Attached files
| file | filename |
|---|---|
| EXCEL - IDEA: XBRL DOCUMENT - GLOBAL MACRO TRUST | Financial_Report.xls |
| EX-31.03 - EXHIBIT 31.03 - GLOBAL MACRO TRUST | v237541_ex31-03.htm |
| EX-32.01 - EXHIBIT 32.01 - GLOBAL MACRO TRUST | v237541_ex32-01.htm |
| EX-31.01 - EXHIBIT 31.01 - GLOBAL MACRO TRUST | v237541_ex31-01.htm |
| EX-31.02 - EXHIBIT 31.02 - GLOBAL MACRO TRUST | v237541_ex31-02.htm |
| EX-32.03 - EXHIBIT 32.03 - GLOBAL MACRO TRUST | v237541_ex32-03.htm |
| EX-32.02 - EXHIBIT 32.02 - GLOBAL MACRO TRUST | v237541_ex32-02.htm |
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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x
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Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the Quarterly Period Ended: September 30, 2011
or
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¨
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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Commission File Number: 000-50102
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GLOBAL MACRO TRUST
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(Exact name of registrant as specified in its charter)
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Delaware
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36-7362830
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(State or other jurisdiction of
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(I.R.S. Employer
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|
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incorporation or organization)
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Identification No.)
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c/o MILLBURN RIDGEFIELD CORPORATION
411 West Putnam Avenue
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Greenwich, Connecticut 06830
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(Address of principal executive offices) (Zip code)
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Registrant's telephone number, including area code: (203) 625-7554
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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
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Large accelerated filer ¨
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Accelerated filer ¨
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Non-accelerated filer (Do not check if a smaller reporting company) x
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Smaller reporting company ¨
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No x
ITEM 1. FINANCIAL STATEMENTS
Global Macro Trust
Financial statements
For the three and nine months ended September 30, 2011 and 2010 (unaudited)
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Statements of Financial Condition (a)
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1
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Condensed Schedules of Investments (a)
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2
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Statements of Operations (b)
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6
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Statements of Changes in Trust Capital (c)
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8
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Statements of Financial Highlights (b)
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10
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Notes to Financial Statements
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14
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(a) At September 30, 2011 and December 31, 2010
(b) For the three and nine months ended September 30, 2011 and 2010 (unaudited)
(c) For the nine months ended September 30, 2011 and 2010 (unaudited)
Statements of Financial Condition (UNAUDITED)
See notes to financial statements
1
Global Macro Trust
Condensed Schedule of Investments (UNAUDITED)
September 30, 2011
(Continued)
2
Global Macro Trust
Condensed Schedule of Investments (UNAUDITED)
September 30, 2011
U.S. Treasury Notes
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See notes to financial statements
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(Concluded)
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3
Global Macro Trust
Condensed Schedule of Investments (UNAUDITED)
December 31, 2010
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FUTURES AND FORWARD CURRENCY CONTRACTS
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Net Unrealized
Appreciation/
(Depreciation)
as a % of
Trust Capital
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Net Unrealized
Appreciation/
(Depreciation)
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||||||
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FUTURES CONTRACTS
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||||||||
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Long futures contracts:
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||||||||
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Energies
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0.33 | % | $ | 2,974,672 | ||||
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Grains
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0.72 | 6,435,870 | ||||||
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Interest rates:
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||||||||
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2 Year U.S. Treasury Note (1,725 contracts, settlement date 03/31/2011)
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(0.04 | ) | (332,016 | ) | ||||
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Other interest rates
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0.20 | 1,791,919 | ||||||
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Total interest rates
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0.16 | 1,459,903 | ||||||
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Livestock
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0.07 | 578,540 | ||||||
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Metals
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1.18 | 10,487,557 | ||||||
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Softs
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0.32 | 2,892,994 | ||||||
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Stock indices
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0.57 | 5,040,779 | ||||||
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Total long futures contracts
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3.35 | 29,870,315 | ||||||
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Short futures contracts:
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||||||||
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Energies
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(0.15 | ) | (1,326,800 | ) | ||||
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Grains
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(0.08 | ) | (707,463 | ) | ||||
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Interest rates
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(0.01 | ) | (132,113 | ) | ||||
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Livestock
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(0.03 | ) | (295,000 | ) | ||||
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Metals
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(0.13 | ) | (1,179,968 | ) | ||||
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Softs
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(0.03 | ) | (262,312 | ) | ||||
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Stock indices
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0.05 | 498,176 | ||||||
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Total short futures contracts
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(0.38 | ) | (3,405,480 | ) | ||||
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TOTAL INVESTMENTS IN FUTURES CONTRACTS-Net
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2.97 | 26,464,835 | ||||||
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FORWARD CURRENCY CONTRACTS
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||||||||
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Total long forward currency contracts
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1.60 | 14,278,410 | ||||||
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Total short forward currency contracts
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(0.38 | ) | (3,341,016 | ) | ||||
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TOTAL INVESTMENTS IN FORWARD CURRENCY CONTRACTS-Net
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1.22 | 10,937,394 | ||||||
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TOTAL
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4.19 | % | $ | 37,402,229 | ||||
(Continued)
4
Global Macro Trust
Condensed Schedule of Investments (UNAUDITED)
December 31, 2010
U.S. Treasury Notes
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Face Amount
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Description
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Fair Value
as a % of
Trust Capital
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Fair Value
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||||||||
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$
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174,000,000
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U.S. Treasury notes, 0.875%, 03/31/2011
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19.52
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%
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$
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174,299,063
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|||||
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185,700,000
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U.S. Treasury notes, 0.875%, 05/31/2011
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20.86
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186,251,297
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||||||||
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219,330,000
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U.S. Treasury notes, 1.000%, 08/31/2011
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24.69
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220,460,920
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||||||||
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219,650,000
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U.S. Treasury notes, 0.750%, 11/30/2011
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24.70
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220,542,328
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||||||||
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Total investments in U.S. Treasury notes (amortized cost $801,144,907)
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89.77
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%
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$
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801,553,608
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|||||||
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See notes to financial statements
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(Concluded)
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5
Global Macro Trust
Statements of Operations (UNAUDITED)
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For the three months ended
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||||||||
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September 30
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September 30
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|||||||
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2011
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2010
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|||||||
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INVESTMENT INCOME:
|
||||||||
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Interest income
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$ | 448,040 | $ | 769,816 | ||||
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EXPENSES:
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||||||||
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Brokerage fees
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13,573,067 | 13,912,538 | ||||||
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Administrative expenses
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556,114 | 565,863 | ||||||
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Custody fees and other expenses
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41,159 | 40,022 | ||||||
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Management fees
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164,840 | 40,253 | ||||||
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Total expenses
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14,335,180 | 14,558,676 | ||||||
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NET INVESTMENT LOSS
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(13,887,140 | ) | (13,788,860 | ) | ||||
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NET REALIZED AND UNREALIZED GAINS (LOSSES):
|
||||||||
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Net realized gains (losses) on closed positions:
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||||||||
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Futures and forward currency contracts
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27,373,746 | 3,056,182 | ||||||
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Foreign exchange translation
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162,169 | (493,124 | ) | |||||
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Net change in unrealized:
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||||||||
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Futures and forward currency contracts
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(18,793,138 | ) | 57,477,356 | |||||
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Foreign exchange translation
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(255,785 | ) | 878,951 | |||||
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Net gains (losses) from U.S. Treasury notes:
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||||||||
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Net change in unrealized
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(331,128 | ) | 246,057 | |||||
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TOTAL NET REALIZED AND UNREALIZED GAINS
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8,155,864 | 61,165,422 | ||||||
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NET INCOME (LOSS)
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(5,731,276 | ) | 47,376,562 | |||||
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LESS PROFIT SHARE TO MANAGING OWNER
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- | 92,688 | ||||||
