Attached files
file | filename |
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EX-32.3 - EX-32.3 - GLOBAL MACRO TRUST | c765-20170630xex32_3.htm |
EX-32.2 - EX-32.2 - GLOBAL MACRO TRUST | c765-20170630xex32_2.htm |
EX-32.1 - EX-32.1 - GLOBAL MACRO TRUST | c765-20170630xex32_1.htm |
EX-31.3 - EX-31.3 - GLOBAL MACRO TRUST | c765-20170630xex31_3.htm |
EX-31.2 - EX-31.2 - GLOBAL MACRO TRUST | c765-20170630xex31_2.htm |
EX-31.1 - EX-31.1 - GLOBAL MACRO TRUST | c765-20170630xex31_1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|
☒ |
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Quarterly Period Ended: June 30, 2017
or
|
☐ |
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Commission File Number: 000-50102
GLOBAL MACRO TRUST |
(Exact name of registrant as specified in its charter) |
Delaware |
|
36-7362830 |
(State or other jurisdiction of |
|
(I.R.S. Employer |
incorporation or organization) |
|
Identification No.) |
c/o MILLBURN RIDGEFIELD CORPORATION
411 West Putnam Avenue
Greenwich, Connecticut 06830 |
(Address of principal executive offices) (Zip code) |
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 ☒ 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 ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ |
Accelerated filer ☐ |
Non-accelerated filer (Do not check if a smaller reporting company) ☒ |
Smaller reporting company ☐ Emerging growth company ☐
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Yes ☐ No ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
|
PART 1. FINANCIAL INFORMATION |
||||||
ITEM 1. FINANCIAL STATEMENTS |
||||||
|
||||||
Global Macro Trust |
||||||
Financial statements |
||||||
For the three and six months ended June 30, 2017 and 2016 (unaudited) |
||||||
|
||||||
Statements of Financial Condition (a) |
1 | |||||
Condensed Schedules of Investments (a) |
2 | |||||
Statements of Operations (b) |
6 | |||||
Statements of Changes in Trust Capital (c) |
8 | |||||
Statements of Financial Highlights (b) |
10 | |||||
Notes to the Financial Statements |
12 | |||||
|
||||||
(a) At June 30, 2017 and December 31, 2016 (unaudited) |
||||||
(b) For the three and six months ended June 30, 2017 and 2016 (unaudited) |
||||||
(c) For the six months ended June 30, 2017 and 2016 (unaudited) |
Global Macro Trust |
|||||
Statements of Financial Condition (UNAUDITED) |
|||||
|
|||||
|
June 30, 2017 |
December 31, 2016 |
|||
ASSETS |
|||||
EQUITY IN TRADING ACCOUNTS: |
|||||
Investments in U.S. Treasury notes – at fair value |
|||||
(amortized cost $35,446,864 and $26,072,098) |
$ |
35,416,755 |
$ |
26,059,657 | |
Net unrealized appreciation on open futures and |
|||||
forward currency contracts |
- |
5,065,066 | |||
Due from brokers |
1,158,462 | 707,507 | |||
Cash denominated in foreign currencies (cost $9,997,917 |
|||||
and $4,474,848) |
10,247,206 | 4,330,175 | |||
Total equity in trading accounts |
46,822,423 | 36,162,405 | |||
|
|||||
INVESTMENTS IN U.S. TREASURY NOTES – at fair value |
|||||
(amortized cost $165,857,075 and $175,434,923) |
165,659,765 | 175,334,307 | |||
CASH AND CASH EQUIVALENTS |
17,300,729 | 18,864,248 | |||
ACCRUED INTEREST RECEIVABLE |
475,095 | 397,141 | |||
TOTAL |
$ |
230,258,012 |
$ |
230,758,101 | |
|
|||||
LIABILITIES AND TRUST CAPITAL |
|||||
LIABILITIES: |
|||||
Subscriptions by Unitholders received in advance |
$ |
1,537,149 |
$ |
865,500 | |
Net unrealized depreciation on open futures and forward currency contracts |
11,468,723 |
- |
|||
Due to Managing Owner |
58,082 |
- |
|||
Due to brokers |
2,875,065 | 640,342 | |||
Accrued brokerage and custodial fees |
968,057 | 1,060,695 | |||
Accrued management fees |
42,798 | 41,153 | |||
Redemptions payable to Unitholders |
1,954,608 | 2,399,334 | |||
Redemption payable to Managing Owner |
- |
2,452,815 | |||
Accrued expenses |
123,979 | 133,534 | |||
Total liabilities |
19,028,461 | 7,593,373 | |||
|
|||||
|
|||||
TRUST CAPITAL: |
|||||
Managing Owner interest (3,786.851 and 3,653.388 units outstanding) |
4,415,923 | 4,369,854 | |||
Series 1 Unitholders (150,199.891 and 158,499.560 units outstanding) |
175,151,712 | 189,583,168 | |||
Series 2 Unitholders (6.799 and 6.799 units outstanding) |
10,295 | 10,350 | |||
Series 3 Unitholders (16,652.921 and 15,531.699 units outstanding) |
25,623,184 | 23,999,362 | |||
Series 4 Unitholders (3,256.953 and 2,828.734 units outstanding) |
6,028,437 | 5,201,994 | |||
Total trust capital |
211,229,551 | 223,164,728 | |||
|
|||||
TOTAL |
$ |
230,258,012 |
$ |
230,758,101 | |
|
|||||
NET ASSET VALUE PER UNIT OUTSTANDING: |
|||||
Series 1 Unitholders |
$ |
1,166.12 |
$ |
1,196.11 | |
Series 2 Unitholders |
$ |
1,514.19 |
$ |
1,522.28 | |
Series 3 Unitholders |
$ |
1,538.66 |
$ |
1,545.19 | |
Series 4 Unitholders |
$ |
1,850.94 |
$ |
1,838.98 | |
|
|||||
See notes to financial statements (unaudited) |
1
Global Macro Trust |
||||
Condensed Schedule of Investments (UNAUDITED) |
||||
June 30, 2017 |
||||
|
||||
FUTURES AND FORWARD CURRENCY CONTRACTS |
Net Unrealized |
Net Unrealized |
||
FUTURES CONTRACTS |
||||
Long futures contracts: |
||||
Interest rates |
(2.64) |
% |
$ |
(5,576,594) |
Livestock |
(0.01) | (20,460) | ||
Metals |
0.47 | 982,433 | ||
Softs |
0.00 | 2,550 | ||
Stock indices |
(1.14) | (2,403,184) | ||
Total long futures contracts |
(3.32) | (7,015,255) | ||
|
||||
Short futures contracts: |
||||
Energies |
(0.63) | (1,321,328) | ||
Grains |
(0.33) | (707,267) | ||
Interest rates |
0.00 | 1,800 | ||
Livestock |
(0.01) | (17,760) | ||
Metals |
(0.53) | (1,127,612) | ||
Softs |
0.08 | 170,778 | ||
Stock indices |
(0.03) | (54,279) | ||
Total short futures contracts |
(1.45) | (3,055,668) | ||
TOTAL INVESTMENTS IN FUTURES CONTRACTS-Net |
(4.77) | (10,070,923) | ||
|
||||
FORWARD CURRENCY CONTRACTS |
||||
Total long forward currency contracts |
0.74 | 1,568,983 | ||
Total short forward currency contracts |
(1.40) | (2,966,783) | ||
TOTAL INVESTMENTS IN FORWARD CURRENCY |
||||
CONTRACTS-Net |
(0.66) | (1,397,800) | ||
TOTAL |
(5.43) |
% |
$ |
(11,468,723) |
|
||||
|
(Continued) |
2
Global Macro Trust |
||||||||
Condensed Schedule of Investments (UNAUDITED) |
||||||||
June 30, 2017 |
||||||||
U.S. TREASURY NOTES |
||||||||
|
||||||||
Face Amount |
Description |
Fair Value |
Fair Value |
|||||
|
||||||||
$ |
48,260,000 |
U.S. Treasury notes, 0.875%, 08/15/2017 |
22.84 |
% |
$ |
48,256,230 | ||
|
51,220,000 |
U.S. Treasury notes, 0.875%, 11/15/2017 |
24.23 | 51,184,986 | ||||
|
52,100,000 |
U.S. Treasury notes, 1.000%, 02/15/2018 |
24.64 | 52,037,928 | ||||
|
49,710,000 |
U.S. Treasury notes, 1.000%, 05/15/2018 |
23.48 | 49,597,376 | ||||
|
Total investments in U.S. Treasury notes |
|||||||
|
(amortized cost $201,303,939) |
95.19 |
% |
$ |
201,076,520 | |||
|
||||||||
See notes to financial statements (unaudited) |
(Concluded) |
3
Global Macro Trust |
||||
Condensed Schedule of Investments |
||||
December 31, 2016 |
||||
|
||||
FUTURES AND FORWARD CURRENCY CONTRACTS |
Net Unrealized |
Net Unrealized |
||
FUTURES CONTRACTS |
||||
Long futures contracts: |
||||
Energies |
0.03 |
% |
$ |
63,669 |
Grains |
(0.00) | (2,530) | ||
Interest rates |
1.00 | 2,235,827 | ||
Livestock |
0.00 | 1,910 | ||
Metals |
0.05 | 126,739 | ||
Softs |
(0.00) | (9,610) | ||
Stock indices |
0.53 | 1,180,856 | ||
Total long futures contracts |
1.61 | 3,596,861 | ||
|
||||
Short futures contracts: |
||||
Energies |
(0.04) | (93,838) | ||
Grains |
0.01 | 31,414 | ||
Interest rates |
(0.01) | (31,386) | ||
Livestock |
(0.00) | (2,700) | ||
Metals |
0.10 | 220,431 | ||
Softs |
(0.00) | (7,206) | ||
Stock indices |
(0.14) | (310,145) | ||
Total short futures contracts |
(0.08) | (193,430) | ||
TOTAL INVESTMENTS IN FUTURES CONTRACTS-Net |
1.53 | 3,403,431 | ||
|
||||
FORWARD CURRENCY CONTRACTS |
||||
Total long forward currency contracts |
(0.31) | (683,199) | ||
Total short forward currency contracts |
1.05 | 2,344,834 | ||
TOTAL INVESTMENTS IN FORWARD CURRENCY |
||||
CONTRACTS-Net |
0.74 | 1,661,635 | ||
TOTAL |
2.27 |
% |
$ |
5,065,066 |
|
||||
|
(Continued) |
4
Global Macro Trust |
|||||||
Condensed Schedule of Investments |
|||||||
December 31, 2016 |
|||||||
U.S. TREASURY NOTES |
|||||||
|
|||||||
Face Amount |
Description |
Fair Value |
Fair Value |
||||
