expected to lose in a given market sector. However, the inherent uncertainty of Registrant’s speculative trading and the recurrence in the markets traded by Registrant of market movements far exceeding expectations could result in actual trading or non-trading losses far beyond the indicated Value at Risk or Registrant’s experience to date (i.e., “risk of ruin”). In light of the foregoing, as well as the risks and uncertainties intrinsic to all future projections, the quantification included in this section should not be considered to constitute any assurance or representation that Registrant’s losses in any market sector will be limited to Value at Risk or by Registrant’s attempts to manage its market risk.
Standard of Materiality
Materiality as used in this section, “Quantitative and Qualitative Disclosures About Market Risk,” is based on an assessment of reasonably possible market movements and the potential losses caused by such movements, taking into account the leverage, optionality and multiplier features of Registrant’s market sensitive instruments.
Quantifying The Registrant’s Trading Value at Risk
Quantitative Forward-Looking Statements
The following quantitative disclosures regarding Registrant’s market risk exposures contain “forward-looking statements” within the meaning of the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934. as amended (the “Exchange Act”)).
Registrant’s risk exposure in the various market sectors traded by the Trading Advisor is quantified below in terms of Value at Risk. Due to Registrant’s mark-to-market accounting, any loss in the fair value of Registrant’s open positions is directly reflected in Registrant’s earnings (realized or unrealized) and cash flow (at least in the case of exchange-traded contracts in which profits and losses on open positions are settled daily through variation margin).
Exchange maintenance margin requirements have been used by Registrant as the measure of its Value at Risk. Maintenance margin requirements are set by exchanges to equal or exceed the maximum losses reasonably expected to be incurred in the fair value of any given contract in 95%-99% of any one-day interval. The maintenance margin levels are established by dealers and exchanges using historical price
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studies as well as an assessment of current market volatility (including the implied volatility of the options on a given futures contract) and economic fundamentals to provide a probabilistic estimate of the maximum expected near-term one-day price fluctuation. Maintenance margin has been used rather than the more generally available initial margin, because initial margin includes a credit risk component, which is not relevant to Value at Risk.
In the case of market sensitive instruments that are not exchange-traded (almost exclusively currencies in the case of Registrant), the margin requirements for the equivalent futures positions have been used as Value at Risk. In those rare cases in which a futures-equivalent margin is not available, dealers’ margins have been used.
In quantifying Registrant’s Value at Risk, 100% positive correlation in the different positions held in each market risk category has been assumed. Consequently, the margin requirements applicable to the open contracts have simply been aggregated to determine each trading category’s aggregate Value at Risk. The diversification effects resulting from the fact that Registrant’s positions are rarely, if ever, 100% positively correlated have not been reflected.
Registrant’s Trading Value at Risk in Different Market Sectors
The following table presents the trading value at risk associated with Registrant’s open positions by market sector at June 29, 2007 and December 31, 2006. All open position trading risk exposures of Registrant have been included in calculating the figure set forth below. At June 29, 2007 and December 31, 2006, Registrant had total capitalizations of approximately $28.5 million and $30.5 million, respectively.
| June 29, 2007 | December 31, 2006 | |||||||||
Market Sector | Value at Risk | % of Total Capitalization | Value at Risk | % of Total Capitalization | ||||||
Interest rates | $ | 781,928 | 2.75% | $ | 515,867 | 1.69% | ||||
Currencies | $ | 723,964 | 2.55% | $ | 584,196 | 1.92% | ||||
Commodities | $ | 126,247 | 0.44% | $ | 183,709 | 0.60% | ||||
Stock indices | $ | 480,540 | 1.69% | $ | 652,458 | 2.14% | ||||
Total | $ | 2,112,680 | 7.44% | $ | 1,936,230 | 6.35% | ||||
The following table presents the average trading value at risk of Registrant’s open positions by market sector for Second Quarter 2007 and Year-To-Date 2007 based upon Registrant’s total average capitalization of approximately $28 million and $29 million, respectively.
