Attached files
file | filename |
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EX-1.02 - RJO GLOBAL TRUST | v204416_ex1-02.htm |
EX-8.01 - RJO GLOBAL TRUST | v204416_ex8-01.htm |
EX-5.01 - RJO GLOBAL TRUST | v204416_ex5-01.htm |
EX-23.01 - RJO GLOBAL TRUST | v204416_ex23-01.htm |
As
filed with the Securities and Exchange Commission on December 2,
2010
Registration
No. 333-
UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
S-1
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
RJO
GLOBAL TRUST
(Exact
name of registrant as specified in its charter)
Delaware
|
6799
|
36-4113382
|
||
(State
of Organization)
|
(Primary
Standard Industrial
Classification
Code Number)
|
(I.R.S. Employer
Identification
Number)
|
c/o
R.J. O’Brien Fund Management, LLC
222
South Riverside Plaza, Suite 900
Chicago,
Illinois 60606
telephone
(312) 373-5000
(Address,
including zip code, and telephone number, including area code, of registrant’s
principal executive offices)
Annette
Cazenave
c/o
R.J. O’Brien Fund Management, LLC
222
South Riverside Plaza, Suite 900
Chicago,
Illinois 60606
telephone
(312) 373-5000
(Name,
address, including zip code, and telephone number, including area code, of agent
for service)
Copy
to:
Timothy
P. Selby, Esq.
Alston
& Bird LLP
90 Park
Avenue
New York,
New York 10016
Approximate
date of commencement of proposed sale to the public:
As
soon as practicable after the effective date of this Registration
Statement.
If any of
the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933
check the following box. x
If this Form is filed to register
additional securities for an offering pursuant to Rule 462(b) under the
Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. o
If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. o
If this
Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. o
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 “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large
accelerated filer o Accelerated
filer o
Non-accelerated
filer o (Do not check if a
smaller reporting company) Smaller reporting
company x
Calculation
of Registration Fee
Title of Each Class of
Securities to be
Registered
|
Amount to be Registered
|
Proposed Maximum
Offering Price Per Unit(1)
|
Proposed Maximum
Aggregate Offering Price
|
Amount of Registration
Fee(1)
|
||||||||||||
Units
of beneficial interest
|
915,517.05372 | — | $ | 1.00 | $ | 0 |
(1) As
discussed below, pursuant to Rule 415(a)(6) under the Securities Act of 1933, as
amended, this Registration Statement includes a total of 915,517.05372 unsold
securities that had been previously registered and for which the registration
fee had been previously paid.
The
registrant hereby amends this registration statement on such date or dates as
may be necessary to delay its effective date until the registrant shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission acting pursuant to said
Section 8(a), may determine.
Pursuant
to Rule 415(a)(6) under the Securities Act of 1933, as amended, the securities
registered pursuant to this Registration Statement include 915,517.05372 unsold
units of beneficial interest previously registered on the Registration Statement
on Form S-1 (Registration No. 333-146177), which we refer to as the Prior
Registration Statement. In connection with the registration of such
unsold securities on the Prior Registration Statement, the registrant paid a
registration fee of $2,490.39 which will continue to be applied to such unsold
securities. Pursuant to Rule 415(a)(6), the offering of the unsold
securities registered under the Prior Registration Statement will be deemed
terminated as of the date of effectiveness of this Registration
Statement.
The
information in this preliminary prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This preliminary
prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any jurisdiction where the offer or sale is not
permitted.
Subject to
Completion: Dated December 2, 2010
PART
I – DISCLOSURE DOCUMENT
RJO
GLOBAL TRUST
915,517.05372
Units of Beneficial Interest
The
Trust
The RJO
Global Trust is a Delaware statutory trust that trades in the U.S. and
international futures and forward markets in equities, fixed income, currencies,
interest rates, energy and agricultural products, metals, commodities indices,
and stock indices. The primary objective of the trust is capital
appreciation. R.J. O’Brien Fund Management, LLC, the managing owner
of the trust, pursues this objective by allocating the trust’s assets to a
diverse group of experienced commodity trading advisors. The managing
owner seeks to reduce volatility and risk of loss by participating in broadly
diversified global markets and implementing risk control policies. An
investment in the trust offers a means of diversifying a traditional portfolio
of equities and debt.
The
Managing Owner
R.J.
O’Brien Fund Management, LLC, a registered commodity pool operator, is the
managing owner and sponsor of the trust.
Minimum
Subscription Amounts
First-time
investors (initial subscription)
|
$ | 5,000 | ||
Existing
investors (additional subscription minimums)
|
$ | 1,000 | ||
IRAs,
tax-exempt accounts
|
$ | 2,000 |
The
Commodity Trading Advisors
The
following commodity trading advisors trade the trust’s assets:
·
|
Abraham
Trading, L.P.;
|
·
|
Conquest
Capital LLC;
|
·
|
Dominion
Capital Management Institutional Advisors,
Inc.;
|
·
|
Global
Advisors (Jersey) Limited;
|
·
|
Haar
Capital Management LLC;
|
·
|
John
W. Henry &
Company, Inc.;
|
·
|
NuWave
Investment Management, LLC;
and
|
·
|
Trigon
Investment Advisors, LLC
|
The
managing owner may add, remove or replace any trading advisor without the
consent of or advance notice to investors. Investors will be notified of any
material change in the basic investment policies or structure of the
trust.
The
Units
Units are
available for subscription on the last business day of each month at the current
net asset value per unit. As of October 31, 2010, the net asset value
per unit for Class A units was $102.51 and $106.33 for Class B
units. The units are offered in two classes. Class A units
are subject to a selling commission. Class B units are not charged a
selling commission, and will only be offered to certain qualified investors
participating in a program through certain financial advisors.
The
Offering
Subscriptions
will initially be deposited in a subscription account at JP Morgan
Chase. Upon acceptance of an investor’s subscription agreement by the
managing owner, 100% of the subscription amount will be invested in the trust as
of the first business day of the following month at which time it will
immediately be allocated to the trading advisors. The units are
offered on a continuous basis. Unless the term of the trust is
extended, the trust’s governing agreement provides that it will terminate on
December 31, 2026. R.J. O’Brien Securities, LLC is the lead selling
agent of the units. Additional selling agents retained by the lead
selling agent will use their best efforts to sell the units
offered. There is no minimum number of units which must be sold
during a particular month.
THE
RISKS YOU FACE
Before
you decide whether to invest, you should read this entire prospectus carefully
and consider “The Risks You Face” beginning on page 12 and “Conflicts of
Interest” beginning on page 78.
·
|
These
are speculative securities. You could lose all or substantially
all of your investment in the
trust.
|
·
|
The
trust’s futures, forward and options trading is speculative and trading
performance has been, and is expected to be,
volatile.
|
·
|
The
trust takes positions with total values that are bigger than the total
amount of the trust’s assets. The face value of the trust’s
positions typically range from two to fifteen times its aggregate net
assets.
|
·
|
Past performance is not
necessarily indicative of future
results.
|
·
|
The
trust is subject to substantial charges and must generate trading profits,
after taking into account estimated interest income of 0.20%, of 7.70%
with respect to the Class A units (5.70% with respect to Class B units)
after one year to cover its expenses and break
even.
|
·
|
Some
assets of the trust are traded on non-U.S. markets that are not subject to
the same degree of regulation as U.S.
markets.
|
·
|
You
will be taxed on your share of the trust’s income even though the trust
does not intend to make any
distributions.
|
·
|
There
is no secondary market for the units and none is expected to
develop. Units may only be redeemed as of the end of a calendar
month subject to a 1.5% redemption charge through the end of the eleventh
month after issuance.
|
Before
you invest, you will be required to represent and warrant that you meet
applicable state minimum financial suitability standards. You are
encouraged to discuss the investment with your financial, legal, and tax
advisors before you invest in the trust.
This prospectus is in two parts: a disclosure document and a statement of additional information. These parts are bound together, and both contain important information.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE
COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE MERITS OF
PARTICIPATING IN THIS POOL NOR HAS THE COMMISSION PASSED ON THE ADEQUACY OR
ACCURACY OF THIS DISCLOSURE DOCUMENT.
R.J.
O’Brien Fund Management, LLC
Managing
Owner
The date
of this prospectus
is ,
2010.
COMMODITY
FUTURES TRADING COMMISSION
RISK
DISCLOSURE STATEMENT
YOU
SHOULD CAREFULLY CONSIDER WHETHER YOUR FINANCIAL CONDITION PERMITS YOU TO
PARTICIPATE IN A COMMODITY POOL. IN SO DOING, YOU SHOULD BE AWARE
THAT COMMODITY INTEREST TRADING CAN QUICKLY LEAD TO LARGE LOSSES AS WELL AS
GAINS. SUCH TRADING LOSSES CAN SHARPLY REDUCE THE NET ASSET VALUE OF
THE POOL AND CONSEQUENTLY THE VALUE OF YOUR INTEREST IN THE POOL. IN
ADDITION, RESTRICTIONS ON REDEMPTIONS MAY AFFECT YOUR ABILITY TO WITHDRAW YOUR
PARTICIPATION IN THE POOL.
FURTHER,
COMMODITY POOLS MAY BE SUBJECT TO SUBSTANTIAL CHARGES FOR MANAGEMENT, AND
ADVISORY AND BROKERAGE FEES. IT MAY BE NECESSARY FOR THOSE POOLS THAT
ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING PROFITS TO AVOID
DEPLETION OR EXHAUSTION OF THEIR ASSETS. THIS DISCLOSURE DOCUMENT
CONTAINS A COMPLETE DESCRIPTION OF EACH EXPENSE TO BE CHARGED TO THIS POOL AT
PAGES 26 TO 30 AND A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN,
THAT IS, TO RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE
7.
THIS
BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER FACTORS NECESSARY TO
EVALUATE YOUR PARTICIPATION IN THIS COMMODITY POOL. THEREFORE, BEFORE
YOU DECIDE TO PARTICIPATE IN THIS COMMODITY POOL, YOU SHOULD CAREFULLY STUDY
THIS DISCLOSURE DOCUMENT, INCLUDING A DESCRIPTION OF THE PRINCIPAL RISK FACTORS
OF THIS INVESTMENT, AT PAGES 12 TO 22.
YOU
SHOULD ALSO BE AWARE THAT THIS COMMODITY POOL MAY TRADE FOREIGN FUTURES OR
OPTIONS CONTRACTS. TRANSACTIONS ON MARKETS LOCATED OUTSIDE THE UNITED
STATES, INCLUDING MARKETS FORMALLY LINKED TO A UNITED STATES MARKET, MAY BE
SUBJECT TO REGULATIONS WHICH OFFER DIFFERENT OR DIMINISHED PROTECTION TO THE
POOL AND ITS PARTICIPANTS. FURTHER, UNITED STATES REGULATORY
AUTHORITIES MAY BE UNABLE TO COMPEL THE ENFORCEMENT OF THE RULES OF REGULATORY
AUTHORITIES OR MARKETS IN NON-UNITED STATES JURISDICTIONS WHERE TRANSACTIONS FOR
THE POOL MAY BE EFFECTED.
RJO
GLOBAL TRUST
PART ONE
DISCLOSURE
DOCUMENT
|
||||
Summary
|
1 | |||
Organizational
Chart
|
11 | |||
The
Risks You Face
|
12 | |||
How
the Trust Works
|
22 | |||
Performance
of the Trust
|
24 | |||
Charges
|
26 | |||
Interest
Income
|
30 | |||
The
Managing Owner
|
30 | |||
The
Commodity Trading Advisors
|
32 | |||
Brokerage
Arrangements
|
76 | |||
Redemptions;
Net Asset Value
|
77 | |||
Conflicts
of Interest
|
78 | |||
Fiduciary
Duty and Remedies
|
80 | |||
The
Trust and the Trustee
|
81 | |||
Certain
U.S. Federal Income Tax Consequences
|
85 | |||
Benefit
Plan Investors
|
89 | |||
Plan
of Distribution
|
91 | |||
Lawyers
|
93 | |||
Accountants
|
93 | |||
Privacy
Policy
|
93 | |||
PART TWO
STATEMENT
OF ADDITIONAL
INFORMATION
|
Managed
Futures Funds in General
|
95 | |||
The
Role of Managed Futures in Your Portfolio
|
97 | |||
Futures
Markets and Trading Methods
|
99 | |||
Exhibit
A — Ninth Amended and Restated Declaration and Agreement of
Trust
|
A-1 | |||
Exhibit
B — Subscription Requirements
|
B-1 | |||
Exhibit
C-A — Class A Units Subscription Agreement and Power of
Attorney
|
C-A-1 | |||
Exhibit
C-B — Class B Units Subscription Agreement and Power of
Attorney
|
C-B-1 | |||
Exhibit
D — Request for Redemption
|
D-1 |
i
SUMMARY
This
summary highlights certain information contained elsewhere in this
prospectus. Before you decide to invest in the trust, you should read
the entire prospectus, the statement of additional information, the information
incorporated by reference herein, and the exhibits.
The
Trust
The RJO
Global Trust is a Delaware statutory trust (formed in November 1996) that trades
in the U.S. and international futures and forward markets in equities, fixed
income, currencies, interest rates, energy and agricultural products, metals,
commodities indices, and stock indices. The primary objective of the
trust is capital appreciation. R.J. O’Brien Fund Management, LLC, the
managing owner of the trust, pursues this objective by allocating the trust’s
assets to a diverse group of experienced commodity trading
advisors. The managing owner seeks to reduce volatility and risk of
loss by participating in broadly diversified global markets and implementing
risk control policies. An investment in the trust offers a means of
diversifying a traditional portfolio of equities and debt. Investing
in the trust poses risks to investors and you are encouraged to read “The Risks
You Face” beginning on page 12.
The
office of the trust is located at c/o R.J. O’Brien Fund Management, LLC, 222
South Riverside Plaza, Suite 900, Chicago, Illinois 60606; telephone
(312) 373-5000.
The
Managing Owner
R.J.
O’Brien Fund Management, LLC, a registered commodity pool operator, is the
managing owner and sponsor of the trust. The managing owner is a
subsidiary of RJO Holdings, Corp. The managing owner was originally
incorporated in Illinois in 2006 and was reformed as a limited liability company
in Delaware in July 2007. The managing owner has been registered with
the Commodity Futures Trading Commission (CFTC) as a commodity pool operator
since December 1, 2006, and has been a member of the National Futures
Association (NFA) in such capacity since December 1, 2006. As of
October 31, 2010, the managing owner was managing approximately $55.3 million in
client assets. The managing owner maintains its principal office at
222 South Riverside Plaza, Suite 900, Chicago, Illinois 60606; telephone
(312) 373-5000. See the organizational chart of the trust at
page 11.
As of
October 31, 2010, the trust’s capitalization was approximately $55,291,981, the
net asset value per unit for Class A was $102.51, the net asset value per unit
for Class B was $106.33, and the trust had approximately 3,070
unitholders.
The
Trading Advisors
The trust
was originally established and operated as a single-advisor commodity
pool. As of November 1, 2008, the trust became a multi-advisor
commodity pool. As of October 1, 2010, the trust’s assets were
allocated to the current eight trading advisors: Abraham Trading,
L.P. (“ATC”), Conquest Capital LLC (“Conquest”), Dominion Capital Management
Institutional Advisors, Inc. (“DCMIA”), Global Advisors (Jersey) Limited
(“GAJL”), Haar Capital Management LLC (“Haar”), John W. Henry & Company,
Inc. (“JWH”), NuWave Investment Management, LLC (“NW” or “NuWave”), and Trigon
Investment Advisors, LLC (“Trigon”). As of October 31, 2010, the net
assets available for trading were allocated to the eight trading advisors with
the approximate percentage allocation to each trading advisor as indicated
below:
|
·
|
Abraham
Trading, L.P. – Trading Diversified –
16.66%
|
|
·
|
Conquest
Capital LLC – Macro – 16.66%
|
|
·
|
Dominion
Capital Management Institutional Advisors, Inc. – Dominion Sapphire
Program – 8.33%
|
1
|
·
|
Global
Advisors (Jersey) Limited – Commodity Systematic –
16.66%
|
|
·
|
Haar
Capital Management, LLC – Discretionary Commodity Trading Program –
8.33%
|
|
·
|
John
W. Henry & Company, Inc. – Diversified Plus –
8.33%
|
|
·
|
NuWave
Investment Management, LLC – Combined Futures Portfolio (2x) –
16.66%
|
|
·
|
Trigon
Investment Advisors, LLC – Discretionary Macro –
8.33%
|
The
managing owner is responsible for selecting, monitoring, and replacing trading
advisors. The managing owner may change the allocation to each
advisor, add, remove or replace any trading advisor without the consent of or
advance notice to investors. Investors will be notified of any
material change in the basic investment policies or structure of the
trust.
The
Trust and Its Investment Objectives
The
primary objective of the trust is capital appreciation through trading directed
by a diverse group of commodity trading advisors. At the same time,
the commodity trading advisors will attempt to reduce volatility and risk of
loss by participating in diversified markets and applying risk control
policies.
Through
an investment in the trust, investors have the opportunity to participate in
markets not typically represented in an individual’s portfolio, and the
potential to profit from rising as well as falling prices. The
success of the trading advisors’ trading is not dependent upon favorable
economic conditions, national or international. Indeed, periods of
economic uncertainty can augment the profit potential of the trust by increasing
the likelihood of significant movements in commodity prices, the exchange rates
between various countries, world stock prices and interest rates. The
trust’s assets are rebalanced at the end of each quarter among the trading
advisors in accordance with the percentages above.
Below is a brief description of each
trading program utilized by the trading advisors on behalf of the
trust.
Abraham Trading,
L.P. – Trading Diversified: Abraham Trading was founded in
1988. Abraham’s trading approach consists of five strategies with 15
sub-systems with independent entry and exit points, a trade filter and enhanced
risk management applications. The portfolio presently monitors and trades
60 markets including 34 commodity interests and 26 financial futures
markets. The holding periods generally range from just a few days to four
months. For a complete description of Abraham’s trading program, please
see “The Trading Advisors – Abraham Trading Company” beginning on page
35.
Conquest Capital
LLC – Macro: Conquest Capital was founded in
2001. Conquest’s trading program is primarily a short-term,
systematic trading strategy with a trend-following bias that concentrates on
many of the markets that would react strongly to national or global systemic
shocks. Conquest’s Macro trading program currently trades in 31
markets, including: currency pairs, fixed-income, stock indices, energies, and
metals. New positions are based on total portfolio
equity. For a complete description of Conquest’s trading program,
please see “The Trading Advisors – Conquest Capital LLC” beginning on page
41.
Global Advisors
(Jersey) Limited – Commodity Systematic: The operations now
conducted by Global Advisors (Jersey) Limited began in 1999. GAJL
operates a systematic quantitative trading and portfolio management tool that
has been developed specifically for the commodities futures
markets. GAJL describes its system’s core trading style as a
“breakout follower” because it tends to have a low correlation with pure trend
following approaches. The suite of models has been designed by GAJL
to offer diversification within the commodity niche, by trading inter- and
intra-commodity spreads as well as outright commodities. Trades are
structured to minimize the effects of transactions costs and to increase
capacity within its markets. The program trades energy, base metals,
precious metals, agricultural markets and commodity indices. No
financial markets
2
are
traded. For a complete description of GAJL’s trading program, please
see “The Trading Advisors – Global Advisors (Jersey) Limited” beginning on page
45.
Haar Capital
Management LLC – Discretionary Commodity Trading Program: Haar
was formed in 2005. Haar’s trading program is a primarily fundamental
strategy that is designed to achieve the capital appreciation of its client’s
assets through the speculation in financial and commodity futures and options
contracts in market sectors including, without limitation, currencies, metals,
financials, energies, softs, livestock, grains, and equity
indices. Haar seeks to achieve profit from longer-term trends that
develop due to certain changing fundamental factors behind commodity price
changes. In addition to outright long and short positions, trading
strategies may include inter- and intra-market spread positions and the use of
commodity options. For a complete description of Haar’s trading
program, please see “The Trading Advisors – Haar Capital Management LLC”
beginning on page 51.
John W.
Henry & Company, Inc. – JWH Diversified
Plus: John W. Henry & Company Inc. began trading assets
for clients in 1982. JWH’s trading program
utilized by the trust is a broadly diversified program that combines three
separate two-phase reversal systems with a dynamic sizing of individual market
positions based on volatility. The three trend-following models
utilize different time horizons to permit multiple entry and exit
points. Portfolio exposure will vary based on the relative positions
(long or short) of the three models used. For a complete description
of John W. Henry’s trading program, please see “The Trading Advisors – John W.
Henry & Company, Inc.” beginning on page 55.
NuWave Investment
Management, LLC – Combined Futures Portfolio (2x): NuWave
Investment Management, LLC is engaged in the business of providing trading
advisory services to customers with respect to futures contracts, forward
contracts, and other futures-related interests on United States and foreign
exchanges and markets. NuWave Investment Management, LLC’s “Combined
Futures Portfolio (2x)” program is a broadly diversified trading program
designed to capture directional price movement in both bull and bear market
cycles. The program actively manages directional positions according
to the output of proprietary pattern recognition models that identify repetitive
market tendencies without relying on traditional “trend”
definitions. For a complete description of NuWave Investment
Management, LLC’s trading program, please see “The Trading Advisors – NuWave
Investment Management, LLC” beginning on page 64.
Dominion Capital
Management Institutional Advisors, Inc. – Dominion Sapphire
Program: Dominion Capital Management Institutional Advisors,
Inc. was founded in March 2010. DCMIA is an affiliate of Dominion
Capital Management, Inc., which was incorporated in May 1994 and has been
registered with the CFTC as a commodity trading advisor in July 1994 and as a
commodity pool operator in August 1999, and has been a NFA member since July
1994. DCMIA is engaged in the business of providing trading advisory
services to customers with respect to futures contracts, forward contracts, and
other futures-related interests across a portfolio which includes global stock
index futures, global interest rate futures, commodity futures, and foreign
exchange markets. DCMIA manages customer accounts with a disciplined,
systematic trading and risk management approach. For a complete
description of DCMIA’s trading program, please see “The Trading Advisors –
Dominion Capital Management Institutional Advisors, Inc.” beginning on page
68.