|
|||||||
$ |
52,100,000 |
U.S. Treasury notes, 0.625%, 02/15/2017 |
23.35 |
% |
$ |
52,105,088 | |
|
49,710,000 |
U.S. Treasury notes, 0.875%, 05/15/2017 |
22.30 | 49,761,458 | |||
|
48,260,000 |
U.S. Treasury notes, 0.875%, 08/15/2017 |
21.64 | 48,302,416 | |||
|
51,220,000 |
U.S. Treasury notes, 0.875%, 11/15/2017 |
22.95 | 51,225,002 | |||
|
Total investments in U.S. Treasury notes |
||||||
|
(amortized cost $201,507,021) |
90.24 |
% |
$ |
201,393,964 | ||
|
|||||||
See notes to financial statements (unaudited) |
(Concluded) |
5
Global Macro Trust |
|||||
Statements of Operations (UNAUDITED) |
|||||
|
|||||
|
|||||
|
For the three months ended |
||||
|
June 30, 2017 |
June 30, 2016 |
|||
INVESTMENT INCOME: |
|||||
Interest income |
$ |
406,890 |
$ |
194,382 | |
|
|||||
EXPENSES: |
|||||
Brokerage and custodial fees |
3,158,874 | 3,211,835 | |||
Administrative expenses |
299,314 | 292,270 | |||
Custody fees and other expenses |
10,272 | 10,037 | |||
Management fees |
133,021 | 110,522 | |||
Total expenses |
3,601,481 | 3,624,664 | |||
|
|||||
Managing Owner commission rebate to Unitholders |
(195,331) | (193,450) | |||
|
|||||
Net expenses |
3,406,150 | 3,431,214 | |||
|
|||||
NET INVESTMENT LOSS |
(2,999,260) | (3,236,832) | |||
|
|||||
NET REALIZED AND UNREALIZED GAINS (LOSSES): |
|||||
Net realized gains (losses) on closed positions: |
|||||
Futures and forward currency contracts |
6,977,006 | 12,476,395 | |||
Foreign exchange translation |
51,677 | 116,444 | |||
Net change in unrealized: |
|||||
Futures and forward currency contracts |
(15,376,180) | 2,778,943 | |||
Foreign exchange translation |
209,031 | (189,057) | |||
Net gains (losses) from U.S. Treasury notes: |
|||||
Net change in unrealized |
(40,420) | 77,213 | |||
TOTAL NET REALIZED AND UNREALIZED GAINS (LOSSES) |
(8,178,886) | 15,259,938 | |||
|
|||||
NET INCOME (LOSS) |
$ |
(11,178,146) |
$ |
12,023,106 | |
LESS PROFIT SHARE TO (FROM) MANAGING OWNER |
(181,386) | 281,584 | |||
NET INCOME (LOSS) AFTER PROFIT SHARE TO MANAGING OWNER |
$ |
(10,996,760) |
$ |
11,741,522 | |
|
|||||
NET INCOME (LOSS) PER UNIT OUTSTANDING |
|||||
Series 1 Unitholders |
$ |
(64.47) |
$ |
63.25 | |
Series 2 Unitholders |
$ |
(56.63) |
$ |
77.21 | |
Series 3 Unitholders |
$ |
(56.66) |
$ |
79.07 | |
Series 4 Unitholders |
$ |
(71.60) |
$ |
122.04 | |
|
|||||
See notes to financial statements (unaudited) |
(Continued) |
6
Global Macro Trust |
|||||
Statements of Operations (UNAUDITED) |
|||||
|
|||||
|
|||||
|
For the six months ended |
||||
|
June 30, 2017 |
June 30, 2016 |
|||
INVESTMENT INCOME: |
|||||
Interest income |
$ |
740,035 |
$ |
362,593 | |
|
|||||
EXPENSES: |
|||||
Brokerage and custodial fees |
6,409,206 | 6,512,185 | |||
Administrative expenses |
597,851 | 582,626 | |||
Custody fees and other expenses |
21,190 | 19,600 | |||
Management fees |
264,144 | 218,629 | |||
Total expenses |
7,292,391 | 7,333,040 | |||
|
|||||
Managing Owner commission rebate to Unitholders |
(387,151) | (387,116) | |||
|
|||||
Net expenses |
6,905,240 | 6,945,924 | |||
|
|||||
NET INVESTMENT LOSS |
(6,165,205) | (6,583,331) | |||
|
|||||
NET REALIZED AND UNREALIZED GAINS (LOSSES): |
|||||
Net realized gains (losses) on closed positions: |
|||||
Futures and forward currency contracts |
18,250,127 | 31,530,738 | |||
Foreign exchange translation |
10,050 | 89,707 | |||
Net change in unrealized: |
|||||
Futures and forward currency contracts |
(16,533,789) | 4,930,264 | |||
Foreign exchange translation |
393,962 | (6,660) | |||
Net gains (losses) from U.S. Treasury notes: |
|||||
Net change in unrealized |
(114,362) | 265,036 | |||
TOTAL NET REALIZED AND UNREALIZED GAINS |
2,005,988 | 36,809,085 | |||
|
|||||
NET INCOME (LOSS) |
$ |
(4,159,217) |
$ |
30,225,754 | |
LESS PROFIT SHARE TO MANAGING OWNER |
18,352 | 663,247 | |||
NET INCOME (LOSS) AFTER PROFIT SHARE TO MANAGING OWNER |
$ |
(4,177,569) |
$ |
29,562,507 | |
|
|||||
NET INCOME (LOSS) PER UNIT OUTSTANDING |
|||||
Series 1 Unitholders |
$ |
(29.99) |
$ |
155.75 | |
Series 2 Unitholders |
$ |
(8.09) |
$ |
182.57 | |
Series 3 Unitholders |
$ |
(6.53) |
$ |
186.30 | |
Series 4 Unitholders |
$ |
11.96 |
$ |
282.92 | |
|
|||||
See notes to financial statements (unaudited) |
(Concluded) |
7
Global Macro Trust |
||||||||||||||||||||
Statements of Changes in Trust Capital (UNAUDITED) |
||||||||||||||||||||
|
||||||||||||||||||||
For the six months ended June 30, 2017: |
||||||||||||||||||||
|
New Profit |
|||||||||||||||||||
|
Series 1 Unitholders |
Series 2 Unitholders |
Series 3 Unitholders |
Series 4 Unitholders |
Memo Account |
Managing Owner |
Total |
|||||||||||||
|
Amount |
Units |
Amount |
Units |
Amount |
Units |
Amount |
Units |
Amount |
Units |
Amount |
Units |
Amount |
|||||||
|
||||||||||||||||||||
Trust capital at |
||||||||||||||||||||
January 1, 2017 |
$ |
189,583,168 | 158,499.560 |
$ |
10,350 | 6.799 |
$ |
23,999,362 | 15,531.699 |
$ |
5,201,994 | 2,828.734 |
$ |
- |
- |
$ |
4,369,854 | 3,653.388 |
$ |
223,164,728 |
Subscriptions |
3,227,402 | 2,646.090 |
- |
- |
4,441,627 | 2,822.747 | 792,444 | 429.604 | 18,352 | 15.071 |
- |
- |
8,479,825 | |||||||
Redemptions |
(13,524,240) | (11,148.411) |
- |
- |
(2,710,550) | (1,701.525) | (2,643) | (1.385) |
- |
- |
- |
- |
(16,237,433) | |||||||
Addt'l units allocated * |
- |
202.652 |
- |
- |
- |
- |
- |
- |
- |
0.237 |
- |
118.155 |
- |
|||||||
Net income (loss) |
||||||||||||||||||||
before profit share to Managing Owner |
(4,134,618) |
- |
(49) |
- |
(88,909) |
- |
36,642 |
- |
(685) |
- |
28,402 |
- |
(4,159,217) | |||||||
Profit share to Managing Owner: |
- |
- |
(6) |
- |
(18,346) |
- |
- |
- |
- |
- |
- |
- |
(18,352) | |||||||
Trust capital at |
||||||||||||||||||||
June 30, 2017 |
$ |
175,151,712 | 150,199.891 |
$ |
10,295 | 6.799 |
$ |
25,623,184 | 16,652.921 |
$ |
6,028,437 | 3,256.953 |
$ |
17,667 | 15.308 |
$ |
4,398,256 | 3,771.543 |
$ |
211,229,551 |
|
||||||||||||||||||||
Net asset value per unit outstanding |
||||||||||||||||||||
at June 30, 2017: |
$ |
1,166.12 |
$ |
1,514.19 |
$ |
1,538.66 |
$ |
1,850.94 | ||||||||||||
|
||||||||||||||||||||
* Additional units are issued to Series 1 Unitholders who are charged less than a 7% brokerage fee and the Managing Owner. |
(Continued) |
8
Global Macro Trust |
||||||||||||||||||||
Statements of Changes in Trust Capital (UNAUDITED) |
||||||||||||||||||||
|
||||||||||||||||||||
For the six months ended June 30, 2016: |
||||||||||||||||||||
|
New Profit |
|||||||||||||||||||
|
Series 1 Unitholders |
Series 2 Unitholders |
Series 3 Unitholders |
Series 4 Unitholders |
Memo Account |
Managing Owner |
Total |
|||||||||||||
|
Amount |
Units |
Amount |
Units |
Amount |
Units |
Amount |
Units |
Amount |
Units |
Amount |
Units |
Amount |
|||||||
|
||||||||||||||||||||
Trust capital at |
||||||||||||||||||||
January 1, 2016 |
$ |
180,146,458 | 164,988.926 |
$ |
53,412 | 39.121 |
$ |
19,275,026 | 13,929.871 |
$ |
4,002,335 | 2,541.689 |
$ |
- |
- |
$ |
5,368,725 | 4,917.000 |
$ |
208,845,956 |
Subscriptions |
1,428,700 | 1,227.080 | 10,000 | 6.799 | 1,770,494 | 1,222.491 | 427,665 | 253.335 | 17,238 | 14.607 |
- |
- |
3,654,097 | |||||||
Redemptions |
(14,420,742) | (12,228.705) | (57,537) | (39.121) | (1,016,458) | (685.567) |
- |
- |
- |
- |
- |
- |
(15,494,737) | |||||||
Addt'l units allocated * |
- |
146.503 |
- |
- |
- |
- |
- |
- |
- |
0.266 |
- |
159.325 |
- |
|||||||
Net income before profit |
||||||||||||||||||||
share to Managing Owner: |
25,145,839 |
- |
5,792 |
- |
3,346,174 |
- |
762,032 |
- |
1,317 |
- |
964,600 |
- |
30,225,754 | |||||||
Managing Owner's profit share: |
- |
- |
(1,143) |
- |
(662,104) |
- |
- |
- |
- |
- |
- |
- |
(663,247) | |||||||
Trust capital at |
||||||||||||||||||||
June 30, 2016 |
$ |
192,300,255 | 154,133.804 |
$ |
10,524 | 6.799 |
$ |
22,713,132 | 14,466.795 |
$ |
5,192,032 | 2,795.024 |
$ |
18,555 | 14.873 |
$ |
6,333,325 | 5,076.325 |
$ |
226,567,823 |
|
||||||||||||||||||||
Net asset value per unit outstanding |
||||||||||||||||||||
at June 30, 2016: |
$ |
1,247.62 |
$ |
1,547.87 |
$ |
1,570.02 |
$ |
1,857.60 | ||||||||||||
|
||||||||||||||||||||
* Additional units are issued to Series 1 Unitholders who are charged less than a 7% brokerage fee and the Managing Owner. |