| Second Quarter 2007 | Year-To-Date 2007 | |||||||||
Market Sector | Value at Risk | % of Total Capitalization | Value at Risk | % of Total Capitalization | ||||||
Interest rates | $ | 686,082 | 2.46% | $ | 684,832 | 2.35% | ||||
Currencies | $ | 797,692 | 2.86% | $ | 747,413 | 2.57% | ||||
Commodities | $ | 107,117 | 0.38% | $ | 127,442 | 0.44% | ||||
Stock indices | $ | 362,569 | 1.30% | $ | 455,626 | 1.56% | ||||
Total | $ | 1,953,460 | 6.99% | $ | 2,015,312 | 6.92% | ||||
Material Limitations on Value at Risk as an Assessment of Market Risk
The notional value of the market sector instruments held by Registrant is typically many times the applicable maintenance margin requirement (maintenance margin requirements generally range between approximately 1% and 10% of the face value) as well as many times the total capitalization of Registrant. The magnitude of Registrant’s open positions creates a “risk of ruin” not typically found in most other investment vehicles. Because of the size of its positions, certain market conditions, although unusual, but
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historically recurring from time to time, could cause Registrant to incur severe losses over a short period of time. The foregoing Value at Risk table, as well as the past performance of Registrant give no indication of this “risk of ruin.”
Non-Trading Risk
Registrant has non-trading market risk on its foreign cash balances not needed for margin. However, these balances (as well as any market risk they represent) are immaterial.
Qualitative Disclosures Regarding Primary Trading Risk Exposures
The following qualitative disclosures regarding Registrant’s market risk exposures—except for (i) those disclosures that are statements of historical fact and (ii) the descriptions of how Registrant manages its primary market risk exposures—constitute forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Registrant’s primary market risk exposures as well as the strategies used and to be used by the Managing Owner and the Trading Advisor for managing such exposures are subject to numerous uncertainties, contingencies and risks any one of which could cause the actual results of Registrant’s risk controls to differ materially from the objectives of such strategies. Government interventions, defaults and expropriations, illiquid markets the emergence of dominant fundamental factors, political upheavals, changes in historical price relationships, an influx of new market participants, increased regulation and many other factors could result in material losses as well as in material changes to the risk exposures and the risk management strategies of Registrant. There can be no assurance that Registrant’s current market exposure and/or risk management strategies will not change materially or that any such strategies will be effective in either the short- or long-term. Investors must be prepared to lose all or substantially all of their investment in Registrant.
Based on average trading value at risk during Second Quarter 2007, Registrant experienced an increase in its value at risk, relative to capitalization levels, as compared with the value at risk at December 31, 2006. The increase was primarily attributable to the interest rate and currency sectors. In the interest rate sector, the greatest contributors to the increase in value at risk were positions in Euroswiss, U.S. Treasury Bonds, 2-year U.S. Treasury Notes and Short Sterling. In the currency sector, the greatest contributors to the increase in value at risk were the Canadian dollar, the British pound, the Australian dollar and the Japanese yen. The value at risk in the commodity and stock index sectors decreased. The decline in the value at risk in commodities was primarily attributable to a reduction in energies. The value at risk in stock indices declined primarily due to reduced exposure to the Taiwan index, the Hang Seng Index and the FTSE 100 Index.
Qualitative Disclosures Regarding Means of Managing Risk Exposure
The means by which the Managing Owner and the Trading Advisor, severally, attempt to manage the risk of Registrant’s open positions is essentially the same in all market categories traded.
The Trading Advisor attempts to minimize market risk exposure by applying its own risk management trading policies that include the diversification of trading assets into various market sectors. Additionally, the Trading Advisor has an oversight committee broadly responsible for evaluating and overseeing the Trading Advisor’s trading policies. The oversight committee meets periodically to discuss and analyze issues such as liquidity, position size, capacity, performance cycles, and new product and market strategies.