Trigon Investment
Advisors, LLC – Discretionary Macro: Trigon was formed in
October 2002. Trigon is engaged in the business of providing trading
services to customers with respect to futures contracts, forward contracts, and
other futures related interests across different global asset
classes. Trigon manages accounts for trading in futures interest
contracts on a discretionary basis and its trading methodologies are speculative
in nature. Trigon’s Discretionary Macro program trades futures and
over-the-counter currencies on a purely discretionary basis with a focus on
fixed income, foreign exchange, equity indices and commodities. For a
complete description of Trigon’s trading program, please see “The Trading
Advisors – Trigon Investment Advisors, LLC” beginning on page 72.
3
The
Offering
Units are
available for subscription on the last business day of each month at the current
net asset value per unit. As of October 31, 2010, the net asset value
per unit for Class A units was $102.51 and $106.33 for Class B
units. R.J. O’Brien Securities, LLC (“RJOS”) is the lead selling
agent of the units and has retained additional selling agents to offer the units
on a best efforts basis. The units are offered in two
classes. Class A units are subject to a selling
commission. Class B units are not charged a selling commission, and
will only be offered to certain qualified investors participating in a program
through certain financial advisors.
In order
to purchase units, an investor must complete, execute and deliver a subscription
agreement and power of attorney, which accompanies this prospectus. A
signed subscription agreement must be received by the trust’s administrator, ACS
Securities Services, Inc., no later than the fifth business day prior to the
month-end of investment (including the last business day of the month) in order
to be received and approved by the managing owner in time for the subscriber to
be accepted as an investor as of the last business day of the
month.
The
minimum initial investment is $5,000 for individuals and $2,000 for trustees or
custodians of eligible employee benefit plans and individual retirement
accounts. Subscriptions in excess of these minimums are permitted in
$100 increments. Additional subscriptions by existing unitholders are
permitted in $1,000 minimums in $100 increments. There is no minimum
number of units that must be sold during a particular month. There is
no maximum aggregate subscription amount for the trust.
Subscriptions
will initially be deposited in a subscription account at JP Morgan
Chase. Upon acceptance of an investor’s subscription agreement by the
managing owner, 100% of the subscription amount will be invested in the trust as
of the first business day of the month at which time it will immediately be
allocated to the trading advisors. The units are offered on a
continuous basis. Unless the term of the trust is extended, the
trust’s governing agreement provides that it will terminate on December 31,
2026. The managing owner may, in its sole discretion, reject any
subscription in whole or in part.
A
unitholder cannot lose more than his or her investment in the trust plus
undistributed profits, and in no event will any obligations of the trust subject
a unitholder to any liability in excess of the capital contributed by such
unitholder, his or her share of undistributed profits and assets and the amount
of any distributions wrongfully distributed to such unitholder.
Major
Risks of the Trust
|
·
|
The
trust is a speculative investment and its performance is expected to be
volatile. It is not possible to predict how the trust will
perform over the long or short
term.
|
|
·
|
Investors
must be prepared to lose all or substantially all of their investment in
the units.
|
|
·
|
There
can be no assurance that the past performance of either the trust or the
trading advisors is indicative of how they will perform in the
future.
|
|
·
|
To
date, the performance of the trust has been volatile. The net
asset value per unit has varied by more than 23.16% in a single
month.
|
|
·
|
The
trust could incur large losses over short
periods.
|
|
·
|
The
trust is subject to substantial charges and must generate trading profits,
after taking into account estimated interest income of 0.20%, of 7.70%
with respect to the Class A units (5.70% with respect to the Class B
units) after one year to cover its expenses and break
even.
|
|
·
|
The
trust typically takes positions with a face value of two to fifteen times
its total net assets.
|
4
|
·
|
Trading
on foreign contract markets involves additional risks, including the risks
of inadequate or lack of regulation, exchange-rate fluctuations,
expropriation, credit and investment controls and counterparty
insolvency.
|
|
·
|
There
can be no assurance of the continued availability of a trading advisor or
its key principals.
|
|
·
|
Units
may only be redeemed as of the end of a calendar month, subject to a 1.5%
redemption charge through the end of the eleventh month after
issuance. Because investors must submit subscriptions as well
as redemption notices by the fifth business day prior to month-end,
investors will not know the net asset value at the time they acquire or
redeem units.
|
|
·
|
Unitholders
may not transfer or assign units without providing prior written notice to
the managing owner. No assignee may become a substitute
unitholder except with the consent of the managing
owner.
|
|
·
|
As
unitholders, investors have no discretion in the operation of the trust;
they are entirely dependent on the managing owner and the trading advisors
for the success of their investment in the
trust.
|
|
·
|
Profits
earned by the trust will be taxable to an investor even in the absence of
distributions, which the managing owner does not intend to
make.
|
|
·
|
The
trust is subject to conflicts of interest. See “Conflicts of
Interest” beginning on page 78.
|
Please
see “The Risks You Face” beginning on page 12 for a more detailed list of
relevant risks to an investment in the trust.
Redemptions
You may
redeem units at their month-end net asset value at the end of each
month. ACS Securities Services, Inc., the trust’s administrator, must
receive your redemption request no later than the fifth business day prior to
the month-end of redemption. Requests for partial redemptions must be
for at least a number of units amounting to the minimum equivalent of $1,000,
and a minimum balance of $1,000 must be maintained in such
instances. A redemption charge of 1.5% of the net asset value of the
units redeemed will be assessed on units redeemed on or before the eleventh
month-end from the date units are issued.
Distributions
The
managing owner currently does not intend to make any distributions of trust
profits.
<Remainder
of Page Intentionally Left Blank>
5
Fees
and Expenses of the Trust
The trust
pays substantial fees and expenses that must be offset by trading gains in order
to avoid depletion of the trust’s assets. A brief description of such
fees is described below. Please see “Charges” beginning on page 26
for additional information.
Fee
|
Description
|
|
Brokerage
fee
|
3.57%
of the trust’s month-end assets on an annual basis (0.298% monthly) with
respect to Class A units and 1.57% of the trust’s month-end assets on an
annual basis (0.131% monthly) with respect to Class B units, payable as
follows: selling commission to the selling agents of 2.0%
annually; and clearing, NFA and exchange fees (including fees related to
foreign currency transactions and other off-exchange transactions) paid as
a flat percentage of assets at 1.57% annualized. Class B units
will not be charged the 2.0% selling commission payable to the selling
agents.
|
|
Management
fees
|
The
trust pays each trading advisor a monthly rate of up to 0.167% (2.0%
annually) of the portion of net assets managed by each trading
advisor.
|
|
Consulting
fees
|
The
trust pays its consultant, Liberty Funds Group, an annual fee equal to
0.33% of month-end net assets.
|
|
Managing
owner fee
|
The
trust pays the managing owner a fee of 0.75% of the trust’s month-end net
assets on an annual basis.
|
|
Underwriting
expenses
|
The
trust reimburses the managing owner up to 0.35% of the trust’s month-end
net assets on an annual basis for underwriting
expenses.
|
|
Incentive
fees
|
The
trust pays each trading advisor a quarterly incentive fee equal to 20.0%
of new trading profits earned on the portion of the trust’s net assets
managed by such trading advisor.
|
|
Ongoing
offering costs
|
The
trust pays ongoing offering costs as they are incurred up to a maximum of
0.5% of the trust’s average month-end net assets each fiscal
year.
|
|
Administrative
expenses
|
The
trust pays administrative expenses as they are incurred, currently
estimated to be approximately 0.40% of the trust’s average month-end net
assets during each fiscal year.
|
|
Redemption
fee
|
1.5%
of the net asset value per unit will be charged on all units redeemed if
the redemption is effected during the first eleven months after
issuance.
|
6
Breakeven
Table
Following
is a table that sets forth the fees and expenses that you would incur on an
initial investment of $5,000 in the Class A units and the Class B units of the
trust and the amount that your investment must earn, after taking into account
estimated interest income, in order to breakeven after one year.
Class A Units
|
Class B Units
|
|||||||||||||||
Expense
|
Percentage
Return
|
Dollar Return
Required1
|
Percentage
Return
|
Dollar Return
Required1
|
||||||||||||
%
|
$
|
%
|
$
|
|||||||||||||
Brokerage
Fee2
|
3.57 | 178.50 | 1.57 | 78.50 | ||||||||||||
Management
Fee3
|
2.00 | 100.00 | 2.00 | 100.00 | ||||||||||||
Consulting
Fee4
|
0.33 | 16.50 | 0.33 | 16.50 | ||||||||||||
Managing
Owner Fee5
|
0.75 | 37.50 | 0.75 | 37.50 | ||||||||||||
Underwriting
Expenses6
|
0.35 | 17.50 | 0.35 | 17.50 | ||||||||||||
Incentive
Fee7
|
— | — | — | — | ||||||||||||
Ongoing
Offering Costs
|
0.50 | 25.00 | 0.50 | 25.00 | ||||||||||||
Administrative
Expenses
|
0.40 | 20.00 | 0.40 | 20.00 | ||||||||||||
Less:
Interest Income8
|
(0.20 | ) | (10.00 | ) | (0.20 | ) | (10.00 | ) | ||||||||
Trading
profit that units must earn to recoup an initial investment of $5,0009
|
— | 385.00 | — | 285.00 | ||||||||||||
Trading
profit as a percentage of net assets that units must earn to recoup an
initial investment of $5,0009
|
7.70 | — | 5.70 | — |
(1)
|
The
breakeven analysis assumes that the units have a constant month-end net
asset value and assumes a $5,000
investment.
|
(2)
|
The
brokerage fee is an annual rate of 3.57% of the trust’s month-end net
assets for Class A units and 1.57% for Class B units. The
brokerage fee includes any applicable sales commissions and all
transaction fees.
|
(3)
|
For
purposes of calculating the breakeven amount, the highest possible
management fee payable to the trust’s trading advisors, equal to 2.0% of
the net assets on an annual basis, has been
used.
|
(4)
|
The
trust pays its consultant, Liberty Funds Group, an annual fee equal to
0.33% of month-end net assets.
|
(5)
|
The
trust pays the managing owner a fee of 0.75% of the trust’s month-end net
assets on an annual basis.
|
(6)
|
The
trust reimburses the managing owner up to 0.35% of the trust’s month-end
net assets on an annual basis for underwriting
expenses.
|
(7)
|
Incentive
fees are paid to trading advisors only on new trading profits earned by
the trading advisor on the portion of the trust’s net assets that it
manages. New trading profits are determined after deducting
advisor management fees and the brokerage fee and do not include interest
income. Therefore, incentive fees will be zero at the breakeven
point on the assets managed by the trading
advisors.
|
(8)
|
The
trust is paid interest on the average daily U.S. dollar balances on
deposit with R.J. O’Brien & Associates, LLC at a rate equal to the
average four-week Treasury Bill rate. With respect to non-U.S.
dollar deposits, the current rate of interest is equal to a rate of
one-month LIBOR less 1.0%. As of October 31, 2010,
approximately $30 million of the trust’s assets were held in custody by
Wells Fargo Bank, N.A.
|
7
These assets are managed by RJO Investment Management LLC, the trust’s cash manager. The combined rate of interest used for this calculation was 0.20%, which is an estimated average. | |
(9)
|
A
redeeming unitholder pays redemption charges equal to 1.5% of the
redemption proceeds to R.J. O’Brien Fund Management, LLC through the end
of the eleventh month after the redeemed unit was
purchased. Redemption charges, if applicable, reduce the
redemption proceeds otherwise payable to
investors.
|
Principal
Tax Aspects of Owning Units
As long
as the trust is treated as a partnership for U.S. federal income tax purposes
and is not treated as a publicly traded partnership that is taxable as a
corporation, taxable U.S. investors are subject to U.S. federal income tax (and
applicable state income taxes) each year on their shares of any income and gains
recognized by the trust whether or not they redeem any units or receive any
distributions from the trust.
Under
current law, 40% of gains on Section 1256 Contracts will be taxable as
short-term capital gains at the individual investor’s ordinary income tax rate,
while 60% of such gains will be taxable as long-term capital
gain. This tax treatment applies regardless of how long an investor
holds units. The trust’s gains from other contracts will be primarily
short-term capital gain. If, on the other hand, an individual
investor holds a stock or bond for more than 12 months, all the gain realized on
its sale would generally be taxed as long-term capital gain.
Losses on
the units may be deducted against capital gains, and, in the case of
individuals, any losses in excess of capital gains may be deducted against
ordinary income only to the extent of $3,000 per year. Consequently,
investors would be required to include in their incomes their shares of the
trust’s interest income even if the units have declined in value. See
“Certain U.S. Federal Income Tax Consequences” beginning at
page 85.
Is
the Trust a Suitable Investment for You?
You
should consider investing in the trust if you are interested in its potential to
produce enhanced returns over the long term that are generally unrelated to the
returns of the traditional debt and equity markets and you are prepared to risk
significant or total losses of your investment. An investment in the
trust is a diversification opportunity and is not intended to be a complete
investment program. Only the risk capital portion of your investment
portfolio should be considered for an investment in the trust.
To
invest, you must have, at a minimum (i) a net worth of at least $250,000
(exclusive of home, furnishings and automobiles) or (ii) an annual gross income
of at least $70,000 and a net worth (similarly calculated) of at least $70,000,
in accordance with the North American Securities Administrators Association,
Inc. Guidelines for the Registration of Commodity Pool Programs, as amended and
adopted on May 7, 2007. A number of states in which the units are
offered impose additional or higher suitability standards. Please see
the suitability standards in Exhibit B attached to this prospectus.
These
standards are regulatory minimums only, and just because you meet the minimum
standard does not necessarily mean the units are a suitable investment for
you. In the case of sales to fiduciary accounts, these minimum
standards must be met by the beneficiary, the fiduciary account, or by the donor
or grantor who indirectly or directly supplies the funds to purchase the units
if the donor or grantor is the fiduciary. See the “Subscription
Requirements” in Exhibit B for specific information about state
requirements.
The
managing owner and the selling agent make every reasonable effort to determine
that your investment in the units is suitable and appropriate. In
making this determination, the managing owner and the selling agent assess if
you (a) meet the minimum income and net worth standards outlined above and in
the subscription agreement, (b) can reasonably benefit from an investment in the
trust based on your investment
8
objectives
and portfolio structure, (c) are able to bear the economic risk of the
investment based on your financial situation, and (d) have an apparent
understanding of (1) the fundamental risks of the investment, (2) the risk that
you may lose your entire investment, (3) the liquidity restrictions of an
investment in the units, (4) the restrictions on transferability of the units,
(5) the background and qualifications of the managing owner and the commodity
trading advisers to the trust, and (6) the tax consequences of an investment in
the units. Such assessment is based on a review of the subscription
agreement.
Investors
are cautioned not to invest more than 10% of their readily marketable assets in
the trust. Investors should be aware that they may lose all of their
investments in the trust.
An
Investment in the Units Should be Considered as a Three- to Five-Year
Commitment
The
market conditions in which the trust is likely to recognize significant profits
occur infrequently. An investor should plan to hold units for long
enough to have a realistic opportunity for a number of such trends to
develop. The managing owner believes that investors should consider
the units at least a three- to five-year commitment.
Important
Information About This Prospectus
This
prospectus is part of a registration statement that was filed with the
Securities and Exchange Commission (SEC) on behalf of the trust by its managing
owner. Before purchasing any units, you should carefully read this
prospectus, together with the additional information incorporated by reference
into this prospectus, as described under the heading “Incorporation of Certain
Information by Reference,” or information described under the heading “Where You
Can Find More Information.”
You
should rely only on the information contained in or incorporated by reference
into this prospectus. We have not authorized any other person to
provide you with different information. If anyone provides you with
different or inconsistent information, you should not rely on it. The
trust will not make an offer to sell units in any jurisdiction where the offer
or sale is not permitted. You should assume that the information
appearing in this prospectus, as well as information that was previously filed
with the SEC and incorporated by reference herein, is accurate as of the date of
such document. The trust’s performance, financial condition, results
of operations and prospects may have changed since that date.
Incorporation
of Certain Information by Reference
The SEC
allows the trust to “incorporate by reference” into this prospectus certain
information that it has filed with the SEC. This means that the trust
can disclose important information to you by referring you to those documents
without restating that information in this document. The information
incorporated by reference into this prospectus is considered to be part of this
prospectus. We incorporate by reference into this prospectus the
documents listed below, including their exhibits, except to the extent
information in those documents differs from information contained in this
prospectus:
|
(a)
|
The
trust’s Annual Report on Form 10-K for the year ended December 31, 2009,
as filed with the SEC on March 31,
2010;
|
|
(b)
|
The
trust’s Quarterly Reports on Form 10-Q for the quarters ended March 31,
2010, June 30, 2010, and September 30, 2010, as filed with the SEC on May
14, 2010, August 13, 2010, and November 12, 2010, respectively;
and
|
|
(c)
|
The
trust’s Current Reports on Form 8-K, as filed with the SEC on February 8,
2010, April 6, 2010, September 7, 2010, and October 4,
2010.
|
9
We will
provide to any beneficial owner to whom a copy of this prospectus is delivered,
a copy of any or all of the reports or documents that we have incorporated by
reference into this prospectus contained in the registration statement, but not
delivered with this prospectus. We will provide this information upon
written or oral request and at no cost to the requester. You may
request this information by contacting the managing owner at: R.J.
O’Brien Fund Management, LLC, 222 South Riverside Plaza, Suite 900, Chicago,
Illinois 60606; Attention: Annette Cazenave, Executive Vice President, or by
calling (312) 373-5000. You may also access these documents at the
managing owner’s website at
http://www.rjobrien.com/FundManagement/.
Where
You Can Find More Information
The trust filed its registration
statement relating to this offering of units with the SEC. This
prospectus is part of the registration statement, but the registration statement
includes additional information. The trust also files an Annual
Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form
8-K, and all amendments to these reports with the SEC. You may read
and copy any of the materials the trust has filed with the SEC at the SEC’s
Public Reference Room located at 100 F Street, N.E., Washington, D.C. 20549 on
official business days during the hours of 10:00 a.m. to 3:00
p.m. For further information on the Public Reference Room, please
call the SEC at 1-800-SEC-0330. These materials are also available to
the public on the SEC’s web site at http://www.sec.gov.
<Remainder
of Page Intentionally Left Blank>
10
RJO
GLOBAL TRUST
Organizational
Chart
The
following is an organizational chart that shows the relationship among the
various parties involved with this offering. Other than the trading
advisors and the trustee, all of the entities indicated in the organizational
chart are affiliates of RJO Holdings, Corp. See “Conflicts of
Interest” beginning at page 78.
11
The
Risks You Face
This section includes the principal
risks that you will face with an investment in the trust. You should
consider these risks when making your investment decision. You should
not invest in the trust unless you can afford to lose your entire
investment.
Possible
Total Loss of an Investment in the Trust
You could
lose all or substantially all of your investment in the
trust. Neither the trust nor the trust’s trading advisors have any
ability to control or predict market conditions. The investment
approach utilized on behalf of the trust may not be successful, and there is no
guarantee that the strategies employed by the trust’s trading advisors on behalf
of the trust will be successful.
Specific
Risks Associated with a Multi-Advisor Commodity Pool
The trust
is a multi-advisor commodity pool. Each of the trust’s trading
advisors makes trading decisions independent of the other trading advisors for
the trust. Thus, it is possible that the trust could hold opposite
positions in the same or similar futures, forwards, and options, thereby
offsetting any potential for profit from these positions.
Investing
in the Units Might Not Diversify an Overall Portfolio
One of
the objectives of the trust is to add an element of diversification to a
traditional securities or debt portfolio. While the trust may perform
in a manner largely independent from the general equity and debt markets, there
is no assurance it will do so. An investment in the trust could
increase, rather than reduce, the overall portfolio losses of an investor during
periods when the trust, as well as equities and debt markets, decline in
value. There is no way of predicting whether the trust will lose more
or less than stocks and bonds in declining markets. Investors must
not rely on the trust as any form of protection against losses in their
securities or debt portfolios.
Investors
Must Not Rely on the Past Performance of the Trading Advisors or the Trust in
Deciding Whether to Buy Units
The
performance of the trust is entirely unpredictable, and the past performance of
the trust, as well as of the trust’s trading advisors, is not necessarily
indicative of their future results.
An influx
of new market participants, changes in market regulation, international
political developments, demographic changes and numerous other factors can
contribute to once-successful strategies becoming outdated. Not all
of these factors can be identified, much less quantified. There can
be no assurance that the trust’s trading advisors will trade the trust’s assets
in a profitable manner.
Volatile
Performance History
The
performance of the trust to date has been volatile. As of October 31,
2010, the trust has been experiencing a drawdown for the last 89 months for
Class A units, which stood at (23.26)% and for the last 22 months for Class B
units, which stood at (10.94)%. Past performance of the trust is not
necessarily indicative of future results.
The
Trust’s Substantial Expenses Will Cause Losses for the Trust Unless Offset by
Profits and Interest Income
The trust
pays annual expenses of approximately 7.70% after taking into account estimated
interest income of
its average month-end assets. In addition to this annual expense
level, the trust is subject to quarterly
12
incentive
fees of up to 20% on any new trading profits. Because these incentive
fees are calculated quarterly, they could represent a substantial expense to the
trust even in a breakeven or unprofitable year. Additionally,
investors who redeem units within the first eleven months after the units are
issued would in effect pay 7.20% to 9.20% including the 1.5%
redemption fee.
The
trust’s expenses could, over time, result in significant
losses. Except for the incentive fee, these expenses are not
contingent and are payable whether or not the trust is
profitable. Furthermore, some of the strategies and techniques
employed by the trust’s trading advisors may require frequent trades to take
place and, as a consequence, portfolio turnover and brokerage commissions may be
greater than for other investment entities of similar size. Investors
will sustain these losses if the trust is unable to generate sufficient trading
profits to offset its fees and expenses. Please see the “Breakeven
Table” and “Charges” on pages 7 and 26, respectively, for a more complete
discussion of the fees to be charged to the trust.
