10-Q 1 v341514_10q.htm QUARTERLY REPORT

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the Quarterly Period Ended:  March 31, 2013

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 x          No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

Yes x          No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer ¨ Accelerated filer ¨
Non-accelerated filer (Do not check if a smaller reporting company) x Smaller reporting company ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes ¨          No x

 

 
 

 

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

Global Macro Trust

Financial statements

For the three months ended March 31, 2013 and 2012 (unaudited)

 

Statements of Financial Condition (a) 1
Condensed Schedules of Investments (a) 2
Statements of Operations (b) 6
Statements of Changes in Trust Capital (b) 7
Statements of Financial Highlights (b) 9
Notes to the Financial Statements 10

 

(a) At March 31, 2013 and December 31, 2012 (unaudited)

(b) For the three months ended March 31, 2013 and 2012 (unaudited)

 

 
 

 

Global Macro Trust

Statements of Financial Condition (UNAUDITED)

 

   March 31   December 31 
   2013   2012 
        
ASSETS          
EQUITY IN TRADING ACCOUNTS:          
Investments in U.S. Treasury notes – at fair value (amortized cost $76,002,496 and $99,057,395)  $76,033,163   $99,079,846 
Net unrealized appreciation on open futures and forward currency contracts   6,226,603    8,445,476 
Due from brokers   16,876,150    8,002,955 
Cash denominated in foreign currencies (cost $2,462,487 and $4,308,932)   2,409,467    4,327,157 
Total equity in trading accounts   101,545,383    119,855,434 
           
INVESTMENTS IN U.S. TREASURY NOTES – at fair value (amortized cost $350,582,374 and $368,743,783)   350,684,260    368,829,890 
CASH AND CASH EQUIVALENTS   15,046,538    8,138,415 
ACCRUED INTEREST RECEIVABLE   977,713    2,436,662 
TOTAL  $468,253,894   $499,260,401 
           
LIABILITIES AND TRUST CAPITAL          
LIABILITIES:          
Subscriptions by Unitholders received in advance  $616,602   $883,797 
Net unrealized depreciation on open futures and forward currency contracts   4,096,156    3,314,912 
Due to Managing Owner   291,290    142,003 
Due to Unitholders   25,000    - 
Accrued brokerage and custodial fees   2,238,155    2,427,117 
Accrued management fees   56,074    57,790 
Redemptions payable to Unitholders   9,475,657    16,282,107 
Accrued expenses   67,276    171,645 
Cash denominated in foreign currencies (cost $-639,817 and -$1,234,117)   624,295    1,267,184 
Due to brokers   -    1,053,812 
Total liabilities   17,490,505    25,600,367 
           
TRUST CAPITAL:          
Managing Owner interest (8,919.432 and 8,774.775 units outstanding)   9,599,717    9,313,020 
Series 1 Unitholders (376,661.883 and 404,080.828 units outstanding)   405,390,336    428,867,469 
Series 2 Unitholders (225.050 and 242.952 units outstanding)   274,822    289,447 
Series 3 Unitholders (26,903.259 and 27,951.367 units outstanding)   33,090,928    33,520,653 
Series 4 Unitholders (1,850.618 and 1,322.742 units outstanding)   2,407,586    1,669,445 
Total trust capital   450,763,389    473,660,034 
           
TOTAL:  $468,253,894   $499,260,401 
           
NET ASSET VALUE PER UNIT OUTSTANDING:          
Series 1 Unitholders  $1,076.27   $1,061.34 
Series 2 Unitholders  $1,221.16   $1,191.38 
Series 3 Unitholders  $1,230.00   $1,199.25 
Series 4 Unitholders  $1,300.96   $1,262.11 

 

See notes to financial statements

 

1
 

 

Global Macro Trust

Condensed Schedule of Investments (UNAUDITED)

March 31, 2013

 

FUTURES AND FORWARD CURRENCY CONTRACTS  Net Unrealized
Appreciation/
(Depreciation)
as a % of
Trust Capital		   Net Unrealized
Appreciation/
(Depreciation)		 
         
FUTURES CONTRACTS          
Long futures contracts:          
Energies   0.39%  $1,761,014 
Grains   (0.13)   (584,888)
Interest rates:          
2 Year U.S. Treasury Note (2,904 contracts, settlement date June 2013)   0.02    105,002 
5 Year U.S. Treasury Note (1,913 contracts, settlement date June 2013)   0.09    413,086 
10 Year U.S. Treasury Note (838 contracts, settlement date June 2013)   0.08    357,578 
30 Year U.S. Treasury Bond (109 contracts, settlement date June 2013)   0.02    68,500 
Other interest rates   0.67    3,037,434 
Total interest rates   0.88    3,981,600 
           
Livestock   0.00    18,650 
Metals   (0.47)   (2,153,878)
Softs   0.07    328,134 
Stock indices   (0.37)   (1,667,829)
Total long futures contracts   0.37    1,682,803 
Short futures contracts:          
Energies   (0.32)   (1,441,219)
Grains   0.29    1,289,683 
Interest rates   (0.07)   (321,984)
Livestock   (0.07)   (311,530)
Metals   0.64    2,865,758 
Softs   0.18    817,413 
Stock indices   0.08    383,010 
Total short futures contracts   0.73    3,281,131 
TOTAL INVESTMENTS IN FUTURES CONTRACTS-Net   1.10    4,963,934 
           
FORWARD CURRENCY CONTRACTS          
Total long forward currency contracts   (0.51)   (2,304,931)
Total short forward currency contracts   (0.12)   (528,556)
TOTAL INVESTMENTS IN FORWARD CURRENCY CONTRACTS-Net   (0.63)   (2,833,487)
           
TOTAL   0.47%  $2,130,447 

 

(Continued)

 

2
 

 

Global Macro Trust

Condensed Schedule of Investments (UNAUDITED)

March 31, 2013

U.S. TREASURY NOTES

 

Face Amount   Description  Fair Value
as a % of
Trust Capital		   Fair Value 
             
$146,530,000   U.S. Treasury notes, 3.375%, 07/31/2013   32.86%  $148,132,671 
 119,840,000   U.S. Treasury notes, 0.125%, 09/30/2013   26.59    119,849,363 
 50,710,000   U.S. Treasury notes, 0.500%, 11/15/2013   11.28    50,829,842 
 106,800,000   U.S. Treasury notes, 1.250%, 03/15/2014   23.94    107,905,547 
     Total investments in U.S. Treasury notes (amortized cost $426,584,870)   94.67%  $426,717,423 