||||||||||||||||||||
|
||||||||||||||||||||
See notes to financial statements (unaudited) |
(Concluded) |
9
Global Macro Trust |
|||||||||||||||||||
Statements of Financial Highlights (UNAUDITED) |
|||||||||||||||||||
|
|||||||||||||||||||
|
|||||||||||||||||||
For the three months ended June 30: |
2017 |
2016 |
|||||||||||||||||
|
Series 1 |
Series 2 |
Series 3 |
Series 4 |
Series 1 |
Series 2 |
Series 3 |
Series 4 |
|||||||||||
Net income (loss) from operations: |
|||||||||||||||||||
Net investment loss |
$ (18.76) |
$ (9.18) |
$ (8.32) |
$ (0.40) |
$ (19.67) |
$ (10.11) |
$ (9.31) |
$ (1.89) |
|||||||||||
Net realized and unrealized gains on trading of futures and forward currency contracts |
(45.48) | (58.00) | (58.95) | (70.86) | 82.50 | 115.55 | 107.32 | 123.32 | |||||||||||
Net gains (losses) from U.S. Treasury obligations |
(0.23) | (0.29) | (0.29) | (0.34) | 0.42 | 0.99 | 0.55 | 0.61 | |||||||||||
Profit share allocated to (from) Managing Owner |
0.00 | 10.84 | 10.90 | 0.00 | 0.00 | (29.22) | (19.49) | 0.00 | |||||||||||
Net income (loss) per unit |
$ (64.47) |
$ (56.63) |
$ (56.66) |
$ (71.60) |
$ 63.25 |
$ 77.21 |
$ 79.07 |
$ 122.04 |
|||||||||||
|
|||||||||||||||||||
Net asset value per unit, beginning of period |
1,230.59 | 1,570.82 | 1,595.32 | 1,922.54 | 1,184.37 | 1,470.66 | 1,490.95 | 1,735.56 | |||||||||||
|
|||||||||||||||||||
Net asset value per unit, end of period |
$ 1,166.12 |
$ 1,514.19 |
$ 1,538.66 |
$ 1,850.94 |
$ 1,247.62 |
$ 1,547.87 |
$ 1,570.02 |
$ 1,857.60 |
|||||||||||
Total return and ratios for the three months ended June 30: |
2017 |
2016 |
|||||||||||||||||
|
Series 1 |
Series 2 |
Series 3 |
Series 4 |
Series 1 |
Series 2 |
Series 3 |
Series 4 |
|||||||||||
RATIOS TO AVERAGE CAPITAL: |
|||||||||||||||||||
Net investment loss (a) |
(6.18) |
% |
(2.35) |
% |
(2.10) |
% |
(0.08) |
% |
(6.64) |
% |
(2.74) |
% |
(2.48) |
% |
(0.43) |
% |
|||
Total expenses (a) |
6.91 |
% |
3.09 |
% |
2.83 |
% |
0.81 |
% |
6.99 |
% |
3.10 |
% |
2.84 |
% |
0.79 |
% |
|||
Profit share allocation (b) |
0.00 | (0.69) | (0.69) | 0.00 | 0.00 | 1.24 | 1.30 | 0.00 | |||||||||||
TOTAL EXPENSES AND PROFIT SHARE ALLOCATION |
6.91 |
% |
2.40 |
% |
2.14 |
% |
0.81 |
% |
6.99 |
% |
4.34 |
% |
4.14 |
% |
0.79 |
% |
|||
Total return before profit share allocation (b) |
(5.24) |
% |
(4.30) |
% |
(4.24) |
% |
(3.72) |
% |
5.34 |
% |
6.49 |
% |
6.60 |
% |
7.03 |
% |
|||
Less: Profit share allocation (b) |
0.00 | (0.69) | (0.69) | 0.00 | 0.00 | 1.24 | 1.30 | 0.00 | |||||||||||
TOTAL RETURN AFTER PROFIT SHARE ALLOCATION |
(5.24) |
% |
(3.61) |
% |
(3.55) |
% |
(3.72) |
% |
5.34 |
% |
5.25 |
% |
5.30 |
% |
7.03 |
% |
|||
(a) Annualized |
|||||||||||||||||||
(b) Not annualized |
(Continued)
10
Global Macro Trust |
|||||||||||||||||||
Statements of Financial Highlights (UNAUDITED) |
|||||||||||||||||||
|
|||||||||||||||||||
For the six months ended June 30: |
2017 |
2016 |
|||||||||||||||||
|
Series 1 |
Series 2 |
Series 3 |
Series 4 |
Series 1 |
Series 2 |
Series 3 |
Series 4 |
|||||||||||
|
|||||||||||||||||||
Net income (loss) from operations: |
|||||||||||||||||||
Net investment loss |
$ (37.98) |
$ (18.62) |
$ (16.91) |
$ (1.22) |
$ (39.31) |
$ (20.22) |
$ (18.57) |
$ (3.89) |
|||||||||||
Net realized and unrealized gains on trading of futures and forward currency contracts |
8.60 | 12.18 | 12.42 | 14.20 | 193.65 | 265.82 | 249.07 | 284.78 | |||||||||||
Net gains (losses) from U.S. Treasury obligations |
(0.61) | (0.80) | (0.90) | (1.02) | 1.41 | 2.27 | 1.80 | 2.03 | |||||||||||
Profit share allocated to Managing Owner |
0.00 | (0.85) | (1.14) | 0.00 | 0.00 | (65.30) | (46.00) | 0.00 | |||||||||||
Net income (loss) per unit |
$ (29.99) |
$ (8.09) |
$ (6.53) |
$ 11.96 |
$ 155.75 |
$ 182.57 |
$ 186.30 |
$ 282.92 |
|||||||||||
|
|||||||||||||||||||
Net asset value per unit, beginning of period |
1,196.11 | 1,522.28 | 1,545.19 | 1,838.98 | 1,091.87 | 1,365.30 | 1,383.72 | 1,574.68 | |||||||||||
|
|||||||||||||||||||
Net asset value per unit, end of period |
$ 1,166.12 |
$ 1,514.19 |
$ 1,538.66 |
$ 1,850.94 |
$ 1,247.62 |
$ 1,547.87 |
$ 1,570.02 |
$ 1,857.60 |
|||||||||||
|
|||||||||||||||||||
Total return and ratios for the six months ended June 30: |
2017 |
2016 |
|||||||||||||||||
|
Series 1 |
Series 2 |
Series 3 |
Series 4 |
Series 1 |
Series 2 |
Series 3 |
Series 4 |
|||||||||||
|
|||||||||||||||||||
RATIOS TO AVERAGE CAPITAL: |
|||||||||||||||||||
|
|||||||||||||||||||
Net investment loss (a) |
(6.26) |
% |
(2.39) |
% |
(2.14) |
% |
(0.13) |
% |
(6.66) |
% |
(2.76) |
% |
(2.49) |
% |
(0.45) |
% |
|||
|
|||||||||||||||||||
Total expenses (a) |
6.92 |
% |
3.06 |
% |
2.81 |
% |
0.79 |
% |
6.99 |
% |
3.07 |
% |
2.83 |
% |
0.78 |
% |
|||
Profit share allocation (b) (c) |
0.00 | 0.05 | 0.07 | 0.00 | 0.00 | 4.45 | 3.09 | 0.00 | |||||||||||
TOTAL EXPENSES AND PROFIT SHARE ALLOCATION |
6.92 |
% |
3.11 |
% |
2.88 |
% |
0.79 |
% |
6.99 |
% |
7.52 |
% |
5.92 |
% |
0.78 |
% |
|||
|
|||||||||||||||||||
Total return before profit share allocation (b) |
(2.51) |
% |
(0.48) |
% |
(0.35) |
% |
0.65 |
% |
14.26 |
% |
17.82 |
% |
16.55 |
% |
17.97 |
% |
|||
Less: Profit share allocation (b) |
0.00 | 0.05 | 0.07 | 0.00 | 0.00 | 4.45 | 3.09 | 0.00 | |||||||||||
TOTAL RETURN AFTER PROFIT SHARE ALLOCATION |
(2.51) |
% |
(0.53) |
% |
(0.42) |
% |
0.65 |
% |
14.26 |
% |
13.37 |
% |
13.46 |
% |
17.97 |
% |
|||
|
|||||||||||||||||||
(a) annualized |
|||||||||||||||||||
(b) not annualized |
(c) the combination of a February 2016 redemption reducing the average capital for Series 2, along with crystallized fees on that redemption, contributed to a larger profit share allocation ratio for Series 2 compared to Series 3 for the six months ended June 30, 2016.
See notes to financial statements (unaudited) (Concluded)
11
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 June 30, 2017 and December 31, 2016 (unaudited) and the results of its operations for the three and six months ended June 30, 2017 and 2016 (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, 2016. The December 31, 2016 information has been derived from the audited financial statements as of December 31, 2016.
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.”), as detailed in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“Codification”), 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 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, 2013 to 2016, Millburn Ridgefield Corporation (the “Managing Owner”) determined that no reserves for uncertain tax positions were required.
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 2016.
2. 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; and
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 an investment in a quoted short-term U.S. government securities money market fund. 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.
Spot currency contracts are valued based on current market prices (“Spot Price”). Forward currency contracts are valued based on pricing models that consider the Spot Price, plus the financing cost or benefit (“Forward Point”). Forward Points from the quotation service providers are generally in periods of one month, two months, three months, six months, nine months and twelve months forward while the contractual forward delivery dates for the forward currency contracts traded by the Trust may be in between these periods. The Managing Owner’s policy to determine fair value for forward currency contracts involves first calculating the number of months from the date the forward currency contract is being valued to its maturity date (“Months to Maturity”), then identifying the forward currency contracts for the two forward months that are closest to the Months to Maturity (“Forward Month Contracts”). Linear interpolation is then performed between the dates of these two Forward Month
12
Contracts to calculate the interpolated forward point. 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.
The Trust is an investment company following the accounting and reporting guidance put forth in Accounting Standard Update (“ASU”) 2013-08, “Financial Services — Investment Companies (Topic 946): Amendments to the Scope, Measurement and Disclosure Requirements”.