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NET INCOME (LOSS) AFTER PROFIT SHARE TO MANAGING OWNER
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$ | (5,731,276 | ) | $ | 47,283,874 | |||
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NET INCOME (LOSS) AFTER PROFIT SHARE TO MANAGING OWNER PER AVERAGE UNIT OUTSTANDING
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||||||||
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Series 1 Unitholders
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$ | (10.19 | ) | $ | 67.00 | |||
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Series 2 Unitholders
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$ | 3.86 | $ | 69.83 | ||||
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Series 3 Unitholders
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$ | 4.69 | $ | 70.57 | ||||
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Series 4 Unitholders
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$ | 11.45 | $ | - | ||||
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(Continued)
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6
Statements of Operations (UNAUDITED)
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See notes to financial statements
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(Concluded)
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7
Statements of Changes in Trust Capital (UNAUDITED)
For the nine months ended September 30, 2011:
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* Additional units are issued to Series 1 Unitholders and the Managing Owner who are charged less than a 7% brokerage fee
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(Continued)
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8
Global Macro Trust
Statements of Changes in Trust Capital (UNAUDITED)
For the nine months ended September 30, 2010:
* Additional units are issued to Series 1 Unitholders and the Managing Owner who are charged less than a 7% brokerage fee
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See notes to financial statements
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(Concluded)
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9
Global Macro Trust
Statements of Financial Highlights — Series 1 (UNAUDITED)
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Per unit operating performance:
|
For the three
months ended
September 30,
2011:
|
For the three
months ended
September 30,
2010:
|
For the nine
months ended
September 30,
2011:
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For the nine
months ended
September 30,
2010:
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||||||||||||
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Net income (loss) from operations:
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||||||||||||||||
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Net investment loss
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$ | (21.32 | ) | $ | (20.14 | ) | $ | (65.10 | ) | $ | (60.68 | ) | ||||
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Net realized and unrealized gains (losses) on trading of futures and forward currency contracts
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11.62 | 86.79 | (28.26 | ) | 95.73 | |||||||||||
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Net gains (losses) from U.S. Treasury obligations
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(0.49 | ) | 0.35 | (0.35 | ) | 0.08 | ||||||||||
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Profit share allocated to Managing Owner
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0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||
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Net income (loss) per unit
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$ | (10.19 | ) | $ | 67.00 | $ | (93.71 | ) | $ | 35.13 | ||||||
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Net asset value per unit, beginning of period
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1,230.65 | 1,180.10 | 1,314.17 | 1,211.97 | ||||||||||||
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Net asset value per unit, end of period
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$ | 1,220.46 | $ | 1,247.10 | $ | 1,220.46 | $ | 1,247.10 | ||||||||
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Total return and ratios:
|
For the three
months ended
September 30,
2011:
|
For the three
months ended
September 30,
2010:
|
For the nine
months ended
September 30,
2011:
|
For the nine
months ended
September 30,
2010:
|
||||||||||||
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RATIOS TO AVERAGE CAPITAL:
|
||||||||||||||||
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Net investment loss (a)
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(6.82 | )% | (6.68 | ) % | (6.77 | )% | (6.64 | )% | ||||||||
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Total expenses (a)
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7.03 | % | 7.04 | % | 7.03 | % | 7.04 | % | ||||||||
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Profit share allocation (b)
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0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||
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TOTAL EXPENSES AND PROFIT SHARE ALLOCATION
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7.03 | % | 7.04 | % | 7.03 | % | 7.04 | % | ||||||||
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Total return before profit share allocation (b)
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(0.83 | )% | 5.68 | % | (7.13 | )% | 2.90 | % | ||||||||
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Less: profit share allocation (b)
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0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||
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TOTAL RETURN AFTER PROFIT SHARE ALLOCATION
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(0.83 | )% | 5.68 | % | (7.13 | )% | 2.90 | % | ||||||||
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(a) annualized
|
|
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(b) not annualized
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(Continued)
|
10
Global Macro Trust
Statements of Financial Highlights — Series 2 (UNAUDITED)
|
Per unit operating performance:
|
For the three
months ended
September 30,
2011:
|
For the three
months ended
September 30,
2010:
|
For the nine
months ended
September 30,
2011:
|
For the six
months ended
September 30,
2010*:
|
||||||||||||
|
Net income (loss) from operations:
|
||||||||||||||||
|
Net investment loss
|
$ | (8.41 | ) | $ | (7.67 | ) | $ | (25.08 | ) | (15.17 | ) | |||||
|
Net realized and unrealized gains (losses) on trading of futures and forward currency contracts
|
12.99 | 90.70 | (28.99 | ) | 34.86 | |||||||||||
|
Net gains (losses) from U.S. Treasury obligations
|
(0.72 | ) | 0.36 | (0.59 | ) | 0.36 | ||||||||||
|
Profit share allocated to Managing Owner
|
0.00 | (13.56 | ) | 0.00 | (15.73 | ) | ||||||||||
|
Net income (loss) per unit
|
$ | 3.86 | $ | 69.83 | $ | (54.66 | ) | 4.32 | ||||||||
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Net asset value per unit, beginning of period
|
1,292.04 | 1,212.59 | 1,350.56 | 1,278.10 | ||||||||||||
|
Net asset value per unit, end of period
|
$ | 1,295.90 | $ | 1,282.42 | $ | 1,295.90 | 1,282.42 | |||||||||
|
|
||||||||||||||||
|
Total return and ratios:
|
For the three
months ended
September 30,
2011:
|
For the three
months ended
September 30,
2010:
|
For the nine
months ended
September 30,
2011:
|
For the six
months ended
September 30,
2010*:
|
||||||||||||
|
RATIOS TO AVERAGE CAPITAL:
|
||||||||||||||||
|
Net investment loss (a)
|
(2.55 | )% | (2.46 | )% | (2.51 | )% | (2.44 | )% | ||||||||
|
Total expenses (a)
|
2.76 | % | 2.83 | % | 2.76 | % | 2.82 | % | ||||||||
|
Profit share allocation (b)
|
0.00 | 1.09 | 0.00 | 1.26 | ||||||||||||
|
TOTAL EXPENSES AND PROFIT SHARE ALLOCATION
|
2.76 | % | 3.92 | % | 2.76 | % | 4.08 | % | ||||||||
|
Total return before profit share allocation (b)
|
0.30 | % | 6.88 | % | (4.05 | )% | 1.40 | % | ||||||||
|
Less: profit share allocation (b)
|
0.00 | 1.12 | 0.00 | 1.06 | ||||||||||||
|
TOTAL RETURN AFTER PROFIT SHARE ALLOCATION
|
0.30 | % | 5.76 | % | (4.05 | )% | 0.34 | % | ||||||||
|
(a) annualized
|
||
|
(b) not annualized
|
(Continued)
|
|
|
* Series 2 units were first issued on April 1, 2010
|
11
Global Macro Trust
Statements of Financial Highlights — Series 3 (UNAUDITED)
|
Per unit operating performance:
|
For the three
months ended
September 30,
2011:
|
For the three
months ended
September 30,
2010:
|
For the nine
months ended
September 30,
2011:
|
For the nine
months ended
September 30,
2010:
|
||||||||||||
|
Net income (loss) from operations:
|
||||||||||||||||
|
Net investment loss
|
$ | (7.63 | ) | $ | (6.91 | ) | $ | (22.64 | ) | $ | (20.27 | ) | ||||
|
Net realized and unrealized gains (losses) on trading of futures and forward currency contracts
|
12.96 | 91.61 | (29.19 | ) | 104.02 | |||||||||||
|
Net gains (losses) from U.S. Treasury obligations
|
(0.64 | ) | 0.35 | (0.50 | ) | 0.28 | ||||||||||
|
Profit share allocated to Managing Owner
|
0.00 | (14.48 | ) | (0.08 | ) | (21.57 | ) | |||||||||
|
Net income (loss) per unit
|
$ | 4.69 | $ | 70.57 | $ | (52.41 | ) | $ | 62.46 | |||||||
|
Net asset value per unit, beginning of period
|
1,295.70 | 1,213.33 | 1,352.80 | 1,221.44 | ||||||||||||
|
Net asset value per unit, end of period
|
$ | 1,300.39 | $ | 1,283.90 | $ | 1,300.39 | $ | 1,283.90 | ||||||||
|
|
||||||||||||||||
|
Total return and ratios:
|
For the three
months ended
September 30,
2011:
|
For the three
months ended
September 30,
2010:
|
For the nine
months ended
September 30,
2011:
|
For the nine
months ended
September 30,
2010:
|
||||||||||||
|
RATIOS TO AVERAGE CAPITAL:
|
||||||||||||||||
|
Net investment loss (a)
|
(2.30 | )% | (2.21 | ) % | (2.26 | )% | (2.18 | ) % | ||||||||
|
Total expenses (a)
|
2.51 | % | 2.58 | % | 2.51 | % | 2.56 | % | ||||||||
|
Profit share allocation (b)
|
0.00 | 1.16 | 0.01 | 1.74 | ||||||||||||
|
TOTAL EXPENSES AND PROFIT SHARE ALLOCATION
|
2.51 | % | 3.74 | % | 2.52 | % | 4.30 | % | ||||||||
|
Total return before profit share allocation (b)
|
0.36 | % | 7.01 | % | (3.86 | )% | 6.66 | % | ||||||||
|
Less: profit share allocation (b)
|
0.00 | 1.19 | 0.01 | % | 1.55 | |||||||||||
|
TOTAL RETURN AFTER PROFIT SHARE ALLOCATION
|
0.36 | % | 5.82 | % | (3.87 | )% | 5.11 | % | ||||||||
|
(a) annualized
|
|
|
(b) not annualized
|
(Continued)
|
12
Global Macro Trust
Statements of Financial Highlights — Series 4 (UNAUDITED)
|
Per unit operating performance:
|
For the three
months ended
September 30,
2011:
|
For the nine
months ended
September 30,
2011:
|
||||||
|
Net income (loss) from operations:
|
||||||||
|
Net investment loss
|
$ | (1.03 | ) | $ | (2.51 | ) | ||
|
Net realized and unrealized gains (losses) on trading of futures and forward currency contracts
|
13.04 | (28.33 | ) | |||||
|
Net (losses) from U.S. Treasury obligations
|
(0.56 | ) | (0.44 | ) | ||||
|
Net income (loss) per unit
|
$ | 11.45 | $ | (31.28 | ) | |||
|
Net asset value per unit, beginning of period
|
1,323.28 | 1,366.01 | ||||||
|
Net asset value per unit, end of period
|
$ | 1,334.73 | $ | 1,334.73 | ||||
|
|
||||||||
|
Total return and ratios:
|
For the three
months ended
September 30,
2011:
|
For the nine
months ended
September 30,
2011:
|
||||||
|
RATIOS TO AVERAGE CAPITAL:
|
||||||||
|
Net investment loss (a)
|
(0.30 | ) % | (0.24 | )% | ||||
|
Total expenses (a)
|
0.51 | % | 0.50 | % | ||||
|
TOTAL RETURN
|
0.87 | % | (2.29 | )% | ||||
|
(a) annualized
|
|
|
See notes to financial statements
|
(Concluded)
|
13
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited financial statements, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of Global Macro Trust’s (the “Trust”) financial condition at September 30, 2011 and December 31, 2010 and the results of its operations for the three and nine months ended September 30, 2011 and 2010 (unaudited). These financial statements present the results of interim periods and do not include all disclosures normally provided in annual financial statements. It is suggested that these financial statements be read in conjunction with the audited financial statements and notes included in the Trust's annual report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2010. The December 31, 2010 information has been derived from the audited financial statements as of December 31, 2010.
With the effectiveness of the Trust’s Registration Statement on August 12, 2009, the Trust began to offer Series 2, Series 3 and Series 4 units. The only units offered prior to such date were the Series 1 units.
The preparation of financial statements in conformity with accounting principles generally accepted (“U.S. GAAP”) in the United States of America (the “U.S.”) requires management to make estimates and assumptions that affect the amounts and disclosures reported in the financial statements. Actual results could differ from these estimates.
The Trust enters into contracts that contain a variety of indemnification provisions. The Trust’s maximum exposure under these arrangements is unknown. The Trust does not anticipate recognizing any loss related to these arrangements.
The Income Taxes topic of the Financial Accounting Standards Board Accounting Standards Codification (the “Codification”) clarifies the accounting for uncertainty in tax positions. This requires that the Trust recognize in its financial statements the impact of any uncertain tax positions. Based on a review of the Trust’s open tax years, 2007 to 2010, for the U.S. Federal jurisdiction, the New York, Connecticut and Delaware state jurisdictions and the New York City jurisdiction, there are no uncertain tax positions. The Trust is treated as a limited partnership for federal and state income tax reporting purposes and therefore the unitholders in the trust ("Unitholders") are responsible for the payment of taxes.
There have been no material changes with respect to the Trust's critical accounting policies, off-balance sheet arrangements or disclosure of contractual obligations as reported in the Trust's Annual Report on Form 10-K for fiscal year 2010.
2. RECENT ACCOUNTING PRONOUNCEMENTS
In May 2011, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2011-04, Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (“IFRSs”) (“ASU 2011-04”). This ASU represents the converged guidance of the FASB and the International Accounting Standards Board (collectively the “Boards”) on fair value measurement. The collective efforts of the Boards and their staffs, reflected in ASU 2011-04, have resulted in common requirements for measuring fair value and for disclosing information about fair value measurements, including a consistent meaning of the term “fair value” and enhanced disclosure requirements for investments that do not have readily determinable fair values. The Boards have concluded the common requirements will result in greater comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and IFRSs. The amendments to the Codification in this ASU are to be applied prospectively. For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2011. Early application by public entities is not permitted. The Trust is currently assessing the impact of ASU 2011-04 on its future financial statements.