 

See notes to financial statements (Concluded)

 

 

3
 

 

 

Global Macro Trust

Condensed Schedule of Investments

December 31, 2012 

 

FUTURES AND FORWARD CURRENCY CONTRACTS  Net Unrealized
Appreciation/
(Depreciation)
as a % of
Trust Capital		   Net Unrealized
Appreciation/
(Depreciation)		 
         
FUTURES CONTRACTS          
Long futures contracts:          
Energies   0.54%  $2,577,288 
Grains   (0.09)   (404,470)
Interest rates:          
2 Year U.S. Treasury Note (4,077 contracts, settlement date March 2013)   0.06    292,341 
5 Year U.S. Treasury Note (1,181 contracts, settlement date March 2013)   (0.01)   (47,455)
10 Year U.S. Treasury Note (545 contracts, settlement date March 2013)   (0.02)   (111,109)
30 Year U.S. Treasury Bond (105 contracts, settlement date March 2013)   (0.01)   (40,844)
Other interest rates   0.42    2,001,287 
Total interest rates   0.44    2,094,220 
           
Metals   0.04    182,574 
Softs   0.00    14,300 
Stock indices   0.67    3,157,189 
Total long futures contracts   1.60    7,621,101 
           
Short futures contracts:          
Energies   (0.64)   (3,030,038)
Grains   0.04    224,946 
Interest rates   0.01    32,326 
Livestock   (0.00)   (11,590)
Metals   (0.19)   (897,543)
Softs   0.14    647,490 
Stock indices   (0.02)   (106,850)
Total short futures contracts   (0.66)   (3,141,259)
TOTAL INVESTMENTS IN FUTURES CONTRACTS-Net   0.94    4,479,842 
           
FORWARD CURRENCY CONTRACTS          
Total long forward currency contracts   (0.20)   (949,561)
Total short forward currency contracts   0.34    1,600,283 
TOTAL INVESTMENTS IN FORWARD CURRENCY CONTRACTS-Net   0.14    650,722 
           
TOTAL   1.08%  $5,130,564 

 

(Continued)

 

4
 

 

Global Macro Trust

Condensed Schedule of Investments

December 31, 2012

U.S. TREASURY NOTES

 

Face Amount   Description  Fair Value
as a % of
Trust Capital		   Fair Value 
             
$137,850,000   U.S. Treasury notes, 0.625%, 02/28/2013   29.13%  $137,973,850 
 146,530,000   U.S. Treasury notes, 3.375%, 07/31/2013   31.51    149,271,714 
 129,840,000   U.S. Treasury notes, 0.125%, 09/30/2013   27.41    129,809,569 
 50,710,000   U.S. Treasury notes, 0.500%, 11/15/2013   10.74    50,854,603 
     Total investments in U.S. Treasury notes (amortized cost $467,801,178)   98.79%  $467,909,736 

 

See notes to financial statements (Concluded)

 

5
 

 

Global Macro Trust

Statements of Operations (UNAUDITED)

 

   For the three months ended 
   March 31   March 31 
   2013   2012 
INVESTMENT INCOME:          
Interest income  $208,311   $266,834 
           
EXPENSES:          
Brokerage and custodial fees   7,200,241    11,277,869 
Administrative expenses   437,257    532,057 
Custody fees and other expenses   24,701    38,616 
Management fees   170,228    160,448 
Total expenses   7,832,427    12,008,990 
           
NET INVESTMENT LOSS   (7,624,116)   (11,742,156)
           
NET REALIZED AND UNREALIZED GAINS (LOSSES):          
Net realized gains (losses) on closed positions:          
Futures and forward currency contracts   18,120,218    (25,667,890)
Foreign exchange translation   (204,052)   85,659 
Net change in unrealized:          
Futures and forward currency contracts   (3,000,117)   (18,239,492)
Foreign exchange translation   (22,656)   48,872 
Net gains (losses) from U.S. Treasury notes:          
Realized   3,157    (24,513)
Net change in unrealized   23,995    (199,455)
TOTAL NET REALIZED AND UNREALIZED GAINS (LOSSES)   14,920,545    (43,996,819)
           
NET INCOME (LOSS)  $7,296,429   $(55,738,975)
           
NET INCOME (LOSS) PER UNIT OUTSTANDING          
Series 1 Unitholders  $14.93   $(89.48)
Series 2 Unitholders  $29.78   $(82.92)
Series 3 Unitholders  $30.75   $(82.52)
Series 4 Unitholders  $38.85   $(78.99)

 

See notes to financial statements

 

6
 

 

Global Macro Trust

Statements of Changes in Trust Capital (UNAUDITED)

 

For the three months ended March 31, 2013:

 

   Series 1 Unitholders   Series 2 Unitholders   Series 3 Unitholders   Series 4 Unitholders   Managing Owner   Total 
   Amount   Units   Amount   Units   Amount   Units   Amount   Units   Amount   Units   Amount 
                                             
Trust capital at January 1, 2013  $428,867,469    404,080.828   $289,447    242.952   $33,520,653    27,951.367   $1,669,445    1,322.742   $9,313,020    8,774.775   $473,660,034 
Subscriptions   1,139,400    1,066.604    -    -    966,000    801.743    669,867    527.876    -    -    2,775,267 
Redemptions   (30,703,982)   (28,712.473)   (21,465)   (17.902)   (2,242,894)   (1,849.851)   -    -    -    -    (32,968,341)
Addt'l units allocated *   -    226.924    -    -    -    -    -    -    -    144.657    - 
Net income   6,087,449    -    6,840    -    847,169    -    68,274    -    286,697    -    7,296,429 
March 31, 2013  $405,390,336    376,661.883   $274,822    225.050   $33,090,928    26,903.259   $2,407,586    1,850.618   $9,599,717    8,919.432   $450,763,389 
                                                        
Net asset value per unit outstanding at at March 31, 2013:  $1,076.27        $1,221.16        $1,230.00        $1,300.96                     

 

* Additional units are issued to Series 1 Unitholders who are charged less than a 7% brokerage fee and the Managing Owner (Continued)

 

7
 

 

Global Macro Trust

Statements of Changes in Trust Capital (UNAUDITED)

 

For the three months ended March 31, 2012:

 

   Series 1 Unitholders   Series 2 Unitholders   Series 3 Unitholders   Series 4 Unitholders   Managing Owner   Total 
   Amount   Units   Amount   Units   Amount   Units   Amount   Units   Amount   Units   Amount 
                                             