During the three and six months ended June 30, 2017 and 2016, there were no transfers of assets or liabilities between Level 1 and Level 2. The following tables represent the Trust’s investments by hierarchical level as of June 30, 2017 and December 31, 2016 in valuing the Trust’s investments at fair value. At June 30, 2017 and December 31, 2016, the Trust held no assets or liabilities classified in Level 3.
Financial Assets and Liabilities at Fair Value as of June 30, 2017
|
Level 1 |
Level 2 |
Total |
||||||
|
|||||||||
U.S. Treasury notes (1) |
$ |
201,076,520 |
$ |
- |
$ |
201,076,520 | |||
Short-term money market fund* |
17,067,053 |
- |
17,067,053 | ||||||
Exchange-traded futures contracts |
|||||||||
Energies |
(1,321,328) |
- |
(1,321,328) | ||||||
Grains |
(707,267) |
- |
(707,267) | ||||||
Interest rates |
(5,574,794) |
- |
(5,574,794) | ||||||
Livestock |
(38,220) |
- |
(38,220) | ||||||
Metals |
(145,179) |
- |
(145,179) | ||||||
Softs |
173,328 |
- |
173,328 | ||||||
Stock indices |
(2,457,463) |
- |
(2,457,463) | ||||||
|
|||||||||
Total exchange-traded futures contracts |
(10,070,923) |
- |
(10,070,923) | ||||||
|
|||||||||
Over-the-counter forward currency contracts |
- |
(1,397,800) | (1,397,800) | ||||||
|
|||||||||
Total futures and forward currency contracts (2) |
(10,070,923) | (1,397,800) | (11,468,723) | ||||||
|
|||||||||
Total financial assets at fair value |
$ |
208,072,650 |
$ |
(1,397,800) |
$ |
206,674,850 | |||
|
|||||||||
Per line item in the Statements of Financial Condition |
|||||||||
(1) |
|||||||||
Investments in U.S. Treasury notes held in equity trading accounts as collateral |
$ |
35,416,755 | |||||||
Investments in U.S. Treasury notes held in custody |
165,659,765 | ||||||||
Total investments in U.S. Treasury notes |
$ |
201,076,520 | |||||||
|
|||||||||
(2) |
|||||||||
Net unrealized appreciation on open futures and forward currency contracts |
$ |
- |
|||||||
Net unrealized depreciation on open futures and forward currency contracts |
(11,468,723) | ||||||||
Total net unrealized appreciation on open futures and forward currency contracts |
$ |
(11,468,723) | |||||||
|
|||||||||
*The short-term money market fund is included in Cash and Cash Equivalents on the Statements of Financial Condition. |
|||||||||
|
13
Financial Assets and Liabilities at Fair Value as of December 31, 2016
|
Level 1 |
Level 2 |
Total |
||||||
|
|||||||||
U.S. Treasury notes (1) |
$ |
201,393,964 |
$ |
- |
$ |
201,393,964 | |||
Short-term money market fund* |
18,621,676 |
- |
18,621,676 | ||||||
Exchange-traded futures contracts |
|||||||||
Energies |
(30,169) |
- |
(30,169) | ||||||
Grains |
28,884 |
- |
28,884 | ||||||
Interest rates |
2,204,441 |
- |
2,204,441 | ||||||
Livestock |
(790) |
- |
(790) | ||||||
Metals |
347,170 |
- |
347,170 | ||||||
Softs |
(16,816) |
- |
(16,816) | ||||||
Stock indices |
870,711 |
- |
870,711 | ||||||
|
|||||||||
Total exchange-traded futures contracts |
3,403,431 |
- |
3,403,431 | ||||||
|
|||||||||
Over-the-counter forward currency contracts |
- |
1,661,635 | 1,661,635 | ||||||
|
|||||||||
Total futures and forward currency contracts (2) |
3,403,431 | 1,661,635 | 5,065,066 | ||||||
|
|||||||||
Total financial assets at fair value |
$ |
223,419,071 |
$ |
1,661,635 |
$ |
225,080,706 | |||
|
|||||||||
Per line item in the Statements of Financial Condition |
|||||||||
(1) |
|||||||||
Investments in U.S. Treasury notes held in equity trading accounts as collateral |
$ |
26,059,657 | |||||||
Investments in U.S. Treasury notes held in custody |
175,334,307 | ||||||||
Total investments in U.S. Treasury notes |
$ |
201,393,964 | |||||||
|
|||||||||
(2) |
|||||||||
Net unrealized appreciation on open futures and forward currency contracts |
$ |
5,065,066 | |||||||
Net unrealized depreciation on open futures and forward currency contracts |
- |
||||||||
Total net unrealized appreciation on open futures and forward currency contracts |
$ |
5,065,066 | |||||||
|
|||||||||
*The short-term money market fund is included in Cash and Cash Equivalents on the Statements of Financial Condition. |
|||||||||
|
3. 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 June 30, 2017, 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
14
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 oil producing countries 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.
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 values 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 June 30, 2017 and December 31, 2016. 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 June 30, 2017
|
Net Unrealized |
|||||||||||||
|
Fair Value - Long Positions |
Fair Value - Short Positions |
Gain (Loss) on |
|||||||||||
Sector |
Gains |
Losses |
Gains |
Losses |
Open Positions |
|||||||||
|
||||||||||||||
Futures contracts: |
||||||||||||||
Energies |
$ |
- |
$ |
- |
$ |
203,623 |
$ |
(1,524,951) |
$ |
(1,321,328) | ||||
Grains |
- |
- |
19,675 | (726,942) | (707,267) | |||||||||
Interest rates |
206,789 | (5,783,383) | 1,800 |
- |
(5,574,794) | |||||||||
Livestock |
140 | (20,600) |
- |
(17,760) | (38,220) | |||||||||
Metals |
997,613 | (15,180) | 80,494 | (1,208,106) | (145,179) | |||||||||
Softs |
2,950 | (400) | 191,109 | (20,331) | 173,328 | |||||||||
Stock indices |
60,072 | (2,463,256) | 16,956 | (71,235) | (2,457,463) | |||||||||
|
||||||||||||||
Total futures contracts |
1,267,564 | (8,282,819) | 513,657 | (3,569,325) | (10,070,923) | |||||||||
|
||||||||||||||
Forward currency contracts |
2,521,583 | (952,600) | 730,767 | (3,697,550) | (1,397,800) | |||||||||
|
||||||||||||||
Total futures and |
||||||||||||||
forward currency contracts |
$ |
3,789,147 |
$ |
(9,235,419) |
$ |
1,244,424 |
$ |
(7,266,875) |
$ |
(11,468,723) | ||||
|
15
Fair Value of Futures and Forward Currency Contracts at December 31, 2016
|
Net Unrealized |
|||||||||||||
|
Fair Value - Long Positions |
Fair Value - Short Positions |
Gain (Loss) on |
|||||||||||
Sector |
Gains |
Losses |
Gains |
Losses |
Open Positions |
|||||||||
|
||||||||||||||
Futures contracts: |
||||||||||||||
Energies |
$ |
79,741 |
$ |
(16,072) |
$ |
23,290 |
$ |
(117,128) |
$ |
(30,169) | ||||
Grains |
- |
(2,530) | 89,139 | (57,725) | 28,884 | |||||||||
Interest rates |
2,585,506 | (349,679) | 89 | (31,475) | 2,204,441 | |||||||||
Livestock |
1,910 |
- |
- |
(2,700) | (790) | |||||||||
Metals |
659,138 | (532,399) | 453,344 | (232,913) | 347,170 | |||||||||
Softs |
240 | (9,850) | 70,445 | (77,651) | (16,816) | |||||||||
Stock indices |
1,809,601 | (628,745) | 20,868 | (331,013) | 870,711 | |||||||||
|
||||||||||||||
Total futures contracts |
5,136,136 | (1,539,275) | 657,175 | (850,605) | 3,403,431 | |||||||||
|
||||||||||||||
Forward currency contracts |
466,082 | (1,149,281) | 2,847,995 | (503,161) | 1,661,635 | |||||||||
|
||||||||||||||
Total futures and |
||||||||||||||
forward currency contracts |
$ |
5,602,218 |
$ |
(2,688,556) |
$ |
3,505,170 |
$ |
(1,353,766) |
$ |
5,065,066 | ||||
|
The effect of trading futures and forward currency contracts is represented on the Statements of Operations for the three and six months ended June 30, 2017 and 2016 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 six months ended June 30, 2017 and 2016
|
Three months ended: |
Three months ended: |
Six months ended: |
Six months ended: |
|||||||
Sector |
June 30, 2017 |
June 30, 2016 |
June 30, 2017 |
June 30, 2016 |
|||||||
|
|||||||||||
Futures contracts: |
|||||||||||
Energies |
$ |
(3,291,227) |
$ |
(1,326,985) |
$ |
(4,308,878) | (406,583) | ||||
Grains |
(2,353,962) | 2,994,283 | (2,842,978) | 3,159,285 | |||||||
Interest rates |
(3,184,130) | 12,579,362 | (3,116,171) | 27,947,561 | |||||||
Livestock |
(50,500) | 25,320 | (142,610) | 36,780 | |||||||
Metals |
53,096 | (1,104,657) | 110,086 | (1,742,430) | |||||||
Softs |
903,945 | 125,151 | 1,088,615 | (537,703) | |||||||
Stock indices |
5,919,398 | 927,569 | 16,721,043 | 4,867,240 | |||||||
|
|||||||||||
Total futures contracts |
(2,003,380) | 14,220,043 | 7,509,107 | 33,324,150 | |||||||
|
|||||||||||
Forward currency contracts |
(6,395,794) | 1,035,295 | (5,792,769) | 3,136,852 | |||||||
|
|||||||||||
Total futures and forward currency contracts |
$ |
(8,399,174) |
$ |
15,255,338 |
$ |
1,716,338 |
$ |
36,461,002 |
The following table presents average notional value by sector in U.S. dollars of open futures and forward currency contracts for the six months ended June 30, 2017 and 2016. The Trust’s average net asset value for the six months ended June 30, 2017 and 2016 was approximately $225,000,000 and $221,000,000, respectively.