3. FAIR VALUE
The Fair Value Measurements and Disclosures topic of the Codification defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The three levels of the fair value hierarchy are described below:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2: Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly;
Level 3: Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
In determining fair value, the Trust separates its investments into two categories: cash instruments and derivative contracts.
Cash Instruments – The Trust’s cash instruments are generally classified within Level 1 of the fair value hierarchy because they are typically valued using quoted market prices. The types of instruments valued based on quoted market prices in active markets include U.S. government obligations and a short-term U.S. government money market fund. Millburn Ridgefield Corporation (the "Managing Owner") does not adjust the quoted price for such instruments even in situations where the Trust holds a large position and a sale could reasonably impact the quoted price.
Derivative Contracts – Derivative contracts can be exchange-traded or over-the-counter (“OTC”). Exchange-traded futures contracts are valued based on quoted closing settlement prices and typically fall within Level 1 of the fair value hierarchy.
OTC derivatives, or forward currency contracts, are valued based on pricing models that consider the current market prices plus the time value of money (“forward points”) and contractual prices of the underlying financial instruments. The forward points from the quotation service providers are generally in periods of one month, two months, three months and six months forward while the contractual forward delivery dates for the foreign forward currency contracts traded by the Trust may be in between these periods. The Managing Owner’s policy is to calculate the forward points for each contract being valued by determining the number of days from the date the forward currency contract is being valued to its maturity date and then using straight-line interpolation to calculate the valuation of forward points for the applicable forward currency contract. Model inputs can generally be verified and model selection does not involve significant management judgment. Such instruments are typically classified within Level 2 of the fair value hierarchy.
14
During the nine months ended September 30, 2011 and 2010, there were no transfers of assets or liabilities between Level 1 and Level 2. The following tables set forth by level and major category within the fair value hierarchy. At September 30, 2011 and December 31, 2010, the Trust held no assets or liabilities classified in Level 3.
|
Level 1
|
Level 2
|
Total
|
||||||||||
|
U.S. Treasury notes (1)
|
$ | 820,405,456 | $ | - | $ | 820,405,456 | ||||||
|
Short-term money market fund*
|
19,011,995 | - | 19,011,995 | |||||||||
|
Exchange-traded futures contracts
|
||||||||||||
|
Energies
|
(1,661,327 | ) | - | (1,661,327 | ) | |||||||
|
Grains
|
3,739,025 | - | 3,739,025 | |||||||||
|
Interest rates
|
(1,791,824 | ) | - | (1,791,824 | ) | |||||||
|
Livestock
|
(868,730 | ) | - | (868,730 | ) | |||||||
|
Metals
|
5,758,723 | - | 5,758,723 | |||||||||
|
Softs
|
(96,305 | ) | - | (96,305 | ) | |||||||
|
Stock indices
|
(114,902 | ) | - | (114,902 | ) | |||||||
|
Total exchange-traded futures contracts
|
4,964,660 | - | 4,964,660 | |||||||||
|
Over-the-counter forward currency contracts
|
- | (25,585,323 | ) | (25,585,323 | ) | |||||||
|
Total futures and forward currency contracts (2)
|
4,964,660 | (25,585,323 | ) | (20,620,663 | ) | |||||||
|
Total financial assets at fair value
|
$ | 844,382,111 | $ | (25,585,323 | ) | $ | 818,796,788 | |||||
|
Per line item in Statements of Financial Condition
|
||||||||||||
|
(1)
|
||||||||||||
|
Investments in U.S. Treasury notes held in brokers' trading accounts as collateral
|
$ | 141,935,449 | ||||||||||
|
Investments in U.S. Treasury notes held in custody
|
678,470,007 | |||||||||||
|
Total investments in U.S. Treasury notes
|
$ | 820,405,456 | ||||||||||
|
(2)
|
||||||||||||
|
Net unrealized appreciation on futures and forward currency contracts
|
$ | 6,012,716 | ||||||||||
|
Net unrealized depreciation on futures and forward currency contracts
|
(26,633,379 | ) | ||||||||||
|
Total unrealized appreciation and depreciation on futures and forward currency contracts
|
$ | (20,620,663 | ) | |||||||||
*The short-term money market fund is included in Cash and Cash Equivalents on the Statements of Financial Condition.
15
|
Level 1
|
Level 2
|
Total
|
||||||||||
|
U.S. Treasury notes (1)
|
$
|
801,553,608
|
$
|
-
|
$
|
801,553,608
|
||||||
|
Short-term money market fund*
|
47,651,151
|
-
|
47,651,151
|
|||||||||
|
Exchange-traded futures contracts
|
||||||||||||
|
Energies
|
1,647,872
|
-
|
1,647,872
|
|||||||||
|
Grains
|
5,728,407
|
-
|
5,728,407
|
|||||||||
|
Interest rates
|
1,327,790
|
-
|
1,327,790
|
|||||||||
|
Livestock
|
283,540
|
-
|
283,540
|
|||||||||
|
Metals
|
9,307,589
|
-
|
9,307,589
|
|||||||||
|
Softs
|
2,630,682
|
-
|
2,630,682
|
|||||||||
|
Stock indices
|
5,538,955
|
-
|
5,538,955
|
|||||||||
|
Total exchange-traded futures contracts
|
26,464,835
|
-
|
26,464,835
|
|||||||||
|
Over-the-counter forward currency contracts
|
-
|
10,937,394
|
10,937,394
|
|||||||||
|
Total futures and forward currency contracts (2)
|
26,464,835
|
10,937,394
|
37,402,229
|
|||||||||
|
Total financial assets and liabilities at fair value
|
$
|
875,669,594
|
$
|
10,937,394
|
$
|
886,606,988
|
||||||
|
Per line item in Statements of Financial Condition
|
||||||||||||
|
(1)
|
||||||||||||
|
Investments in U.S. Treasury notes held in brokers’ trading accounts as collateral
|
$
|
147,055,005
|
||||||||||
|
Investments in U.S. Treasury notes held in custody
|
654,498,603
|
|||||||||||
|
Total investments in U.S. Treasury notes
|
$
|
801,553,608
|
||||||||||
|
(2)
|
||||||||||||
|
Net unrealized appreciation on futures and forward currency contracts
|
$
|
37,402,229
|
||||||||||
|
Net unrealized depreciation on futures and forward currency contracts
|
-
|
|||||||||||
|
Net unrealized appreciation and depreciation on futures and forward currency contracts
|
$
|
37,402,229
|
||||||||||
*The short-term money market fund is included in Cash and Cash Equivalents on the Statements of Financial Condition.
4. DERIVATIVE INSTRUMENTS
The Derivatives and Hedging topic of the Codification requires qualitative disclosure about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements.
The Trust’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 the Trust’s open positions and the liquidity of the markets in which it trades.
The Trust engages in the speculative trading of futures and forward contracts on currencies, energies, grains, interest rates, livestock, metals, softs and stock indices. The following were the primary trading risk exposures of the Trust at September 30, 2011, by market sector:
Agricultural (grains, livestock and softs) – The Trust’s primary exposure is to agricultural price movements, which are often directly affected by severe or unexpected weather conditions as well as supply and demand factors.
Currencies – Exchange rate risk is a principal market exposure of the Trust. The Trust’s currency exposure is to exchange rate fluctuations, primarily fluctuations which disrupt the historical pricing relationships between different currencies and currency pairs. The fluctuations are influenced by interest rate changes as well as political and general economic conditions. The Trust trades in a large number of currencies including cross-rates—e.g., positions between two currencies other than the U.S. dollar.
Energies – The Trust’s primary energy market exposure is to gas and oil price movements often resulting from political developments in the Middle East and economic conditions worldwide. Energy prices are volatile and substantial profits and losses have been and are expected to continue to be experienced in this market.
Interest Rates – Interest rate movements directly affect the price of the sovereign bond futures positions held by the Trust and indirectly the value of its stock index and currency positions. Interest rate movements in one country as well as relative interest rate movements between countries may materially impact the Trust’s profitability. The Trust’s primary interest rate exposure is to interest rate fluctuations in countries or regions including Australia, Canada, Japan, Switzerland, the United Kingdom, the U.S. and the Eurozone. However, the Trust also may take positions in futures contracts on the government debt of other nations. The Managing Owner anticipates that interest rates in these industrialized countries or areas, both long-term and short-term, will remain the primary interest rate market exposure of the Trust for the foreseeable future.
16
Metals – The Trust’s metals market exposure is to fluctuations in the price of aluminum, copper, gold, lead, nickel, platinum, silver, tin and zinc.
Stock Indices – The Trust’s equity exposure through stock index futures is to equity price risk in the major industrialized countries as well as other countries.
The Derivatives and Hedging topic of the Codification requires entities to recognize in the Statements of Financial Condition all derivative contracts as assets or liabilities. Fair value of futures and forward currency contracts in an asset position by counterparty are recorded in the Statements of Financial Condition as “Net unrealized appreciation on open futures and forward currency contracts.” Fair values of futures and forward currency contracts in a liability position by counterparty are recorded in the Statements of Financial Condition as “Net unrealized depreciation on open futures and forward currency contracts.” The Trust’s policy regarding fair value measurement is discussed in the Fair Value and Disclosures note, contained herein.
Since the derivatives held or sold by the Trust are for speculative trading purposes, the derivative instruments are not designated as hedging instruments under the provisions of the Derivatives and Hedging guidance. Accordingly, all realized gains and losses, as well as any change in net unrealized gains or losses on open positions from the preceding period, are recognized as part of the Trust’s trading gains and losses in the Statements of Operations.
See “Item 3. Quantitative and Qualitative Disclosures About Market Risk” for additional derivative-related information.
The following tables present the fair value of open futures and forward currency contracts, held long or sold short, at September 30, 2011 and December 31, 2010. Fair value is presented on a gross basis even though the contracts are subject to master netting agreements and qualify for net presentation in the Statements of Financial Condition.