Trust capital at January 1, 2012  $709,737,394    603,996.596   $240,698    190.737   $32,771,232    25,863.120   $793,127    606.787   $9,644,943    8,207.970   $753,187,394 
Subscriptions   8,629,420    7,536.487    -    -    1,755,733    1,416.471    835,559    646.760    -    -    11,220,712 
Redemptions   (57,212,948)   (51,623.401)   (9,347)   (7.591)   (1,386,122)   (1,134.214)   -    -    -    -    (58,608,417)
Addt'l units allocated *   -    403.081    -    -    -    -    -    -    -    139.296    - 
Net loss   (52,882,019)   -    (15,419)   -    (2,169,450)   -    (89,206)   -    (582,881)   -    (55,738,975)
Trust capital at                                                       
March 31, 2012  $608,271,847    560,312.763   $215,932    183.146   $30,971,393    26,145.377   $1,539,480    1,253.547   $9,062,062    8,347.266   $650,060,714 
                                                        
Net asset value per unit outstanding at at March 31, 2012:  $1,085.59        $1,179.02        $1,184.58        $1,228.10                     

 

* 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 (Concluded)

 

8
 

 

Global Macro Trust

Statements of Financial Highlights (UNAUDITED)

 

For the three months ended March 31  2013   2012 
   Series 1   Series 2   Series 3   Series 4   Series 1   Series 2   Series 3   Series 4 
                                         
Net income (loss) from operations:                                        
Net investment loss  $(18.68)  $(8.80)  $(8.09)  $(2.12)  $(19.32)  $(7.33)  $(7.36)  $(1.36)
Net realized and unrealized gains (losses) on trading of futures and forward currency contracts   33.55    38.52    38.77    40.90    (69.81)   (75.22)   (74.78)   (77.19)
Net gains (losses) from U.S. Treasury notes   0.06    0.06    0.07    0.07    (0.35)   (0.37)   (0.38)   (0.44)
Profit share allocated to Managing Owner   0.00    0.00    0.00    0.00    0.00    0.00    0.00    0.00 
Net income (loss) per unit  $14.93   $29.78   $30.75   $38.85   $(89.48)  $(82.92)  $(82.52)  $(78.99)
                                         
Net asset value per unit, beginning of period   1,061.34    1,191.38    1,199.25    1,262.11    1,175.07   $1,261.94   $1,267.10   $1,307.09 
                                         
Net asset value per unit, end of period  $1,076.27   $1,221.16   $1,230.00   $1,300.96   $1,085.59   $1,179.02   $1,184.58   $1,228.10 

 

Total return and ratios for the three months ended March 31:  2013   2012 
   Series 1   Series 2   Series 3   Series 4   Series 1   Series 2   Series 3   Series 4 
                                         
RATIOS TO AVERAGE CAPITAL:                                        
                                         
Net investment loss (a)   (6.98)%   (2.91)%   (2.66)%   (0.66)%   (6.92)%   (2.68)%   (2.43)%   (0.43)%
                                         
Total expenses (a)   7.16%   3.08%   2.83%   0.84%   7.07%   2.83%   2.58%   0.58%
Profit share allocation (b)   0.00    0.00    0.00    0.00    0.00    0.00    0.00    0.00 
TOTAL EXPENSES AND PROFIT SHARE ALLOCATION   7.16%   3.08%   2.83%   0.84%   7.07%   2.83%   2.58%   0.58%
                                         
Total return before profit share allocation (b)   1.41%   2.50%   2.56%   3.08%   (7.61)%   (6.57)%   (6.51)%   (6.04)%
Profit share allocation (b)   0.00    0.00    0.00    0.00    0.00    0.00    0.00    0.00 
TOTAL RETURN AFTER PROFIT SHARE ALLOCATION   1.41%   2.50%   2.56%   3.08%   (7.61)%   (6.57)%   (6.51)%   (6.04)%

 

(a) annualized

(b) not annualized

 

See notes to financial statements

 

9
 

 

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 March 31, 2013 and December 31, 2012 and the results of its operations for the three months ended March 31, 2013 and 2012 (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, 2012. The December 31, 2012 information has been derived from the audited financial statements as of December 31, 2012.

 

With the effectiveness of the Trust’s Registration Statement on August 12, 2009, the Trust began to offer Series 2, Series 3 and Series 4 Units. The only Units offered prior to such date were the Series 1 Units.

 

The preparation of financial statements in conformity with accounting principles generally accepted (“U.S. GAAP”) in the United States of America (the “U.S.”) requires management to make estimates and assumptions that affect the amounts and disclosures reported in the financial statements. Actual results could differ from these estimates.

 

The Trust enters into contracts that contain a variety of indemnification provisions. The Trust’s maximum exposure under these arrangements is unknown. The Trust does not anticipate recognizing any loss related to these arrangements.

 

The Income Taxes topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (the “Codification”) clarifies the accounting for uncertainty in tax positions. This requires that the Trust recognize in its financial statements the impact of any uncertain tax positions. Based on a review of the Trust’s open tax years, 2009 to 2012, for the U.S. Federal jurisdiction, the New York, Connecticut and Delaware state jurisdictions and the New York City jurisdiction, there are no uncertain tax positions. The Trust is treated as a limited partnership for federal and state income tax reporting purposes and therefore the unitholders in the trust ("Unitholders") are responsible for the payment of taxes.

 

There have been no material changes with respect to the Trust's critical accounting policies, off-balance sheet arrangements or disclosure of contractual obligations as reported in the Trust's Annual Report on Form 10-K for fiscal year 2012.

 

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;

 

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 Money Market Fund. Millburn Ridgefield Corporation, (the “Managing Owner”) does not adjust the quoted price for such instruments even in situations where the Trust holds a large position and a sale could reasonably impact the quoted price.

 

Derivative Contracts – Derivative contracts can be exchange-traded or over-the-counter (“OTC”). Exchange-traded futures contracts are valued based on quoted closing settlement prices and typically fall within Level 1 of the fair value hierarchy.

 

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 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.

 

10
 

 

During the three months ended March 31, 2013 and 2012, 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 March 31, 2013 and December 31, 2012 in valuing the Trust’s investments at fair value. At March 31, 2013 and December 31, 2012, the Trust held no assets or liabilities classified in Level 3.