16
Average notional value by sector of futures and forward currency contracts for the six months ended June 30, 2017 and 2016
|
2017 |
2016 |
|||||||||
Sector |
Long Positions |
Short Positions |
Long Positions |
Short Positions |
|||||||
|
|||||||||||
Futures contracts: |
|||||||||||
Energies |
$ |
5,304,721 |
$ |
25,161,374 |
$ |
9,885,686 |
$ |
13,083,750 | |||
Grains |
105,533 | 19,042,922 | 5,699,917 | 15,034,753 | |||||||
Interest rates |
369,718,745 | 3,433,941 | 433,868,811 | 8,546,357 | |||||||
Livestock |
508,193 | 578,507 | 75,460 | 1,308,067 | |||||||
Metals |
12,756,310 | 8,143,304 | 3,391,534 | 16,259,462 | |||||||
Softs |
421,375 | 5,662,123 | 2,867,192 | 1,660,076 | |||||||
Stock indices |
174,384,139 | 13,386,909 | 96,130,398 | 12,223,624 | |||||||
|
|||||||||||
Total futures |
|||||||||||
contracts |
563,199,016 | 75,409,080 | 551,918,998 | 68,116,089 | |||||||
|
|||||||||||
Forward currency |
|||||||||||
contracts |
75,579,022 | 111,460,847 | 95,290,849 | 80,625,190 | |||||||
|
|||||||||||
Total average |
|||||||||||
notional |
$ |
638,778,038 |
$ |
186,869,927 |
$ |
647,209,847 |
$ |
148,741,279 | |||
|
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 June 30, 2017 and 2016. 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.
The customer agreements between the Trust, the futures clearing brokers including Deutsche Bank Securities Inc. (a wholly-owned subsidiary of Deutsche Bank AG), and SG Americas Securities, LLC, as well as the FX prime broker, Deutsche Bank AG, and the swap dealer, Morgan Stanley & Co., LLC, gives the Trust the legal right to net unrealized gains and losses on open futures and foreign currency contracts. The Trust netted, for financial reporting purposes, the unrealized gains and losses on open futures and forward currency contracts on the Statements of Financial Condition as the criteria under ASC 210-20, “Balance Sheet,” were met.
The following table represents gross amounts of assets or liabilities which qualify for offset as presented per the Statement of Financial Condition as of June 30, 2017 and December 31, 2016.
Offsetting of derivative assets and liabilities at June 30, 2017
|
Gross amounts of |
Gross amounts offset in |
Net amounts of liabilities |
||||||
Liabilities |
|||||||||
Futures contracts |
|||||||||
Counterparty C |
$ |
5,409,073 |
$ |
(378,939) |
$ |
5,030,134 | |||
Counterparty I |
6,443,071 | (1,402,282) | 5,040,789 | ||||||
Total futures contracts |
11,852,144 | (1,781,221) | 10,070,923 | ||||||
|
|||||||||
Forward currency contracts |
|||||||||
Counterparty G |
$ |
2,882,016 |
$ |
(1,797,978) |
$ |
1,084,038 | |||
Counterparty H |
1,768,134 | (1,454,372) | 313,762 | ||||||
Total forward currency contracts |
4,650,150 | (3,252,350) | 1,397,800 | ||||||
|
|||||||||
Total liabilities |
$ |
16,502,294 |
$ |
(5,033,571) |
$ |
11,468,723 | |||
|
17
|
Amounts Not Offset in the Statement of Financial Condition |
|||||||||||
Counterparty |
Net amounts of Liabilities |
Financial Instruments |
Collateral Pledged(1)(2) |
Net Amount(3) |
||||||||
|
||||||||||||
Counterparty C |
$ |
5,030,134 |
$ |
- |
$ |
(5,030,134) |
$ |
- |
||||
Counterparty G |
1,084,038 |
- |
- |
1,084,038 | ||||||||
Counterparty H |
313,762 |
- |
- |
313,762 | ||||||||
Counterparty I |
5,040,789 |
- |
(5,040,789) |
- |
||||||||
|
||||||||||||
Total |
$ |
11,468,723 |
$ |
- |
$ |
(10,070,923) |
$ |
1,397,800 | ||||
|
||||||||||||
(1) Collateral pledged includes trades made on exchanges. These trades are subject to central counterparty clearing where settlement is |
||||||||||||
guaranteed by the exchange. Collateral pledged includes both cash and U.S. Treasury notes held at each respective counterparty. |
||||||||||||
(2) Collateral disclosed is limited to an amount not to exceed 100% of the net amount of liabilities presented in the Statement of Financial |
||||||||||||
Condition for each respective counterparty. |
||||||||||||
(3) Net amount represents the amounts owed by the Trust to each counterparty as of June 30, 2017. |
||||||||||||
|
Offsetting of derivative assets and liabilities at December 31, 2016
|
Gross amounts of |
Gross amounts offset in |
Net amounts of assets |
||||||
Assets |
|||||||||
Futures contracts |
|||||||||
Counterparty C |
$ |
3,694,763 |
$ |
(1,127,511) |
$ |
2,567,252 | |||
Counterparty I |
2,098,548 | (1,262,369) | 836,179 | ||||||
Total futures contracts |
5,793,311 | (2,389,880) | 3,403,431 | ||||||
|
|||||||||
Forward currency contracts |
|||||||||
Counterparty G |
1,572,076 | (681,507) | 890,569 | ||||||
Counterparty H |
1,742,001 | (970,935) | 771,066 | ||||||
Total forward currency contracts |
3,314,077 | (1,652,442) | 1,661,635 | ||||||
|
|||||||||
Total assets |
$ |
9,107,388 |
$ |
(4,042,322) |
$ |
5,065,066 | |||
|
18
|
Amounts Not Offset in the Statement of Financial Condition |
|||||||||||
Counterparty |
Net amounts of Assets |
Financial Instruments |
Collateral Received(1)(2) |
Net Amount(3) |
||||||||
|
||||||||||||
Counterparty C |
$ |
2,567,252 |
$ |
- |
$ |
(2,567,252) |
$ |
- |
||||
Counterparty G |
890,569 |
- |
- |
890,569 | ||||||||
Counterparty H |
771,066 |
- |
- |
771,066 | ||||||||
Counterparty I |
836,179 |
- |
(836,179) |
- |
||||||||
|
||||||||||||
Total |
$ |
5,065,066 |
$ |
- |
$ |
(3,403,431) |
$ |
1,661,635 | ||||
|
||||||||||||
(1) Collateral received includes trades made on exchanges. These trades are subject to central counterparty clearing where settlement is |
||||||||||||
guaranteed by the exchange. |
||||||||||||
(2) Collateral disclosed is limited to an amount not to exceed 100% of the net amount of assets presented in the Statement of Financial |
||||||||||||
Condition for each respective counterparty. |
||||||||||||
(3) Net amount represents the amount that is subject to loss in the event of a counterparty failure as of December 31, 2016. |
||||||||||||
|
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 Deutsche Bank AG (“DB”) and Morgan Stanley & Co. LLC (“MS”). The Trust’s concentration of credit risk associated with 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 DB and MS. The amount of such credit risk was $13,426,499 and $12,403,596 at June 30, 2017 and December 31, 2016, respectively.
19
4. PROFIT SHARE
The following table indicates the total profit share earned and accrued during the three and six months ended June 30, 2017 and 2016. Profit share earned (from Unitholders' redemptions) is credited to the New Profit Memo Account as defined in the Trust’s Declaration of Trust and Trust Agreement (the “Trust Agreement”).
|
Three months ended: |
|||||||
|
June 30, |
June 30, |
||||||
|
2017 |
2016 |
||||||
Profit share earned |
$ |
17,259 |
$ |
7,978 | ||||
Reversal of profit share (1) |
(198,645) | (372,404) | ||||||
Profit share accrued |
0 | 646,010 | ||||||
Total profit share |
$ |
(181,386) |
$ |
281,584 | ||||
|
||||||||
|
||||||||
|
Six months ended: |
|||||||
|
June 30, |
June 30, |
||||||
|
2017 |
2016 |
||||||
Profit share earned |
$ |
18,352 |
$ |
17,237 | ||||
Profit share accrued |
0 | 646,010 | ||||||
Total profit share |
$ |
18,352 |
$ |
663,247 | ||||
|
||||||||
(1) On April 1st |
||||||||
|
5. 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 June 30, 2017 and December 31, 2016, the Managing Owner is owed $58,082 and $0, respectively, 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. There was no redemption charge payable at June 30, 2017 or December 31, 2016.
6. 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 ended June 30, |
Six months ended June 30, |
Date of first issuance |
||||||
|
2017 |
2016 |
2017 |
2016 |
|||||
|
|||||||||
Series 1 |
152,390.722 |
157,094.496 |
154,736.764 |
160,040.020 |
July 23, 2001 |
||||
Series 2 |
6.797 |
6.797 |
6.797 |
17.460 |
April 1, 2010 |
||||
Series 3 |
16,634.319 |
14,425.482 |
16,607.481 |
14,393.200 |
September 1, 2009 |
||||
Series 4 |
3,246.975 |
2,789.892 |
3,203.759 |
2,730.889 |
November 1, 2010 |
20
7. BROKERAGE AND CUSTODIAL FEES
For the three and six months ended June 30, 2017 and 2016, brokerage and custodial fees were as follows:
|
Three months ending June 30, |
Six months ending June 30, |
|||||
|
2017 |
2016 |
2017 |
2016 |
|||
|
|||||||
Brokerage fees |
$ 3,158,867 |
$ 3,211,829 |
$ 6,409,193 |
$ 6,512,152 |
|||
Custodial fees |
7 | 6 | 13 | 33 | |||
|
|||||||
Total |
$ 3,158,874 |
$ 3,211,835 |
$ 6,409,206 |
$ 6,512,185 |
Per the Trust agreement, selling agents are prohibited from receiving amounts in excess of 9.5% of the gross offering proceeds of Series 1 units sold subsequent to August 12, 2009. During the three and six months ended June 30, 2017 and 2016, the Managing Owner rebated to the Trust for the benefit of all holders of Series 1 Units, all amounts that would have otherwise been due to selling agents but for the 9.5% cap. Further, in certain cases, there are Series 1 units that remain outstanding, where there is no longer a selling agent associated with such units. Beginning in August 2014, the Managing Owner rebated such amounts to the Trust for the benefit of all holders of Series 1 Units. The total amounts rebated to the Trust for both of these items, included in “Brokerage and custodial fees” in the Statements of Operations, were as follows:
|
|||||||
|
Three months ending June 30, |
Six months ending June 30, |
|||||
|
2017 |
2016 |
2017 |
2016 |
|||
|
|||||||
Brokerage fee rebates |
$ 195,331 |
$ 193,450 |
$ 387,151 |
$ 387,116 |
8. SUBSEQUENT EVENTS
The Managing Owner has performed its evaluation of subsequent events from July 1, 2017 to August 11, 2017, the date the form 10-Q was filed. Based on such evaluation, no events were discovered that required disclosure or adjustment to the financial statements.
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 investment and 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 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.
21
The Trust trades futures, forward and spot 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 most OTC transactions, on the other hand, traders must rely (typically but not universally) 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 or collateral, generally within a range of 5% to 35% of an account’s net assets, though the amount may at any time be higher; and (4) prohibiting pyramiding – that is, using unrealized profits in a particular market as margin for additional positions in the same market. 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, forward, and spot 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, forward and spot 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 importantly, 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.