Fair value of futures and forward currency contracts at September 30, 2011
|
Net Unrealized
|
||||||||||||||||||||
|
Fair Value - Long Positions
|
Fair Value - Short Positions
|
Gain (Loss) on
|
||||||||||||||||||
|
Sector
|
Gains
|
Losses
|
Gains
|
Losses
|
Open Positions
|
|||||||||||||||
|
Futures contracts:
|
||||||||||||||||||||
|
Energies
|
$ | - | $ | (6,076,798 | ) | $ | 4,416,690 | $ | (1,219 | ) | $ | (1,661,327 | ) | |||||||
|
Grains
|
- | (2,005,088 | ) | 5,744,113 | - | 3,739,025 | ||||||||||||||
|
Interest rates
|
1,766,279 | (3,622,104 | ) | 64,001 | - | (1,791,824 | ) | |||||||||||||
|
Livestock
|
- | - | - | (868,730 | ) | (868,730 | ) | |||||||||||||
|
Metals
|
- | (7,682,374 | ) | 13,441,097 | - | 5,758,723 | ||||||||||||||
|
Softs
|
- | (686,448 | ) | 600,613 | (10,470 | ) | (96,305 | ) | ||||||||||||
|
Stock indices
|
137,550 | (166,945 | ) | 380,287 | (465,794 | ) | (114,902 | ) | ||||||||||||
|
Total futures contracts:
|
1,903,829 | (20,239,757 | ) | 24,646,801 | (1,346,213 | ) | 4,964,660 | |||||||||||||
|
Forward currency contracts
|
4,404,873 | (53,666,035 | ) | 31,546,551 | (7,870,712 | ) | (25,585,323 | ) | ||||||||||||
|
Total futures and forward currency contracts
|
$ | 6,308,702 | $ | (73,905,792 | ) | $ | 56,193,352 | $ | (9,216,925 | ) | $ | (20,620,663 | ) | |||||||
Fair value of futures and forward currency contracts at December 31, 2010
|
Net Unrealized
|
||||||||||||||||||||
|
Fair Value - Long Positions
|
Fair Value - Short Positions
|
Gain on
|
||||||||||||||||||
|
Sector
|
Gains
|
Losses
|
Gains
|
Losses
|
Open Positions
|
|||||||||||||||
|
Futures contracts:
|
||||||||||||||||||||
|
Energies
|
$
|
3,578,697
|
$
|
(604,025
|
)
|
$
|
-
|
$
|
(1,326,800
|
)
|
$
|
1,647,872
|
||||||||
|
Grains
|
6,435,870
|
-
|
-
|
(707,463
|
)
|
5,728,407
|
||||||||||||||
|
Interest rates
|
1,906,539
|
(446,636
|
)
|
93,822
|
(225,935
|
)
|
1,327,790
|
|||||||||||||
|
Livestock
|
578,540
|
-
|
-
|
(295,000
|
)
|
283,540
|
||||||||||||||
|
Metals
|
10,487,557
|
-
|
-
|
(1,179,968
|
)
|
9,307,589
|
||||||||||||||
|
Softs
|
2,899,490
|
(6,496
|
)
|
17,158
|
(279,470
|
)
|
2,630,682
|
|||||||||||||
|
Stock indices
|
6,102,368
|
(1,061,589
|
)
|
504,746
|
(6,570
|
)
|
5,538,955
|
|||||||||||||
|
Total futures contracts:
|
31,989,061
|
(2,118,746
|
)
|
615,726
|
(4,021,206
|
)
|
26,464,835
|
|||||||||||||
|
Forward currency contracts
|
17,229,470
|
(2,951,060
|
)
|
4,884,986
|
(8,226,002
|
)
|
10,937,394
|
|||||||||||||
|
Total futures and forward currency contracts
|
$
|
49,218,531
|
$
|
(5,069,806
|
)
|
$
|
5,500,712
|
$
|
(12,247,208
|
)
|
$
|
37,402,229
|
||||||||
17
The effect of trading futures and forward currency contracts is represented on the Statements of Operations for the three and nine months ended September 30, 2011 and 2010 as “Net realized gains (losses) on closed positions, futures and forward currency contracts” and “Net change in unrealized, futures and forward currency contracts.” These trading gains and losses are detailed below:
Trading gains (losses) of futures and forward currency contracts for the three and nine months ended September 30, 2011 and 2010
|
Sector
|
Three months ended:
September, 2011
|
Three months ended:
September, 2010
|
Nine months ended:
September, 2011
|
Nine months ended:
September, 2010
|
||||||||||||
|
Futures contracts:
|
||||||||||||||||
|
Energies
|
$ | (2,398,972 | ) | $ | (2,011,136 | ) | $ | 8,016,181 | $ | (13,699,678 | ) | |||||
|
Grains
|
(912,104 | ) | (4,704,981 | ) | (8,127,104 | ) | (3,105,813 | ) | ||||||||
|
Interest rates
|
57,885,768 | 21,005,154 | 62,711,543 | 103,590,865 | ||||||||||||
|
Livestock
|
(1,119,910 | ) | 1,138,570 | (2,557,450 | ) | (470,020 | ) | |||||||||
|
Metals
|
3,792,688 | 4,680,802 | 720,895 | (2,177,168 | ) | |||||||||||
|
Softs
|
(2,367,534 | ) | 3,468,077 | (3,082,845 | ) | (852,102 | ) | |||||||||
|
Stock indices
|
(9,412,134 | ) | 18,327,634 | (50,676,983 | ) | (27,690,669 | ) | |||||||||
|
Total futures contracts:
|
45,467,802 | 41,904,120 | 7,004,237 | 55,595,415 | ||||||||||||
|
Forward currency contracts
|
(36,887,194 | ) | 18,629,418 | (24,245,037 | ) | 12,894,868 | ||||||||||
|
Total futures and forward currency contracts
|
$ | 8,580,608 | $ | 60,533,538 | $ | (17,240,800 | ) | $ | 68,490,283 | |||||||
The following table presents average notional value by sector in U.S. dollars of open futures and forward currency contracts for the nine months ended September 30, 2011 and 2010. The Trust’s average net asset value for the nine months ended September 30, 2011 and 2010 was approximately $874,000,000 and $862,000,000, respectively.
Average notional value by sector of futures and forward currency contracts for the nine months ended September 30, 2011 and 2010
|
2011
|
2010
|
|||||||||||||||
|
Sector
|
Long positions
|
Short positions
|
Long positions
|
Short positions
|
||||||||||||
|
Futures contracts:
|
||||||||||||||||
|
Energies
|
$ | 145,382,791 | $ | 52,201,872 | $ | 180,011,855 | $ | 131,399,930 | ||||||||
|
Grains
|
63,147,607 | 37,027,000 | 44,493,902 | 45,309,907 | ||||||||||||
|
Interest rates
|
967,410,272 | 68,682,130 | 1,356,791,931 | 58,510,772 | ||||||||||||
|
Livestock
|
7,409,930 | 7,885,240 | 22,477,710 | 23,524,630 | ||||||||||||
|
Metals
|
99,205,943 | 32,563,685 | 164,665,200 | 93,509,683 | ||||||||||||
|
Softs
|
21,279,018 | 5,340,067 | 28,802,079 | 7,610,214 | ||||||||||||
|
Stock indices
|
303,769,006 | 38,133,265 | 465,220,534 | 15,761,819 | ||||||||||||
|
Total futures contracts:
|
1,607,604,567 | 241,833,259 | 2,262,463,211 | 375,626,955 | ||||||||||||
|
Forward currency contracts
|
838,863,083 | 236,374,113 | 697,130,385 | 224,221,010 | ||||||||||||
|
Total futures and forward currency contracts
|
$ | 2,446,467,650 | $ | 478,207,372 | $ | 2,959,593,596 | $ | 599,847,965 | ||||||||
Notional values in the interest rate sector were calculated by converting the notional value in local currency of open interest rate futures positions with maturities less than 10 years to 10-year equivalent fixed income instruments and translated to U.S. dollars at September 30, 2011 and 2010. The 10-year note is often used as a benchmark for many types of fixed-income instruments and the Managing Owner believes it is a more meaningful representation of notional values of the Trust’s open interest rate positions.
18
CONCENTRATION OF CREDIT RISK
Credit risk is the possibility that a loss may occur due to the failure of a counterparty to perform according to the terms of a contract. Credit risk is normally reduced to the extent that an exchange or clearing organization acts as a counterparty to futures transactions since typically the collective credit of the members of the exchange is pledged to support the financial integrity of the exchange.
The Managing Owner seeks to minimize credit risk primarily by depositing and maintaining the Trust’s assets at financial institutions and trading counterparties which the Managing Owner believes to be creditworthy. In addition, for OTC forward currency contracts, the Trust enters into master netting agreements with its counterparties. Collateral posted at the various counterparties for trading of futures and forward currency contracts includes cash and U.S. Treasury notes.
A significant portion of the Trust’s forward currency trading activities are cleared by Barclays Bank PLC (“BB”), Deutsche Bank AG (“DB”) and Morgan Stanley & Co. Inc. (“MS”). The Trust began trading at BB on June 2, 2011. The Trust’s concentration of credit risk associated with BB, DB or MS nonperformance includes unrealized gains inherent in such contracts, which are recognized in the Statements of Financial Condition, plus the value of margin or collateral held by BB, DB and MS. The amount of such credit risk was $107,578,547 and $90,603,180 at September 30, 2011 and December 31, 2010, respectively.
5. PROFIT SHARE
The following table indicates the total profit share earned and accrued during the three and nine months ended September 30, 2011 and 2010. Profit share earned (from Unitholders' redemptions) is credited to the New Profit memo account as defined in the Trust’s Trust Agreement.
|
Three months ended:
|
||||||||
|
September 30,
2011
|
September 30,
2010
|
|||||||
|
Profit share earned
|
$ | - | $ | 1,157 | ||||
|
Reversal of profit share(1)
|
- | - | ||||||
|
Profit share accrued (2)
|
- | 91,531 | ||||||
|
Total profit share
|
$ | - | $ | 92,688 | ||||
|
Nine months ended:
|
||||||||
|
September 30,
2011
|
September 30,
2010
|
|||||||
|
Profit share earned
|
$ | 1,385 | $ | 1,157 | ||||
|
Profit share accrued (2)
|
- | 91,531 | ||||||
|
Total profit share
|
$ | 1,385 | $ | 92,688 | ||||
|
|
(1)
|
At July 1
|
|
|
(2)
|
At September 30
|
6. RELATED PARTY TRANSACTIONS
The Trust pays all routine expenses, such as legal, accounting, printing, postage and similar administrative expenses (including the Trustee's fees, the charges of an outside accounting services agency and the expenses of updating the Trust's Prospectus), as well as extraordinary costs. At September 30, 2011, the Managing Owner is owed $185,354 from the Trust in connection with such expenses it has paid on the Trust's behalf (and is included in "Due to Managing Owner" in the Statements of Financial Condition).
Series 1 Unitholders who redeem units at or prior to the end of the first eleven months after such units are sold shall be assessed redemption charges calculated based on their redeemed Units' net asset value as of the date of redemption. All redemption charges will be paid to the Managing Owner. At September 30, 2011 and December 31, 2010, $3,573 and $1,276, respectively, was owed to the Managing Owner.