 

Financial Assets and Liabilities at Fair Value as of March 31, 2013

 

   Level 1   Level 2   Total 
             
U.S. Treasury notes (1)   426,717,423    -    426,717,423 
Short-term money market fund*   14,588,361    -    14,588,361 
Exchange-traded futures contracts               
Energies   319,795    -    319,795 
Grains   704,795    -    704,795 
Interest rates   3,659,616    -    3,659,616 
Livestock   (292,880)   -    (292,880)
Metals   711,880    -    711,880 
Softs   1,145,547    -    1,145,547 
Stock indices   (1,284,819)   -    (1,284,819)
                
Total exchange-traded futures contracts   4,963,934    -    4,963,934 
                
Over-the-counter forward currency contracts   -    (2,833,487)   (2,833,487)
                
Total futures and forward currency contracts (2)   4,963,934    (2,833,487)   2,130,447 
                
Total financial assets at fair value   446,269,718    (2,833,487)   443,436,231 
                
Per line item in the Statements of Financial Condition               
(1)               
Investments in U.S. Treasury notes held in brokers' trading accounts as collateral            $76,033,163 
Investments in U.S. Treasury notes held in custody             350,684,260 
Total investments in U.S. Treasury notes            $426,717,423 
(2)               
Net unrealized appreciation on futures and forward currency contracts            $6,226,603 
Net unrealized depreciation on futures and forward currency contracts             (4,096,156)
Total unrealized appreciation on futures and forward currency contracts            $2,130,447 

 

*The short-term money market fund is included in Cash and Cash Equivalents on the Statements of Financial Condition.

 

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Financial Assets and Liabilities at Fair Value as of December 31, 2012

 

   Level 1   Level 2   Total 
             
U.S. Treasury notes (1)   467,909,736    -    467,909,736 
Short-term money market fund*   7,692,129    -    7,692,129 
Exchange-traded futures contracts               
Energies   (452,750)   -    (452,750)
Grains   (179,524)   -    (179,524)
Interest rates   2,126,546    -    2,126,546 
Livestock   (11,590)   -    (11,590)
Metals   (714,969)   -    (714,969)
Softs   661,790    -    661,790 
Stock indices   3,050,339    -    3,050,339 
                
Total exchange-traded futures contracts   4,479,842    -    4,479,842 
                
Over-the-counter forward currency contracts   -    650,722    650,722 
                
Total futures and forward currency contracts (2)   4,479,842    650,722    5,130,564 
                
Total financial assets at fair value   480,081,707    650,722    480,732,429 
                
Per line item in the Statements of Financial Condition               
(1)               
Investments in U.S. Treasury notes held in brokers' trading accounts as collateral            $99,079,846 
Investments in U.S. Treasury notes held in custody             368,829,890 
Total investments in U.S. Treasury notes            $467,909,736 
(2)               
Net unrealized appreciation on futures and forward currency contracts            $8,445,476 
Net unrealized depreciation on futures and forward currency contracts             (3,314,912)
Total unrealized appreciation on futures and forward currency contracts            $5,130,564 

 

*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.

 

In December 2011, FASB issued ASU 2011-11, “Disclosures about Offsetting Assets and Liabilities” which created a new disclosure requirement about the nature of an entity’s rights of setoff and the related arrangement associated with its financial instruments and derivative instruments. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the Statements of Financial Condition and instruments and transactions subject to an arrangement similar to a master netting agreement. The following tables present gross amounts of assets and liabilities which qualify for offset as presented in the Statements of Financial Condition at March 31, 2013 and December 31, 2012.

 

12
 

 

Offsetting of derivative assets and liabilities at March 31, 2013

 

Assets  Gross amounts of
recognized assets		   Gross amounts
offset in the
Statements of
Financial Condition		   Net amounts of
assets presented in
the Statements of
Financial Condition		 
Futures contracts               
Counterparty B  $5,654,020   $(1,800,804)  $3,853,216 
Counterparty C   3,634,529    (2,072,856)   1,561,673 
Counterparty D   2,238,804    (1,427,090)   811,714 
Total assets  $11,527,353   $(5,300,750)  $6,226,603 

  

Liabilities  Gross amounts
offset in the
Statements of
Financial Condition		   Gross amounts of
recognized liabilities		   Net amounts of
liabilities presented in
the Statements of
Financial Condition		 
Futures contracts               
Counterparty A  $2,130,927   $(2,498,471)  $(367,544)
Counterparty E   1,018,638    (1,913,763)   (895,125)
Total futures contracts   3,149,565    (4,412,234)   (1,262,669)
                
Forward currency contracts               
Counterparty F   1,479,269    (2,671,939)   (1,192,670)
Counterparty G   57,033    (375,415)   (318,382)
Counterparty H   2,736,891    (4,059,326)   (1,322,435)
Total forward currency contracts   4,273,193    (7,106,680)   (2,833,487)
                
Total liabilities  $7,422,758   $(11,518,914)  $(4,096,156)

 

Offsetting of derivative assets and liabilities at December 31, 2012

 

Assets  Gross amounts of
recognized assets		   Gross amounts
offset in the
Statements of
Financial Condition		   Net amounts of
assets presented in
the Statements of
Financial Condition		 
Futures contracts               
Counterparty A  $1,550,563   $(867,571)  $682,992 
Counterparty B   6,033,303    (3,024,836)   3,008,467 
Counterparty D   1,646,682    (608,619)   1,038,063 
Counterparty E   1,341,846    (921,044)   420,802 
Total futures contracts   10,572,394    (5,422,070)   5,150,324 
                
Forward currency contracts               
Counterparty F   4,720,102    (1,654,404)   3,065,698 
Counterparty G   349,956    (120,502)   229,454 
Total forward currency contracts   5,070,058    (1,774,906)   3,295,152 
                
Total assets  $15,642,452   $(7,196,976)  $8,445,476 

 

Liabilities   Gross amounts
offset in the
Statements of
Financial Condition		    Gross amounts of
recognized liabilities		    Net amounts of
liabilities presented in
the Statements of
Financial Condition		 
Futures contracts               
Counterparty C  $1,992,486   $(2,662,957)  $(670,471)
                
Forward currency contracts               
Counterparty H   7,056,281    (9,700,722)   (2,644,441)
                
Total liabilities  $9,048,767   $(12,363,679)  $(3,314,912)

 

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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 March 31, 2013, by market sector:

 

Agricultural (grains, livestock and softs) – The Trust’s primary exposure is to agricultural price movements, which are often directly affected by severe or unexpected weather conditions as well as supply and demand factors.