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, forward and spot 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, forward and spot trading, the Trust’s assets are highly liquid and are expected to remain so.
During its operations for the three and six months ended June 30, 2017, 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, forwards and spot 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 spot currency contracts are valued based on the current Spot Price. Open forward currency contracts are recorded at fair value, based on pricing models that consider the Spot Price and Forward Point. Spot Prices and Forward Points for open forward currency contracts are generally based on the median of the average midpoint of bid/ask quotations at the last minute ending at 3:00 P.M. New York time provided by widely used quotation service providers on the day with respect to which net assets are being determined. Forward Points from the quotation service providers are generally in periods of one month, two months, three months, six months, nine months and twelve months forward while the contractual forward delivery dates for the forward currency contracts traded by the Trust may be in between these periods. The Managing Owner’s policy to determine fair value for forward currency contracts involves first calculating the Months to Maturity then identifying Forward Month Contracts. Linear interpolation is then performed between the dates of these two Forward Month Contracts to calculate the interpolated Forward Point. 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.
22
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 23, 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 June 30, 2017 |
|||||
|
|||||
Month Ending: |
Total Trust |
||||
|
|||||
June 30, 2017 |
$ |
211,229,551 | |||
March 31, 2017 |
225,087,212 | ||||
December 31, 2016 |
223,164,728 | ||||
|
|||||
|
|||||
Three Months ended |
Six Months ended |
||||
Change in Trust Capital |
(13,857,661) |
$ |
(11,935,177) | ||
Percent Change |
(6.16)% |
(5.35)% |
THREE MONTHS ENDED JUNE 30, 2017
The decrease in the Trust’s net assets of $13,857,661 was attributable to net loss after profit share of $10,996,760 and withdrawals of $5,480,210, which was partially offset by contributions of $2,619,309.
Brokerage and custodial 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 and custodial fees for the three months ended June 30, 2017 decreased $54,842 (net of Managing Owner commission rebate to Unitholders) relative to the corresponding period in 2016 due to a decrease in the Trust’s Series 1 net assets during the respective periods.
Administrative expenses for the three months ended June 30, 2017 increased $7,044 relative to the corresponding period in 2016. The increase was due mainly to an increase in the Trust's accrual estimate for third party professional services during the three months ended June 30, 2017 relative to the corresponding period in 2016.
Management fees are calculated on the net asset value on the last day of each month and are affected by trading performance, subscriptions and redemptions. Management fees for the three months ended June 30, 2017 increased $22,499 relative to the corresponding period in 2016 due to an increase in the Trust’s Series 2 and Series 3 net assets during the respective periods.
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 June 30, 2017 increased $212,508 relative to the corresponding period in 2016. This increase was due predominantly to an increase in short-term U.S. Treasury yields during the three months ended June 30, 2017.
During the three months ended June 30, 2017, the Trust experienced net realized and unrealized losses of $8,178,886 from its trading operations (including foreign exchange translations and Treasury obligations). Brokerage and custodial fees of $3,158,874, administrative expenses of $299,314, custody fees and other expenses of $10,272 and management fees of $133,021 were incurred. Interest income of $406,890, Managing Owner commission rebate to Unitholders of $195,331 and the reversal of accrued profit share to the Managing Owner of $181,386 partially offset the Trust's expenses, resulting in net loss after profit share to the Managing Owner of $10,996,760. An analysis of the trading gain (loss) by sector is as follows:
23
Sector |
% Gain (Loss) |
|||
Currencies |
(2.81) |
% |
||
Energies |
(1.46) |
% |
||
Grains |
(1.05) |
% |
||
Interest rates |
(1.50) |
% |
||
Livestock |
(0.02) |
% |
||
Metals |
0.02 |
% |
||
Softs |
0.40 |
% |
||
Stock indices |
2.62 |
% |
||
|
||||
Trading loss |
(3.80) |
% |
SIX MONTHS ENDED JUNE 30, 2017
The decrease in the Trust’s net assets of $11,935,177 was attributable to net loss after profit share of $4,177,569 and withdrawals of $16,237,433, which was partially offset by contributions of $8,479,825.
Brokerage and custodial 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 and custodial fees for the six months ended June 30, 2017 decreased $103,014 (net of Managing Owner commission rebate to Unitholders) relative to the corresponding period in 2016 due to a decrease in the Trust’s Series 1 net assets during the respective periods.
Administrative expenses for the six months ended June 30, 2017 increased $15,225 relative to the corresponding period in 2016. The increase was due mainly to an increase in the Trust's accrual estimate for third party professional services during the six months ended June 30, 2017 relative to the corresponding period in 2016.
Management fees are calculated on the net asset value on the last day of each month and are affected by trading performance, subscriptions and redemptions. Management fees for the six months ended June 30, 2017 increased $45,515 relative to the corresponding period in 2016 due to an increase in the Trust’s Series 2 and Series 3 net assets during the respective periods.
Interest income is derived from cash and U.S. Treasury instruments held at the Trust's brokers and custodian. Interest income for the six months ended June 30, 2017 increased $377,442 relative to the corresponding period in 2016. This increase was due predominantly to an increase in short-term U.S. Treasury yields during the six months ended June 30, 2017 relative to the corresponding period in 2016.
During the six months ended June 30, 2017, the Trust experienced net realized and unrealized gains of $2,005,988 from its trading operations (including foreign exchange translations and Treasury obligations). Brokerage and custodial fees of $6,409,206, administrative expenses of $597,851, custody fees and other expenses of $21,190, management fees of $264,144 and an accrued profit share to the Managing Owner of $18,352 were incurred. Interest income of $740,035, and Managing Owner commission rebate to Unitholders of $387,151 partially offset the Trust's expenses, resulting in net loss after profit share to the Managing Owner of $4,177,569. An analysis of the trading gain (loss) by sector is as follows:
Sector |
% Gain (Loss) |
|||
Currencies |
(2.58) |
% |
||
Energies |
(1.93) |
% |
||
Grains |
(1.31) |
% |
||
Interest rates |
(1.51) |
% |
||
Livestock |
(0.10) |
% |
||
Metals |
0.00 |
% |
||
Softs |
0.43 |
% |
||
Stock indices |
7.57 |
% |
||
|
||||
Trading gain |
0.57 |
% |
24
MANAGEMENT DISCUSSION –2017
Three months ended June 30, 2017
The Trust sustained a decline during the second quarter of 2017 due largely to losses from trading financial and energy futures in the wake of hawkish monetary policy comments from the heads of several central banks at the European Central Bank (the “ECB”) conference in Sintra, Portugal, late in June (the “Sintra Conference”). For the quarter, losses from trading interest rate, energy and grain futures and currency forwards outweighed gains from trading equity and soft commodity futures. Trading of metal and livestock futures were each nearly flat.
Mario Draghi from the ECB, Mark Carney from the Bank of England and Stephen Poloz from the Bank of Canada each indicated at the Sintra Conference that with global growth broadening and strengthening, the time is approaching for 10 years of extraordinarily easy monetary policy to come to an end. Janet Yellen from the Federal Reserve (“Fed”) had provided a similar comment after the recent Federal Open Market Committee meeting. In response, global interest rates, which had been falling or stable for most of the quarter, spiked higher and long interest rate futures positions, which had been profitable through June 26th, turned unprofitable. Long positions in German and British interest rate futures were unprofitable. Long positions in French and Italian bond futures, which had benefitted from the French election results and from the Italian bank rescues, were profitable, although the gains were reduced significantly after the Sintra Conference. Long positions in U.S. note and bond futures were also profitable albeit with reductions at the end of June.
Foreign exchange trading remained volatile as the U.S. dollar, buffeted by conflicting influences, declined markedly in a saw-toothed pattern during the quarter. On the one hand, persistent increases in the official interest rate by the Fed were supportive of the U.S. dollar. On the other hand, the fact that growth in Europe and Asia was accelerating while growth in the U.S. remained tepid, and that politics in the U.S. was becoming more volatile while the political outlook in Europe had improved significantly, weighed on the U.S. dollar. Finally, the fact that comments from the Sintra Conference suggested a relative tightening of non-U.S. monetary policy also worked against the U.S. dollar. Consequently, long U.S. dollar positions against the currencies of Australia, the U.K., Canada, New Zealand, the euro, Switzerland, Sweden, Norway, Poland, Japan and Singapore were unprofitable. Short U.S. dollar carry trades in the Brazilian real and Russian ruble were also unprofitable as political uncertainties in each country prompted declines that outweighed the interest rate advantages. A long Mexican peso trade was profitable as the market came to believe that the impact of the Trump presidency on Mexico would be less than initially feared.
Energy prices displayed sharp swings within a broad range during the quarter. When market participants focused on supply increases due to rising shale production and when the U.S. dollar was rising, prices would be driven lower, but when traders focused on supply constraints due to the Organization of the Petroleum Exporting Countries (“OPEC”)/non-OPEC production curtailment agreement—which was extended in May for a further nine months through the first quarter of 2018—and when the U.S. dollar was falling, prices would spike higher. On balance, trading of crude oil, RBOB gasoline, London gas oil, heating oil and natural gas were each unprofitable, with significant losses occurring on short energy positions late in the period as the U.S. dollar fell and energy prices rose after the Sintra Conference.
With the International Monetary Fund, the Brookings Institution, the Financial Times and central banks around the globe agreeing that the economic recovery is broadening throughout Europe and Asia; recent elections in Europe—France, the Netherlands and the U.K. producing moderate rather than extreme outcomes; a generally weakening U.S. dollar; and the presence of signs that China is addressing its debt problems. Long positions in most European and Asian equity futures were profitable. A short VIX position was also fractionally profitable. U.S. equity futures were slightly profitable as gains from long S&P and Dow Jones futures positions were partially offset by losses from trading the Nasdaq futures. Long positions in Dutch and Canadian futures were unprofitable. The sector gains were reduced markedly when interest rates rose sharply late in June.
Short wheat, corn and soybean trades were unprofitable late in quarter as a drought in the U.S. high plains region and reduced wheat plantings in Canada underpinned prices. In addition, long soybean and soybean meal positions were unprofitable in April and May.
A short sugar position was profitable and, to a lesser extent, so too were short coffee and cocoa trades.
The profits from a short silver trade were countered by losses from trading gold, platinum and most industrial metals.
Three months ended March 31, 2017
The Trust registered a solid first quarter gain due to profits from long equity futures positions. Trading of currency forwards was slightly profitable, trading of commodity futures was fractionally negative and trading of interest rate futures was essentially flat.