7. FINANCIAL HIGHLIGHTS
Per unit operating performance for Series 1, Series 2, Series 3 and Series 4 units is calculated based on Unitholders’ Trust capital for each Series taken as a whole utilizing the beginning and ending net asset value per unit and weighted average number of units during the period. Weighted average number of units for each Series is detailed below:
|
Three months ending September 30,
|
Nine months ending September 30,
|
||||||||||||||||
|
2011
|
2010
|
2011
|
2010
|
Date of initial issuance
|
|||||||||||||
|
Series 1
|
642,435.033 | 682,108.731 | 651,826.906 | 694,585.311 |
July 23, 2001
|
||||||||||||
|
Series 2
|
192.989 | 69.292 | 144,734 | 59.753 |
April 1, 2010
|
||||||||||||
|
Series 3
|
24,642.656 | 6,335.727 | 19,877.227 | 4,252.533 |
September 1, 2009
|
||||||||||||
|
Series 4
|
552.264 | n/a | 515.637 | n/a |
November 1, 2010
|
||||||||||||
19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Reference is made to Item 1, "Financial Statements." The information contained therein is essential to, and should be read in connection with, the following analysis.
OPERATIONAL OVERVIEW
Due to the nature of the Trust's business, its results of operations depend on the Managing Owner’s ability to recognize and capitalize on trends and other profit opportunities in different sectors of the global capital and commodity markets. The Managing Owner's trading methods are confidential so that substantially the only information that can be furnished regarding the Trust's results of operations is contained in the performance record of its trading. Unlike operating businesses, general economic or seasonal conditions do not directly affect the profit potential of the Trust and its past performance is not necessarily indicative of future results. The Managing Owner believes, however, that there are certain market conditions, for example, markets with strong price trends, in which the Trust has a better likelihood of being profitable than in others.
LIQUIDITY AND CAPITAL RESOURCES
Units (“Units”) may be offered for sale as of the beginning, and may be redeemed as of the end, of each month.
The amount of capital raised for the Trust should not have a significant impact on its operations, as the Trust has no significant capital expenditure or working capital requirements other than for monies to pay trading losses, brokerage commissions and charges. Within broad ranges of capitalization, the Managing Owner’s trading positions should increase or decrease in approximate proportion to the size of the Trust.
The Trust raises additional capital only through the sale of Units and capital is increased through trading profits (if any). The Trust does not engage in borrowing.
The Trust trades futures contracts, and may trade swap and options contracts, on interest rates, agricultural commodities, currencies, metals, energy and stock indices and forward contracts on currencies. Risk arises from changes in the value of these contracts (market risk) and the potential inability of counterparties or brokers to perform under the terms of their contracts (credit risk). Market risk is generally to be measured by the face amount of the futures positions acquired and the volatility of the markets traded. The credit risk from counterparty non-performance associated with these instruments is the net unrealized gain, if any, on these positions plus the value of the margin or collateral held by the counterparty. The risks associated with exchange-traded contracts are generally perceived to be less than those associated with OTC transactions because exchanges typically (but not universally) provide clearinghouse arrangements in which the collective credit (in some cases limited in amount, in some cases not) of the members of the exchange is pledged to support the financial integrity of the exchange. In OTC transactions, on the other hand, traders must typically (but not universally) rely solely on the credit of their respective individual counterparties. Margins which may be subject to loss in the event of a default are generally required in exchange trading and counterparties may require margin or collateral in the OTC markets.
The Managing Owner has procedures in place to control market risk, although there can be no assurance that they will, in fact, succeed in doing so. These procedures primarily focus on: (1) real time monitoring of open positions; (2) diversifying positions among various markets; (3) limiting the assets committed as margin, generally within a range of 5% to 35% of an account’s net assets at exchange minimum margins (including imputed margins on forward and swap positions) although the amount committed to margin at any time may be higher; (4) prohibiting pyramiding (that is, using unrealized profits in a particular market as margin for additional positions in the same market); and (5) changing the equity utilized for trading by an account solely on a controlled periodic basis rather than as an automatic consequence of an increase in equity resulting from trading profits. The Managing Owner attempts to control credit risk by causing the Trust to deal exclusively with large, well-capitalized financial institutions as brokers and counterparties.
The financial instruments traded by the Trust contain varying degrees of off-balance sheet risk whereby changes in the market values of the futures and forward contracts or the Trust’s satisfaction of the obligations may exceed the amount recognized in the Statements of Financial Condition of the Trust.
Due to the nature of the Trust’s business, substantially all its assets are represented by cash, cash equivalents and U.S. government obligations while the Trust maintains its market exposure through open futures and forward contract positions.
The Trust’s futures contracts are settled by offset and are cleared by the exchange clearinghouse function. Open futures positions are marked to market each trading day and the Trust’s trading accounts are debited or credited accordingly. Options on futures contracts are settled either by offset or by exercise. If an option on a future is exercised, the Trust is assigned a position in the underlying future which is then settled by offset. The Trust’s spot and forward currency transactions conducted in the interbank market are settled by netting offsetting positions or payment obligations and by cash payments.
The value of the Trust’s cash and financial instruments is not materially affected by inflation. Changes in interest rates, which are often associated with inflation, could cause the value of certain of the Trust’s debt securities to decline but only to a limited extent. More important, changes in interest rates could cause periods of strong up or down market price trends during which the Trust’s profit potential generally increases. However, inflation can also give rise to markets which have numerous short price trends followed by rapid reversals, markets in which the Trust is likely to suffer losses.
20
The Trust’s assets are generally held as cash or cash equivalents, including short-term U.S. government obligations, which are used to margin the Trust’s futures and forward currency positions and withdrawn, as necessary, to pay redemptions and expenses. Other than potential market-imposed limitations on liquidity, due, for example, to limited open interest in certain futures markets or to daily price fluctuation limits, which are inherent in the Trust’s futures and forward trading, the Trust’s assets are highly liquid and are expected to remain so.
During its operations for the three and nine months ended September 30, 2011, the Trust experienced no meaningful periods of illiquidity in any of the numerous markets traded by the Managing Owner.
CRITICAL ACCOUNTING ESTIMATES
The Trust records its transactions in futures and forward currency contracts, including related income and expenses, on a trade date basis. Open futures contracts traded on an exchange are valued at fair value, which is based on the closing settlement price on the exchange where the futures contract is traded by the Trust on the day with respect to which net assets are being determined. Open forward currency contracts are recorded at fair value, based on pricing models that consider the current market prices (“spot prices”) plus the time value of money (“forward points”) and contractual prices of the underlying financial instruments. The spot prices and forward points for open forward currency contracts are generally based on the 3:00 P.M. New York time prices provided by widely used quotation service providers on the day with respect to which net assets are being determined. The forward points from the quotation service providers are generally in periods of one month, two months, three months and six months forward while the contractual forward delivery dates for the foreign currency contracts traded by the Trust may be in between these periods.
The Managing Owner’s policy is to calculate the forward points for each contract being valued by determining the number of days from the date the forward currency contract is being valued to its maturity date and then using straight-line interpolation to calculate the valuation of forward points for the applicable forward currency contract. The Managing Owner will also compare the calculated price to the forward currency prices provided by dealers to determine whether the calculated price is fair and reasonable.
RESULTS OF OPERATIONS
Due to the nature of the Trust’s trading, the results of operations for the interim periods presented should not be considered indicative of the results that may be expected for the entire year.
Series 1 Units, which were initially issued simply as “Units” beginning in July 2001, were the only Series of Units available prior to 2009. Series 2 Units were first issued on April 1, 2010, Series 3 Units were first issued on September 1, 2009 and Series 4 Units were first issued on November 1, 2010. The Trust’s past performance is not necessarily indicative of how it will perform in the future.
Periods ended September 30, 2011
|
Month Ending:
|
Total Trust
Capital
|
|||||||
|
September 30, 2011
|
$ | 816,769,179 | ||||||
|
June 30, 2011
|
829,264,545 | |||||||
|
December 31, 2010
|
892,925,611 | |||||||
|
Three Months
|
Nine Months
|
|||||||
|
Change in Trust Capital
|
$ | (12,495,366 | ) | $ | (76,156,432 | ) | ||
|
Percent Change
|
(1.51 | )% | (8.53 | )% | ||||
THREE MONTHS ENDED SEPTEMBER 30, 2011
The decrease in the Trust’s net assets of $12,495,366 for the three months ended September 30, 2011 was attributable to net loss before profit share of $5,731,276 and redemptions of $23,909,537 and was partially offset by subscriptions of $17,145,447.
Brokerage fees are calculated on the net asset value on the last day of each month and are affected by trading performance, subscriptions and redemptions. Brokerage fees for the three months ended September 30, 2011 decreased $339,471 relative to the corresponding period in 2010 due to a decrease in the Trust’s net assets.
21
Administrative expenses for the three months ended September 30, 2011 decreased $9,749 relative to the corresponding period in 2010. The decrease was due mainly to a decrease in the Trust's net assets during the three months ended September 30, 2011 relative to the corresponding period.
Interest income is derived from cash and U.S. Treasury instruments held at the Trust's brokers and custodian. Interest income for the three months ended September 30, 2011 decreased $321,776 relative to the corresponding period in 2010. This decrease was due predominantly to a decrease in short-term Treasury yields and partially to a decrease in the Trust's net assets.
The Trust experienced net realized and unrealized gains of $8,155,864 from its trading operations (including foreign exchange translations and Treasury obligations). Brokerage fees of $13,573,067, administrative expenses of $556,114, custody fees and other expenses of $41,159, and management fees of $164,840 were incurred. Interest income of $448,040 partially offset the Trust's expenses resulting in a net loss of $5,731,276. An analysis of the trading gain (loss) by sector is as follows:
|
Sector
|
% Gain
(Loss)
|
|||
|
Currencies
|
(4.33 | )% | ||
|
Energies
|
(0.30 | )% | ||
|
Grains
|
(0.15 | )% | ||
|
Interest rates
|
6.91 | % | ||
|
Livestock
|
(0.16 | )% | ||
|
Metals
|
0.44 | % | ||
|
Softs
|
(0.30 | )% | ||
|
Stock indices
|
(1.15 | )% | ||
|
Trading gain
|
0.96 | % | ||
NINE MONTHS ENDED SEPTEMBER 30, 2011
The decrease in the Trust’s net assets of $76,156,432 for the nine months ended September 30, 2011 was attributable to net loss before profit share of $60,493,103 and redemptions of $71,383,188 and was partially offset by subscriptions of $55,719,859.
Brokerage fees are calculated on the net asset value on the last day of each month and are affected by trading performance, subscriptions and redemptions. Brokerage fees for the nine months ended September 30, 2011 decreased $479,489 relative to the corresponding period in 2010 due to a decrease in the Trust’s net assets.
Administrative expenses for the nine months ended September 30, 2011 decreased $29,377 relative to the corresponding period in 2010. The decrease was due mainly to a decrease in the Trust's net assets during the nine months ended September 30, 2011 relative to the corresponding period.
Interest income is derived from cash and U.S. Treasury instruments held at the Trust's brokers and custodian. Interest income for the nine months ended September 30, 2011 decreased $846,291 relative to the corresponding period in 2010. This decrease was due predominantly to a decrease in short-term Treasury yields and partially to a decrease in the Trust's net assets.