 

Currencies – Exchange rate risk is a principal market exposure of the Trust. The Trust’s currency exposure is to exchange rate fluctuations, primarily fluctuations which disrupt the historical pricing relationships between different currencies and currency pairs. The fluctuations are influenced by interest rate changes as well as political and general economic conditions. The Trust trades in a large number of currencies including cross-rates—e.g., positions between two currencies other than the U.S. dollar.

 

Energies – The Trust’s primary energy market exposure is to gas and oil price movements, often resulting from political developments in the Middle East and economic conditions worldwide. Energy prices are volatile and substantial profits and losses have been and are expected to continue to be experienced in this market.

 

Interest Rates – Interest rate movements directly affect the price of the sovereign bond futures positions held by the Trust and indirectly the value of its stock index and currency positions. Interest rate movements in one country as well as relative interest rate movements between countries may materially impact the Trust’s profitability. The Trust’s primary interest rate exposure is to interest rate fluctuations in countries or regions including Australia, Canada, Japan, Switzerland, the United Kingdom, the U.S. and the Eurozone. However, the Trust also may take positions in futures contracts on the government debt of other nations. The Managing Owner anticipates that interest rates in these industrialized countries or areas, both long-term and short-term, will remain the primary interest rate market exposure of the Trust for the foreseeable future.

 

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 March 31, 2013 and December 31, 2012. 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.

 

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Fair Value of Futures and Forward Currency Contracts at March 31, 2013

 

                   Net Unrealized 
   Fair Value - Long Positions   Fair Value - Short Positions   Gain (Loss) on 
Sector  Gains   Losses   Gains   Losses   Open Positions 
                     
Futures contracts:                         
Energies  $1,846,023   $(85,009)  $21,808   $(1,463,027)  $319,795 
Grains   33,550    (618,438)   1,363,050    (73,367)   704,795 
Interest rates   4,681,282    (699,682)   886    (322,870)   3,659,616 
Livestock   18,650    -    130    (311,660)   (292,880)
Metals   83,474    (2,237,352)   2,913,257    (47,499)   711,880 
Softs   547,190    (219,056)   1,015,032    (197,619)   1,145,547 
Stock indices   1,769,576    (3,437,405)   383,010    -    (1,284,819)
                          
Total futures contracts   8,979,745    (7,296,942)   5,697,173    (2,416,042)   4,963,934 
                          
Forward currency contracts   2,152,526    (4,457,457)   2,120,667    (2,649,223)   (2,833,487)
                          
Total futures and  forward currency contracts  $11,132,271   $(11,754,399)  $7,817,840   $(5,065,265)  $2,130,447 

 

Fair Value of Futures and Forward Currency Contracts at December 31, 2012

 

                   Net Unrealized 
   Fair Value - Long Positions   Fair Value - Short Positions   Gain (Loss) on 
Sector  Gains   Losses   Gains   Losses   Open Positions 
                     
Futures contracts:                         
Energies  $2,595,897   $(18,609)  $176,518   $(3,206,556)  $(452,750)
Grains   -    (404,470)   245,396    (20,450)   (179,524)
Interest rates   3,807,256    (1,713,036)   32,326    -    2,126,546 
Livestock   -    -    -    (11,590)   (11,590)
Metals   294,790    (112,216)   3,470    (901,013)   (714,969)
Softs   14,300    -    820,793    (173,303)   661,790 
Stock indices   3,561,052    (403,863)   -    (106,850)   3,050,339 
                          
Total futures contracts   10,273,295    (2,652,194)   1,278,503    (4,419,762)   4,479,842 
                          
Forward currency contracts   5,057,295    (6,006,856)   6,000,398    (4,400,115)   650,722 
                          
Total futures and  forward currency contracts  $15,330,590   $(8,659,050)  $7,278,901   $(8,819,877)  $5,130,564 

 

The effect of trading futures and forward currency contracts is represented on the Statements of Operations for the three months ended March 31, 2013 and 2012 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:

 

15
 

 

Trading gains (losses) of futures and forward currency contracts for the three months ended March 31, 2013 and 2012

 

Sector  Three months ended:
March 31, 2013		   Three months ended:
March 31, 2012		 
Futures contracts:          
Energies  $(3,043,353)  $10,412,557 
Grains   (671,718)   (4,433,664)
Interest rates   (4,035,946)   (15,579,211)
Livestock   96,250    (132,070)
Metals   (2,555,838)   (7,292,286)
Softs   1,707,322    2,119,527 
Stock indices   22,521,009    (9,224,678)
Total futures contracts   14,017,726    (24,129,825)
           
Forward currency contracts   1,102,375    (19,777,557)
           
Total futures and  forward currency contracts  $15,120,101   $(43,907,382)

 

The following table presents average notional value by sector in U.S. dollars of open futures and forward currency contracts for the three months ended March 31, 2013 and 2012. The Trust’s average net asset value for the three months ended March 31, 2013 and 2012 was approximately $468,000,000 and $710,000,000, respectively.

 

Average notional value by sector of futures and forward currency contracts for the three months ended March 31, 2013 and 2012

 

   2013   2012 
Sector  Long Positions   Short Positions   Long Positions   Short Positions 
                 
Futures contracts:                    
Energies  $71,746,881   $78,809,945   $85,112,356   $40,304,045 
Grains   27,524,937    36,127,271    19,541,825    36,306,884 
Interest rates   1,341,405,525    25,116,262    1,332,618,330    24,095,856 
Livestock   861,800    9,422,880    -    4,579,130 
Metals   31,582,430    46,104,621    26,574,777    62,655,627 
Softs   11,410,541    28,893,851    7,157,640    27,786,050 
Stock indices   428,846,071    3,769,850    91,978,360    125,441,692 
Total futures contracts   1,913,378,185    228,244,680    1,562,983,288    321,169,284 
                     
Forward currency contracts   632,569,489    223,278,903    269,906,364    452,221,381 
                     
Total average notional  $2,545,947,674   $451,523,583   $1,832,889,652   $773,390,665 

 

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 March 31, 2013 and 2012. 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.

 

CONCENTRATION OF CREDIT RISK

 

Credit risk is the possibility that a loss may occur due to the failure of a counterparty to perform according to the terms of a contract. Credit risk is normally reduced to the extent that an exchange or clearing organization acts as a counterparty to futures transactions since typically the collective credit of the members of the exchange is pledged to support the financial integrity of the exchange.