Incentive
Fees may be Paid Even Though Trading Losses are Sustained
The trust pays the trading advisors
incentive fees based on the new trading profits they each generate for the trust
with respect to the assets traded by such advisor. These new trading
profits include unrealized appreciation on open
positions. Accordingly, it is possible that the trust will pay an
incentive fee on new trading profits that do not become
realized. Also, each trading advisor will retain all incentive fees
paid to it, even if it incurs a subsequent loss after payment of an incentive
fee. Due to the fact that incentive fees are paid quarterly, it is
possible that an incentive fee may be paid to a trading advisor during a year in
which the assets allocated to the trading advisor suffer a loss for the
year. Because each trading advisor receives an incentive fee based on
the new net trading profits earned by the trading advisor, the trading advisors
may have an incentive to make investments that are riskier than would be the
case in the absence of such incentive fee being paid to the trading advisors
based on new trading profits. In addition, as incentive fees are
calculated on a trading-advisor-by-trading-advisor basis, it is possible that
one or more trading advisors could receive incentive fees during periods when
the trust has a negative return as a whole.
An
Investment in the Trust is not Liquid
The units are not a liquid
investment. There is no secondary market for the
units. Investors may redeem units only as of the last day of each
calendar month on five business days’ written notice. Partial
redemptions must be in the amount of at least $1,000 of units and investors must
maintain a balance of $1,000 of units. A redemption fee equal to 1.5%
will apply to units redeemed within the first eleven months after their
issuance.
The
Trust is Subject to Market Fluctuations
Managed
futures trading involves trading in various commodity interests. The
market prices of futures contracts fluctuate rapidly. Prices of
futures contracts traded by the trust’s trading advisors are affected generally,
among other things, by (1) changing supply and demand relationships, (2)
weather, agricultural, trade, fiscal, monetary and exchange control programs,
(3) policies of governments and national and international political and
economic events; and (4) changes in interest rates. The profitability
of the trust depends entirely on capitalizing on fluctuations in market
prices. If a trading advisor incorrectly predicts the direction of
prices in futures, forwards, and options, large losses may
occur. Often, the most unprofitable market conditions for the trust
are those in which prices “whipsaw,” moving quickly upward, then reversing, then
moving upward again, then reversing again.
Options
Trading can be More Volatile and Expensive than Futures Trading
The trust
may also trade options which, although options trading requires many of the same
skills, has different risks than futures trading. Successful options
trading requires a trader to assess accurately near-term market volatility
because that volatility is immediately reflected in the price of outstanding
options. Correct
13
assessment
of market volatility can therefore be of much greater significance in trading
options than it is in many long-term futures strategies where volatility does
not have as great an effect on the price of a futures contract.
Options
are Volatile and Inherently Leveraged, and Sharp Movements in Prices Could Cause
the Trust to Incur Large losses
Certain
trading advisors may use options on futures contracts, forward contracts or
commodities to generate premium income or speculative gains. Options
involve risks similar to futures, because options are subject to sudden price
movements and are highly leveraged, in that payment of a relatively small
purchase price, called a premium, gives the buyer the right to acquire an
underlying futures contract, forward contract or commodity that has a face value
substantially greater than the premium paid. The buyer of an option
risks losing the entire purchase price of the option. The writer, or
seller, of an option risks losing the difference between the purchase price
received for the option and the price of the futures contract, forward contract
or commodity underlying the option that the writer must purchase or deliver upon
exercise of the option. There is no limit on the potential
loss. Specific market movements of the futures contracts, forward
contracts or commodities underlying an option cannot accurately be
predicted.
Cash
Flow Needs May Cause Positions to be Closed which May Cause Substantial
Losses
Certain
trading advisors may trade options on futures. Futures contract gains
and losses are marked-to-market daily for purposes of determining margin
requirements. Option positions generally are not marked-to-market
daily, although short option positions will require additional margin if the
market moves against the position. Due to these differences in margin
treatment between futures and options, there may be periods in which positions
on both sides must be closed down prematurely due to short-term cash flow needs
of the trust. If this occurs during an adverse move in a spread or
straddle relationship, then a substantial loss could occur.
The
Large Size of the Trust’s Trading Positions Increases the Risk of Sudden, Major
Losses
The trust
takes positions with face values up to as much as approximately fifteen times
its total equity. Consequently, even small price movements can cause
major losses.
As
a Result of Leverage, Small Changes in the Price of the Trading Advisors’
Positions May Result in Substantial Losses
Commodity interest contracts are
typically traded on margin. This means that a small amount of capital
can be used to invest in contracts of much greater total value. The
resulting leverage means that a relatively small change in the market price of a
contract can produce a substantial loss. Like other leveraged
investments, any purchase or sale of a contract may result in losses in excess
of the amount invested in that contract. The trust’s trading advisors
may result in losses in excess of the amount invested in that
contract. The trust’s trading advisors may lose more than their
initial margin deposits on a trade.
The
Trading Advisors’ Trading is Subject to Execution Risks
Market
conditions may make it impossible for the trust’s trading advisors to execute a
buy or sell order at the desired price, or to close out an open
position. Daily price fluctuation limits are established by the
exchanges and approved by the CFTC. When the market price of a
contract reaches its daily price fluctuation limit, no trades can be executed
outside the limit. The holder of a contract may therefore be locked
into an adverse price movement for several days or more and lose considerably
more than the initial margin put up to establish the
position. Thinly-traded or illiquid markets also can make it
difficult or impossible to execute trades.
14
Unit
Values Are Unpredictable and Vary Significantly Month-to-Month
The net
asset value per unit can vary significantly month-to-month. Investors
cannot know at the time they submit a subscription or a redemption request what
the subscription price or redemption value of their units will be.
The only
way to take money out of the trust is to redeem units. You can only
redeem units at month-end on five business days’ advance notice and subject to
possible redemption charges and minimum balance and redemption request
amounts. The restrictions imposed on redemptions limit your ability
to protect yourself against major losses by redeeming units.
Transfers
of units are subject to limitations as well, such as advance written notice of
any intent to transfer and the consent of the managing owner prior to the
acceptance of a substitute unitholder.
In
addition, investors are unable to know whether they are subscribing for units
after a significant upswing in the net asset value per unit — often a time when
the trust has an increased probability of entering into a losing
period.
Possible
Effect of Redemptions on the Value of Units
Substantial redemptions of units could
require the trust to liquidate investments more rapidly than otherwise desirable
in order to raise the necessary cash to fund the redemptions and, at the same
time, achieve a market position appropriately reflecting a smaller equity
base. This could make it more difficult to recover losses or generate
profits. Illiquidity in the markets could make it difficult to
liquidate positions on favorable terms, and may result in losses.
Incentive-Based
Compensation May Affect Trading Advisors’ Trading
The trading advisors are entitled to
compensation based upon net trading gain in the value of the assets they
manage. Incentive-based arrangements may give them incentives to
engage in transactions that are more risky or speculative than they might
otherwise make because speculative investments might result in higher profits in
which the trading advisor would participate, resulting in higher incentive fees
to them, while resulting in larger losses to the trust. The trading
advisors will not return an incentive fee for a period in which there is net
trading gain if, in a subsequent period, the investments under their management
suffer a net trading loss. In addition, because the incentive fee for
each trading advisor is based solely on its performance, and not the overall
performance of the trust, the trust may indirectly pay an incentive fee to one
or more trading advisors during periods when the trust is not profitable on an
overall basis.
Disadvantages
of Replacing or Switching Trading Advisors
A trading advisor generally is required
to recoup previous trading losses before it can earn performance-based
competition. However, the managing owner may elect to replace a
trading advisor that has a “loss carry-forward.” In that case, the
trust would lose the “free ride” of any potential recoupment of the prior losses
of such trading advisor. In addition, the trading advisor would earn
performance-based compensation on the first dollars of investment
profits. The effect of the replacement of or the reallocation of
assets away from a trading advisor, therefore, could be
significant.
The
Opportunity Costs of Rebalancing the Trading Programs
The
quarterly rebalancing of the trust’s assets among its trading advisors and their
trading programs may result in the liquidation of profitable positions, thereby
foregoing greater profits which the trust would otherwise
15
have
realized, and the establishment of unprofitable positions, thereby incurring
losses which the trust would otherwise have avoided had rebalancing not
occurred.
Alteration
of Trading Systems and Contracts and Markets Traded
The
trust’s trading advisors may, in their discretion, change and adjust the trading
programs, as well as the contracts and markets traded. These
adjustments may result in foregoing profits which the trading programs would
otherwise have captured, as well as incurring losses which they would otherwise
have avoided. Neither the managing owner nor the unitholders are
likely to be informed of any non-material changes in the trading
programs.
Increased
Competition from Other Trend-Following Traders Could Reduce the Trust’s
Profitability
There has
been a dramatic increase over the past 25 years in the amount of assets managed
by trend-following trading systems like John W. Henry & Company, Inc.’s and
Abraham Trading Company’s trading programs. In 1980, the amount of
assets in the managed futures industry was estimated at approximately $300
million; by 2010, this estimate was approximately $260 billion. It is
also estimated that over half of all managed futures
trading advisors rely primarily on trend-following systems. Although
the amount of trading in the futures industry as a whole has increased
significantly during the same period of time, the increase in managed money
increases trading competition. The more competition there is for the
same positions, the more costly and harder they are to acquire.
Systematic
Strategies Do Not Consider Fundamental Types of Data, or Minimally Consider
Fundamental Types of Data, and Do Not Have the Benefit of Discretionary Decision
Making
Portfolio
managers like John W. Henry & Company, Inc., Abraham Trading Company, and
Global Advisors (Jersey) Limited rely primarily on technical, systematic
strategies that do not take into account factors external to the market itself
(although certain of these strategies may have minor discretionary elements
incorporated into their system strategy). The widespread use of
technical trading systems frequently results in numerous managers attempting to
execute similar trades at or about the same time, altering trading patterns and
affecting market liquidity. Furthermore, the profit potential of
trend-following systems may be diminished by the changing character of the
markets, which may make historical price data (on which technical programs are
based) only marginally relevant to future market patterns. Systematic
strategies are developed on the basis of a statistical analysis of market
prices. Consequently, any factor external to the market itself that
dominates prices that a discretionary decision-maker may take into account may
cause major losses for a systematic strategy. For example, a pending
political or economic event may be very likely to cause a major price movement,
but a systematic strategy may continue to maintain positions indicated by its
trading method that might incur major losses if the event proved to be
adverse.
The
Trust is Subject to Speculative Position Limits
The CFTC
and U.S. futures exchanges have established speculative position limits on the
maximum position in certain futures interests contracts that may be held or
controlled by any one person or group. Therefore, the trust may have
to reduce the size of its position in one or more futures contracts in order to
avoid exceeding such position limits, which could adversely affect its
profitability. The CFTC or the futures exchange may amend or adjust
these position limits or the interpretation of how such limits are applied,
adversely affecting the profitability of the trust. Recently-enacted
legislation requires the CFTC to adopt speculative position limits in certain
commodities across futures markets, over-the-counter transactions that perform a
significant price discovery function and contracts traded on a foreign board of
trade having direct market access from the U.S. that settle against the price of
futures contracts traded on a U.S. market. Such limits may adversely
affect the profitability of the trust.
16
Increasing
the Level of Equity Under a Trading Advisor’s Management Could Lead to
Diminished Returns
The rates
of returns achieved by a trading advisor often diminish as the assets under its
management increases. This can occur for many reasons, including the
inability of the trading advisor to execute larger position sizes at desired
prices and because of the need to adjust the trading advisor’s trading program
to avoid exceeding speculative position limits. These are limits
established by the CFTC and the exchanges on the number of speculative futures
and options contracts in a commodity that one trader may own or
control. The trading advisors have not agreed to limit the amount of
additional assets that they will manage.
Illiquid
Markets Could Make It Impossible for the Trust to Realize Profits or Limit
Losses
In
illiquid markets, the trust’s trading advisors could be unable to capitalize on
the opportunities identified by it or to close out positions against which the
market is moving. There are numerous factors which can contribute to
market illiquidity, far too many for the trading advisors to predict when or
where illiquid markets may occur. The trust attempts to limit its
trading to highly liquid markets, but there can be no assurance that a market
which has been highly liquid in the past will not experience periods of
unexpected illiquidity.
Unexpected
market illiquidity has caused major losses in recent years in such sectors as
emerging markets, fixed income relative value strategies and mortgage-backed
securities. There can be no assurance that the same will not happen
to the trust at any time or from time to time. The large size of the
positions which the trading advisors acquire for the trust increases the risk of
illiquidity by both making its positions more difficult to liquidate and
increasing the losses incurred while trying to do so.
The
Trust Trades in Foreign Markets; These Markets Are Less Regulated Than U.S.
Markets and Are Subject to Exchange Rate, Market Practices and Political
Risks
Some of
the trading programs used for the trust trade outside the U.S. From
time to time, as much as 20%–40% of the trust’s overall market exposure could
involve positions taken on foreign markets. Foreign trading involves
risks — including exchange-rate exposure, possible governmental intervention and
lack of regulation — which U.S. trading does not. In addition, the
trust may not have the same access to certain positions on foreign exchanges as
do local traders, and the historical market data on which the trust’s commodity
trading advisors base their strategies may not be as reliable or accessible as
it is in the United States. Certain foreign exchanges may also be in
a more or less developmental stage so that prior price histories may not be
indicative of current price dynamics. The rights of traders or
investors in the event of the insolvency or bankruptcy of a non-U.S. market or
broker are also likely to be more limited than in the case of U.S. markets or
brokers. Additionally, trading on U.S. exchanges is subject to CFTC
regulation and oversight, including, for example, minimum capital requirements
for commodity brokers, regulation of trading practices on the exchanges,
prohibitions against trading ahead of customer orders, prohibitions against
filling orders off exchanges, prescribed risk disclosure statements, testing and
licensing of industry sales personnel and other industry professionals and
record keeping requirements. Trading on non-U.S. exchanges is not
regulated by the CFTC or any other U.S. governmental agency or instrumentality
and may be subject to regulations that are different from those to which U.S.
exchanges trading is subject, provide fewer protections to investors than
trading on U.S. exchanges, and may be less vigorously enforced than regulations
in the U.S.
Unregulated
Markets, Particularly the Trading of Spot and Forward Contracts in Currency,
Lack Regulatory Protections of Exchanges
A
substantial portion of the trust’s trading — primarily its trading of spot and
forward contracts in currencies — takes place in unregulated
markets. It is impossible to determine fair pricing, prevent abuses
such as “front-running” or impose other effective forms of control over such
markets. The absence of regulation
17
could
expose the trust in certain circumstances to significant losses which it might
otherwise have avoided. Because these contracts are not traded on an
exchange, the performance of them is not guaranteed by an exchange or its
clearinghouse, and the trust is at risk with respect to the ability of the
counterparty to perform on the contract. Additionally, see the Risk
Factor entitled “The Trust Trades in Foreign Markets; These Markets Are Less
Regulated Than U.S. Markets and Are Subject to Exchange Rate, Market Practices
and Political Risks” directly above.
Electronic
Trading
The
trust’s trading advisors may from time to time trade on electronic markets and
use electronic order routing systems, which differ from traditional open outcry
pit trading and manual order routing methods. Characteristics of
electronic trading and order routing systems vary widely among the different
electronic systems with respect to order matching procedures, opening and
closing procedures and prices, error trade policies and trading limitations or
requirements. There are also differences regarding qualifications for
access and grounds for termination and limitations on the types of orders that
may be entered into the system. Each of these matters may present
different risk factors with respect to trading on or using a particular
system. Each system may also present risks related to system access,
varying response times and security. Trading through an electronic
trading or order routing system also entails risks associated with system or
component failure. In the event of system or component failure, it is
possible that for a certain time period, it might not be possible to enter new
orders, execute existing orders or modify or cancel orders that were previously
entered. System or component failure may also result in loss of
orders or order priority. Some contracts offered on an electronic
trading system may be traded electronically and through open outcry during the
same trading hours. Exchanges offering an electronic trading or order
routing system and/or listing the contract may have adopted rules to limit
their liability, the liability of futures brokers and software and communication
system vendors and the amount that may be collected for system failures and
delays. These limitations of liability provisions vary among the
exchanges.
Regulatory
Changes Could Restrict the Trust’s Operations
The trust
implements a speculative, highly leveraged strategy. From time to
time there is governmental scrutiny of these types of strategies and political
pressure to regulate their activities.
Regulatory
changes could adversely affect the trust by restricting its markets, limiting
its trading and/or increasing the taxes to which unitholders of the trust are
subject. Recently-enacted legislation and pending regulatory action
may amend the regulations applicable to futures and over-the-counter derivatives
markets. These amendments may alter the applicable requirements for
trading in the futures, options and over-the-counter derivatives
markets. Such changes may limit trading or restrict the ability of
the trading advisors to implement certain trading strategies. The
recently-enacted legislation will result in changes in market structure and
operation, particularly with respect to the over-the-counter
markets. These changes may affect the trading advisors’ ability to
implement certain trading strategies, affect the costs (and the resulting
profitability) associated with various trading strategies, and affect the
liquidity of certain markets, possibly impairing the ability of trading advisors
to execute efficiently certain strategies. Moreover, margin and
collateral requirements relating to such trading strategies may increase, thus
reducing future profitability. Moreover, additional requirements will
apply to major swap participants and major security-based swap participants,
terms which will be defined by the CFTC and the SEC, respectively, in the
future. Depending upon how those terms are defined, certain trading
advisors may be included as a major swap participant or a major security-based
swap participant and be required to comply with additional requirements,
including registration, margin and collateral requirements. Such
requirements may affect a trading advisor’s ability to execute certain
strategies or affect the profitability of those strategies. This
legislation might adversely affect the trust. However, regulatory
initiatives adversely affecting the trust could develop without
notice.
18
The
Trust Could Lose All of its Assets and Have Its Trading Disrupted Due to the
Bankruptcy of the Managing Owner, the Trust’s Commodity Broker or
Others
The trust
is subject to the risk of insolvency of an exchange, clearinghouse, commodity
broker, and counterparties with whom the trading advisors
trade. Trust assets could be lost or impounded in such an insolvency
during lengthy bankruptcy proceedings. Were a substantial portion of
the trust’s capital tied up in a bankruptcy, the managing owner might suspend or
limit trading, perhaps causing the trust to miss significant profit
opportunities. The trust is subject to the risk of the inability or
refusal to perform on the part of the counterparties with whom contracts are
traded. In the event that the clearing broker is unable to perform
its obligations, the trust’s assets are at risk and investors may only recover a
pro rata share of their
investment, or nothing at all.
Exchange-traded
futures and futures-styled option contracts are marked to market on a daily
basis, with variations in value credited or charged to the trust’s account on a
daily basis. The clearing broker, as futures commission merchant for
the trust’s exchange-traded contracts, is required, pursuant to CFTC
regulations, to segregate from its own assets, and for the sole benefit of its
commodity customers, all funds held by such clients with respect to
exchange-traded futures and futures-styled options contracts, including an
amount equal to the net unrealized gain on all open futures and futures-styled
options contracts. Bankruptcy law applicable to all U.S. futures
brokers requires that, in the event of the bankruptcy of such a broker, all
property held by the broker, including certain property specifically traceable
to the trust, will be returned, transferred, or distributed to the broker's
customers only to the extent of each customer’s pro rata share of the assets
held by such futures broker.
With
respect to transactions the trust enters into that are not traded on an
exchange, there are no daily settlements of variations in value and there is no
requirement to segregate funds held with respect to such
accounts. Thus, the funds the trust invests in such transactions may
not have the same protections as funds used as margin or to guarantee
exchange-traded futures and options contracts. If the counterparty
becomes insolvent and the trust has a claim for amounts deposited or profits
earned on transactions with the counterparty, the trust’s claim may not receive
a priority. Without a priority, the trust is a general creditor and
its claim will be paid, along with the claims of other general creditors, from
any monies still available after priority claims are paid. Even funds
of the trust that the counterparty keeps separate from its own operating funds
may not be safe from the claims of other general and priority creditors. There are no limitations
on the amount of allocated assets a portfolio manager can trade on foreign
exchanges or in forward contracts.
Special
Redemption in Event of 50% Decline in Net Assets; Limitation on Redemption
Payments
If the
trust experiences a decline in net asset value per unit as of the close of
business on any business day to less than 50% of the net asset value per unit on
the prior highest month-end net asset value, or to $50 or less, the managing
owner will liquidate all open positions and suspend trading. Within
ten days of such event, the managing owner shall declare a special redemption
date and mail notice of such event to each unitholder. The right of a
unitholder to receive a redemption payment, including in connection with this
special notice, depends on the trust’s ability to obtain the necessary funds by
liquidating commodity positions and obtaining payments from its commodity
brokers, banks, or other persons or entities.
Possibility
of Termination of the Trust Before Expiration of Its Stated Term
The
managing owner may withdraw from managing the trust upon 120 days’ notice, which
would cause the trust to terminate unless a substitute managing owner were
obtained. Other events, such as a substantial decline in the
aggregate net assets of the trust or the net asset value per unit, as described
in the Ninth Amended and Restated Declaration and Agreement of Trust, could also
cause the trust to terminate before the expiration of its stated
term. This could cause you to liquidate your investments and upset
the overall maturity and timing of your investment portfolio. If the
registrations with the CFTC or memberships in the NFA of the
managing
19
owner or
the trust’s trading advisors were revoked or suspended, such entity would no
longer be able to provide services to the trust, which would cause the trust to
terminate in 90 days unless a substitute managing owner were
obtained. See “The Trust and the Trustee—The Trustee” for more
information about the Ninth Amended and Restated Declaration and Agreement of
Trust.
Trading
Swaps Creates Distinctive Risks
Certain
of the trading advisors may trade swaps. Currently, swaps are not
traded on exchanges and are not subject to the same type of government
regulation as exchange markets. As a result, many of the protections
afforded to participants on organized exchanges and in a regulated environment
are not available in connection with these transactions. The swap
markets are “principals’ markets,” in which performance with respect to a swap
is the responsibility only of the counterparty to the contract, and not of any
exchange or clearinghouse. The trust is subject to the risk of the
inability or refusal to perform with respect to swaps on the part of the
counterparties. There are no limitations on daily price movements in
swaps. Speculative position limits are not applicable to
swaps. Participants in the swap markets are not required to make
continuous markets in the swaps they trade.