According to the Brookings Institution and the Financial Times, the global economic recovery is now “broad-based and stable.” Morgan Stanley concurs, stating that a “…synchronous global recovery…is exhibiting more self-sustaining characteristics.” Against this background, long positions in U.S., European and Asian equity futures were broadly profitable. A long VIX trade was also profitable. Short positions in Indian and South African stock futures were marginally negative. Neither the fading of the positive impulses from the Trump election victory nor an increase in political and geopolitical tensions was able to blunt this equity advance.
25
The U.S. dollar, which had risen sharply during 2016’s fourth quarter, was volatile and weakened during the first three months of 2017 as the difficult reality of governing diminished the election euphoria for the Trump administration. Profits from short U.S. dollar trades versus the currencies of Australia, Brazil, India, Mexico, Russia, and Turkey were offset by the losses from long U.S. dollar positions versus the euro and the currencies of Great Britain, Canada, Japan, Korea, New Zealand, Norway, Sweden and Singapore. Meanwhile, a long euro/short Polish zloty trade and a short euro/long Turkish lira position were each slightly profitable.
Interest rates rose early in the period in response to the improving economic outlook and to evidence that central banks worldwide were pulling back from the long era of ultralow interest rates and quantitative easing. Indeed the U.S. Federal Reserve (the “Fed”) did raise its official rate again by ¼% during the quarter. Moreover, Mario Draghi indicated that “there is no longer the sense of urgency in taking further actions.” The People’s Bank of China (the “PBOC”) edged toward a tighter policy during the quarter, as well. Finally, the Bank of England and the Bank of Japan issued improved outlooks for their economies. Later on, however, political tensions in the U.S., Great Britain, the Netherlands, France, Turkey and South Africa and geopolitical tensions and terrorism involving North Korea, South Korea, the U.K., Canada and Syria produced a flight to safety and declining rates. On balance, the sector was flat for the quarter and at month-end the Trust’s interest rate futures positions remained generally long.
Energy prices were volatile and range-bound in the quarter. Production cut efforts by the Organization of the Petroleum Exporting Countries buoyed prices at times, while increasing U.S. shale production weighed on prices at other times. A long RBOB gasoline position was unprofitable as was trading of crude oil and London gas oil.
Trading of metal futures was nearly flat as small profits from long aluminum and zinc positions offset small losses from short gold and silver positions.
Trading of soft and agricultural commodities was marginally unprofitable. Grain trading was unprofitable due to losses from a short corn trade early in the period and from long soybean and soybean meal positions. A short wheat position was profitable in March. A short sugar position was also profitable in March. Trading of livestock was slightly negative.
Periods ended June 30, 2016 |
|||||
|
|||||
Month Ending: |
Total Trust |
||||
|
|||||
June 30, 2016 |
$ |
226,567,823 | |||
March 31, 2016 |
219,564,673 | ||||
December 31, 2015 |
208,845,956 | ||||
|
|||||
|
|||||
Three Months ended |
Six Months ended |
||||
Change in Trust Capital |
7,003,150 |
$ |
17,721,867 | ||
Percent Change |
3.19% | 8.49% |
THREE MONTHS ENDED JUNE 30, 2016
The increase in the Trust’s net assets of $7,003,150 was attributable to net income after profit share of $11,741,522 and subscriptions of $1,692,685 which was partially offset by redemptions of $6,431,057.
Brokerage and custodial 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 and custodial fees for the three months ended June 30, 2016 decreased $171,070 (net of Managing Owner commission rebate to Unitholders) relative to the corresponding period in 2015 due to a decrease in the Trust’s Series 1 net assets during the respective periods.
Administrative expenses for the three months ended June 30, 2016 decreased $11,180 relative to the corresponding period in 2015. The decrease was due mainly to a decrease in the Trust's net assets during the three months ended June 30, 2016 relative to the corresponding period in 2015.
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 June 30, 2016 increased $83,586 relative to the corresponding period in 2015. This increase was due predominantly to an increase in short-term U.S. Treasury yields during the three months ended June 30, 2016.
During the three months ended June 30, 2016, the Trust experienced net realized and unrealized gains of $15,259,938 from its trading operations (including foreign exchange translations and Treasury obligations). Brokerage and custodial fees of $3,211,835, administrative expenses of
26
$292,270, custody fees and other expenses of $10,037 and management fees of $110,522 were incurred. The Trust’s gains achieved from trading operations, in addition to interest income of $194,382, and Managing Owner commission rebate to Unitholders of $193,450 partially offset the Trust's expenses and profit share of $281,584, resulting in net income after profit share to the Managing Owner of $11,741,522. An analysis of the trading gain (loss) by sector is as follows:
Sector |
% Gain (Loss) |
|||
Currencies |
0.48 |
% |
||
Energies |
(0.63) |
% |
||
Grains |
1.40 |
% |
||
Interest rates |
5.92 |
% |
||
Livestock |
0.00 |
% |
||
Metals |
(0.50) |
% |
||
Softs |
0.05 |
% |
||
Stock indices |
0.44 |
% |
||
|
||||
Trading gain |
7.16 |
% |
SIX MONTHS ENDED JUNE 30, 2016
The increase in the Trust’s net assets of $17,721,867 was attributable to net income after profit share of $29,562,507 and subscriptions of $3,654,097 which was partially offset by redemptions of $15,494,737.
Brokerage and custodial 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 and custodial fees for the six months ended June 30, 2016 decreased $537,810 (net of Managing Owner commission rebate to Unitholders) relative to the corresponding period in 2015 due to a decrease in the Trust’s Series 1 net assets during the respective periods.
Administrative expenses for the six months ended June 30, 2016 decreased $27,888 relative to the corresponding period in 2015. The decrease was due mainly to a decrease in the Trust's net assets during the six months ended June 30, 2016 relative to the corresponding period in 2015.
Interest income is derived from cash and U.S. Treasury instruments held at the Trust's brokers and custodian. Interest income for the six months ended June 30, 2016 increased $178,985 relative to the corresponding period in 2015. This increase was due predominantly to an increase in short-term U.S. Treasury yields during the six months ended June 30, 2016 relative to the corresponding period in 2015.
During the six months ended June 30, 2016, the Trust experienced net realized and unrealized gains of $36,809,085 from its trading operations (including foreign exchange translations and Treasury obligations). Brokerage and custodial fees of $6,512,185, administrative expenses of $582,626, custody fees and other expenses of $19,600 and management fees of $218,629 were incurred. The Trust’s gains achieved from trading operations, in addition to interest income of $362,593, and Managing Owner commission rebate to Unitholders of $387,116 partially offset the Trust's expenses and profit share of $663,247, resulting in net income after profit share to the Managing Owner of $29,562,507. An analysis of the trading gain (loss) by sector is as follows:
Sector |
% Gain (Loss) |
|||
Currencies |
1.51 |
% |
||
Energies |
(0.10) |
% |
||
Grains |
1.54 |
% |
||
Interest rates |
13.77 |
% |
||
Livestock |
0.08 |
% |
||
Metals |
(0.73) |
% |
||
Softs |
(0.19) |
% |
||
Stock indices |
2.25 |
% |
||
|
||||
Trading gain |
18.13 |
% |
27
MANAGEMENT DISCUSSION –2016
Three months ended June 30, 2016
The Trust was profitable during the second quarter with gains from long interest rate futures positions again leading the way. Trading of equity futures and foreign exchange forwards added fractionally to the gain. Meanwhile, trading of commodity futures was also slightly profitable as the gains from trading grain and soft commodity futures outdistanced the losses from the energy and metals sectors.
Long positions in U.S., German, French, British, Canadian and Australian interest rate futures were profitable, particularly after the U.K. voters’ surprise vote to have the U.K. leave the European Union (the “EU”) produced a flight to safety and an expectation that easier monetary policy would be forthcoming rather broadly going forward. The weak June employment report in the U.S. that prompted another delay in the Federal Reserve (“Fed”) rate rise program had underpinned the prices of note, bond and short term interest rate futures earlier. The fact that growth and inflation have failed to accelerate convincingly, and that the World Bank, International Monetary Fund and Organization for Economic Co-operation and Development among others have lowered their global growth projections also supported fixed income prices.
Currency trading was particularly volatile as the U.S. dollar was buffeted to and fro during the quarter. The U.S. currency would strengthen whenever Fed Governors hinted that a rate increase was possible, such as in late April-early May and in late May-early June, but fall when those expectations faded. For example, after an extraordinarily weak U.S. June jobs report, such expectations were put on hold and the U.S. dollar weakened. Then, when Fed Chair Janet Yellen cited real concerns that the “temporary headwinds” that had blunted the Fed’s rate rise program might actually reflect Lawrence Summers’ “secular stagnation” rather than just passing concerns, the U.S. dollar softened further. However, following the surprise decision of the British electorate to leave the EU, a flight to safety and quality prompted an upward U-turn for the U.S. dollar. Overall, long U.S. dollar trades against the pound sterling and Swiss franc, and short U.S. dollar trades relative to the Brazilian real, New Zealand dollar and South African rand were profitable. On the other hand, short U.S. dollar trades versus the Australian, Israeli, Mexican, Polish and Swedish currencies produced losses. Trading the euro against the U.S. dollar, Polish zloty and Turkish lira was also unprofitable.
Trading of equity futures was fractionally profitable after a volatile quarter. Following a strong rebound from the February lows, equity trading was unsettled periodically by currency turmoil, the uncertainty surrounding the monetary policies of the Bank of Japan, the Fed, European Central Bank and the Bank of England, worries about future growth and inflation outlooks, and actualized weakness in corporate profits. Still, gains on long positions in non-tech U.S., Canadian and British stock futures and from a short VIX trade outpaced the losses from trading of a number of European and Asian indices.
Long positions in soybeans and soybean meal were profitable as bad weather in Brazil and Argentina underpinned prices for most of the period. A long sugar position posted a gain when prices rose as production in Thailand, India and Brazil was hurt by El Niño weather influences.
A short natural gas trade registered a loss as warmer than normal weather boosted prices, especially in June. Trading of London gas oil, heating oil, RBOB gasoline and WTI crude were also unprofitable, while a long position in Brent crude produced a partially offsetting gain.
Short positions in gold, silver, platinum, palladium and copper were each slightly unprofitable.
Three months ended March 31, 2016
During a quarter of extreme market volatility, the Trust registered a strong performance led by gains on long interest rate futures positions. Trading of equity futures and foreign exchange forwards were also profitable. Meanwhile, commodity futures were essentially flat as a fractional gain from trading energy futures was offset by small losses from trading metal and agricultural futures.