 

The Managing Owner seeks to minimize credit risk primarily by depositing and maintaining the Trust’s assets at financial institutions and trading counterparties which the Managing Owner believes to be creditworthy. In addition, for OTC forward currency contracts, the Trust enters into master netting agreements with its counterparties. Collateral posted at the various counterparties for trading of futures and forward currency contracts includes cash and U.S. Treasury notes.

 

A significant portion of the Trust’s forward currency trading activities are cleared by Barclays Bank PLC (“BB”), Deutsche Bank AG (“DB”) and Morgan Stanley & Co. LLC (“MS”). The Trust’s concentration of credit risk associated with BB, DB or MS nonperformance includes unrealized gains inherent in such contracts, which are recognized in the Statements of Financial Condition, plus the value of margin or collateral held by BB, DB and MS. The amount of such credit risk was $36,746,977 and $54,632,696 at March 31, 2013 and December 31, 2012, respectively.

 

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4. PROFIT SHARE

 

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”). No profit share was earned or accrued during the three months ended March 31, 2013 or 2012.

 

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 March 31, 2013 and December 31, 2012, the Managing Owner is owed $291,290 and $130,021, 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. At December 31, 2012, $11,982 was owed to the Managing Owner (and is included in "Due to Managing Owner" in the Statements of Financial Condition). There was no redemption charge payable at March 31, 2013.

 

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 ending March 31,     
   2013   2012   Date of initial issuance 
Series 1   394,930.280    596,977.685    July 23, 2001 
Series 2   236.729    185.687    April 1, 2010 
Series 3   27,665.936    26,228.488    September 1, 2009 
Series 4   1,784.816    1,128.562    November 1, 2010 

 

7. BROKERAGE AND CUSTODIAL FEES

 

For the three months ended March 31, 2013 and 2012, brokerage and custodial fees were as follows:

 

   Three months ending March 31, 
   2013   2012 
Brokerage fees  $7,200,061   $11,277,729 
Custodial fees   180    140 
Total  $7,200,241   $11,277,869 

 

During the three months ended March 31, 2013 and 2012, amounts paid to selling agents on Series 1 units sold subsequent to August 12, 2009 exceeded 9.5% of the gross offering proceeds of the Series 1 Units sold. As a result, the amounts that otherwise would be paid to selling agents for that Series 1 Unit were instead rebated to the Trust for the benefit of all holders of Series 1 Units. The total amounts rebated to the Trust for the three months ended March 31, 2013 and 2012, $23,018 and $326, respectively, were included in “Brokerage and custodial fees” in the Statements of Operations.

 

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.

 

17
 

 

The amount of capital raised for the Trust should not have a significant impact on its operations, as the Trust has no significant capital expenditure or working capital requirements other than for monies to pay trading losses, brokerage commissions and charges. Within broad ranges of capitalization, the Managing Owner’s trading positions should increase or decrease in approximate proportion to the size of the Trust.

 

The Trust raises additional capital only through the sale of Units and capital is increased through trading profits (if any). The Trust does not engage in borrowing.

 

The Trust trades futures, 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 substantially higher; (4) prohibiting pyramiding – that is, using unrealized profits in a particular market as margin for additional positions in the same market; and (5) changing the equity utilized for trading by an account solely on a controlled periodic basis not automatically due to an increase in equity from trading profits. The Managing Owner attempts to control credit risk by causing the Trust to deal exclusively with large, well-capitalized financial institutions as brokers and counterparties.

 

The financial instruments traded by the Trust contain varying degrees of off-balance sheet risk whereby changes in the market values of the futures, 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 important, changes in interest rates could cause periods of strong up or down market price trends during which the Trust’s profit potential generally increases. However, inflation can also give rise to markets which have numerous short price trends followed by rapid reversals, markets in which the Trust is likely to suffer losses.

 

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 months ended March 31, 2013, 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, forward 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 average midpoint of bid/ask quotations at the last second 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 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 contract 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 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.

  

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RESULTS OF OPERATIONS

 

Due to the nature of the Trust’s trading, the results of operations for the interim periods presented should not be considered indicative of the results that may be expected for the entire year.

 

Series 1 Units, which were initially issued simply as “Units” beginning in July 2001, were the only Series of Units available prior to 2009. Series 2 Units were first issued on April 1, 2010, Series 3 Units were first issued on September 1, 2009 and Series 4 Units were first issued on November 1, 2010. The Trust’s past performance is not necessarily indicative of how it will perform in the future.

 

 
Period ended March 31, 2013
 

 

Month Ending:  Total Trust
Capital		 
     
March 31, 2013  $450,763,389 
December 31, 2012   473,660,034 

 

   Three months 
Change in Trust Capital   $(22,896,645)
Percent Change     (4.83)%

 

THREE MONTHS ENDED MARCH 31, 2013

 

The decrease in the Trust’s net assets of $22,896,645 for the three months ended March 31, 2013 was attributable to redemptions of $32,968,341 and was partially offset by subscriptions of $2,775,267 and net income of $7,296,429.

 

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 March 31, 2013 decreased $4,077,628 relative to the corresponding period in 2012 due to a decrease in the Trust’s net assets.

 

Administrative expenses for the three months ended March 31, 2013 decreased $94,800 relative to the corresponding period in 2012. The decrease was due mainly to a decrease in the Trust's net assets during the three months ended March 31, 2013 relative to the corresponding period in 2012.

 

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 March 31, 2013 decreased $58,523 relative to the corresponding period in 2012. This decrease was due predominantly to a decrease in average net assets during the three months ended March 31, 2013.

 

The Trust experienced net realized and unrealized gains of $14,920,545 from its trading operations (including foreign exchange translations and Treasury obligations). Brokerage and custodial fees of $7,200,241, administrative expenses of $437,257, custody fees and other expenses of $24,701 and management fees of $170,228 were incurred. Interest income of $208,311 partially offset the Trust's expenses resulting in net income of $7,296,429. An analysis of the trading gain (loss) by sector is as follows:

 

Sector  % Gain
(Loss)		 
Currencies   0.24%
Energies   (0.64)%
Grains   (0.14)%
Interest rates   (0.84)%
Livestock   0.01%
Metals   (0.53)%
Softs   0.37%
Stock indices   4.83%
Trading gain   3.30%

 

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MANAGEMENT DISCUSSION – 2013

 

Three months ended March 31, 2013

 

The Trust produced a profit during the quarter predominantly due to gains from long equity positions. There was also a fractional gain from trading soft commodities. Currency trading was nearly flat. On the other hand, trading of interest rate, energy, metal and agricultural commodity futures generated losses.