However,
the regulation of swaps may be subject to substantial change under
recently-enacted legislation and pending regulatory action. It is not
known exactly how such changes will impact existing swaps
positions. These new requirements, however, will alter the manner in
which swaps will be traded. Under recently-enacted legislation, many
commodity swaps will be required to be cleared through clearing houses and
executed on designated contract markets or swap execution
facilities. Security-based swaps will be subject to similar
requirements as will apply to commodity swaps. Additional regulatory
requirements will apply to all swaps, whether subject to mandatory clearing, or
not. These include margin, collateral and capital requirements,
reporting obligations, for certain swaps, speculative position limits, and other
regulatory requirements. Swaps which are not offered for clearing by
a clearing house will continue to be able to be traded
bi-laterally. Such bi-lateral transactions will remain subject to
many of the risks discussed in the preceding paragraph.
Stop-loss
Orders May not Prevent Large Losses
Certain
of the trading advisors may use stop-loss orders. Such stop-loss
orders may not effectively prevent substantial losses, and depending on market
factors at the time, may not be able to be executed at such stop-loss
levels. No risk control technique can assure that large losses will
be avoided.
Off-exchange
Foreign Currency Futures and Options
The
trading advisors may engage in the trading of off-exchange foreign currency
contracts on behalf of the trust. Currently, such contracts are not
traded on exchanges and are not guaranteed by a clearing house; rather, banks
and dealers act as principals in these markets. Neither the CFTC nor
any banking authority regulates trading in such off-exchange foreign currency
contracts. In addition, there is no limitation on the daily price
movements of off-exchange foreign currency contracts. Principals in
the off-exchange foreign currency markets have no obligation to continue to make
markets in the off-exchange foreign currency contracts traded. There
have been periods during which certain banks or dealers have refused to quote
prices for off-exchange foreign currency contracts or have quoted prices with an
unusually wide spread between the price at which they are prepared to buy and
that at which they are prepared to sell. The imposition of credit
controls by governmental authorities might limit such off-exchange foreign
currency trading to less than that which a trading advisor would otherwise
recommend, to the possible detriment of the trust.
If a
trading advisor engages in off-exchange foreign currency trading, the trust will
be subject to the risk of the failure of, or the inability to perform with
respect to its off-exchange foreign currency contracts by, the principals with
which the trust trades. Trust funds on deposit with such principals
will also generally not be
20
protected
by the same segregation requirements imposed on CFTC-regulated futures brokers
with respect to customer funds on deposit with them. However, the
trust intends to engage in off-exchange foreign currency trading only with
large, well-capitalized banks and dealers. In addition, a trading
advisor may order trades for the trust in such markets through
agents. Accordingly, the insolvency or bankruptcy of such parties
could also subject the trust to the risk of loss.
Under
recently-enacted legislation, unless otherwise decided by the Secretary of the
Treasury, foreign exchange swaps and forwards will be subject to the same
regulatory requirements that apply to swaps generally. These include
the mandatory clearing provision, required execution on a designated contract
market or swaps execution facility, and the other provisions discussed above in
the Risk Factor entitled, “Trading Swaps Creates Distinctive
Risks.” Foreign currency swaps and forwards that are not offered for
clearing by a clearing house will continue to be traded
bi-laterally. In that case, the risks discussed in the preceding two
paragraphs will apply to such transactions.
Investors
Are Taxed Every Year on Their Share of the Trust’s Profits Regardless of Whether
They Receive Any Cash From the Trust
The
managing owner does not intend to make distributions to the unitholders, but
intends to re-invest substantially all of the trust’s income and gains for the
foreseeable future. As long as the trust is treated as a partnership
for U.S. federal income tax purposes and is not treated as a publicly-traded
partnership that is taxable as a corporation, taxable U.S. investors are subject
to U.S. federal income tax (and applicable state income taxes) each year on
their shares of any income and gain of the trust, even if they receive no
distributions and redeem no units. Investors may therefore need to
use other sources of funds or redeem units from the trust to satisfy their tax
liability.
All
performance information included in this prospectus is presented on a pre-tax
basis; the investors who experienced such performance had to pay the related
taxes from other sources.
The
Trust Generates Short-Term Capital Gains That Are Not Eligible for a
Preferential Tax Rate
Investors
are taxed on their share of any gains of the trust at both short- and long-term
capital gain rates depending on the mix of Section 1256 contracts (as defined in
“Certain U.S. Federal Income Tax Consequences”) and non-Section 1256 contracts
traded. These tax rates are determined irrespective of how long an
investor holds units. Consequently, an investor’s tax rate on his
investment in the units may be higher than the rate applicable to other
investments held by an investor for a comparable period.
Tax
Could Be Due From Investors on Their Share of the Trust’s Interest Income
Despite Overall Losses
Investors
will be required to include in their incomes their share of the trust’s interest
income, even if the trust realizes overall losses. Trading losses
generally will be capital losses that can be used by individuals only to offset
capital gains and $3,000 of ordinary income, such as interest income, each
year. Consequently, if an investor were allocated $5,000 of interest
income and $10,000 of net trading losses, the investor would generally owe tax
on $2,000 of interest income even though the investor would have a $5,000
economic loss for the year attributable to his investment in the
trust. The $7,000 capital loss would carry forward or back to other
taxable years, but subject to the same limitation on its deductibility against
ordinary income.
Deductibility
of Trust Expenses May Be Limited if Characterized as Investment Advisory
Fees
The
managing owner does not intend to treat the operating expenses of the trust,
including management fees and incentive fees, as “investment advisory fees” for
U.S. federal income tax purposes. However, were the operating
expenses of the trust characterized as investment advisory fees, non-corporate
taxpayers would be subject to substantial restrictions on the deductibility of
those expenses (including a complete disallowance of
21
any
deduction for any expense so characterized), would pay increased taxes in
respect of an investment in the trust, and may be required to recognize net
taxable income from their investment in units despite having incurred a
financial loss.
How
the Trust Works
Buying
Units
You may
buy units in the trust as of the last business day of any month at the current
net asset value. Your subscription must be submitted to the trust’s
administrator, ACS Securities Services, Inc., by the fifth business day prior to
the month-end of the month preceding your subscription date. Late
subscriptions will be applied to unit sales as of the end of the second month
after receipt, unless revoked by the investor.
The
managing owner has no present intention to terminate the offering, but may do so
at any time in its sole discretion.
Units are
offered at net asset value. Investors need to submit subscription
agreements with each purchase of units. The minimum purchase for
first-time investors is $5,000 for individuals and $2,000 for IRAs and other
tax-exempt accounts. Existing investors may make additional
investments in $1,000 minimums.
Use
of Proceeds
100% of
all subscription proceeds are invested directly into the trust.
The trust
uses subscription proceeds to margin its speculative futures trading, as well as
to pay trading losses and expenses. At the same time that the trust’s
assets are being used as margin, the excess cash margin is available for active
or passive cash management. RJO Investment Management LLC, an
affiliate of the managing owner, serves as cash manager to the
trust. The trust’s assets will be held by Wells Fargo Bank, N.A. as
custodian. As of October 31, 2010, Wells Fargo Bank, N.A. held
approximately $30 million of the trust’s assets. The trust is paid
interest on the average daily U.S. dollar balances on deposit with R.J. O’Brien
& Associates, LLC at a rate equal to the average four-week Treasury Bill
rate. With respect to non-U.S. dollar deposits, the current rate of
interest is equal to a rate of one-month LIBOR less 1.0%. To the
extent excess cash is not invested in securities, such cash will be subject to
the creditworthiness of the institution where such funds are
deposited. To the extent the trust trades in futures and options
contracts on U.S. exchanges, the assets deposited by the trust with its clearing
brokers as margin must be segregated pursuant to the regulations of the
CFTC. Such funds, along with segregated funds of other customers in
the accounts, may be invested by the commodity brokers, under applicable CFTC
regulations, in general obligations of the U.S. and obligations fully guaranteed
as to principal and interest by the U.S. Treasury, general obligations of any
State or political subdivision thereof, obligations issued by an enterprise
sponsored by the U.S., certificates of deposit issued by a bank as defined in
the Commodity Exchange Act or a domestic branch of a foreign bank insured by the
Federal Deposit Insurance Corporation, commercial paper, corporate notes or
bonds, general obligations of a sovereign nation, and interests in money market
mutual funds, subject to conditions and restrictions regarding marketability,
investment quality and investment concentration. In addition, such
investments may be bought and sold pursuant to designated repurchase and reverse
repurchase agreements. Such funds are subject to being held as
“customer segregated funds” under CFTC rules.
To the
extent that the trust trades in futures, forward, options and related contracts
on markets other than regulated U.S. futures exchanges, the assets deposited by
the trust with its clearing brokers as margin may be invested by the commodity
brokers, under applicable CFTC regulations, in the instruments described above
for customer segregated funds and also in equity and debt securities traded on
established securities markets in the U.S. Such funds are subject to
being held as “secured amounts” rather than as “customer segregated funds” under
CFTC rules.
22
Redeeming
Units
You can
redeem units monthly. To redeem at month-end, contact your financial
advisor or the managing owner. Redemption requests must be received
by the trust’s administrator, ACS Securities Services, Inc., no later than the
fifth business day prior to the month-end of redemption.
The
proceeds of units redeemed through the eleventh month from the date of issuance
are reduced by a charge of 1.5% of their redemption date net asset
value. This charge is paid to the managing owner, except as regards
residents of Ohio, in which case, the charge is payable to the lead selling
agent. If a unitholder acquires units at more than one closing, the
units purchased first by such investor and, accordingly, least likely to be
subject to redemption charges, are assumed to be those first
redeemed. Requests for partial redemptions must be for at least the
number of units valued at a minimum of $1,000, and a minimum balance of $1,000
must be maintained in such instances.
Uncertain
Subscription and Redemption Value of Units
The trust
sells and redeems units at subscription or redemption date net asset value, not
at the net asset value as of the date that subscriptions or redemption requests
are submitted. Investors must submit irrevocable subscriptions and
redemption requests no later than the fifth business day prior to the effective
date of subscription or redemption. Because of the volatility of unit
values, this delay means that investors cannot know the value at which they will
purchase or redeem their units.
Materially
adverse changes in the trust’s financial position could occur between the time
an investor irrevocably commits to acquire or redeem units and the time the
purchase or redemption is made.
No
Distributions Intended
The trust
does not anticipate making any distributions to investors. No
distributions have been made to date.
<Remainder
of Page Intentionally Left Blank>
23
Performance
of the Trust
RJO GLOBAL TRUST(1)
January
1, 2005 – October 31, 2010
Type of
Pool: Publicly-Offered; Multi-Advisor; Not Principal
Protected
Aggregate
Subscriptions: $54,030,356
Current
Capitalization: $55,370,675
Date of
inception: June 1997
Worst
Monthly Decline since January 1, 2005 (Month/Year): (16.01)%, July
2008
Worst
Monthly Decline since Inception (Month/Year): (16.01)%, July
2008
Worst
Peak-to-Valley Decline(2)
since January 1, 2005 (Month/Year): (38.53)%, November 2005 to August
2007
Worst
Peak-to-Valley Decline since Inception (Month/Year): (43.21)%, May
2003 to August 2007
Net Asset
Value per Class A Unit, October 31, 2010: $102.51
Net Asset
Value per Class B Unit, October 31, 2010: $106.33
Number of
Unitholders, October 31, 2010: 3,070
Monthly Rate of
Return(3)(4)
|
2010
|
2009
|
2008
|
2007
|
2006
|
2005
|
||||||||||||||||||
January
|
(1.88 | )% | (2.45 | )% | 11.54 | % | (1.24 | )% | (1.76 | )% | (9.54 | )% | ||||||||||||
February
|
(1.13 | ) | (1.24 | ) | 11.33 | (7.50 | ) | (9.61 | ) | (5.63 | ) | |||||||||||||
March
|
1.10 | (1.24 | ) | 2.62 | (10.83 | ) | 2.04 | 0.50 | ||||||||||||||||
April
|
(0.48 | ) | (1.90 | ) | (9.04 | ) | 6.26 | 10.68 | (6.40 | ) | ||||||||||||||
May
|
0.82 | 0.39 | 5.10 | 0.42 | (1.15 | ) | 7.95 | |||||||||||||||||
June
|
(1.23 | ) | (1.43 | ) | 4.20 | 7.02 | (11.01 | ) | 7.89 | |||||||||||||||
July
|
(3.81 | ) | (0.39 | ) | (16.01 | ) | (6.68 | ) | (8.12 | ) | (1.58 | ) | ||||||||||||
August
|
3.63 | (1.07 | ) | 1.21 | (6.95 | ) | 8.81 | 2.36 | ||||||||||||||||
September
|
1.17 | (0.88 | ) | 11.13 | 6.14 | 0.49 | 0.60 | |||||||||||||||||
October
|
1.68 | (1.88 | ) | 23.16 | 5.05 | (4.83 | ) | (1.19 | ) | |||||||||||||||
November
|
– | 0.78 | (4.13 | ) | 1.83 | 5.68 | 8.44 | |||||||||||||||||
December
|
– | (3.43 | ) | (0.43 | ) | (1.80 | ) | (6.70 | ) | (8.54 | ) | |||||||||||||
Compound
Annual Rate of Return
|
(0.32)%
(10 months)
|
(13.86 | )% | 40.97 | % | (9.77 | )% | (16.84 | )% | (7.12 | )% |
(1)
|
The
above performance information reflects the trust’s actual performance from
January 1, 2005 until October 31, 2010 for Class A units. The
trust’s assets have been allocated to different combinations of trading
advisors over time. Prior to November 1, 2008, the trust was a
single-advisor commodity pool traded by John W. Henry &
Company, Inc. Effective November 1, 2008, the trust
reallocated its assets among five trading advisors: Abraham
Trading, L.P., AIS Futures Management, LLC, Global Advisors, L.P., John W.
Henry & Company, Inc., and Peninsula, L.P. A sixth trading
advisor, NuWave Investment Management, LLC, was added on February 1,
2009. These six advisors traded the trust’s assets for the
period of February 1, 2009 to February 28, 2009. As of October 1, 2010, the
trust’s assets were allocated to the current eight trading
advisors: Abraham Trading, L.P., Conquest Capital LLC, Dominion
Capital Management Institutional Advisors, Inc., Global Advisors (Jersey)
Limited, Haar Capital Management LLC, John W. Henry & Company, Inc.,
NuWave Investment Management, LLC, and Trigon Investment Advisors,
LLC.
|
(2)
|
Worst
Peak-to-Valley Decline is the largest decline in the net asset value per
unit without such net asset value per unit being subsequently equaled or
exceeded.
|
(3)
|
Monthly
Rate of Return is the net performance of the trust during a month
(including interest income at
an estimated rate of 0.20%) divided by the total equity of the trust as of
the beginning of the month. Performance information is
calculated on an accrual basis in accordance with generally accepted
accounting principles.
|
(4)
|
In
October 2005, $56,544,205 of the trust’s assets were frozen due to the
bankruptcy of its former futures broker. As such, $25.31 of the
trust’s net asset value per unit at the end of October 2005 was moved into
a non-trading account. Subsequently, the
|
24
managing owner determined to state the
trust’s rate of return based on traded assets only. Investors
purchasing units pursuant to this prospectus will not be impacted by the
bankruptcy of the trust’s prior futures commission merchant.
PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
<Remainder
of Page Intentionally Left Blank>
25
Charges
The trust
is subject to the following charges and fees:
Recipient
|
Nature
of Payment
|
Amount
of Payment
|
||
The
Clearing Broker; the Selling Agents
|
Brokerage
fee
|
3.57%
of the trust’s month-end assets on an annual basis (0.298% monthly) with
respect to Class A units and 1.57% of the trust’s month-end assets on an
annual basis (0.131% monthly) with respect to Class B units, payable as
follows: selling commission to the selling agents of 2.0%
annually; and clearing, NFA and exchange fees (including fees related to
foreign currency transactions and other off-exchange transactions) paid as
a flat percentage of assets at 1.57% annualized. Class B units
will not be charged the 2.0% selling commission payable to the selling
agents.
|
||
The
Trading Advisors
|
Management
fee
|
The
trust pays each trading advisor a monthly rate of up to 0.167% (2.0%
annually) of the portion of net assets managed by each trading
advisor.
|
||
|
||||
Liberty
Funds Group
|
Consulting
fee
|
The
trust pays its consultant, Liberty Funds Group, an annual fee equal to
0.33% of month-end net assets.
|
||
|
||||
The
Managing Owner
|
Managing
owner fee
|
The
trust pays the managing owner a fee of 0.75% of the trust’s month-end net
assets on an annual basis.
|
||
|
||||
The
Managing Owner
|
Underwriting
expenses
|
The
trust reimburses the managing owner up to 0.35% of the trust’s month-end
net assets on an annual basis for underwriting
expenses.
|
||
|
||||
The
Trading Advisors
|
Incentive
Fee
|
As
of each calendar quarter-end, up to 20% of any new trading profits for
such quarter generated by a trading advisor will be paid to such trading
advisor. Generally, trading profits for any period equal the
sum of (i) the net of any profits and losses realized on all trades closed
out during a quarter, and (ii) the net of any unrealized profits and
losses on open positions as of the end of such quarter less the net of any
unrealized profits and losses on open positions as of the end of the
immediately preceding quarter, minus (iii) each trading advisor’s
management fee and clearing, NFA, and exchange fees applicable to the
account. Interest income is not included in new trading
profits.
|
||
|
||||
New
trading profits for any quarter are the amount of cumulative calendar
quarter-end trading profits in excess of the highest level of such
cumulative trading profits as of any previous calendar quarter-end with
respect to each trading advisor.
|
||||
New trading profits are calculated before reduction for |
26
incentive
fees paid or accrued so that the trading advisors do not have to earn back
their incentive fees.
|
||||
The
Managing Owner
|
Redemption
fee
|
A
redemption charge of 1.5% of the redemption date net asset value per unit
is imposed on units redeemed on or before the end of the first eleven
months after issuance and is deducted from investors’ redemption proceeds
and paid to the managing owner. Requests for partial
redemptions must be for at least the number of units valued at a minimum
of $1,000, and a minimum balance of $1,000 must be maintained in such
instances. The redemption charge will be paid to the managing
owner, except that for investors in the State of Ohio, the redemption
charge will be paid to RJOS.
|
||
Third
Parties
|
Ongoing
offering costs
|
As
incurred, subject to a ceiling of 0.5% of the trust’s average month-end
net assets in each fiscal year. None of the third parties who
are paid any ongoing offering costs are affiliated with the trust or the
managing owner.
|
||
Third
Parties
|
Administrative
expenses
|
As
incurred, currently estimated to be approximately 0.40% of the trust’s
average month-end net assets during each fiscal year.
|
||
Third
Parties
|
Extraordinary
charges
|
Actual
payments to third parties; not subject to
estimate.
|
The above
fees are the complete compensation that will be paid by the trust on or before
the eleventh month-end of issuance.
Brokerage
Commissions
Commodity
brokerage commissions are typically paid upon the completion or liquidation of a
trade and are referred to as “round-turn commissions,” which cover both the
initial purchase (or sale) and the subsequent offsetting sale (or purchase) of a
commodity futures contract. The trust’s brokerage fee constitutes a
“wrap fee” of 3.57%, which covers the fees described below and not just the cost
of brokerage executions, which is paid on a per-trade basis. R.J.
O’Brien & Associates, LLC, the trust’s futures broker, charges a flat fee of
1.57% of assets annually. “Brokerage fee”
includes: selling commission of 2.0% annually to the selling agents
with respect to Class A units (no fee is paid to the selling agent with respect
to Class B units); and clearing, NFA, and exchange fees (including fees related
to foreign currency transactions and other off-exchange transactions) paid as a
flat fee of 1.57% annually. The brokerage fees may not be increased
above the current level without the unanimous written consent of all
unitholders. The brokerage commissions to be charged will not exceed
the limitations set forth in the North American Securities Administrators
Association, Inc. Guidelines for the Registration of Commodity Pool Programs, as
described in Section 10(a) of the Ninth Amended and Restated Declaration and
Agreement of Trust.
Administrative
Expenses; Ongoing Offering Costs
The trust
pays its actual periodic legal, auditing, accounting, transfers, printing,
recording and filing fees, postage and trustee’s fees, currently estimated to be
approximately 0.40% of the trust’s average month-end net assets during each
fiscal year.
27
The trust
pays the costs incurred in the ongoing offering of the units, including the
costs of updating this prospectus, regulatory compliance, escrow fees and
registration fees if additional units are registered, subject to a ceiling of
0.50% of the trust’s average month-end net assets during any fiscal
year.
Management
Fees
The trust
pays a monthly management fee to each trading advisor at a rate of up to 0.167%
(a 2.0% annual rate) of the month-end portion of net assets of the assets of the
trust managed by each trading advisor.
Consulting
Fees
The trust
pays its consultant, Liberty Funds Group, an annual fee equal to 0.33% of
month-end net assets.
Managing
Owner Fees
The trust
pays the managing owner a fee of 0.75% of the trust’s month-end net assets on an
annual basis.
Incentive
Fees
Method
of Calculating
You
should be aware that this description of how incentive fees are calculated is
general and not intended to be exhaustive. For further information,
please see the individual trading advisory agreements for each trading advisor
as follows: the trading advisory agreements for JWH and ATC were
filed as exhibits to Post-Effective Amendment No. 2 to the trust’s Registration
Statement on Form S-1, filed with the SEC on October 6, 2008; the trading
advisory agreement for NuWave was filed as an exhibit to the trust’s Annual
Report on Form 10-K, filed with the SEC on March 30, 2009; the trading advisory
agreements with Conquest, Haar, and GAJL were filed as exhibits to the trust’s
Quarterly Report on Form 10-Q, filed with the SEC on August 14, 2009; and the
trading advisory agreements with DCMIA and Trigon were filed as exhibits to the
trust’s Quarterly Report on Form 10-Q, filed with the SEC on November 12,
2010.