The Trust experienced net realized and unrealized losses of $17,586,549 from its trading operations (including foreign exchange translations and Treasury obligations). Brokerage fees of $42,417,382, administrative expenses of $1,680,410, custody fees and other expenses of $121,736, management fees of $402,914 and a profit share of $1,385 were incurred. Interest income of $1,715,888 partially offset the Trust's expenses resulting in a net loss after profit share of $60,494,488. An analysis of the trading gain (loss) by sector is as follows:
|
Sector
|
% Gain
(Loss)
|
|||
|
Currencies
|
(2.91 | )% | ||
|
Energies
|
0.84 | % | ||
|
Grains
|
(1.02 | )% | ||
|
Interest rates
|
7.35 | % | ||
|
Livestock
|
(0.38 | )% | ||
|
Metals
|
0.11 | % | ||
|
Softs
|
(0.42 | )% | ||
|
Stock indices
|
(5.66 | )% | ||
|
Trading loss
|
(2.09 | )% | ||
22
MANAGEMENT DISCUSSION – 2011
Three months ended September 30, 2011
The Trust showed a slight trading gain during the third quarter as gains from trading interest rates and gold outweighed losses from trading currencies, stock indices, agricultural commodities, energy and industrial metals.
Third quarter trading was volatile as pervasive uncertainty pushed cautionary, safety-first trades to the forefront of market action. The continuing failure of courage in Washington to come to a bipartisan solution on the U.S. deficit and debt ceiling imbroglio and the lack of a complete solution to Europe’s debt quagmire with its knock-on impact on banks held market participants hostage to uncertainty which had a negative influence on growth prospects worldwide. In addition, inflation worries in emerging markets kept monetary policy on a tightening trajectory, especially in China and India, even as growth slowed.
The flight to safety produced gains from long positions in note and bond futures for the U.S., United Kingdom, Australia, Canada, Germany and Japan. The “Quantitative Easing” that was implemented in the U.S., United Kingdom, and Japan added to the demand for longer term instruments.
Coming into the quarter, the U.S. dollar had been in a lengthy decline and was not viewed as a safe haven. However, with Switzerland and Japan enacting policy initiatives to limit the attractiveness of their currencies, with slower growth undermining the attraction of commodity and emerging market currencies and with the Euro’s existence in question, the U.S. dollar reemerged as a safe haven investment despite the rating downgrade of U.S. government securities by S&P. As a result, short U.S. dollar trades, which had been profitable in July, were unprofitable during August and September. Non-U.S. dollar cross rate trading was negative due to losses on long Australian and New Zealand dollar trades and on short British Pound and Euro trades.
Given the deteriorating growth outlook, the fiscal problems in the developed world and policy tightening in emerging economies, equity futures trading was unprofitable for the quarter. Long equity positions generated losses in July and August but after being reversed to short positions produced a somewhat offsetting gain in September.
Metal trading was volatile during the quarter and was fractionally profitable overall due to profits from a long gold position. As growth prospects receded, long positions in industrial metals produced losses in August, were reversed to short positions and generated a small gain in September.
With the economic outlook weakening, losses on long positions in Brent crude, RBOB gasoline and London gas oil led to a fractional loss from energy trading although a short natural gas position was marginally profitable.
Trading of agricultural commodities was fractionally negative as long coffee, sugar, corn, soybean and soybean meal positions and a short livestock trade registered losses toward quarter end.
Three months ended June 30, 2011
While growth oriented trades produced gains early in the quarter, market sentiment toward these “risk on” positions deteriorated during May and June and the Trust registered a decline for the three months. Losses from trading of equity, energy, metal and agricultural commodity futures outdistanced gains from currency and interest rate futures trading.
Manufacturing activity, as evidenced by weakening purchasing manager surveys and employment statistics, slowed worldwide during the quarter. In the developed economies, the continued depression in the housing markets and the knock-on effects of the Japan crisis added to the negative sentiment as did the coming end of the second round of quantitative easing (“QE2”) in the U.S. and the increase in bank regulations worldwide. Meanwhile, in the developing economies, more moves toward tighter monetary policy to contain inflation, led by China, reined in “animal spirits.” Combining this worsening growth outlook with the Greek debt drama and the U.S. debt ceiling imbroglio served to undermine the long equity and commodity trades in the Trust.
Against this background, long equity futures positions produced losses and were reduced significantly and in some instances closed or reversed to short trades. Losses were registered on long equity positions in U.S., Chinese, Hong Kong, Korean, Taiwanese, Canadian, Australian, South African and European—especially Italian, Spanish and Dutch—equity futures. There was a bounce in equity markets near quarter-end as the Greek austerity approval triggered some short covering and perhaps due to quarter-end window dressing purchases.
A steadying U.S. dollar, slowing growth and news that the International Energy Agency would release 60 million barrels of oil from strategic reserves to compensate for the Libyan shortfall pushed energy prices lower and led to losses on long positions in crude and related products. Trading of natural gas also resulted in a loss.
Diminishing industrial activity and global economic growth produced losses from long positions in industrial metals, especially aluminum, lead, zinc and nickel. A long gold position was profitable, although the gains were pared back as the U.S. dollar stabilized after April. Silver trading was highly volatile with gains in April offset by losses in May and June.
Turning to agricultural commodities, long positions in the soybean complex, corn, cotton, coffee and cattle were unprofitable, while a short wheat trade was profitable in June.
Interest rate trading was profitable during April and May but in June sovereign debt concerns and inflation worries undermined some long note and bond trades. For the quarter, long positions in U.S., Australian, Canadian and Japanese long-term futures, and a long position in short-term sterling were profitable. Meanwhile, short trades in European interest rate futures produced losses.
The Federal Reserve’s policy of miniscule interest rates and quantitative easing caused the U.S. dollar to take a significant dip in April. During May and June, the U.S. dollar partially recovered as the end of QE2 approached and as growth and debt concerns outside the U.S. caused market participants to trim back short U.S. dollar positions. Still, on balance, short U.S. dollar positions versus emerging market, high yield and safe haven currencies like the Swiss franc were profitable. Meanwhile, non-U.S. dollar trading lost money from long positions in the Australian dollar, Norwegian kroner and Swedish krona. On the other hand, a short British pound/long Australian dollar trade was profitable.
Three months ended March 31, 2011
Trading during the quarter was volatile largely as a result of the Japan disaster. There was a loss for the period as profits from energy, U.S. dollar currency, metal and soft commodity trading were outweighed by losses from equity, interest rate and currency cross rate trading.
Through the first two and one-third months of the quarter, generous liquidity creation by developed country central banks, especially the Federal Reserve, led to a weakening U.S. dollar, and rising equity and commodity prices. Meanwhile, inflation concerns, monetary policy tightening in emerging economies, and persistent worry about government debt problems encouraged interest rates on government securities to rise.
Given the diverse monetary policy stances of the U.S. and emerging economies, capital flowed toward high yield and emerging market exporting countries. Hence, short U.S. dollar positions were profitable as the U.S. dollar fell versus the currencies of Australia, Brazil, Canada, Korea, Mexico, Russia and Scandinavia.
Persistent ease in U.S. monetary policy also led to increasing optimism regarding global economic growth. This environment was favorable to global equities and long positions in index futures in the U.S., Canada, Europe and South Africa were profitable. Asian equities did less well as policy tightening progressed.
The weak U.S. dollar and strong growth outlook supported commodity prices and agricultural commodity, metal and energy trading were all profitable. The agricultural markets were also boosted by supply concerns caused by a variety of weather conditions – too much or too little rain, too hot or not hot enough. Long positions in corn, wheat, cotton, coffee and rubber were profitable.
23
Energy prices were up on the roiling violence in the Middle East and North Africa, a better economic growth outlook and supply drawdowns. Long positions in crude, heating oil, London gas oil and RBOB gasoline were profitable.
Contrary to some expectations, the Federal Reserve’s second foray into quantitative easing failed to keep interest rates low. With market participants worried about massive government borrowing requirements and future inflation, there was a substantial uptick in rates and moderate losses were sustained on long interest rate futures positions.
In mid-March, the Japanese earthquake/tsunami/nuclear disaster had a sizable negative impact on these profitable results as market participants altered their prior views, producing significant price reversals.
A flight to safety triggered a strong move into the U.S. dollar which had been falling because of concern regarding fiscal and monetary problems in the U.S., as well as into the Swiss franc and yen which had been weak due to low interest rates. This flight also led to rising prices for “suddenly safe” government securities which had previously been under pressure due to debt problems and recent signs of tighter monetary policies, particularly in Asia. Given the threat to worldwide growth due to the crippling of the Japanese economy, global equity markets, which had weakened noticeably on March 9 in the wake of a Bank of Korea rate hike and further signs of a persistent inflation problem in China, fell sharply as the scale of the disaster expanded. Finally, with Japan’s industrial sector somewhat crippled and global growth now more uncertain, the demands for and prices of metals, energy, and other commodities, which have been experiencing a secular boom, fell, negatively impacting performance.
The increase in volatility led our risk management systems to reduce positions in order to keep risk in line with intended exposures. Also, price changes produced new signals from directional models that led to position adjustments. Equity exposures were reduced about 50% from earlier levels, although the portfolio remained partially long Asian, U.S., and European indices. In Japan, equity positions were reduced close to flat, as were positions in Japanese government bonds, while the portfolio stayed slightly short the U.S. dollar against the yen. Metal and energy positions stayed long though 10-20% under earlier levels. The portfolio also went somewhat long interest rate futures, particularly Canadian, U.S. and British instruments.
Over the final days of the month, earlier trends resurfaced and much of the Japan related loss was recaptured, but with positions lowered, especially in equities, the quarter finished slightly negative.
Periods ended September 30, 2010
|
Month Ending:
|
Total Trust
Capital
|
|||
|
September 30, 2010
|
$ | 856,768,501 | ||
|
June 30, 2010
|
824,738,784 | |||
|
December 31, 2009
|
879,154,612 | |||
|
Three Months
|
Nine Months
|
|||||||
|
Change in Trust Capital
|
$ | 32,029,717 | $ | (22,386,111 | ) | |||
|
Percent Change
|
3.88 | % | (2.55 | )% | ||||
THREE MONTHS ENDED SEPTEMBER 30, 2010
The increase in the Trust’s net assets of $32,029,717 for the three months ended September 30, 2010 was attributable to net income (before profit share) of $47,376,562 and subscriptions of $9,360,671 and was partially offset by redemptions of $24,707,516.
Brokerage fees are calculated on the net asset value on the last day of each month and are affected by trading performance, subscriptions and redemptions. Brokerage fees for the three months ended September 30, 2010 decreased $1,278,882 relative to the corresponding period in 2009 due to a decrease in the Trust’s average net assets.