 

During the quarter, market participants were encouraged by an improvement in U.S. economic conditions, by signs that China’s growth was recovering after having bottomed in the third quarter of 2012, by continued monetary ease worldwide, and by evidence that some grudging progress was being made on the banking and fiscal problems that have plagued developed economies in recent years. At times, however, this enthusiasm was dampened by a variety of factors including: ongoing debate about the future direction of monetary policies and quantitative easing; discussion about the efficacy of continued austerity in the developed world; the possible impact of the U.S. sequestration; talk of political scandals in Spain; labor unrest in Greece; the unexpected Italian election results; and the Cypriot crisis.

 

With U.S. manufacturing, housing and employment data remaining positive, long positions in U.S. equity futures were profitable as well as a short position in the VIX index. Long positions in Japanese equity futures were profitable in the wake of the Bank of Japan’s accommodative rhetoric. Long Swedish, German, Dutch, Australian, South African, Singaporean and Taiwanese equity index trades were also positive. On the other hand, long positions in Italian, Spanish, Chinese, Korean and Hong Kong equity futures produced partially offsetting losses.

 

Currency trading was mixed and essentially flat for the quarter. Long U.S. and Australian dollar trades against the Japanese yen were quite profitable as Japan’s leaders forged ahead with promises of monetary accommodation. Long Australian positions relative to British Pound Sterling and the Euro, and long U.S. dollar and Euro trades against the South African rand also posted gains. Finally, short Euro trades versus Romanian Leu, Swedish Krone and Turkish Lira, and short U.S. dollar trades versus Chilean and Mexican Peso and Israeli Shekel were profitable. On the other hand, short U.S. dollar trades versus the currencies of the United Kingdom, Canada, Colombia, South Korea, Singapore, Norway, Poland and Switzerland registered losses and were reduced as were short Euro trades against the currencies of Norway, Poland, Hungary and the Czech Republic.

 

In January when growth prospects brightened and risk aversion dissipated, interest rates rose and long positions in German, U.S., Australian, Canadian, British and French note and bond futures—which had been highly profitable for the last two years—produced losses and were reduced. In late February and March, increasing worry increased the purchase of government securities, and the long—though reduced—positions produced profits that fell short of earlier losses. For the quarter, long U.S. note and bond positions were profitable, as was a long JGB trade. On the other hand, trading of German, British, Canadian and Australian interest rate futures was unprofitable.

 

Trading of commodities was fractionally unprofitable. Among soft commodities, short positions in coffee and sugar were profitable due to the weight of abundant supplies on price. Also, a long cotton trade produced a gain. In grains, the losses from trading corn and the soybean complex outdistanced the gain from a short wheat position. Energy prices were volatile during the quarter and the losses from trading crude oil, heating oil and London gas oil were greater than the profits from a long RBOB gasoline position and from trading natural gas. In metals, profits from short copper and aluminum positions fell short of the losses from long gold, silver, platinum, zinc, lead and nickel trades.

 

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Period ended March 31, 2012

 

 

   

Month Ending:  Total Trust
Capital		 
     
March 31, 2012  $650,060,714 
December 31, 2011   753,187,394 

 

   Three Months 
Change in Trust Capital  $(103,126,680)
Percent Change   (13.69)%

 

THREE MONTHS ENDED MARCH 31, 2012

 

The decrease in the Trust’s net assets of $103,126,680 for the three months ended March 31, 2012 was attributable to net loss (before profit share) of $55,738,975 and redemptions of $58,608,417 and was partially offset by subscriptions of $11,220,712.

 

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 March 31, 2012 decreased $3,239,359 relative to the corresponding period in 2011 due to a decrease in the Trust’s net assets.

 

Administrative expenses for the three months ended March 31, 2012 decreased $30,058 relative to the corresponding period in 2011. The decrease was due mainly to a decrease in the Trust's net assets during the three months ended March 31, 2012 relative to the corresponding period.

 

Interest income is derived from cash and U.S. Treasury instruments held at the Trust's brokers and custodian.  Interest income for the three months ended March 31, 2012 decreased $425,406 relative to the corresponding period in 2011. This decrease was due predominantly to a decrease in short-term Treasury yields in addition to a decrease in average net assets.

 

The Trust experienced net realized and unrealized losses of $43,996,819 from its trading operations (including foreign exchange translations and Treasury obligations). Brokerage and custodial fees of $11,277,869, administrative expenses of $532,057, custody fees and other expenses of $38,616 and management fees of $160,448 were incurred. Interest income of $266,834 partially offset the Trust's expenses resulting in a net loss of $55,738,975. An analysis of the trading gain (loss) by sector is as follows:

 

Sector  % Gain
(Loss)		 
Currencies   (2.73)%
Energies   1.43%
Grains   (0.60)%
Interest rates   (2.23)%
Livestock   0.00%
Metals   (0.95)%
Softs   0.31%
Stock indices   (1.19)%
Trading loss   (5.96)%

 

MANAGEMENT DISCUSSION – 2012

 

The Trust produced a loss during the quarter as losses from trading currency forwards and interest rates, equities, metals and grains futures overwhelmed gains from trading energies and soft commodities futures. The sentiment of market participants during the quarter was driven by the belief that both the economic outlook and the European debt crisis were improving.

 

Foreign exchange trading was particularly volatile and unprofitable. Entering the quarter, the U.S. dollar had been trading higher against most currencies based on relative economic strength, financial tumult in Europe and perceived weakening of growth in China. As these factors receded and the U.S. interest rates appeared to be staying negligible for an extended period the U.S. dollar sold off against Central and South American, European and Asian currencies generating losses on long U.S. dollar positions and in many cases bringing a reversal to short U.S. dollar positions. Later, short U.S. dollar trades versus the Brazilian real, Colombian peso and Chilean peso also generated losses. For the Brazilian real in particular, a larger than expected cut in the Brazilian Central Bank’s Selic benchmark interest rate and increased capital controls geared toward weakening the currency undermined the real. Also, a long Japanese yen trade versus the U.S. dollar lost money and was reversed to a short trade after the Japanese yen weakened suddenly following a surprise expansionary move by the Bank of Japan which increased its asset purchase program by $130 billion and set an inflation target for the first time.