The trust
pays each trading advisor an incentive fee of up to 20% of any new trading
profits generated by a trading advisor as of the end of each calendar
quarter. New trading profits are any cumulative trading profit in
excess of the highest level (i.e., the “high water mark”)
of cumulative trading profits as of any previous calendar quarter-end with
respect to each trading advisor.
Generally,
trading profits for any period (i) include net realized and unrealized
profits and losses on open positions as of the end of such quarter less net
realized and unrealized profits and losses on open positions as of the end of
the preceding quarter, (ii) exclude interest income and (iii) are reduced by the
trading advisors’ respective management fees and clearing, NFA, and exchange
fees applicable to the account.
No
incentive fee shall be paid to a trading advisor until that trading advisor has
earned a new trading profit; provided, however, that if the assets are reduced
because of redemptions (or a reallocation) that occur at the end of, and/or
subsequent to, a calendar quarter in which the trading advisor experiences a
futures interest trading loss, the trading loss that must be recovered before
the trading advisor will be deemed to experience new trading profit in a
subsequent calendar quarter will be reduced on a pro rata basis. No
adjustment will be made, however, to any trading advisor’s loss carryforward
amount with respect to newly subscribed assets.
Additionally,
the trust will pay the incentive fees of any additional or replacement trading
advisors. Additional or replacement trading advisors (or the trading advisors
following the expiration of the initial term of their advisory agreements) may
receive incentive fees from the trust that differ from the current trading
28
advisors. It is unlikely that any replacement trading advisor
will be required to make up any loss carryforwards of a prior trading advisor
before being eligible to earn an incentive fee.
Accrued
incentive fees on units when redeemed are paid to the applicable trading
advisors. Any shortfall between cumulative trading profits and the
“high water mark” in cumulative trading profits is proportionately reduced when
units are redeemed.
For
example, assume that as of January 1, 2010, the trust is at a “high water mark”
in cumulative trading profits with respect to a trading advisor. If
trading profits for such month equaled $500,000, all of such trading profits
would be new trading profits, resulting in an accrued $100,000 incentive
fee. Assume also that by the end of the next month, losses, the
brokerage fee and the management fee have reduced the $500,000 new trading
profits to a loss of ($180,000). If investors then withdrew 50% of
their assets, this ($180,000) loss carryforward would be reduced by 50% to
($90,000) for incentive fee calculation purposes. If during the
following month trading profits equaled $200,000, new trading profits of
$110,000 would be accrued as of the end of such quarter, and the trading
advisors would be entitled to an incentive fee of $22,000 for the
quarter.
Paid
Equally by All Units
New
trading profits may be generated even though the net asset value per unit has
declined below the purchase price of certain units. Conversely, if
new units are purchased at a net asset value reduced by an accrued incentive fee
which is subsequently reversed, the reversal is allocated equally among all
units, although the accrual itself was attributable only to the previously
outstanding units.
Extraordinary
Expenses
The trust
will be required to pay any extraordinary expenses, such as taxes, incurred in
its operation. The trust has had no such expenses to
date. Extraordinary expenses, if any, would not reduce trading
profits for purposes of calculating the incentive fees.
Fees
and Expenses Paid by the Managing Owner
Selling
Commissions and Ongoing Compensation
Two
percent of the trust’s month-end net asset value (deducted from the brokerage
fee and paid as the selling commission with respect to Class A units) is paid to
the selling agent by the managing owner at the time the Class A units are
sold. The managing owner is reimbursed by the trust at a rate of
1/12th of 2.0%
of the net asset value of each Class A unit on a monthly basis until the earlier
of: (i) such time as the managing owner has been reimbursed up to 2.0% of the
initial net asset value of the Class A units sold or (ii) such time as the Class
A units have been held for 12 months. The managing owner also causes
eligible selling agents to be paid by the trust ongoing compensation of
1/12th of 2.0%
of the average month-end net asset value per unit for all Class A units they
have sold which remain outstanding, following the month in which the managing
owner is no longer reimbursed by the trust for the selling commission it
initially paid. In addition, for all outstanding units, 0.35% of the
trust’s month-end net asset value per unit is paid by the trust to the managing
owner for underwriting expenses. The maximum amount of underwriting
expenses and compensation paid to a Financial Industry Regulatory Authority
(“FINRA”) member for units sold pursuant to this prospectus may not exceed 10%
of the subscription amount.
Wholesalers
who introduce additional selling agents to the lead selling agent will share the
selling commissions and ongoing compensation with their respective additional
selling agents. Additional selling agents who distribute units
through correspondents will also share the selling commissions and ongoing
compensation with their respective correspondents. See “Plan of
Distribution — Selling Agents.”
29
Redemption
Charges
A
redemption charge of 1.5% of the net asset value per unit on the redemption date
is imposed on units redeemed on or before the end of the first eleven months
after issuance. This redemption charge is deducted from investors’
redemption proceeds and paid to the managing owner, except in the case of
redeeming Ohio residents, the charge is paid to RJOS. Furthermore,
requests for partial redemptions must be for at least $1,000 of units, and a
minimum balance of $1,000 must be maintained in such instances.
Interest
Income
The trust
is paid interest on the average daily U.S. dollar balances on deposit with R.J.
O’Brien & Associates, LLC at a rate equal to the average four-week Treasury
Bill rate. With respect to non-U.S. dollar deposits, the current rate
of interest is equal to a rate of one-month LIBOR less 1.0%. Effective
October 6, 2010, the managing owner retained RJO Investment Management LLC, an
affiliate of the managing owner, to serve as a cash manager to the trust.
The trust’s assets will be held by Wells Fargo Bank, N.A. as
custodian. As of October 31, 2010, Wells Fargo Bank, N.A. held
approximately $30 million of the trust’s assets.
The
Managing Owner
The
managing owner and commodity pool operator of the trust is R.J. O’Brien Fund
Management, LLC, a wholly-owned subsidiary of RJO Holdings, Corp. The
managing owner was originally incorporated in Illinois in 2006 and reformed as a
limited liability company in Delaware in July 2007. It has been
registered with the CFTC under the Commodity Exchange Act as a commodity pool
operator since December 1, 2006, and has been a member of the NFA since December
1, 2006 in such capacity. The managing owner maintains its principal
office at 222 South Riverside Plaza, Suite 900, Chicago, Illinois 60606;
telephone (312) 373-5000. The records of the trust are kept at the
managing owner’s office. The officers and directors of the managing
owner do not receive any compensation directly from the managing
owner. The managing owner has a fiduciary duty with respect to each
investor to act in good faith with respect to each investor. As of
October 31, 2010, the managing owner owned 11,679 units of the trust, and
one of its principals owned 19.7 units.
In
accordance with the Ninth Amended and Restated Declaration and Agreement of
Trust, which is attached hereto as Exhibit A, the managing owner has the
authority to make trading decisions for the trust; therefore, the principals of
the managing owner, whose background information is listed below, are the
trading principals of the trust. The trading principals of the trust,
on behalf of the managing owner, have delegated this responsibility to the
trust’s trading advisors. See the description of the trading advisory
agreements beginning on page 32.
Legal
Concerns
There
neither now exists nor has there previously ever been any material
administrative, civil or criminal action against R.J. O’Brien Securities, LLC or
R.J. O’Brien Fund Management, LLC or any of their principals.
Principals
of the Managing Owner
The
directors and officers of the managing owner are as follows:
Gerald Corcoran,
Chief Executive Officer
– Mr. Corcoran has been a
member of the RJO family of businesses since he joined in September
1984. He was appointed Chief Executive Officer of R.J. O’Brien &
Associates, LLC, a futures commission merchant, in June 2000 and of the managing
owner in November 2006. He has been a member of the managing owner’s
Board of Directors since November 2006. He became a registered NFA
principal of the managing owner on December 1, 2006. He joined R.J.
O’Brien & Associates, LLC, a futures commission merchant, in July 1987 as
Chief Financial Officer and served in that position until
30
September
1992, when he was promoted to Chief Operating Officer, in which capacity he
served until June of 2000. He became a member of the Board of
Directors of RJO Holdings, Corp. in May 2007. Mr. Corcoran also
serves on the Boards of the National Futures Association (“NFA”) and the Futures
Industry Association (“FIA”). Mr. Corcoran has a Bachelor of Business
Administration from Loyola University and is a Certified Public
Accountant. Mr. Corcoran is a registered NFA principal, associated
person, and NFA associate member of the managing owner since December 1,
2006. He is also a registered NFA principal of R.J. O’Brien
Alternative Asset Management, LLC, a commodity pool operator, since December 10,
2004 and an associated person and NFA associate member of the same since
September 21, 2009. Mr. Corcoran is a registered principal since May
2, 1988, associated person since September 4, 1984, and a NFA associate member
since August 1, 1985 of R.J. O’Brien & Associates, LLC, the Trust’s futures
broker.
Thomas J. Anderson, Chief Financial
Officer – Mr. Anderson became the
Chief Financial Officer of the managing owner on May 5, 2008 and became a
principal of the managing owner on June 6, 2008. Mr. Anderson was
appointed Treasurer of the managing owner’s Board of Directors on August 27,
2008. He also serves as the Chief Financial Officer of R.J. O’Brien
& Associates, LLC, a futures commission merchant and the trust’s futures
broker, and is a registered NFA principal since June 6, 2008 and an associated
person and NFA associate member since May 13, 2008 of R.J. O’Brien &
Associates, LLC. Mr. Anderson is a forex associated person of R.J.
O’Brien Associates, LLC since September 2010. He joined R.J. O’Brien
& Associates, LLC and the managing owner in May 2008. Prior to
serving in these positions, Mr. Anderson served as Senior Vice President and
Group Chief Operating Officer for Newedge Financial Inc. (formerly known as
Calyon Financial Inc.), a derivatives brokerage firm, from December 2006 to
April 2008. From December 2000 through December 2006, Mr. Anderson served as
Newedge’s Senior Vice President and Chief Financial
Officer. Regarding Newedge Financial, Inc., he was principal from May
2001 to January 2008, an associated person from May 2001 to April 2008, and a
NFA associate member from April 2001 to April 2008; regarding Newedge USA, LLC,
he was a NFA associate member and an associated person from January 2008 to
February 2008. Mr. Anderson is also the Chief Financial Officer of
the lead selling agent, R.J. O’Brien Securities, LLC since May
2008.
Annette A. Cazenave – Executive Vice
President. Ms. Cazenave joined the managing owner as a Senior
Vice President in December 2006. She is a registered NFA principal,
associated person, and NFA associate member of the managing owner since December
7, 2006. Ms. Cazenave was appointed Chairman of the managing owner’s
Board of Directors on August 27, 2008. Previously, Ms. Cazenave was
Senior Vice President for Refco Commodity Management, Inc., a commodity pool
operator, from September 2005 through November 2006, with overall management
responsibilities for all aspects of three registered commodity
pools. She also served as Vice President of the Investor Products
Group and Vice President and principal of CIS Investments, Inc., a registered
commodity pool operator of Cargill Investor Services, a futures commission
merchant, from March 2004 through August 2005, with overall management
responsibilities for three registered commodity pools. Her
registration as a principal of CIS Investments, Inc. was transferred to Refco
Commodity Management, Inc. when such entity purchased CIS Investments, Inc. in
September 2005. She remained a registered principal, associated
person, and NFA associate member until November 2006. She was also an
associated person and NFA associate member of Refco, LLC, a futures commission
merchant, from August 2005 to November 2005 and a principal of Refcofund
Holdings, LLC, a commodity pool operator, from November 2005 to November
2006. She was also an associated person and NFA associated member of
MF Global, Inc., a futures commission merchant and an affiliate of Man Group
plc, a global investment management firm based in the United Kingdom, in
November 2005 for the transition period during which MF Global, Inc. purchased
Refco, LLC. She also served as Vice President, responsible for
marketing and product development, for Horizon Cash Management, LLC, a
short-term, fixed income management firm, from January 2002 through March
2004. She was also an associated person and NFA associate
member of Liberty Funds Group, Inc., a commodity pool operator, from August 1999
until March 2004 and a branch manager from November 1999 until January
2002. She holds a B.A. from Drew University and an M.B.A. from
Thunderbird, The American Graduate School of International
Management. Ms. Cazenave is also on the Board of Managers
31
and a registered representative of the lead selling agent, R.J. O’Brien
Securities, LLC and a registered NFA associated person and NFA associate member
of R.J. O’Brien Alternative Asset Management, LLC, a commodity pool operator,
since April 17, 2007.
R.J. O’Brien Alternative Asset
Management, LLC –
Principal. R.J. O’Brien Alternative Asset Management, LLC is a
Delaware limited liability company formed in December 2004, and is the
subsidiary of RJO Holdings, Corp. and the parent of the managing
owner. R.J. O’Brien Alternative Asset Management, LLC became a
registered member and commodity pool operator of the NFA on December 13, 2004
and a registered NFA entity principal of the managing owner on July 17,
2007.
RJO Holdings, Corp. –
Principal. RJO Holdings, Corp. is a Delaware corporation,
incorporated in May 2007, and a parent of the managing owner. RJO
Holdings, Corp. became a registered NFA entity principal of the managing owner
and R.J. O’Brien & Associates, LLC on July 17, 2007.
The
officers and directors of the managing owner may, from time to time, trade
futures, forwards, and options or their own proprietary accounts. The
records of trading in such accounts will not be made available to you for
inspection.
Liberty
Funds Group
The
managing owner has retained Liberty Funds Group, Inc., a Texas-based investment
management firm, as consultants, to conduct research and analyses on commodity
trading advisors, complete due diligence, make portfolio recommendations and
provide ongoing portfolio monitoring for the trust. Liberty is
registered as a commodity pool operator and commodity trading advisor with the
CFTC, and is also a registered investment adviser with the SEC. The
managing owner has sole discretion as to whether it engages a commodity trading
advisor. The trust pays Liberty a fee equal to 0.33% of the month-end
net assets of the trust on an annual basis. The agreement between the
managing owner and Liberty was for an initial term of one year, and is
automatically renewed for additional one-year periods unless either party
chooses to terminate it by providing 120 days’ notice to the other
party.
The
Commodity Trading Advisors
Trading
Advisory Agreements
The
following description of the advisory agreements is general and not intended to
be exhaustive. You should be aware that the terms and conditions of
each advisory agreement may be different, and that these differences affect the
rights of the parties to the advisory agreements.
The trust
and the managing owner have entered into eight advisory agreements with the
following commodity trading advisors (“CTAs”): Abraham Trading, L.P.,
Conquest Capital LLC, Dominion Capital Management Institutional Advisors, Inc.,
Global Advisors (Jersey) Limited, Haar Capital Management LLC, John W. Henry
& Company, Inc., NuWave Investment Management, LLC, and Trigon Investment
Advisors, LLC. Effective October 1, 2010, each CTA trades a
percentage of the trust’s assets, with an approximate percentage of net assets
available for trading allocated as follows:
|
·
|
Abraham
Trading, L.P. – Trading Diversified –
16.66%
|
|
·
|
Conquest
Capital LLC – Macro – 16.66%
|
|
·
|
Dominion
Capital Management Institutional Advisors, Inc. – Dominion Sapphire
Program – 8.33%
|
|
·
|
Global
Advisors (Jersey) Limited – Commodity Systematic –
16.66%
|
|
·
|
Haar
Capital Management, LLC – Discretionary Commodity Trading Program –
8.33%
|
|
·
|
John
W. Henry & Company, Inc. – Diversified Plus –
8.33%
|
32
|
·
|
NuWave
Investment Management, LLC – Combined Futures Portfolio (2x) –
16.66%
|
|
·
|
Trigon
Investment Advisors, LLC – Discretionary Macro –
8.33%
|
The
managing owner will pay each CTA an annual management fee of up to 2% of the
trust’s assets traded by that CTA. The managing owner will also pay
each CTA an incentive fee of up to 20% of the new trading profit (as defined in
each advisory agreement) generated by the CTA.
The
advisory agreements each had an initial term of one year. The CTAs
may terminate their respective advisory agreement upon written notice 60 days
prior to the expiration of the initial one-year period. If the
advisory agreements are not terminated upon the expiration of the initial
one-year period, the advisory agreement will automatically renew for an
additional one-year period, and will continue to renew for additional one-year
periods until terminated as provided for in the advisory
agreements.
The trust
and managing owner are entitled to terminate the advisory agreements at any
month-end upon five days’ prior written notice to the counterparty CTA or upon
the occurrence of specific events (as specified in each advisory
agreement). Each CTA is entitled to terminate its respective advisory
agreement at any time upon 30 days’ written notice to the trust and managing
owner if other certain events occur (as specified in each advisory
agreement).
As
specified in the advisory agreements, each CTA will indemnify the trust and
managing owner against any liability incurred as a result of the CTA’s breach of
its advisory agreement (including any representations, warranties, or covenants
therein) or the CTA’s bad faith, misconduct, or
negligence. Additionally, as specified in the advisory agreements,
each CTA will indemnify the trust and managing owner against any liability
incurred in respect of the offer and sale of units of the trust, insofar as such
liability is based upon (i) a breach by the CTA of an applicable law,
regulation, representation, warranty, agreement, or (ii) any materially untrue
statement or omission regarding the CTA and furnished by the CTA which was made
in any prospectus (including amendments and supplements) or sales
literature.
Generally
the CTAs will be indemnified (as specified in the advisory agreements) against
any liability incurred as a result of activity taken pursuant to the advisory
agreements, so long as the action or omission giving rise to the liability did
not constitute negligence, misconduct, breach of an advisory agreement,
representation, warranty, or covenant, and the act or omission was done in good
faith. Generally the CTAs will also be indemnified (as specified in
the advisory agreements) against any liability incurred in respect of the offer
or sale of units of the trust, unless such liability is based upon (i) a breach
by the CTA of an applicable law, regulation, representation, warranty,
agreement, or (ii) any materially untrue statement or omission regarding the CTA
and furnished by the CTA which was made in any prospectus (including amendments
and supplements) or sales literature.
Introduction
to Trading Advisor Descriptions
The
biographies of the principals of each trading advisor and those persons with
responsibility for making trading decisions for the trading advisors and brief
summaries of the trading program of each trading advisor for the trust are set
forth below. The success of the trust is dependent upon the
collective success of the trading advisors in their trading for the
trust. However, in evaluating these descriptions, an investor should
be aware that the trading advisors’ trading methods are proprietary and
confidential, the trading advisors selected may change over time, and even if
the same trading advisors continue to trade for the trust, they may make
substantial modifications to their respective trading
program. Investors generally will not be made aware when a trading
advisor makes a modification to its trading program.
The following descriptions of the trading advisors, the trading
programs and their principals are general and are not intended to be
exhaustive. It is not possible to provide a precise description of
any trading advisor’s trading program. Furthermore, the trading
advisors may refer to specific aspects of their trading program,
33
which
aspects may also be applicable to other trading advisors that did not choose to
make specific reference to these aspects of their own trading
programs. As a consequence, contrasts in the following descriptions
may not, in fact, indicate a substantive difference between the different
programs involved. All non-proprietary information about a trading
program that the trading advisor believes to be material has been
included.
A trading
advisor’s registration with the CFTC or its membership in the NFA should not be
taken as an indication that any such agency has recommended or approved the
trading advisor.
The
trading advisors and their principals have no affiliation with any futures
commission merchant, introducing broker, or principal thereof, and do not and
will not participate in brokerage commissions, directly or
indirectly. As of the date of this prospectus, none of the trading
advisors or any principal of a trading advisor beneficially owns any units in
the trust.
PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. FURTHERMORE, THE
RATES OF RETURN EARNED WHEN A TRADING ADVISOR IS MANAGING A LIMITED AMOUNT OF
EQUITY MAY HAVE LITTLE RELATIONSHIP TO THE RATES OF RETURN WHICH A TRADING
ADVISOR MAY BE ABLE TO ACHIEVE WHEN MANAGING LARGER AMOUNTS OF
EQUITY.
CERTAIN
OF THE ACCOUNTS INCLUDED IN THE FOLLOWING PERFORMANCE SUMMARIES PAID FEES
MATERIALLY DIFFERENT FROM, AND IN SOME CASES MATERIALLY LOWER THAN, THOSE TO BE
CHARGED TO THE TRUST.
TRADING
OF FUTURES AND FORWARD CONTRACTS AND RELATED INSTRUMENTS IS SPECULATIVE AND
INVOLVES A HIGH DEGREE OF RISK. THERE CAN BE NO ASSURANCE THAT THE
TRADING ADVISORS WILL TRADE PROFITABLY OR AVOID INCURRING SUBSTANTIAL
LOSSES.
Notes
to Performance Information
In
reviewing the descriptions of the trading advisors’ performance information,
prospective investors should understand that such performance is “net” of all
fees and charges and generally includes interest income applicable to the
accounts comprising each composite performance summary. Such
composite performance is not necessarily indicative of any individual
account. In addition, particular conventions adopted by certain
trading advisors with respect to the calculation of the performance information
set forth in this prospectus are described following the capsules summary
sections with respect to each trading advisor.