Administrative expenses for the three months ended September 30, 2010 decreased $166,492 relative to the corresponding period in 2009. The decrease was due mainly to a decrease in the Trust's net assets during the three months ended September 30, 2010 relative to the corresponding period.
Interest income is derived from cash and U.S. Treasury instruments held at the Trust's brokers and custodian. Interest income for the three months ended September 30, 2010 decreased $891,171 relative to the corresponding period in 2009. This decrease was due predominantly to a decrease in short-term Treasury yields in addition to a decrease in average net assets.
24
The Trust experienced net realized and unrealized gains of $61,165,422 from its trading operations (including foreign exchange translations and Treasury obligations). Brokerage fees of $13,912,538, administrative expenses of $565,863, custody fees of $40,022, management fees of $40,253 and a profit share of $92,688 were incurred. Interest income of $769,816 partially offset the Trust's expenses resulting in a net income of $47,283,874. An analysis of the trading gain (loss) by sector is as follows:
|
Sector
|
% Gain
(Loss)
|
|||
|
Currencies
|
2.29 | % | ||
|
Energies
|
(0.26 | )% | ||
|
Grains
|
(0.59 | )% | ||
|
Interest rates
|
2.60 | % | ||
|
Livestock
|
0.14 | % | ||
|
Metals
|
0.59 | % | ||
|
Softs
|
0.42 | % | ||
|
Stock indices
|
2.27 | % | ||
|
Trading gain
|
7.46 | % | ||
NINE MONTHS ENDED SEPTEMBER 30, 2010
The decrease in the Trust’s net assets of $22,386,111 for the nine months ended September 30, 2010 was attributable to redemptions of $76,309,131 which was partially offset by subscriptions of $27,481,364 and net income (before profit share) of $26,441,656.
Brokerage fees are calculated on the net asset value on the last day of each month and are affected by trading performance, subscriptions and redemptions. Brokerage fees for the nine months ended September 30, 2010 decreased $5,659,976 relative to the corresponding period in 2009 due to a decrease in the Trust’s average net assets.
Administrative expenses for the nine months ended September 30, 2010 decreased $421,386 relative to the corresponding period in 2009. The decrease was due mainly to a decrease in the Trust's net assets during the nine months ended September 30, 2010 relative to the corresponding period in 2009.
Interest income is derived from cash and U.S. Treasury instruments held at the Trust's brokers and custodian. Interest income for the nine months ended September 30, 2010 decreased $6,901,811 relative to the corresponding period in 2009. This decrease was due predominantly to a decrease in short-term Treasury yields and by a decrease in average net assets.
The Trust experienced net realized and unrealized gains of $68,689,029 from its trading operations (including foreign exchange translations and Treasury obligations). Brokerage fees of $42,896,871, administrative expenses of $1,709,787, custody fees of $122,408, management fees of $80,486 and profit share of $92,688 were incurred. Interest income of $2,562,179 partially offset the Trust's expenses resulting in a net gain of $26,348,968. An analysis of the trading gain (loss) by sector is as follows:
|
Sector
|
% Gain
(Loss)
|
|||
|
Currencies
|
1.51 | % | ||
|
Energies
|
(1.62 | )% | ||
|
Grains
|
(0.41 | )% | ||
|
Interest rates
|
13.04 | % | ||
|
Livestock
|
(0.03 | )% | ||
|
Metals
|
(0.22 | )% | ||
|
Softs
|
(0.11 | )% | ||
|
Stock indices
|
(3.82 | )% | ||
|
Trading gain
|
8.34 | % | ||
MANAGEMENT DISCUSSION – 2010
Three months ended September 30, 2010
The Trust's Series 1, Series 2 and Series 3 net asset value per unit increased 5.68%, 5.76% and 5.82%, respectively, for the three months ended September 30, 2010. Gains from trading interest rate futures, stock index futures, currency forwards and, to a lesser extent, metal futures well outpaced a small loss from trading energy futures. Agricultural commodity futures trading had no appreciable impact on performance.
Federal Reserve Chairman Bernanke’s July statement that “the economic outlook is unusually uncertain” was reflected in the markets’ schizophrenic attitude toward risk during the quarter swinging from risk seeking in July to risk aversion in August and back to risk seeking in September.
25
Long positions in U.S. and European notes and bonds and in U.S. dollar short-term interest rate futures were very profitable in the third quarter, especially in July and August when investors were seeking safety and the Federal Reserve was emphasizing its intention to maintain low interest rates for an extended period. Meanwhile, long Australian interest rate futures positions produced losses as the Reserve Bank of Australia raised official rates in response to a buoyant domestic economy. Late in the quarter, concerns about tighter monetary policies and the need to finance large deficits led to higher yields, somewhat reducing earlier gains.
Favorable earnings reports, easy monetary policy and, by September, some improvement in the worldwide growth outlook supported equity markets. Profits were generated from long stock index futures positions in the U.S., Europe, Canada, Mexico, Korea and Singapore while short positions in Japanese and Australian index futures produced small losses.
During the quarter, the threat of competitive devaluations, capital controls, currency interventions and trade wars became an almost daily part of official discussions and pronouncements. The U.S., euro-zone and Japan all seemed to be vying for the dubious honor of having the poorest outlook. The U.S. dollar slid significantly versus commodity oriented, higher growth and high interest rate currencies. Long positions were profitable in the currencies of Brazil, India, Colombia, Chile, Australia, Singapore, South Africa and Turkey. Turning to non-U.S. dollar cross rates, short euro positions versus the Czech, Polish and Swedish units and a long Australian dollar/short Canadian dollar trade were profitable.
Gold and silver prices benefitted from the flight out of paper currencies and an improving optimism about economic growth, especially in Asia, which also boosted industrial metals. Long positions in gold, silver, tin, copper and nickel produced profits, while short aluminum, lead and zinc positions sustained losses.
In the energy sector, trading of crude and oil products generated a small loss that was partially offset by profits from natural gas trading.
Agricultural commodities were buffeted by supply and weather problems. A long cotton position was profitable but losses on short corn, wheat and sugar positions in July and August more than offset that gain.
Three months ended June 30, 2010
Series 1, Series 2 and Series 3 had negative returns of 6.93%, 5.13% and 5.07%, respectively, for the three months ended June 30, 2010. Losses from trading stock index futures, currency forwards, energy futures, and to a lesser extent metal and agricultural commodity futures well outpaced the significant gains from trading interest rate futures.
While the quarter started on a positive note, several significant events in May, including the European debt crisis, the May 6 “flash crash”, weaker economic data from China, the sinking of a South Korea naval vessel and the BP oil leak, triggered abrupt price moves and trend reversals that resulted in a sizable loss for the Trust and ushered in a plethora of uncertainties that produced further erosion in the net asset value during June. Market participants wondered: Is inflation or deflation to be feared? Is growth slowing temporarily or are we facing the second leg of a double-dip recession? Will government fiscal policies focus on supporting aggregate demand or on reducing deficits and borrowing? How will changes in financial regulations worldwide impact business growth potential? How will the developed nations’ sovereign debt crisis play out? In this environment, risk aversion, that had been absent in April, resurfaced unexpectedly in May and June. Consequently, equity prices declined and commodity prices weakened, which put pressure on commodity and growth oriented currencies, and safe haven funds flowed into precious metals and into U.S., German, British and Japanese government securities.
The Trust entered the quarter with long positions in most stock index futures and, therefore, suffered losses from the global equity market sell-off as measured by the abrupt 15% drop in the MSCI World Equity Index that occurred between late April and late May. Losses were broad-based and sustained from trading of U.S., European, Asian and South African indices.
Short U.S. dollar positions versus the growth oriented and commodity currencies of Australia, New Zealand, Brazil, Canada, Chile, Russia, India, Mexico, Singapore, Turkey, South Africa and Korea produced losses as traders reduced risky trades and sought safe haven U.S. dollars. A long U.S. dollar position versus the euro was profitable. Non-U.S. dollar cross rate trading was almost flat for the quarter as profits from short euro and Scandinavian currency trades countered losses from other short Swiss, Australian and New Zealand dollar trades.
Long positions in commodities were dealt a blow by weakened worldwide growth prospects. For example, in May alone, the S&P GSCI Total Return Index, an unleveraged long only commodity index, was down 13.2%.
The energy sector was particularly hard hit and long positions in Brent and WTI crude, heating oil, gas oil and RBOB gasoline were unprofitable. Crude inventories were already high particularly in the U.S. and currency and economic growth problems were enough to trigger a significant price drop.
Except for gold, which benefited from the flight to safety, long positions in metals were unprofitable. Long positions in zinc, copper, nickel, aluminum and platinum (which traded like an industrial metal in May and June) generated losses.
Trading of agricultural and soft commodities was fractionally unprofitable as prices of sugar, corn and various categories of wheat found support due to weather developments leading to losses from short positions.
26
Three months ended March 31, 2010
The Trust's Series 1 and Series 3 net asset value per unit increased 4.62% and 4.64%, respectively, for the three months ended March 31, 2010. Profits from trading interest rate, energy, grain and metal futures and forward currency contracts, well outpaced the fractional losses sustained from trading equity, soft commodity and livestock futures.
At the start of the year the sustainability and robustness of incipient global growth was called into question amid signs that monetary policy was becoming less accommodative in China, India and other countries which had led the recovery. Worries that fiscal stimulus in the developed world was winding down also weighed on growth prospects as did the looming Greek fiscal crisis. Near quarter-end however, a string of positive economic statistics caused the outlook for economic expansion to brighten somewhat.
Against this background, interest rates eased and long positions in U.S., British and European note, bond and short-term interest rate futures were profitable. On the other hand, short positions in Australian interest rate futures were profitable as the Reserve Bank of Australia continued to tighten policy to ward off feared inflation.
The burgeoning budget crisis in Greece weighed on the euro throughout the quarter and short euro positions relative to the Australian and New Zealand dollars, Hungarian forint, Polish zloty and Turkish lira were profitable. More generally, long positions in high yielding and commodity currencies—Australian, New Zealand and Canadian dollars—versus a variety of currencies were profitable. The U.S. dollar was not as weak as the euro but it did lose ground to the currencies of Australia, Canada, India, Colombia, Korea, Mexico and South Africa, producing profits from long positions in these currencies.
Equity trading was marginally negative although performance during the quarter and across countries was quite disparate. Losses in January and February reflected the weaker economic outlook and signs of policy tightening. March gains based on improving economic statistics largely offset those losses. By country, long positions in the U.S., the United Kingdom, Canada and parts of Europe were profitable, while long positions in Asia, Spain, Italy, Australia, Mexico and South Africa were unprofitable.
Natural gas continued to be in a bear market as increasing supplies from shale gas met decreasing demand and short natural gas futures positions were quite profitable. Elsewhere in the energy complex, prices moved higher and long positions in crude oil products were somewhat profitable.