The Managing Owner attempts to minimize market risk exposure by requiring the Trading Advisor to abide by various trading limitations and policies. The Managing Owner monitors compliance with these trading limitations and policies which include, but are not limited to, limiting the amount of margin or premium required for any one commodity or all commodities combined and generally limiting transactions to contracts which are traded in sufficient volume to permit the taking and liquidating of positions. Additionally, the Managing Owner shall automatically terminate the Trading Advisor if the net asset value of the Registrant declines by 40% during any year or since the commencement of trading activities. Furthermore, the Trust Agreement provides that the Registrant will liquidate its positions, and eventually
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dissolve, if Registrant experiences a decline in the net asset value of 50% in any year or since the commencement of trading activities. In each case, the decline in net asset value is after giving effect for distributions and redemptions. The Managing Owner may impose additional restrictions (through modifications of such trading limitations and policies) upon the trading activities of the Trading Advisor as it, in good faith, deems to be in the best interest of Registrant.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
At June 29, 2007, the Registrant’s primary exposure to non-trading market risk resulted from foreign currency balances held in the Euro, British pound, Japanese yen, Australian dollar and Canadian dollar. As discussed above, these balances, as well as any risk they represent, are immaterial.
| Item 4. | Controls and Procedures |
As of the end of the period covered by this Report, the Managing Owner carried out an evaluation, under the supervision and with the participation of certain officers of the Managing Owner, including the Managing Owner’s Co-Chief Executive Officers and Director of Fund Administration (who, in these capacities, function as the Co-Chief Executive Officers and Principal Financial/Accounting Officer, respectively, of Registrant), of the design and operation of Registrant’s disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”)). Based upon that evaluation, the Managing Owner’s Co-Chief Executive Officers and Director of Fund Administration concluded that Registrant’s disclosure controls and procedures are effective.
In designing and evaluating Registrant’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Exchange Act), the Managing Owner recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurances of achieving the desired control objectives, as Registrant’s are designed to do, and the Managing Owner necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Registrant believes that its disclosure controls and procedures provide such reasonable assurance.
There have not been any changes in Registrant’s internal controls over financial reporting (as defined in Rules 13a – 15(f) and 15d – 15(f) under the Exchange Act) during the fiscal quarter to which this Report relates that have materially affected, or are reasonably likely to materially affect, Registrant’s internal controls over financial reporting.
| Item 1. | Legal Proceedings |
There are no legal proceedings pending by or against Registrant or the Managing Owner, or to which Registrant or Managing Owner was a party during the period covered by this Report.
| Item 1.A. | Risk Factors |
There have been no changes from risk factors as previously disclosed in Registrant’s Form 10-K for the fiscal year ended December 31, 2006.
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
None
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| Item 3. | Defaults Upon Senior Securities |
None
| Item 4. | Submission of Matters to a Vote of Security Holders |
None
| Item 5. | Other Information |
None
| Item 6. | Exhibits: |
31.1 | Certification pursuant to Exchange Act Rules 13a-14 and 15d-14 (filed herewith) | |
31.2 | Certification pursuant to Exchange Act Rules 13a-14 and 15d-14 (filed herewith) | |
32.1 | Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith) | |
32.2 | Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith) | |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| WORLD MONITOR TRUST II – SERIES F | ||||||||
| By: | Preferred Investment Solutions Corp., its managing owner | |||||||
| By: | /s/ Kenneth A. Shewer | Date: August 13, 2007 | ||||||
| Name: | Kenneth A. Shewer | |||||||
| Title: | Co-Chief Executive Officer | |||||||
| (Principal Executive Officer) | ||||||||
| By: | /s/ David K. Spohr | Date: August 13, 2007 | ||||||
| Name: | David K. Spohr | |||||||
| Title: | Senior Vice President and Director of Fund Administration (Principal Financial/Accounting Officer) | |||||||