1.
|
“Name
of commodity trading advisor” is the name of the trading advisor which
directed the accounts included in the performance
summary.
|
2.
|
“Name
of program” is the name of the trading program used by the trading advisor
in directing the accounts included in the performance
summary.
|
3.
|
“Inception
of trading by CTA” is the date on which the relevant trading advisor began
directing client accounts.
|
4.
|
“Inception
of trading in program” is the date on which the relevant trading advisor
began directing client accounts pursuant to the program shown in the
performance summary.
|
5.
|
“Number
of open accounts” is the number of accounts directed by the relevant
trading advisor pursuant to the program shown in the performance summary
through October 31, 2010.
|
34
6.
|
“Aggregate
assets overall” is the aggregate amount of actual assets under the
management of the relevant trading advisor in all programs operated by
such trading advisor through October 31,
2010.
|
7.
|
“Aggregate
assets in program” is the aggregate amount of total equity, including
“notional” equity, under the management of the relevant trading advisor in
the program shown in the performance summary through October 31,
2010.
|
8.
|
“Worst
monthly drawdown” is the largest monthly percentage loss experienced by
any trading program or pool of the trading advisor in any calendar month
since either January 2005 or the date of inception and ending October 31,
2010. “Loss” for these purposes is calculated on the basis of
the loss experienced by each such trading program or pool, expressed as a
percentage of the total equity (including “notional” equity) of such
trading program or pool.
|
9.
|
“Worst
peak-to-valley drawdown” is the largest percentage decline (after
eliminating the effect of additions and withdrawals) experienced by any
trading program or pool of the trading advisor since either January 2005
or the date of inception and ending October 31, 2010 from any month-end
net asset value, without such month-end net asset value being equaled or
exceeded as of a subsequent month-end. Worst peak-to-valley
drawdown is calculated on the basis of the loss experienced by each such
trading program or pool, expressed as a percentage of the total equity
(including “notional” equity) of such trading program or
pool.
|
10.
|
“Annual
return” is calculated by multiplying on a compound basis each monthly rate
of return and not by adding or averaging such monthly rates of
return. For periods of less than one year, the results are for
the period indicated.
|
1.
|
Abraham
Trading Company
|
Introduction
Abraham
Trading Company (“ATC”) is engaged in the business of offering trading advice to
customers with respect to futures contracts, options on futures contracts and
physical commodities, forward contracts and other commodity-related contracts
traded on United States, foreign, and international exchanges and
markets. ATC trades commodity interests in interest rate sensitive
instruments, currencies, agricultures, energies, metals as well as other
markets. Abraham Trading Company’s principal business address is the
Moody Building Second & Main, PO Box 338, Canadian, Texas 79014; telephone
(806) 323-8000.
Abraham
Trading, L.P. is a Texas limited partnership organized January
2004. It succeeded Abraham Trading Company and still operates under
the assumed name Abraham Trading Company. Abraham Trading Company was
a corporation organized under the laws of the State of Texas on August 13,
1990. The sole general partner of Abraham Trading, L.P. is Salem
Abraham L.L.C., whose sole owner and principal is Salem
Abraham. Salem Abraham and Salem Abraham L.L.C. are both registered
as principals of ATC as of October 24, 1988 and February 24, 2004,
respectively. Salem Abraham became registered as a commodity trading
advisor on October 24, 1988. ATC succeeded to such commodity trading
advisor registration on September 11, 1990, at which time it also registered as
a commodity pool operator. ATC is a registered member (#0214261) of
the NFA since October 24, 1988. Salem A. Abraham was registered as an
associated person of ATC on October 11, 1990.
ATC has
two principals: Salem A. Abraham and Salem Abraham
LLC. Salem Abraham LLC is an entity principal of
ATC.
35
ATC
Principals
Salem A. Abraham is the sole
person responsible for making trading decisions on behalf of
ATC. Salem Abraham is registered with the NFA as a principal since
October 24, 1988, and associated person of ATC since October 11, 1990, and is a
member of the NFA since September 11, 1990. Salem Abraham attended
the University of Notre Dame from August 1984 until December 1987 when he
graduated cum laude with a B.A. degree in Finance. His interest in
commodity trading began while still in college, and it was during the spring and
summer of 1987 that he developed his present trading strategy. During
this time, he did extensive research in the technical and methodological aspects
of commodities trading. Combining the information he had gathered
with ideas that he had developed during his research, he began the task of
back-testing the profitability of numerous trading theories in an effort to
establish the relative validity of those theories. This testing was
accomplished by running computer simulations using historical data and/or by
manually studying historical charts. Through this process many
long-venerated trading strategies were shown to be unviable in changing market
conditions, while other strategies were modified in order to maximize their
profitability. This research led Salem to develop a trend following
trading system, and in August 1987, while still in college, he began to test
that approach by trading commodity interests for his own account. In
January 1988, he began to manage customer accounts using his systematic
approach, initially through a joint account with three of his
relatives. He became registered as a commodity trading advisor in
October 1988 and organized ATC in August 1990 to act as CTA for all customer
accounts. Salem continues to conduct research on trading
strategies. Salem Abraham has been employed by ATC since its
formation in August 1990. Mr. Abraham was a NFA-registered floor
trader from September 14, 1998 through January 13, 2006.
Salem Abraham LLC is a holding
company owned by Salem Abraham and is a registered NFA entity principal of ATC
since February 24, 2004.
ATC
Key Personnel
Shaun Jordan, Director of
Marketing, is registered with the CFTC as an associated person of ATC since
October 30, 2003, and is a member of the NFA since June 13, 2003. He
became branch manager approved on March 25, 2004. He joined ATC in
April 2003 to market to new clients as well as service existing
clientele. He graduated from the University of Texas at Austin with a
degree in Economics in May 1993. In August 1997 he received his MBA
with a focus in Marketing and Finance from The University of Texas at
Austin. Prior to joining ATC, Shaun owned and operated a sports
marketing company, Jordan Aquatics, Inc., from August 1997 to April
2003. Jordan Aquatics was a sports marketing and instructional
swimming clinic business that placed elite athletes in instructional clinic
environments around the world. His sponsors included NIKE, Dell
Computer Corporation, and The Pepsi Bottling Group. Shaun was a
member of the 1988 and 1992 USA Olympic Swim Teams, winning two Olympic Gold
Medals.
Barry D. Sims, Director of
Operations, is registered with the CFTC as an associated person of ATC and is a
member of the NFA, both since January 18, 1997. He attended Texas
Tech University from September 1976 through May 1979. While
attending school he was employed by The American State Bank in Lubbock, Texas,
as a Data Processing Officer beginning in September 1976 through March
1980. His duties included applications programming, operations, and
management of an ATM network. From April 1980 to April 1981 he was a
conversion and installation specialist for Gruhlkey Data Systems, a software
development company for financial institutions. From March 1981 to
January 1983 he was an independent contractor for American State Bank managing
application conversions. In February 1983 he joined Financial
Information Technology, Inc. and Bank Services Corporation of Colorado Springs,
Colorado, where he became Vice President. His duties included
management, customer relations, and marketing. In May of 1992 Barry
left Bank Services Corporation to start an information management and technology
consulting firm, Computer Solutions, in Pampa, Texas. His clients
included banks, accountants, lawyers, doctors and Abraham Trading
Company. He sold his consulting firm and joined ATC in March 1995,
where he has been employed through the present.
36
Although not a principal of ATC, Barry assists Salem with the Company’s
technology, marketing, operating, and trading efforts.
Larry S. Smith is registered
with the CFTC as an associated person of ATC and is a member of the NFA, both
since January 18, 1997. He attended West Texas A&M University in
Canyon, Texas from August 1989 through August 1993 where he received a B.B.A.
degree in Finance. In September 1993 he joined Cardone Record Service
in Galveston, Texas. In June 2004 he left Cardone Record Service and
joined Golden Empire Mortgage in Las Vegas, Nevada as a loan officer; he
resigned from Golden Empire in November 2004 and returned to Canadian,
Texas. From December 2004 until February 2005 he worked in the family
business, Canadian Supply and Ready Mix. He joined ATC in March 1995,
where he has been employed through the present. His duties include
performance table accounting and he is also the assistant trader responsible for
the trading desk. Although not a principal, in his role as assistant
trader, Larry has worked with ATC’s brokers to improve the execution and
implementation of ATC’s trading strategies.
ATC and
its principals may, from time to time, trade securities, futures, and related
contracts for their own proprietary accounts. If ATC or its
principals engage in such trading, investors will not be able to inspect such
records.
ATC, its
principals, and key personnel do not have any beneficial or ownership interest
in the trust.
Legal
Concerns
There
have been no material administrative, civil, or criminal proceedings against ATC
or any of its principals, which are pending, are on appeal or have concluded at
any time during the last five years.
Trading
Program
The
following description of ATC, its trading systems, methods, models, and
strategies is general and not intended to be
exhaustive. Additionally, the following description of ATC’s trading
strategy relates to ATC generally and not to the trust itself.
Approximately
15% to 20% of the trust’s assets traded by Abraham are committed as margin (this
percentage will vary from month to month and can be significantly higher or
lower than indicated).
ATC has
developed a managed account program pursuant to which it directs the speculative
purchase and sale of commodity interests for the accounts of participating
customers in accordance with its trading methods and strategies.
Salem A.
Abraham is employed by ATC and is the sole person responsible for overseeing
ATC’s trading decisions. ATC’s trading approach draws upon Salem
Abraham’s judgment, experience and his knowledge of the technical factors
affecting various commodity markets and attempts to identify optimal trading
opportunities. The approach is primarily guided by trading systems
which have been developed by Salem and ATC’s research team and are owned by
Salem Abraham but are licensed to ATC. These trading systems are the
result of exhaustive research based on classical technical analysis and combine
long-term trend following, short-term trend-following, short-term momentum and
mean reversion strategies.
The
underlying premise of ATC’s trading approach is that commodity interests will,
from time to time, enter into periods of major price change to either a higher
or lower level. These price changes can be identified and predicted,
albeit with limited reliability. Even though this
predictability is limited there is still ample opportunity for an experienced
trader to get the odds in his favor. This fact has been observed and
recorded since the beginning of market history. There is every reason
to believe that in free markets these price
37
movements will continue to be identified and exploited for
profit. ATC’s trading systems are designed to capitalize on these
facts and uncover trading opportunities.
ATC’s
trading approach also relies heavily on the disciplined management of
risk. In evaluating the various factors which make up a trading
decision, the systems pay close attention to each trade’s risk-reward potential,
how it fits into the risk profile of the entire portfolio, and whether it
adheres to the program’s overall trading goals.
Salem may
refine or change ATC’s trading approach (including enhancements or changes to
his trading systems which are licensed to ATC or the addition or deletion of
commodity interests traded) at any time without prior notice to or approval by
its customers. There can be no assurance that ATC’s approach to
trading the commodities markets will yield the same results that have been
achieved in the past.
Goal
of Trading; Markets Employed
The
trading approach employed by ATC in trading customer accounts uses technical
analysis to anticipate movements in prices.
Technical
analysis is based on the theory that the study of the commodities markets
themselves provides a means of anticipating the external factors that affect the
supply and demand of a particular commodity in order to predict future
prices. Technical analysis operates on the theory that market prices
at any given point in time reflect all known factors affecting supply and demand
for a particular commodity; consequently, only a detailed analysis of, among
other things, actual daily, weekly and monthly price fluctuations, volume
variations and changes in open interest are of predictive value when determining
the future course of price movements. In general, trading
recommendations may be based on computer-generated signals, chart
interpretation, mathematical measurements or a combination of such
items.
Technical
analysis is of particular concern in the timing of entry and exit positions and
in evaluating the extent to which the market price reflects the underlying
value. ATC’s evaluation of the technical position of the market can
thus help in determining the direction of prices and is also used as a tool in
risk control. ATC believes that the confluence of technical signals
gives it optimal risk/reward possibilities.
In its
evaluation of the markets, ATC will generally utilize a systematic approach
blending long-term trend following, short-term trend following, short-term
momentum and mean reversion strategies in an effort to reduce volatility without
sacrificing performance. Each strategy is further divided into
sub-systems to facilitate smoother entries and exits. In some
strategies, Abraham also implements certain techniques to identify trades with
adverse risk/reward characteristics in order to avoid them. While the
goal of these techniques is to capture profits, their selectiveness allows the
system to enter markets only during periods when the risk/reward of a trade is
heavily in the trade’s favor. It is even possible that if
unacceptable risk characteristics exist, these techniques could avoid trades
with positive profit expectations. The desired result is a trading
method that provides exceptional returns with low correlation to stock and bond
investments.
A
systematic trading strategy will seldom direct market entry or exit at the most
favorable price in the particular market movement. Rather, this type
of trading method seeks to close out losing positions and to hold portions of
profitable positions for as long as the system determines that the particular
market action continues to exist. However, there can be no assurance
that profitable positions can be liquidated at the most favorable price in a
particular trade. As a result, the number of losing transactions may
exceed the number of profitable transactions. However, if the
approach is successful, these losses should be small and should be more than
offset by a few large gains.
38
ATC’s
trading systems seek to identify certain market actions and initiate a position
until a neutral or opposite signal is generated. The position is then
closed out or reversed. The strategies do not always result in a
position being held in every commodity traded.
ATC’s
Diversified Program presently monitors and trades 59 markets including 33
commodity interests and 26 financial futures markets: Wheat; Kansas
City Wheat; Corn; Soybeans; Soybean Oil; Soybean Meal; Canola; British Pound;
Canadian Dollar; Swiss Franc; Euro; Japanese Yen; Mexican Peso; Euro/Japanese
Yen Cross Rate; Australian Dollar; Euro/British Pound Cross Rate; Silver;
Platinum; Copper; Gold; Aluminum; Zinc; Nickel; U.S. Treasury Notes; U.S.
Treasury Bonds; Australian Bonds; Japanese Bonds; German Bunds; British Gilts;
Canadian Bonds; EuroDollar; Australian Bank Bills; Euribor; Crude Oil; Brent
Crude; Heating Oil; London Gas Oil; Gasoline Blendstock; Natural Gas; Cotton;
Sugar; London Sugar; Coffee; London Robusta Coffee; Cocoa; London Cocoa; Orange
Juice; Lumber; Milk; Live Cattle; Feeder Cattle; Lean Hogs; S&P 500 Mini;
Russell 2000 Mini; FTSE 100; Euro Stoxx 50; Hang Seng Index; Nikkei 225;
Australian SPI 200 Index. ATC’s Commodity Only Program, (a separate
program not offered in this disclosure document), trades only the 33 commodity
markets mentioned above using the same methods as the Diversified Program except
at higher leverage to compensate for the fewer number of
markets. Trades are normally executed on the futures exchanges but
from time to time ATC may utilize forward contracts in some of its
trades. ATC may trade futures contracts, options on futures contracts
and physical commodities, forward contracts and other commodity-related
contracts that are now or may hereafter be offered for trading on United States
and international exchanges and markets. In that regard, ATC from
time to time in its sole discretion may add commodity interests to or delete
interests from participating customers’ portfolios.
Emphasis
on Risk Management
A vital
part of ATC’s trading strategy is sound risk management. ATC’s
trading strategy is designed to endure the inevitable periods of unfavorable
market conditions in order to profit when favorable market conditions do
occur. Each commodity interest is tracked on its own merits, and
“exit levels” are determined at the time a trade is entered. ATC
employees a 24-hour trading desk to monitor the markets whenever they are open
and utilizes these “exit levels” rather than placing “stop-loss” or “stop-limit”
orders. These “exit levels” are designed to terminate losing trades
quickly and attempt to limit any loss to no more than a nominal percentage of
the account’s net assets, but like the placement of contingent orders, such as a
"stop-loss" or "stop-limit" orders, they will not necessarily limit losses to
the intended amounts, since market conditions may make it impossible to execute
such orders.
On
average, ATC utilizes approximately 15% of the nominal account value of
participating customers to meet initial margin requirements, although this
percentage may vary widely.
Since all
trading methods and strategies to be utilized by ATC are proprietary and
confidential, the foregoing discussion is necessarily of a general
nature.
Abraham
Diversified Past Performance
You are
cautioned that the information set forth in the following capsule summary is not
necessarily indicative of, and may have no bearing on, any trading results that
may be attained by ATC or the trust in the future, since past results are no
guarantee of future results. There can be no assurances that ATC or
the trust will make any profits at all, or will be able to avoid incurring
substantial losses. You should also note that interest income may
constitute a significant portion of a commodity pool’s total income, and in
certain circumstances, may generate profits where there have been realized or
unrealized losses from commodity trading. A portion of the trust’s assets is
allocated to the Abraham Diversified program.
Set forth
below in Capsule A is the past performance history of Abraham Trading
Diversified, one of the programs that will be traded for the
trust.
39
Prospective
investors should note that the following table for ATC’s Diversified Program
presents performance data in composite form. Accordingly, individual
accounts may have achieved better or worse results than those shown in Capsule
A. The accounts reflected in the table generally have followed the
same basic trading methods and strategies described under “Trading
Program.” Moreover, all accounts in the Diversified Program normally
have been traded in parallel. However, the accounts were charged
monthly management fees of between 0% and 1/6th of 1%
of equity and incentive fees ranging between 13.33% and 35% of net
performance. When reviewing performance records, prospective
investors should understand that it is important to note that in a presentation
of past performance data, different accounts, even though they are traded
according to the same set of rules, can have varying investment
results. The reasons for this include (1) the period during which
they are active and when they began trading, (2) the trading strategy used,
since modifications to a trading strategy can occur, (3) the account size, since
an account with a limited amount of funds may have different results than an
account with a greater amount of funds available, (4) the liquidity of the
futures contract traded may not be sufficient to allow an order to be placed
with a sufficient number of contracts to ensure that every customer account will
participate in every trade an advisor makes for its managed accounts, (5) the
brokerage commission rate charged to an account, since brokerage commissions
will affect the account’s performance, (6) the management fee and performance
fee rates may vary from account to account, (7) split fills received on block
orders placed by the advisor, and (8) there may be other strategic
considerations that an advisor may take in electing to make or liquidate a
particular trade for some or all of his customers. However, in ATC’s
opinion, the following capsule adequately reflects the performance of ATC’s
Diversified Program of comparable accounts in all material
respects.
The rates
of return reported below for ATC’s Diversified Program are based on a
computation that uses the nominal values of all the accounts, funded for an
entire month or period, managed by Abraham Trading Company using its Diversified
Program. This means that (i) ATC has managed in the past and might
manage in the future some accounts which are fully-funded and others which are
funded at less than 100%; (ii) the value of fully-funded accounts included in
the subset constitutes at least 10% of the cash and other margin qualifying
assets (“Actual Funds”) plus the amount by which the account’s trading level
exceeds the Actual Funds (“Nominal Account Size”); and (iii) there are no
material differences in gross trading profit (loss) between the Fully-Funded
subset and the Nominal Account Size.
The
information presented in the following tables has not been
audited. However, ATC believes that such information is accurate and
fairly presented.
40
Capsule
A
Abraham Trading, L.P. – Abraham Trading
Diversified
Name
of commodity trading advisor:
|
Abraham
Trading Company
|
|
Name
of program:
|
Diversified
|
|
Inception
of trading by CTA:
|
January
1998
|
|
Inception
of trading in program:
|
January
1998
|
|
Number
of open accounts:
|
13
|
|
Aggregate
assets overall as of October 31, 2010:
|
$451,956,388
|
|
Aggregate
assets in program as of October 31, 2010:
|
$450,311,408
|
|
Worst
monthly drawdown since January 1, 2005:
|
(12.16)%,
July 2005
|
|
Worst
peak-to-valley drawdown since January 1, 2005:
|
(27.18)%,
November 2004 to July 2005
|
|
2010
year-to-date return:
|
1.78%
(10 months)
|
|
2009
annual return:
|
(5.55)%
|
|
2008
annual return:
|
28.81%
|
|
2007
annual return:
|
19.20
%
|
|
2006
annual return:
|
8.93%
|
|
2005
annual return:
|
(10.95)%
|
You should read the footnotes located
under “Notes to the Performance Information” on pages 34 to 35, which are an
integral part of the above performance capsule.
PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
2.
|
Conquest
Capital LLC
|
Introduction
Conquest
Capital LLC is a Delaware limited liability company engaged in the business of
providing trading advisory services to customers with respect to futures
contracts, forward contracts, and other futures-related interests (collectively,
“futures interest contracts”) across geographic centers and across assets
classes. Conquest manages accounts for trading in futures interest
contracts on a discretionary basis and its trading methodologies are speculative
in nature.
Conquest has been registered with the
CFTC as a commodity trading advisor and a commodity pool operator and has been a
member of the NFA since May 9, 2001.
Conquest
has four principals, one of which is an entity principal: Marc H. Malek, Harold
Feder, David M. Cielusniak, and Conquest Capital Group LLC. Mr. Malek
is responsible for making trading decisions for Conquest.
Conquest
Principals
Marc H. Malek is a registered
principal, associated person, and NFA associate member of Conquest Capital LLC
since May 9, 2001. Mr. Malek started his career in September 1992 at
Salomon Brothers Inc. (“Salomon Brothers”), an investment bank in New York, as a
financial analyst in the Financial Strategy Group. From Salomon, he
was hired in March 1993 by KB Currency Advisors Inc. (“KB Currency Advisors”), a
$400 million hedge fund and financial advisory firm. For the next two
years, Mr. Malek traded currency options, worked on developing proprietary trend
following trading systems, and dealt with currency overlay
customers. Mr. Malek left KB Currency Advisors and joined UBS AG (“UBS”),
an investment bank, in March 1995, where he held various senior level positions
within the foreign exchange department in New York, London and
41
Tokyo
until December 1998. During that time, he was the worldwide head of
the Exotic FX Derivatives Group and he held the post of Executive Director in
charge of FX Proprietary Trading in Europe. After leaving UBS AG in
December 1998, Mr. Malek worked on forming his own investment management firm,
which he did in May 1999 with Enterprise Asset Management LLC. He was
a principal, NFA associate member and associated person of Enterprise Asset
Management LLC from March 2000 until May 2001. He was a principal,
NFA associate member and associated person of the investment management firm
Avalon Asset Management LLC from May 1999 until co-founding with Mr. Rich
Silver, Camelot LLC (now Conquest Capital Group LLC (“CCG”)), an investment
management firm, in March 2001 (Mr. Malek withdrew as associate member of Avalon
Asset Management LLC in August 2001 and withdrew as principal and associated
person of Avalon Asset Management LLC in November 2002). Mr. Malek
was a principal and associated person of Camelot LLC from April 2001 until
August 2002, and a NFA associate member of Camelot LLC from May 2001 until
August 2002. In May 2001, Mr. Malek became a principal, NFA associate
member and associated person of Condor Capital LLC, also an investment
management firm and wholly-owned subsidiary of CCG. Mr.