Concerns about global growth that International Monetary Fund Managing Director Christine Lagarde described as ‘…too low, too fragile and facing increased risks to its durability…”, combined with doubts about policy makers’ competence and capabilities, generated strong demand for government securities for most of the quarter. The demand for this debt was underpinned when: the Bank of Japan moved official interest rates into negative territory at the end of January; the Bank of England delayed any potential rate increase; the European Central Bank (the “ECB”) and People’s Bank of China (the “PBOC”) eased monetary policy in March; and a speech by Federal Reserve (“Fed”) Chair Janet Yellen squashed expectations for a near term Fed rate increase. Consequently, long positions in U.S., German, French, Italian, British, Japanese, Australian and Canadian notes and bonds were profitable. Long positions in short-term dollar and sterling interest rate futures were also profitable.
Equity markets were particularly volatile during the first quarter of 2016, tracing out a classic V-shaped path. The tumultuous first half of the period saw many equity indices experiencing multiyear lows before rebounding impressively over the second half of the quarter. Early on, weak economic data out of China and concerns about official policy decisions generated a renewed rout in Chinese equities and the yuan. These events, combined with a further collapse in energy prices; worries that Fed interest rate increases and a stronger dollar might impede global growth; and a halt in corporate profit growth, produced a broad, sharp equity selloff. Later, equity prices recovered as energy prices rebounded, the ECB, PBOC and Fed displayed easier policy tendencies, the U.S. dollar eased and growth concerns moderated. On balance, short positions in Chinese, Hong Kong, Japanese, Singaporean, Indian, and Spanish futures were profitable. Trading of U.S. and Canadian stock index futures also posted gains. On the other hand, short positions in Dutch and South African futures, a long U.K stock futures position, and trading of the European stoxx future resulted in somewhat offsetting losses.
28
Foreign exchange trading was also volatile. At the beginning of the year, given the search for safety, declining oil prices and the Fed’s “relatively hawkish” policy position, the U.S. dollar strengthened. Thus, during January and February, long U.S. dollar trades versus the pound sterling, Canadian dollar, Korean won, Russian Ruble and Mexican peso were profitable. The pound fell precipitously when the possibility of Britain’s exit from the European Union (the “EU”) became more likely as Boris Johnson, the mayor of London, endorsed the move. As the quarter unfolded, however, the PBOC aggressively implemented measures to support the yuan; the G-20 Shanghai Communique in late February signaled a strong stance against currency competition that took some steam out of the U.S. dollar; and the likelihood of a near term increase in interest rates by the Fed diminished, prompting a U.S. dollar decline, especially against emerging market currencies where interest rates tend to be higher. A stabilization of commodity prices also helped the commodity producing countries. A series of events abroad further encouraged the U.S. dollar slippage: Mexico’s surprise February 50 basis point hike in official interest rates; the increasing likelihood of an ouster of President Dilma Rousseff in Brazil; an increase in official rates in South Africa; and rising oil prices and high interest rates supporting the Russian ruble. Consequently, short U.S. dollar positions against the currencies of Australia, Brazil, Canada, Columbia, India, Israel, Mexico, New Zealand, Russia, South Africa, and Turkey were profitable. On the other hand, long U.S. dollar trades versus the euro, yen, Swiss franc, Swedish krona, Norwegian kroner, Czech koruna, Polish zloty and Chilean peso were unprofitable.
With the International Energy Agency suggesting that the “…world could drown in [oil] oversupply…”; with crude oil production at or near recent record levels in many countries—e.g., Saudi Arabia, Russia, the U.S., and Iraq; with Iranian exports ramping up; and with global demand still sluggish, crude prices slumped below $30 per barrel in January. Short positions in Brent crude, WTI crude, RBOB gasoline, London gas oil, heating oil and natural gas were profitable. Subsequently, reports that Saudi Arabia, Russia and a number of other producers were discussing plans for a production freeze and would meet in Doha in April sparked an oil price rebound. Indeed, oil prices reached a three month high above $40 per barrel on March 18. Consequently, losses were suffered on these same short crude oil, crude products and natural gas trades, and positions were reduced and/or reversed. Overall, energy trading was fractionally profitable for the quarter due to gains from WTI crude and natural gas.
Industrial metal prices vacillated during the quarter but did move up somewhat in synchrony with energy prices, and short positions in industrial metals were unprofitable. Safe haven demand pushed up gold prices, especially in February, and a small long trade was fractionally profitable, providing a partial offset.
Trading of sugar was unprofitable, as was a long cocoa trade in January, and a short Arabica coffee position in March. The profits from short corn and wheat trades basically offset the losses from trading soybeans and soybean meal.
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 any 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, forward currency, spot, option, and swap 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 June 30, 2017.
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 recurrence 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 value at risk 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.
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
29
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 six months ended June 30, 2017. During the six months ended June 30, 2017, the Trust's average total capitalization was approximately $225,000,000.
Sector |
Average value at risk |
% of Average Capitalization |
High value at risk |
Low value at risk |
|||||
Currencies |
$ |
5.9 |
2.7% |
$ |
6.8 |
$ |
5.0 |
||
Energies |
2.4 |
1.1% |
3.4 |
1.3 |
|||||
Grains |
1.1 |
0.5% |
1.2 |
1.1 |
|||||
Interest rates |
6.8 |
3.0% |
7.8 |
5.9 |
|||||
Livestock |
0.1 |
0.0% |
0.1 |
0.0 |
|||||
Metals |
0.9 |
0.4% |
1.1 |
0.8 |
|||||
Softs |
0.5 |
0.2% |
0.5 |
0.5 |
|||||
Stock indices |
9.7 |
4.3% |
10.5 |
9.0 |
|||||
|
$ |
27.4 |
12.2% |
Average, highest and lowest Value at Risk amounts relate to the quarter-end amounts for the six months ended June 30, 2017. Average capitalization is the average of the Trust's approximate capitalization at the end of each of the six months ended June 30, 2017. 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.”
Non-Trading Risk
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.
30
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 (approximately between 5% and 10%) 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 principal executive officers and principal 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 controls over financial reporting during the quarter ended June 30, 2017 that have materially affected, or are reasonably likely to materially affect, the Managing Owner’s internal controls over financial reporting with respect to the Trust.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
THE FAILURE OF COMPUTER SYSTEMS COULD RESULT IN LOSSES FOR THE TRUST
The Managing Owner relies heavily on computer hardware and software, online services and other computer-related or electronic technology and equipment to facilitate the Trust’s investment activities and may trade financial instruments through electronic trading or order routing systems. Electronic trading exposes the Trust to the risk of system or component failure. Should events beyond the Managing Owner’s control cause a disruption in the operation of any technology or equipment, the Trust’s investment program may be severely impaired, causing it to experience substantial losses or other adverse effects.
Additionally, the computer systems, networks and devices used by the Managing Owner, the Trust and service providers that carry out routine business operations employ a variety of protections designed to prevent damage or interruption from computer viruses, network failures, computer and telecommunication failures, infiltration by unauthorized persons and security breaches. Cybersecurity breaches can include unauthorized access to systems, networks or devices; infection from computer viruses or other malicious software code; and attacks that shut down, disable, slow or otherwise disrupt operations, business processes or website access and/or functionality.
Despite the various protections utilized to protect against cybersecurity threats, systems, networks and/or devices potentially can be breached. Such cybersecurity breaches may cause disruptions and impact business operations, potentially resulting in financial losses to the Trust and Unitholders; interference with the Managing Owner’s ability to calculate the value of an investment; impediments to trading; the inability of the Trust and its service providers to transact business; violations of applicable privacy and other laws; regulatory fines, penalties, reputational damage, reimbursement or other compensation costs or additional compliance costs; as well as the inadvertent release of confidential information.
Similar adverse consequences could result from cybersecurity breaches affecting counterparties with which the Trust engages in transactions; governmental and other regulatory authorities; exchange and other financial market operators, banks, brokers, dealers, insurance companies and other financial institutions; and other parties. In addition, substantial costs may be incurred by these entities in order to prevent any cybersecurity breaches in the future.
THE MANAGING OWNER MAY MANAGE ACCOUNTS FOR OTHER CLIENTS OF THE MANAGING OWNER AND ITS AFFILIATES
The Managing Owner manages futures and forward accounts other than the Trust, including accounts in which the Managing Owner and its current and former principals and employees and their family members have significant investments. The Managing Owner and its affiliates may manage additional accounts in the future. It is possible that such accounts may be in competition with the Trust for the same or similar positions in the futures, forward and spot markets. The Managing Owner intends generally to use similar trading methods for the Trust and all other systematic accounts the Managing Owner and its affiliates manage. The Managing Owner will not knowingly or deliberately use systems for any account that are inferior to systems employed for any other account or favor any account over any other account.
In addition, the Managing Owner employs a neutral allocation system such that the portfolio of market positions, or portfolio, pursuant to which an account is traded will be allocated positions in financial instruments on a fair and equitable basis in comparison to the other portfolios offered
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by the Managing Owner. Certain portfolios, however, may receive larger allocations of positions on account of the specialized nature of such portfolios. For example, a portfolio concentrated in the commodities markets may receive a larger portion of commodity based financial instruments than the allocations received by portfolios trading a more diverse set of markets. Further, some portfolios, as traded on behalf of certain client accounts, may or may not be allocated positions in financial instruments, or may be allocated such positions at a reduced rate because of instructions received by a client and/or the size or nature of the client account. For example, if trading in certain markets constitutes a de minimis portion of the trading performed on behalf of a large account, the Managing Owner may decide not to trade in such markets on behalf of that account even though such market would otherwise be traded in the portfolio applicable to such account. As a result, certain portfolios and accounts may receive increased allocations to the detriment of other portfolios and accounts. No assurance is given that the results of the Trust’s trading will be similar to that of other accounts concurrently managed by the Managing Owner or its affiliates.
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 June 30, 2017 |
(b) |
Pursuant to the Trust Agreement, Unitholders may redeem their Units at the end of each calendar month at 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. |
The following table summarizes the redemptions by Unitholders during the three months ended June 30, 2017.
|
Series 1 |
Series 3 |
Series 4 |
|||||||
Date of |
Units Redeemed |
NAV per Unit |
Units Redeemed |
NAV per Unit |
Units Redeemed |
NAV per Unit |
||||
|
||||||||||
April 30, 2017 |
1,549.069 |
$ |
1,244.74 | 47.426 |
$ |
1,615.02 | 0.762 |
$ |
1,955.02 | |
May 31, 2017 |
1,208.787 | 1,231.26 | 19.312 | 1,605.80 |
- |
1,944.13 | ||||
June 30, 2017 |
1,673.198 | 1,166.12 | 1.498 | 1,538.66 | 0.623 | 1,850.94 | ||||
Total |
4,431.054 | 68.236 | 1.385 |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
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
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
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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.
By: |
Millburn Ridgefield Corporation, |
|
Managing Owner |
Date: August 11, 2017 |
|
|
|
/s/ Michael W. Carter |
|
|
Michael W. Carter |
|
|
Vice-President |
|
|
(Principal Accounting Officer) |
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