In the metals sector, gains from long nickel and aluminum positions modestly outweighed losses from long copper and zinc positions and a short lead trade.
Deflation was the story in agricultural markets. Profits on short positions in corn and wheat outweighed losses on long positions in the soybean complex, cocoa and sugar where forecasts of large sugar harvests accelerated the down-move from record highs.
OFF-BALANCE SHEET ARRANGEMENTS
The Trust does not engage in off-balance sheet arrangements with other entities.
CONTRACTUAL OBLIGATIONS
The Trust does not enter into contractual obligations or commercial commitments to make future payments of a type that would be typical for an operating company or that would affect its liquidity or capital resources. The Trust’s sole business is trading futures and forward contracts, both long (contracts to buy) and short (contacts to sell). All such contracts are settled by offset, not delivery. Substantially all such contracts are for settlement within four months of the trade date and substantially all such contracts are held by the Trust for less than four months before being offset or rolled over into new contracts with similar maturities. The Trust’s financial statements present a Condensed Schedule of Investments setting forth net unrealized appreciation (depreciation) of the Trust’s open futures and forward currency contracts, both long and short, at September 30, 2011.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Value at Risk is a measure of the maximum amount which the Trust could reasonably be expected to lose in a given market sector. However, the inherent uncertainty of the Trust's speculative trading and the occurrence in the markets traded by the Trust of market movements far exceeding expectations could result in actual trading or non-trading losses far beyond the indicated or the Trust'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 inclusion of the quantification included in this section should not be considered to constitute any assurance or representation that the Trust's losses in any market sector will be limited to Value at Risk or by the Trust's attempts to manage its market risk.
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 the Trust's market sensitive instruments.
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Quantifying the Trust's Trading Value at Risk
Quantitative Forward-Looking Statements
The following quantitative disclosures regarding the Trust'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 and Section 21E of the Securities Exchange Act of 1934). All quantitative disclosures in this section are deemed to be forward-looking statements for purposes of the safe harbor, except for statements of historical fact.
The Trust's risk exposure in the various market sectors traded by the Managing Owner is quantified below in terms of Value at Risk. Due to the Trust's mark- to-market accounting, any loss in the fair value of the Trust's open positions is directly reflected in the Trust'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 the Trust as the measure of its Value at Risk. Maintenance margin requirements are set by exchanges to equal or exceed 95-99% of the maximum one-day losses in the fair value of any given contract incurred during the time period over which historical price fluctuations are researched for purposes of establishing margin levels. The maintenance margin levels are established by dealers and exchanges using historical price 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.
The Trust calculates Value at Risk for forward currency contracts that are not exchange traded using exchange maintenance margin requirements for equivalent or similar futures positions as the measure of Value at Risk.
In quantifying the Trust’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 the Trust’s positions are rarely, if ever, 100% positively correlated have not been reflected.
The Trust's Trading Value at Risk in Different Market Sectors
The following table indicates the average, highest and lowest amounts of trading Value at Risk associated with the Trust's open positions by market category for the quarter ended September 30, 2011. During the three months ended September 30, 2011, the Trust's average total capitalization was approximately $874,360,000.
|
Market Sector
|
Average
Value
at Risk
|
% of
Average
Capitalization
|
Highest
Value
at Risk
|
Lowest
Value
at Risk
|
||||||||||||
|
Currencies
|
$ | 46.4 | 5.3 | % | $ | 61.6 | $ | 19.9 | ||||||||
|
Energies
|
8.0 | 0.9 | % | 9.7 | 6.7 | |||||||||||
|
Grains
|
4.6 | 0.5 | % | 5.2 | 3.4 | |||||||||||
|
Interest rates
|
21.2 | 2.4 | % | 24.5 | 15.0 | |||||||||||
|
Livestock
|
0.5 | 0.1 | % | 0.7 | 0.5 | |||||||||||
|
Metals
|
9.0 | 1.0 | % | 10.5 | 7.0 | |||||||||||
|
Softs
|
2.1 | 0.2 | % | 3.4 | 1.1 | |||||||||||
|
Stock indices
|
21.6 | 2.5 | % | 33.7 | 8.5 | |||||||||||
|
Total
|
$ | 113.4 | 12.9 | % | ||||||||||||
Average, highest and lowest Value at Risk amounts relate to the quarter-end amounts for the three months ended September 30, 2011. Average capitalization is the Trust's capitalization at the end of the three months ended September 30, 2011. Dollar amounts represent millions of dollars.
Material Limitations on Value at Risk as an Assessment of Market Risk
The face value of the market sector instruments held by the Trust is typically many times the applicable maintenance margin requirement (maintenance margin requirements generally range between approximately 1% and 10% of contract face value) as well as many times the capitalization of the Trust. The magnitude of the Trust’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 — unusual, but historically recurring from time to time — could cause the Trust to incur severe losses over a short period of time. The foregoing Value at Risk table — as well as the past performance of the Trust — give no indication of this “risk of ruin.”
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The Trust 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.
The Trust also has non-trading cash flow risk as a result of holding a substantial portion (approximately 90%) of its assets in U.S. Treasury notes and other short-term debt instruments (as well as any market risk they represent) for margin and cash management purposes. Although the Managing Owner does not anticipate that, even in the case of major interest rate movements, the Trust would sustain a material mark-to-market loss on its securities positions, if short-term interest rates decline so will the Trust’s cash management income. The Trust also maintains a portion (over 5%) of its assets in cash and in a U.S. government securities and related instruments money market fund. These cash balances are also subject (as well as any market risk they represent) to cash flow risk, which is not material.
Qualitative Disclosures
There have been no material changes in the qualitative disclosures about market risk since the end of the preceding fiscal year.
ITEM 4. CONTROLS AND PROCEDURES
The Managing Owner, with the participation of its Co-Chief Executive Officers and Chief Financial Officer, has evaluated the effectiveness of the design and operation of its disclosure controls and procedures with respect to the Trust as of the end of the period covered by this quarterly report, and, based on their evaluation, have concluded that these disclosure controls and procedures are effective. There were no changes in the Managing Owner’s internal control over financial reporting during the quarter ended September 30, 2011 that have materially affected, or are reasonably likely to materially affect, the Managing Owner’s internal control over financial reporting with respect to the Trust.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
Accounting for Uncertain Tax Positions
Financial Accounting Standards Board Accounting Standards Codification Topic No. 740, “Income Taxes” (“ASC 740,” in part formerly known as “FIN 48”), provides guidance on the recognition of uncertain tax positions. ASC 740 prescribes the minimum recognition threshold that a tax position is required to meet before being recognized in an entity’s financial statements. It also provides guidance on recognition, measurement, classification, interest and penalties with respect to tax positions. A prospective investor should be aware that, among other things, ASC 740 could have a material adverse effect on the periodic calculations of the net asset value of the Trust, including reducing the net asset value of the Trust to reflect reserves for income taxes, such as foreign withholding taxes, that may be payable by the Trust. This could cause benefits or detriments to certain Unitholders, depending upon the timing of their subscriptions and withdrawals from the Trust.
Concerns regarding downgrade of the U.S. credit rating could have a material adverse effect on the Trust’s business, financial condition and liquidity.
On August 5, 2011, S&P’s lowered its long term sovereign credit rating on the U.S. from AAA to AA+. While U.S. lawmakers reached agreement to raise the federal debt ceiling on August 2, 2011, the downgrade reflected S&P’s view that the fiscal consolidation plan within that agreement fell short of what would be necessary to stabilize the U.S. government’s medium term debt dynamics. This downgrade could have material adverse impacts on financial markets and economic conditions in the U.S. and throughout the world and, in turn, the market’s anticipation of these impacts could have a material adverse effect on the Trust's financial condition and liquidity. In particular, it could disrupt payment systems, money markets, long-term or short-term fixed income markets, foreign exchange markets, commodities markets and equity markets and adversely affect the cost and availability of funding and certain impacts, such as increased spreads in money market and other short term rates, have been experienced already as the market anticipated the downgrade. In addition, it could require the Trust to post additional collateral on margin requirements collateralized by U.S. Treasury securities. Because of the unprecedented nature of negative credit rating actions with respect to U.S. government obligations, the ultimate impacts on global markets and our business, financial condition and liquidity are unpredictable and may not be immediately apparent.
There are otherwise no material changes from risk factors as previously disclosed in Form 10-K, filed March 30, 2011.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND THE USE OF PROCEEDS
|
|
(a)
|
There have been no sales of unregistered securities of the Trust during the three months ended September 30, 2011.
|
|
|
Pursuant to the Trust’s Declaration of Trust and Trust Agreement, Unitholders may redeem their Units at the end of each calendar month at the then current month-end net asset value per Unit. The redemption of Units has no impact on the value of Units that remain outstanding and Units are not reissued once redeemed.
|
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The following table summarizes the redemptions by Unitholders during the three months ended September 30, 2011. There were no redemptions during the three months ended September 30, 2011 by Series 4 Unitholders.
|
Series 1
|
Series 2
|
Series 3
|
||||||||||||||||||||||
|
Date of
Redemption
|
Units
Redeemed
|
NAV per
Unit
|
Units
Redeemed
|
NAV per
Unit
|
Units
Redeemed
|
NAV per
Unit
|
||||||||||||||||||
|
July 31, 2011
|
5,450.807 | $ | 1,274.39 | 14.267 | $ | 1,343.08 | 79.356 | $ | 1,347.16 | |||||||||||||||
|
August 31, 2011
|
5,965.556 | 1,251.63 | - | 1,324.05 | 8.595 | 1,328.36 | ||||||||||||||||||
|
September 30, 2011
|
7,610.561 | 1,220.46 | - | 1,295.90 | 54.249 | 1,300.39 | ||||||||||||||||||
|
Total
|
19,026.924 | 14.267 | 142.200 | |||||||||||||||||||||
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. (REMOVED AND RESERVED)
ITEM 5. OTHER INFORMATION
None.
The following exhibits are included herewith:
31.01 Rule 13(a)-14(a)/15(d)-14(a) Certification of Co-Chief Executive Officer
31.02 Rule 13(a)-14(a)/15(d)-14(a) Certification of Co-Chief Executive Officer
31.03 Rule 13(a)-14(a)/15(d)-14(a) Certification of Chief Financial Officer
32.01 Section 1350 Certification of Co-Chief Executive Officer
32.02 Section 1350 Certification of Co-Chief Executive Officer
32.03 Section 1350 Certification of Chief Financial Officer
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SIGNATURES
Pursuant to the requirements 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.
|
|
Managing Owner
|
|
Date: November 14, 2011
|
||
|
/s/Tod A. Tanis
|
||
|
Tod A. Tanis
|
||
|
Vice-President
|
||
|
(Principal Accounting Officer)
|
||
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