 

21
 

 

Turning to non-U.S. dollar cross rates, long Australian dollar positions against a variety of currencies generated losses when the Australian dollar weakened as slowing growth, rising unemployment and declining inflation statistics combined with forecasts of a Chinese growth slowdown to increase the likelihood that the Reserve Bank of Australia might ease monetary policy. Short Euro trades against several currencies were unprofitable as the Euro rebounded when the European Central Bank’s longer-term refinancing operation program improved the functioning of financial markets in Europe and as the size of the European rescue fund was substantially raised.

 

Whether from a reduced need for safety because of an improving economic outlook, particularly in the U.S., from an increased worry about inflation, from a renewed concern about government debt levels or from a reduced likelihood of a third round of quantitative easing from the Federal Reserve, interest rates rose and long positions in U.S., Australian, Canadian, British and Japanese note and bond futures produced losses.

 

A first quarter rally in equity markets was rather widespread as market participants responded favorably to an apparent improvement in the global economic outlook, particularly in the U.S. and to progress by the European Union toward resolving their sovereign debt crisis. Long positions in U.S. equity futures were profitable, as was a short CBOE VIX trade that also benefitted from rising equity markets. However, short positions in numerous European and Asian equity indices, especially Japan, China, Hong Kong and Germany, produced even bigger losses.

 

Industrial metals had been in a sustained downtrend but as pessimism about global growth swung to modest optimism, perhaps prematurely, the metals rallied strongly, generating losses on short positions. A short platinum position also was unprofitable as a supply interruption from South Africa boosted prices.

 

In the energy markets, long positions in Brent crude, RBOB gasoline, London gas oil and heating oil benefited from the general commodity rally and continued stresses from the Middle East, and as a result were profitable. The biggest winner in the sector was short positions in natural gas where the supply boom from fracking and horizontal drilling in shale formations continues to drive prices down.

 

Trading of soft agricultural commodities was marginally negative. Short grain trades, especially in the soybean complex, were unprofitable. A short cocoa position was unprofitable as hot, dry weather hit the Ivory Coast and raised fears that an expected bumper crop might face significant damage. Short cotton and rubber trades were also unprofitable when prices rose as pessimism about worldwide growth lifted at least temporarily. A short Arabica coffee trade produced a profit as expectations of a bumper Brazilian harvest pushed Arabica to its lowest price in 18 months in late March.

 

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). The Trust may also engage in trading swaps. 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 March 31, 2013.

 

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

 

22
 

 

The following quantitative disclosures regarding the Trust's market risk exposures contain "forward-looking statements" within the meaning of the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). All quantitative disclosures in this section are deemed to be forward-looking statements for purposes of the safe harbor, except for statements of historical fact.

 

The Trust's risk exposure in the various market sectors traded by the Managing Owner is quantified below in terms of Value at Risk. Due to the Trust's mark- to-market accounting, any loss in the fair value of the Trust's open positions is directly reflected in the Trust's earnings (realized or unrealized) and cash flow (at least in the case of exchange-traded contracts in which profits and losses on open positions are settled daily through variation margin).

 

Exchange maintenance margin requirements have been used by the Trust as the measure of its Value at Risk. Maintenance margin requirements are set by exchanges to equal or exceed 95-99% of the maximum one-day losses in the fair value of any given contract incurred during the time period over which historical price fluctuations are researched for purposes of establishing margin levels. The maintenance margin levels are established by dealers and exchanges using historical price studies as well as an assessment of current market volatility (including the implied volatility of the options on a given futures contract) and economic fundamentals to provide a probabilistic estimate of the maximum expected near-term one-day price fluctuation.

 

The Trust calculates Value at Risk for forward currency contracts that are not exchange traded using exchange maintenance margin requirements for equivalent or similar futures positions as the measure of Value at Risk.

 

In quantifying the Trust’s Value at Risk, 100% positive correlation in the different positions held in each market risk category has been assumed. Consequently, the margin requirements applicable to the open contracts have simply been aggregated to determine each trading category’s aggregate Value at Risk. The diversification effects resulting from the fact that the Trust’s positions are rarely, if ever, 100% positively correlated have not been reflected.

 

The Trust's Trading Value at Risk in Different Market Sectors

 

The following table indicates the average, highest and lowest amounts of trading Value at Risk associated with the Trust's open positions by market category for the quarter ended March 31, 2013. During the three months ended March 31, 2013, the Trust's average total capitalization was approximately $457,430,000.

 

     Average value    % of
Average		    High
value		    Low value 
Sector   at risk    Capitalization    at risk    at risk 
Currencies   28.8    6.4%   28.8    28.8 
Energies   2.4    0.5%   2.4    2.4 
Grains   2.5    0.5%   2.5    2.5 
Interest rates   14.9    3.3%   14.9    14.9 
Livestock   0.6    0.1%   0.6    0.6 
Metals   3.7    0.8%   3.7    3.7 
Softs   2.4    0.5%   2.4    2.4 
Stock indices   27.4    6.0%   27.4    27.4 
    82.70    18.1%          

 

Average, highest and lowest Value at Risk amounts relate to the quarter-end amounts for the three months ended March 31, 2013. Average capitalization is the average of the Trust's approximate capitalization at the end each of the three months ended March 31, 2013. 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.

 

23
 

 

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 March 31, 2013 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

 

There are no material changes from risk factors as previously disclosed in Form 10-K, filed March 28, 2013.

 

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 March 31, 2013.

 

  (c) 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 March 31, 2013. There were no redemptions from Series 4 Unitholders.

 

   Series 1   Series 2   Series 3 
Date of
Redemption		  Units
Redeemed		   NAV per
Unit		   Units
Redeemed		   NAV per
Unit		   Units
Redeemed		   NAV per
Unit		 
                         
January 31, 2013   9,462.321   $1,073.08    -   $1,209.01    532.997   $1,217.25 
February 28, 2013   10,652.736    1,060.48    17.902    1,199.00    1,135.947    1,207.44 
March 31, 2013   8,597.416    1,076.27    -    1,221.16    180.907    1,230.00 
Total   28,712.473         17.902         1,849.851      

 

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

 

24
 

 

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

 

  * XBRL information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934, and is not subject to liability under those sections, is not part of any registration statement or prospectus to which it relates and is not incorporated or deemed to be incorporated by reference into any registration statement, prospectus or other document.

 

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: May 14, 2013  
  /s/Tod A. Tanis  
  Tod A. Tanis
  Vice-President
  (Principal Accounting Officer)

 

25