Malek became a principal, NFA associate member and associated person
of CC Asset Management LLC, an investment management firm and a
wholly-owned subsidiary of CCG at that time, in February 2003. On
June 20, 2007, CCG separated from Condor Capital LLC and CC Asset
Management LLC, so CCG and Mr. Malek no longer have any affiliation or
association with those entities. Mr. Malek graduated with Honors from the
California Institute of Technology with a B.S. in Engineering and Applied
Science and holds a B.A. in Mathematics from Reed College.
Harold Feder is a registered
principal of Conquest Capital LLC since March 6, 2008. Mr. Feder
graduated Summa Cum Laude from Touro College with a Bachelor of Science in
Accounting. He worked as an audit manager at Grant Thornton’s
Financial Services Industry Group, an international accounting firm from
November 2000 to October 2003. While at Grant Thornton, Mr. Feder was
in charge of auditing various hedge funds, private equity partnerships and
broker dealers. He was also an instructor in Grant Thornton’s
Continuing Professional Education Center where he gave courses on Audit Planning
and on Auditing Broker-Dealers. Mr. Feder also worked as an
accountant in the Financial Reporting Department at Tudor Investment Corp., an
investment management firm, from October 2003 to August 2004. Mr.
Feder joined Conquest in August 2004 and served as an Assistant Vice President
until June 2007. In July 2007 Mr. Feder became the Chief Financial
Officer at Conquest. Mr. Feder is licensed as a CPA in New York
State. He is also a member of the American Institute of Certified
Public Accountants as well as the NYS Society of Certified Public Accountants
where he has served on the Stock Brokerage committee.
David M. Cielusniak is a
registered principal of Conquest Capital LLC since March 6, 2008. Mr.
Cielusniak graduated with a Bachelor of Science in Business Administration from
Georgetown University with a concentration in Finance and minor in
Economics. He graduated with a Juris Doctorate from the Fordham
University School of Law. Prior to joining Conquest as the COO and
Chief Compliance Officer in August 2007, Mr. Cielusniak was counsel to the
Alternative Investment Division at Credit Suisse Group AG, an investment bank,
from December 2005 through August 2007, where he provided legal coverage to
hedge funds and various alternative products. Before Credit Suisse,
he was an attorney for the Alternative Investment Management Division at Lehman
Brothers Holdings Inc., an investment bank, from September 2004 through November
2005. Mr. Cielusniak also practiced law at the law firms of Kramer
Levin Naftalis & Frankel LLP from March 2003 through September 2004 and
Cadwalader, Wickersham & Taft from September 1999 through March
2003.
Conquest Capital Group LLC is
a limited liability company formed in Delaware in March 2001 by Mr. Marc H.
Malek. Mr. Malek is a principal of Conquest Capital Group
LLC. Conquest Capital Group LLC has been a registered entity
principal of Conquest since May 9, 2001.
Conquest and its principals may, from time to time, trade futures,
forwards, and options contracts and securities for their own proprietary
accounts. Such trades may or may not be in accordance with the
Conquest
42
trading
program described below. Conquest will permit its investors to see
records relating to the performance of accounts and allocations of orders among
Conquest’s various clients and even proprietary trading results, while
maintaining required confidentiality of its investors.
Neither
Conquest nor any of its principals have a beneficial or ownership interest in
the Trust.
Legal
Concerns
There
have been no material administrative, civil or criminal proceedings against
Conquest or its principals that are pending, are on appeal or have concluded at
any time since inception.
Trading
Strategy
The
following description of Conquest, its trading systems, methods, models, and
strategies is general and not intended to be
exhaustive. Additionally, the following description of Conquest’s
trading strategy relates to Conquest generally and not to the trust
itself.
Conquest provides trading advisory
services to customers with respect to futures interest contracts across
geographic centers and across assets classes. As of the date of this
prospectus, Conquest offers its clients six trading programs. Conquest’s “Macro” trading program is
utilized in Conquest’s management of assets on behalf of the
Trust.
Macro
Trading Program Methodology
Conquest’s
Macro trading program is designed to create a combination of an absolute return
portfolio and a portfolio hedge product. Conquest’s Macro strategy is
primarily a short-term trading strategy with a trend-following bias that
concentrates on many of the markets that would react strongly to national or
global systemic shocks, such as September 11, 2001. Conquest’s Macro
trading program currently trades in over 30 markets, including: currency pairs,
fixed-income, stock indices, energies, and metals. New positions are
based on total portfolio equity.
Implementation
of Trading Programs
Conquest uses quantitative models to
ensure disciplined investment decisions. The Macro trading program
uses several trading strategies that take advantage of trends that occur in
different time frames, and that work independently of the other
strategies. The first strategy exploits short-term
price/time/volatility relationships present in fixed income, foreign exchange,
energy, metal, and stock index markets. The second strategy looks to
capture market movements that constitute a short-term trend. The
third strategy makes use of counter-trend opportunities within longer-term
trends, for example, by entering the market when trends are reversing
abruptly. The fourth strategy was integrated into the portfolio at
the beginning of 2010 and leverages the sensitivity of assets and hedge fund
strategies to market risk appetite. The strategy is activated using a
smoothing function on the Conquest Risk Aversion Index and does not trade during
periods that are expected to be risk-averse.
Conquest’s
Macro trading program is 90% systematic and 10% discretionary. The
systematic component reduces the amount of manual work required to identify
trade entry and exit levels. Conquest applies its research efforts
toward improving its trading systems. Conquest’s portfolio manager
applies his discretion by adjusting the composition of the portfolio and
identifying major opportunities in the markets rather than on a trade-by-trade
basis.
Portfolio
and Risk Management
43
Conquest
sets its trade size on a security inversely proportional to the level of recent
volatility of the security. Each new position for a market is sized
by calculating the number of contracts that would provide the desired dollar
volatility for that market for that system. Conquest uses price
volatility instead of return volatility in its calculations and does not
implement pyramiding, scaling out of positions, and other methods of trading the
equity curve as part of its portfolio management rules.
Conquest
applies disciplined risk control methods to its Macro trading program, which are
incorporated in the stop-loss and position size calculation for Conquest
systems. Conquest selects the level of exposure for the Macro program
so that the maximum hypothetical drawdown is below acceptable real-time drawdown
levels. Conquest selects from the following risk measures: price
volatility of positions at the time of entry, maximum per trade risk from entry
to stop, maximum per trade risk from closing price to stop, portfolio maximum
daily loss, portfolio maximum consecutive daily drawdown, standard deviation of
portfolio daily returns, slippage as percentage of return, and
liquidity.
Conquest’s
trading programs have volatility-based stops for positions in the
market. Position sizes are based on price volatility to equalize risk
at the trade initiation time for all markets within each trading
program.
Conquest
Macro Past Performance
You are
cautioned that the information set forth in the following capsule summary is not
necessarily indicative of, and may have no bearing on, any trading results that
may be attained by Conquest or the Trust in the future, since past results are
no guarantee of future results. There can be no assurances that
Conquest or the Trust will make any profits at all, or will be able to avoid
incurring substantial losses. You should also note that interest
income may constitute a significant portion of a commodity pool’s total income,
and in certain circumstances, may generate profits where there have been
realized or unrealized losses from commodity trading. A portion of the trust’s
assets is allocated to the Conquest Macro trading
program.
Set forth
below in Capsule A is the past performance history of the Conquest Macro
program, one of the programs that is traded for the trust. The past
performance information set forth in Capsule A below has not been audited;
however, Conquest believes that this information is accurate and fairly
represented.
<Remainder of page intentionally left
blank>
44
Capsule
A
Conquest
Capital LLC – Conquest Macro
Name
of Commodity Trading Advisor:
|
Conquest
Capital LLC
|
|
Name
of Program:
|
Conquest
Macro
|
|
Inception
of trading by CTA:
|
May
1, 1999
|
|
Inception
of trading in program:
|
June
1, 2001
|
|
Number
of open accounts:
|
16
|
|
Aggregate
assets overall as of October 31, 2010:
|
||
Excluding
“notional” equity:
|
$391
million
|
|
Including
“notional” equity:
|
$934
million
|
|
Aggregate
assets in program as of October 31, 2010:
|
||
Excluding
“notional” equity:
|
$350
million
|
|
Including
“notional” equity:
|
$715
million
|
|
Worst
monthly Composite drawdown since January 1, 2005:
|
(10.70)%,
August 2009
|
|
Worst
peak-to-valley Composite drawdown since January 1, 2005:
|
(22.64)%,
Aug. 2009 to Dec. 2009
|
|
2010
year-to-date return:
|
13.47%
(10 months)
|
|
2009
annual return:
|
(14.12)%
|
|
2008
annual return:
|
45.58%
|
|
2007
annual return:
|
20.88%
|
|
2006
annual return:
|
8.04%
|
|
2005
annual return:
|
1.68%
|
You should read the footnotes located
under “Notes to the Performance Information” on pages 34 to 35, which are an
integral part of the above performance capsule.
PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
3.
|
Global
Advisors (Jersey) Limited
|
Introduction
Global
Advisors (Jersey) Limited is authorized and regulated by the Jersey Financial
Services Commission. GAJL has been registered with the NFA as a member and
commodity trading advisor since January 6, 2009 (Global Advisors, L.P. (“GALP”),
the former operating trading advisor for the Global Advisors entities, was
registered as a NFA member and commodity trading advisor from June 26, 2001
until July 1, 2009, and as a commodity pool operation from June 26, 2001 until
October 24, 2007). GAJL is not registered as an investment adviser under
the U.S. Investment Advisers Act of 1940, as amended, but may do so in the
future.
GAJL’s
main office, where its books and records are kept, is located Unit 9, Block 5/D,
Spectrum, Gloucester Street, St. Helier, Jersey, JE2 3DE, Channel Islands; email
address: info@globaladvisors.co.uk.
Russell
Newton, Daniel Masters, Dwayne Drexler and Paul Russell are principals of
GAJL. Trading decisions are 100% driven by the trading
recommendations issued by the GCS program daily. There is no human
override. In the event of a force majeure event requiring human
override, then the trading decisions would be taken by Russell Newton and Daniel
Masters together. Global Advisors (Holdings) Limited is an entity
principal of GAJL.
GAJL
Principals
Daniel Masters is a
co-principal, portfolio manager and the Director of Trading and Execution of
GAJL. He became a founding director of GAJL and GA Holdings,
incorporated in Jersey, on December 2008
45
and is a
major shareholder of Global Advisors (Holdings) Limited (“GA Holdings”), the
primary shareholder of GAJL. He was registered with the NFA as a
Principal in December 2008, a NFA Associate Member and an Associated Person in
January 2009 and is approved as a Principal Person of GAJL by the Jersey
Financial Services Commission (“JFSC”).
Mr.
Masters has extensive experience in energy trading including physical markets,
forward transactions, swaps, options and exotic derivative products, trading
strategies and risk management and was previously involved in establishment of
the UK natural gas and electricity markets and the origination of the Contract
for Difference (“CFD”) market in Europe. Mr. Masters earned a Bachelor of
Science (Honours) in Physics from Exeter University, UK in 1984, and followed
that with a Masters in Management Science and Operational Research from Imperial
College, London, UK in 1985.
Mr.
Masters is based in Jersey, Channel Islands.
Over the
past five years, Mr. Masters has been a principal of various Global Advisor
entities, described below.
Mr.
Masters was appointed as a director of Global Advisors Limited (“GAL”) in August
1999 and was registered with the NFA as a Principal in February 1999 and a NFA
Associate Member and as an Associated Person of GAL from March 1999. These
registrations were withdrawn in October 2007. In addition he was
appointed as a Branch Manager of GAL from August 1999 to July 2001. GAL
acted as the general partner of Global Advisors Limited Partners (“GALP”) until
GALP was dissolved in December 2009. Mr. Masters was registered with
the NFA as a Principal of GALP from October 2008 to July 2009, an Associated
Person and a NFA Associate Member from June 2001 to October 2008 and
approved with the Financial Services Authority (“FSA”) in the United Kingdom as
a Customer Function between 17 June 2008 and 7 July 2009.
Mr.
Masters became a director of Global Advisors International Limited (“GAIL”) in
September 2000 and was registered with the NFA as a Principal and an Associated
Person from December 2000 to March 2008 and a NFA Associate Member from December
2000 to February 2008. GAIL is 100% owned by GAL and acts as the
General Partner to the U.S. feeder fund Global Commodity Systematic
LP.
Mr.
Masters was a director of Global Operations Services, Inc (“GOS”) from September
2000 to December 2009, when GOS was closed, and registered with the NFA as a
Principal, a NFA Associate Member and an Associated Person from November 2000 to
October 2007. GOS, a Delaware, U.S.A. corporation was a wholly owned
subsidiary of GAL, to which GALP delegated certain portfolio management and
administrative services.
Russell Newton is a
co-principal, portfolio manager and the Director of Systematic Model Research
& Development of GAJL. He became a founding director of GAJL and
GA Holdings, incorporated in Jersey, in December 2008 and is a major shareholder
of GA Holdings, the primary shareholder of GAJL. He was registered
with the NFA as a Principal in December 2008 and a NFA Associate Member and an
Associated Person in January 2009 and is approved as a Key Person and Compliance
Officer of GAJL by the JFSC.
Mr.
Newton has extensive experience in the development and execution of new
derivative trading structures, market analysis (economic, fundamental,
statistical and technical) and computer systems analysis, design and
programming. He is skilled in several computer
languages. Mr. Newton received a Bachelor of Arts (Honours) in
Natural Sciences (Experimental Psychology) from Cambridge University, UK, in
1986.
Mr.
Newton is based in Jersey, Channel Islands.
46
Over the
past five years, Mr. Newton has been a principal of various Global Advisor
entities, described below.
Mr.
Newton was appointed as a director of GAL in January 1999 and was registered
with the NFA as a Principal and an Associated Person from May 1999 until
October 2007 and as a NFA Associate Member from April 1999 to October
2007. GAL acted as the general partner of GALP until GALP was
dissolved in December 2009. Mr. Newton was a limited partner of GALP
from March 2001 to December 2009; was registered with the NFA as Principal, a
NFA Associate Member and an Associated Person of GALP from June 2001 to July
2009; and was approved with the FSA in the United Kingdom as the Chief Executive
Function and Customer Function between December 2001 and July 2009, the
Compliance Oversight and Money Laundering Reporting Officer Functions between
December 2001 and March 2003, and May 2008 and July 2009,
respectively.
Mr.
Newton became a director of GAIL in September 2000 and was registered with the
NFA as a Principal and Associated Person from December 2000 to March 2008 and a
NFA Associate Member from December 2000 to February 2008. GAIL is
100% owned by GAL and acts as the General Partner to the U.S. feeder fund,
Global Commodity Systematic LP.
Mr.
Newton was a director of GOS from September 2000 to December 2009, when GOS was
closed, and registered with the NFA as a Principal, a NFA Associate Member and
an Associated Person from November 2000 to October 2007. GOS, a
Delaware, U.S.A. corporation was a wholly owned subsidiary of GAL, to which GALP
delegated certain portfolio management and administrative services.
Dwayne Drexler is the Chief
Operating Officer, a director and a shareholder of GAJL, and was registered with
the NFA as a NFA Associate Member and an Associated Person from January 2009 and
as a Principal from December 2009. He is also approved as a Key
Person, the Money Laundering Compliance Officer and the Money Laundering
Reporting Officer by the JFSC.
Mr.
Drexler has had extensive operational and risk management
experience. Prior to joining Global Advisors, from May 1998 to May
1999, Mr. Drexler performed a middle office role for Morgan Guaranty Trust
Company, a large global energy derivatives trading desk where he was responsible
for position and profit/loss reconciliation and reporting, maintenance of risk
management tools, and resolution of operational problems. He was also
heavily involved in the successful implementation of a new trading and risk
management system for the energy derivative desk. Prior to this Mr.
Drexler worked as an internal auditor for JP Morgan & Co. from July 1995 to
May 1998, focusing on risk management, operational controls and technology
utilized in the trading businesses. Mr. Drexler graduated with a
triple major from Georgetown University in 1995, with a Bachelor of
Science/Bachelor of Arts in Accounting, Finance, and International
Business.
Mr.
Drexler is based in Jersey, Channel Islands.
Over the
past five years Mr. Drexler has been connected to various Global Advisor
entities, described below.
On behalf
of GAL, Mr. Drexler was registered with the NFA as a Principal between April
2000 and May 2001 and a NFA Associate Member from May 1999 until October 2007
and as an Associated Person from July 1999 to October 2007. GAL acted
as the general partner of GALP until GALP was dissolved in December
2009. Mr. Drexler was a limited partner of GALP from April 2004 to
March 2009 and registered with the NFA as Principal from March 2004 to June
2008, a NFA Associate Member and Associated Person from June 2001 to February
2009.
Mr.
Drexler became a director of GAIL in October 2000 and was registered as a
Principal and an Associated Person from December 2000 to March 2008 and a NFA
Associate Member from December 2000 to February 2008. GAIL is 100%
owned by GAL and acts as the General Partner to the U.S. feeder fund, Global
47
Commodity Systematic LP.
Mr.
Drexler was a director of GOS from September 2000 to December 2009, when GOS was
closed, and registered as a Principal, a NFA Associate Member and an Associated
Person from November 2000 to October 2007. GOS, a Delaware, U.S.A.
corporation was a wholly owned subsidiary of GAL, to which GALP delegated
certain portfolio management and administrative services.
Paul Russell is a director and
shareholder of GAJL and was registered with the NFA as a Principal in October
2010 and is approved as a Principal of GAJL by the JFSC. Mr. Russell
is responsible for oversight of financial and personnel matters, fund
documentation and various aspects of regulatory compliance.
Mr.
Russell is based in the UK.
Over the
past five years Mr. Russell has been employed by the following
entities:
Prior to
joining Global Advisors in October 2010, Mr. Russell was the Chief Financial
Officer, Chief Compliance Officer and a partner at Clive Capital LLP, a $4
billion+ London-based commodity hedge fund from October 2007 to June 2010, where
he was responsible for all financial, human resources, compliance and legal
aspects.
From
October 2001 to September 2007, Mr. Russell was employed by Global Advisors
Limited. He was the Compliance Director and a limited partner of
Global Advisors LP, an investment management firm specialising in energy and
metals commodities in the United States and United Kingdom.
On behalf
of GAL, Mr. Russell was registered with the NFA as a NFA Associate Member and
Associated Person from June 2002 to September 2007. GAL acted as the
general partner of GALP until GALP was dissolved in December
2009. Mr. Russell was a limited partner of GALP and registered with
the NFA as Principal from March 2004 to September 2007, a NFA Associate Member
and Associated Person from May 2002 to September 2007.
Mr.
Russell was registered as a NFA Associated Member and Associated Person of GAIL
from July 2002 to September 2007. GAIL is 100% owned by GAL and acts
as the General Partner to the U.S. feeder fund, Global Commodity Systematic
LP.
Mr.
Russell was registered as a NFA Associate Member and Associated Person of GOS
from July 2002 to September 2007. GOS, a Delaware, U.S.A. corporation
was a wholly owned subsidiary of GAL, to which GALP delegated certain portfolio
management and administrative services.
He
obtained an MBA from the Open University Business School in 2000, specialising
in knowledge management, performance measurement and evaluation, and creative
management.
Global Advisors (Holdings)
Limited (“GAHL”) is a limited liability company which is incorporated in
Jersey. GAHL’s directors are Daniel Masters and Russell Newton. GAHL
has been a NFA registered entity principal of GAJL since December 5,
2008.
GAJL and
its principals may, from time to time, trade securities, futures, and related
contracts for their own proprietary accounts. If GAJL or its principals
engage in such trading, investors will not be able to inspect such
records.
Neither
GAJL nor its principals have any beneficial or ownership interest in the
Trust.
Legal Concerns
48
There
have been no material administrative, civil, or criminal proceedings against
GAJL or any of its principals, which are pending, are on appeal or have
concluded at any time during the last five years.
Trading
Program
The
following description of GAJL, its trading systems, methods, models, and
strategies is general and not intended to be
exhaustive. Additionally, the following description of GAJL’s trading
strategy relates to GAJL generally and not to the trust itself.
Approximately
5% to 10% of the trust’s assets traded by GAJL are committed as margin (this
percentage will vary from month to month and can be significantly higher or
lower than indicated).
Objective
The
objective of GAJL’s Commodity Systematic Program (“the Program”) is to seek
profits from commodity interest transactions while taking reasonable steps to
protect capital relative to the rates of return sought. No assurance
can be given that this objective will be met, and an investment in the offered
program should only be considered by investors that can assume the significant
risks associated with commodity interest trading, including the loss of their
entire investment. GAJL attempts to accomplish this objective by
following the trading methods set forth below.
Trade
Selection
GAJL
operates a fully automated and systematic quantitative trade and portfolio
management tool that has been developed for the commodity futures
markets. This tool has been designed to run as a low volatility, low
draw-down system that provides diversification across a wide range of
instruments, including inter- and intra-commodity spreads. It trades
infrequently and incrementally with the aim of reducing the effects of
transaction costs and to increase capacity within its markets.
GAJL will
use the systematic tool described above to manage the Program’s relative
exposure to the commodity markets. The system is comprised of three
parts:
|
·
|
The
first part processes the data and then extracts those features relevant to
the trading system, discarding noise in an adaptive and novel
manner.
|
|
·
|
The
second part then takes this feature set and applies the trade models,
outputting a set of positions and stops across the commodity
portfolio.
|
|
·
|
The
third and final part of the system comprises the portfolio
overlay.
|
Money
Management
GAJL and
its principals believe that money management discipline is a vital element of
any trading program. This discipline is comprised of the following
major components which are utilized in the Program:
|
1.
|
Diversification
|
GAJL
trades primarily U.S. exchange-traded commodity futures and options on futures
contracts, and may trade on any United States and non-United States exchange
that has been designated as a “contract market” by the CFTC and on certain other
non-United States exchanges. “Commodity interests” include, but are
not limited to, contracts on and for physical commodities, currencies, money
market instruments and items which are now, or may hereafter be, the subject of
trading futures contracts, swaps, and other commodity-related
contracts. GAJL may also trade the cash and forward markets,
including the interbank market and exchange of futures for physicals (“EFPs”)
for its client accounts.
49
The
trading strategy is designed to gain exposure to opportunities in the majority
of actively traded market groups, while simultaneously limiting, to the extent
possible, the exposure in any one particular group. The intent of
this policy is to increase, on a systematic basis, opportunities for gain,
decrease risk, and provide more consistent returns. Especially in
view of the above, there may be times, due to market and other conditions, when
trading is not well diversified; in fact, on occasion, there may be a heavy
concentration of a given commodity (such as Brent crude) or a commodity complex
(such as energies) which could result in a greater return or risk to the
account.
|
2.
|
Risk
Management
|
GAJL
estimates that for the program, which targets 10% annualized volatility,
approximately 5%-10% of a client account’s net asset value on both an intraday
and overnight basis will be committed to margin at any one
time. However, margin usage may, from time to time, be greater or
less than this range, depending on market conditions, current margin
requirements and changes in account equity.
|
3.
|
Client
Rebalancing
|
GAJL
seeks to ensure that market risk and return are appropriately balanced across
clients in proportion to each client’s account equity. GAJL regularly
balances clients’ exposure to net position in each futures contract, or option
on futures contract accordingly.
Trades
are allocated during the month on a ticket-by-ticket basis according to volume
and price sequence parameters determined near the beginning of the month with
client account equities. As the program’s net contract positions are
added to or reduced, each client’s exposure to the Program’s net position in a
contract under this method may not exactly equal its proportionate level of risk
as represented by its account equity. To correct these risk
imbalances, at its discretion GAJL makes trades on a regular basis which
rebalance client account risks to what they should be given each client’s
account equity. GAJL may simultaneously reduce a position for one
client while adding to a position for another client at prevailing market prices
to adjust each client’s risk to its appropriate level given their account size
as a proportion of the Program’s overall assets under
management. Discretion includes employing knowledge of a contract’s
volatility and the size of the necessary rebalancing trades, and balancing that
need with the desire to minimize slippage and commissions for
clients. Near the beginning of each month, GAJL rebalances each
client account to reflect their proportion of the net equity in the
Program.
Modification
GAJL does
not intend to alter its primary reliance on a combination of outside source data
in conjunction with internally developed proprietary trading systems that
evaluate technical and fundamental indicators deemed relevant by GAJL to
evaluate trading opportunities. However, GAJL reserves the right to
make minor adjustments to its risk management and other trading
policies.
GAJL
Commodity Systematic Past Performance
You are
cautioned that the information set forth in the following capsule summary is not
necessarily indicative of, and may have no bearing on, any trading results that
may be attained by GAJL or the trust in the future, since past results are no
guarantee of futures results. There can be no assurances that GAJL or
the trust will make any profits at all, or will be able to avoid incurring
substantial losses. You should also note that interest income may
constitute a significant portion of a commodity pool’s total income, and in
certain circumstances, may generate profits where there have been realized or
unrealized losses from commodity trading. A portion of the trust’s assets is
allocated to the GAJL Commodity Systematic program.
The
information set forth in the tables below has not been audited; however, GAJL
believes that this information is accurate and fairly
represented.
50
Capsule
A
Global
Advisors (Jersey) Limited – Commodity Systematic
Name
of commodity trading advisor:
|
Global
Advisors (Jersey) Limited (1)
|
Name
of program:
|
Global
Commodity Systematic
|
Inception
of trading by CTA:
|
July
2005
|
Inception
of trading in program:
|
July
2005
|
Number
of open accounts:
|
12
|
Aggregate
assets overall as of October 31, 2010:
|
|
Excluding
“notional” equity:
|
$91,040,454
|
Including
“notional” equity:
|
$310,793,082
|
Aggregate
assets in program as of October 31, 2010:
|
|
Excluding
“notional” equity:
|
$91,040,454
|
Including
“notional” equity:
|
$310,793,082
|
Worst
monthly drawdown since inception:
|
(6.17)%,
May 2010
|
Worst
peak-to-valley drawdown since inception:
|
(10.19)%,
December 2009 to July 2010
|
2010
year-to-date return:
|
(1.11)%
(10 months)
|
2009
annual return:
|
1.78%
|
2008
annual return:
|
20.39%
|
2007
annual return:
|
14.87%
|
2006
annual return:
|
21.91%
|
2005
annual return:
|
11.50%
(6 months)
|
(1)
|
The
information provided in this capsule combines accounts managed under the
Commodity Systematic program either by GALP or by Global Advisors (Jersey)
Limited (GAJL). GALP migrated all of its clients to GAJL; the Commodity
Systematic program was, and continues to be, managed by the same
principals, systems, trading staff and processes before and after the
migration.
|
You should read the footnotes located
under “Notes to the Performance Information” on pages 34 to 35, which are an
integral part of the above performance capsule.
PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
Haar
Capital Management LLC
|
Introduction
Haar
Capital Management LLC is a Delaware limited liability company engaged in the
business of providing trading advisory services to customers with respect to
futures contracts, forward contracts, and other futures-related interests
(collectively, “futures interest contracts”) on United States and foreign
exchanges and markets. Haar manages accounts for trading in futures interest
contracts on a discretionary basis and its trading methodologies are speculative
in nature.
Haar has been registered with the CFTC
as a commodity trading advisor and has been a member of the NFA since September
21, 2005.
Haar has
one principal, Stanley Haar, who has been the sole Member and President of Haar
since its inception. Mr. Haar is responsible for making trading decisions for
Haar.
Haar
Principals
Stanley P. Haar formed Haar
Capital Management LLC on August 1, 2005, after resigning from his position as a
financial consultant at Smith Barney (Citigroup), a global financial services
firm, where he had been employed since May 2002. Mr. Haar has been registered as
an associated person and member of the NFA
51
and
listed as a principal of Haar Capital Management LLC since September 21, 2005.
Mr. Haar was registered from February 11, 2003 to August 1, 2005 as an
associated person of Citigroup Capital Markets, a broker dealer and futures
commission merchant providing securities and futures brokerage services. At
Citigroup Capital Markets Mr. Haar focused on providing commodity trading advice
to retail futures clients. Before joining Smith Barney, Mr. Haar spent three
months (February 2002-May 2002) focused on proprietary commodity trading and
investments, during which time he was not employed. From November 1997 to
February 2002, Mr. Haar was manager of international business development for
Franklin Templeton Investments, a global investment money management
organization. He provided legal, administrative and marketing support for the
successful start-up of Bradesco Templeton Asset Management Ltda., a joint
venture money management firm with one of Brazil’s largest banks. Mr. Haar also
served on the investment committee of the Fundo Bradesco Templeton de Valor e
Liquidez, a corporate governance equity fund, with portfolio management
responsibility for the agribusiness and textile holdings in the fund. From June
1996 to October 1997, Mr. Haar was vice president of Camas International, an
agricultural technology company located in Pocatello, Idaho. From July 1993 to
June 1996, he was employed as an agribusiness and marketing consultant for
Olivia Foods, Peaceworks LLC and other Israeli clients. From September 1989 to
June 1993, Mr. Haar was a graduate student at Stanford University. Earlier in
his career, Mr. Haar spent a total of 8 years with Continental Grain Company
(from June 1977 to October 1980 and from November 1984 to August 1989), a
commodity trading corporation, holding various trading and management positions
in the United States and Latin America. For three years, from February 1986
through August 1989, he was the commercial director of Brazilian operations,
with trading and risk management responsibilities for a soybean processing
plant, country elevator network, vegetable oil refinery, feed mill, integrated
poultry division, and grain export terminals. Mr. Haar also worked as an
associated person from November 1980 to June 1982 for Shearson/American Express
a registered futures commissions merchant, and from June 1982 to December 1983
for Ace America, Inc., a registered futures commission merchant and from
December 1983 to October 1984 at Prudential Equity Group, LLC, a futures
commission merchant providing retail futures and options trading services. At
all three firms, Mr. Haar was involved in commodity futures trading and
providing brokerage services to retail clients. Mr. Haar received a BA degree in
Economics and International Studies from the School of International Service at
American University (1971). He earned his degree in two calendar years with the
highest GPA in university history, and was awarded a National Science Foundation
Fellowship for graduate study in economics. In 1971-72, Mr. Haar was a Fulbright
Scholar in Brazil, where his research focused on the International Coffee
Agreement. Mr. Haar holds three graduate degrees from Stanford University: MBA
(1977) from the Graduate School of Business, MA (1990) from the Food Research
Institute (concentration in futures markets and international trade), and JD
(1993) from Stanford Law School. He has written articles on futures markets and
international investments for publications such as Commodities Magazine and the
Global Finance Journal. In addition to managing Haar Capital, Mr. Haar spends
approximately five hours per week serving as a consultant to Gould Asset
Management, LLC, a registered investment advisor based in Claremont, California.
Gould Asset Management, LLC manages equity and fixed income portfolios and does
not engage in futures trading.
Haar and
its principal, Mr. Haar, may, from time to time, trade futures, forwards, and
options contracts and securities for their own proprietary accounts. Such trades
may or may not be in accordance with the Haar trading program described below.
It is possible that Haar and/or its principals may from time to time be
inadvertently competing with the trust for similar futures interest contract
positions in one or more markets or may take positions in their proprietary
accounts which are opposite the positions taken for the trust. Haar will permit
its investors to see records relating to the performance of accounts and
allocations of orders among Haar’s various clients and even proprietary trading
results, while maintaining required confidentiality of its
investors.
Haar and
Mr. Haar do not have a beneficial or ownership interest in the
trust.
Legal
Concerns
There
have been no material administrative, civil or criminal proceedings against Haar
or Mr. Haar, that are pending, are on appeal or have concluded at any time since
inception.
52
Trading
Program
The
following description of Haar, its trading systems, methods, models, and
strategies is general and not intended to be exhaustive. Additionally, the
following description of Haar’s trading strategy relates to Haar generally and
not to the trust itself.
Haar is
engaged in the business of providing trading advisory services to customers with
respect to futures contracts, forward contracts, and other futures-related
interests (collectively, “futures interest contracts”) on United States and
foreign exchanges and markets. As of the date of this prospectus supplement,
Haar offers its clients three trading programs. Haar’s “Discretionary Commodity
Trading Program” is utilized in Haar’s management of assets on behalf of the
trust.
Discretionary
Commodity Trading Program Methodology
Haar’s
Discretionary Commodity Trading Program is designed to achieve the capital
appreciation of its client’s assets through the speculation in financial and
commodity futures and options contracts in market sectors including, without
limitation, currencies, metals, financials, energies, softs, livestock, grains,
and equity indices. In managing the accounts of customers, the Discretionary
Commodity Trading Program uses a primarily fundamental strategy although
technical analysis may also be employed to help determine specific entry and
exit points and the placement of stop-loss orders. Haar believes that commodity
price changes occur due to changing fundamental factors; Haar seeks to achieve
profit from longer-term trends that develop due to those changing factors. Among
the fundamental factors to be analyzed will be product supply and demand
outlook, projected carryout stocks as a percentage of consumption, weather
developments and forecasts, economic trends, and government policies. Based on
its experience in managing commercial and speculative trading positions, and
recognizing that future states of the world cannot be known with certainty, the
advisor seeks to identify skewed risk-reward opportunities; i.e., situations in which the
probability of a large gain is seen as being approximately equal to the
probability of a small loss. Haar may refrain from trading most markets at any
given time, based on its assessment of neutral or unattractive risk-reward
conditions. In addition to outright long and short positions, trading strategies
may include inter and intra-market spread positions and the use of commodity
options.
Haar, at
its discretion and according to its research, may add to or delete from the
markets traded in each portfolio. The actual portfolio balance and number of
markets traded may depend, in part, on the size of the trust’s
account.
Implementation
of Trading Programs
The
trading strategies utilized by Haar may be revised from time to time by Haar as
a result of ongoing research and development, which seeks to devise new trading
strategies, as well as test methods currently employed. The trading strategies
used by Haar in the future may differ significantly from those presently used,
due to the changes, which may result from this research. Haar reserves the right
to utilize, implement or modify any trading strategy (including but not limited
to technical factors, markets traded and or money management principles)
available to it from time to time. There can be no assurance that Haar’s
approach to trading will yield the same results as it has in the
past.
Risk
Management
Haar
utilizes certain risk management tools, including stop-loss orders and portfolio
diversification. Haar also manages risk by varying the size of positions based
in part on an assessment of market volatility. To manage these risks, Haar
evaluates the volatility and correlation across multiple markets, as well as
projected price behavior in response to specific market-moving events,
consistent with managing longer-term risks and evaluating longer-term trends. No
assurances can be made, however, that the historical market correlations will
occur or persist in all market conditions.
53
Haar
Discretionary Commodity Trading Program Past Performance
You are cautioned that the information
set forth in the following capsule summary is not necessarily indicative of, and
may have no bearing on, any trading results that may be attained by Haar or the
trust in the future, since past results are no guarantee of future results.
There can be no assurances that Haar or the trust will make any profits at all,
or will be able to avoid incurring substantial losses. You should also note that
interest income may constitute a significant portion of a commodity pool’s total
income, and in certain circumstances, may generate profits where there have been
realized or unrealized losses from commodity trading. A portion of the trust’s assets is allocated to the
Haar Discretionary Commodity Trading Program.
The past performance information set
forth in Capsule A below has not been audited; however, Haar believes that this
information is accurate and fairly represented.
<Remainder
of Page Intentionally Left Blank>
54
Capsule
A
Haar
Capital Management LLC – Discretionary Commodity Trading Program
Name
of Commodity Trading Advisor:
|
Haar
Capital Management LLC
|
Name
of Program:
|
Discretionary
Commodity Trading Program
|
Inception
of trading by CTA:
|
December
17, 2005
|
Inception
of trading in program:
|
December
17, 2005
|
Number
of open accounts:
|
48
|
Aggregate
assets overall as of October 31, 2010:
|
$63,612,844
|
Aggregate
assets in program as of October 31, 2010:
|
$63,612,844
|
Worst
monthly Composite drawdown since inception:
|
(10.05)%,
March 2007
|
Worst
peak-to-valley Composite drawdown since inception:
|
(17.69)%,
July 2008 to July 2010
|
2010
year-to-date return:
|
5.21%
(10 months)
|
2009
annual return:
|
(3.53)%
|
2008
annual return:
|
1.78%
|
2007
annual return:
|
16.17%
|
2006
annual return:
|
27.37%
|
2005
annual return:
|
1.03%
(1 month)
|
*Annual
compounded rate of return is computed using a hypothetical $1,000 Investment
Index, which illustrates how a theoretical $1,000 investment, if left untouched,
would have appreciated or depreciated during the entire year. Since the
performance table is the combination of many separate accounts, this is a
theoretical figure and should not be taken as indicative of any results that an
account may have in the future. The year-to-date rate of return is the ending
$1,000 Index minus $1,000 and divided by $1,000.
You should read the footnotes located
under “Notes to the Performance Information” on pages 34 to 35, which are an
integral part of the above performance capsule.
PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
John
W. Henry & Company, Inc.
|
Introduction
John W.
Henry & Company, Inc. (“JWH”), a Florida corporation, began managing assets
in 1981 as a sole proprietorship and was later incorporated in 1982 to conduct
business as a commodity trading advisor. JWH’s offices are located at 301 Yamato
Road, Suite 2200, Boca Raton, Florida 33431. JWH’s registration as a commodity
trading advisor became effective on November 26, 1980, and as a commodity pool
operator on May 23, 2006. JWH is a member of the NFA in these capacities.
“JWH®” is the
registered trademark of John W. Henry & Company, Inc.
JWH has
eight principals: John W. Henry, Kenneth S. Webster, CPA, Matthew J. Driscoll,
Kevin S. Koshi, David M. Kozak, Edwin B. Twist, Kenneth L. Mahes, and John W.
Henry Trust, as an entity principal of JWH.
JWH
Principals
Mr. John W. Henry is chairman
of the JWH Board of Directors and is trustee and sole beneficiary of the John W.
Henry Trust u/a dated July 27, 1990. The John W. Henry Trust u/a dated July 27,
1990 became listed as a principal of JWH on September 27, 1990, and as a
principal of the General Partner on September 30, 1998. Mr. Henry is a member of
the JWH Investment Policy Committee. In addition, from September 5, 1990 to
September 14, 2001 and since January 10, 2006 (due to his indirect ownership
through the Trust described above) Mr. Henry has been a principal of Westport
Capital Management Corporation (WCM), an affiliate of JWH registered as a
commodity pool operator with the CFTC and a member of NFA in the same capacity;
he
55
has been
registered as an associated person of WCM since September 14, 1990. He has been
a principal of JWH since November 19, 1980 and an associated person of JWH since
August 10, 1987. Previously, Mr. Henry was a principal of JWH Asset Management,
Inc. (JWHAM) from July 9, 1996 through February 2, 2000; JWH Financial Products,
Inc. (JWHFP) from January 6, 1997 through February 10, 2002; JWH Investment
Management Inc. (JWHIMI) from July 7, 2000 through July 25, 2006; and Global
Capital Management Limited (GCM) from May 18, 1990 through April 30, 2008. Mr.
Henry was also an associated person of GCM from September 14, 1990 to April 30,
2008. These firms were registered as commodity pool operators and/or commodity
trading advisors: GCM operated a commodity pool offshore; JWHAM, JWHFP and
JWHIMI never conducted or engaged in any business activities.
At JWH,
Mr. Henry oversees trading program design and composition, reviews and approves
research and system development proposals prior to implementation in trading,
reviews and approves of decisions involving the strategic direction of the firm,
and discusses trading activities with trading supervisors. JWH’s corporate
officers, rather than Mr. Henry, manage JWH’s day-to-day operations. Mr. Henry
is the exclusive owner of certain trading systems licensed to Elysian Licensing
Corporation (ELC), a corporation wholly owned by Mr. Henry, and sublicensed by
ELC to JWH and used by JWH in managing client accounts. ELC began its operations
in December 1990 and its sole business is licensing trading systems from Mr.
Henry and sublicensing them to JWH. Mr. Henry conducts his business
responsibilities for JWH from Boca Raton, Florida and Boston,
Massachusetts.
Mr. Henry
has served on the Boards of Directors of the Futures Industry Association (FIA),
the National Association of Futures Trading Advisors (NAFTA), and the Managed
Futures Trade Association, and has served on the Nominating Committee of the
National Futures Association (NFA). He has also served on a panel created by the
Chicago Mercantile Exchange and the Chicago Board of Trade to study cooperative
efforts related to electronic trading, common clearing, and issues regarding a
potential merger. Mr. Henry has received an honorary doctorate degree from
Boston University, a lifetime achievement award from Alternative Investment
News, and the Futures Hall of Fame award from the Futures Industry Association.
In December 2005, Mr. Henry was named as a trustee of The Massachusetts General
Hospital and The General Hospital Corporation, both of which are located in
Boston, Massachusetts. Since the beginning of 1987, he has devoted, and will
continue to devote, a substantial amount of time to activities in businesses
other than JWH and its affiliates. From January, 1999 until February, 2002, Mr.
Henry was chairman of the Florida Marlins Baseball Club LLC. Since February,
2002, Mr. Henry has been Principal Owner of New England Sports Ventures, LLC;
its portfolio of companies includes: 100% of the Boston Red Sox, a Major League
Baseball club; 80% of New England Sports Network, a regional sports television
network; 100% of Fenway Sports Group, a sales and marketing company; and 50% of
Roush Fenway Racing, a NASCAR racing team; and 100% of Liverpool FC, a
professional English football (soccer) team. He holds comparable positions with
the individual business entities engaged in these activities. Mr. Henry is
regularly involved in the businesses of New England Sports Ventures with
professional management of the entities owned by New England Sports
Ventures.
Mr. Kenneth S. Webster, CPA is
president and chief operating officer. He is responsible for the day-to-day
management of the firm. Since January 7, 2003 Mr. Webster has also been a
principal (as treasurer, a director and president) of WCM; he has been
registered as an associated person of WCM from July 22, 1997 to November 12,
1997, and from January 6, 2003 to the present. Since April 23, 2004 he has been
a principal (as treasurer, director and chief executive officer) of JWH
Securities, Inc., a broker dealer registered with FINRA, an affiliate of JWH.
Previously, Mr. Webster was a principal (as treasurer) of JWH Investment
Management, Inc. from February 2, 2004 through July 25, 2006, and a principal
(as director and president) and associated person of Global Capital Management
Limited from January 7, 2003 through April 30, 2008. Since joining JWH in
January 1995, Mr. Webster has held positions of increasing responsibility. Mr.
Webster has been a principal of JWH since January 2, 2001; he was also a
principal of JWH from October 29, 1997 to October 22, 1998. He has been
registered as an associated person of JWH since June 30, 1997. Prior to his
employment at JWH, Mr. Webster was the Controller of Chang Crowell Management, a
registered CTA, from December 1991 to December 1994. From June 1987 to December
1991, Mr. Webster was employed by Coopers & Lybrand in
56
their
financial services audit practice; PricewaterhouseCoopers (the successor to
Coopers & Lybrand) is one of the world’s largest professional services
firms. It was formed in 1998 from a merger between Price Waterhouse and Coopers
& Lybrand, both formed in London. PricewaterhouseCoopers is now a Big Four
auditor, alongside KPMG, Ernst & Young and Deloitte Touche Tohmatsu. Mr.
Webster received a B.B.A. in Accounting from Pace University.
Mr. Matthew J. Driscoll is a
senior vice president, chief investment officer, director of research and a
member of the JWH Investment Policy Committee. He is responsible for the
overseeing all trading activity, as well as coordinating and managing research
activities. Mr. Driscoll became a principal of WCM on January 16, 2009. He is
Vice President of WCM for administrative and trading purposes. Mr. Driscoll
joined JWH in 1991 as a member of the trading department and he became a
principal of JWH June 10, 1997. Since joining the firm, he has held positions of
increasing responsibility as they relate to the development and implementation
of JWH’s trading strategies and procedures; he has played a major role in the
development of JWH’s 24-hour trading operation. He attended Pace
University.
Mr. Kevin S. Koshi is a member
of the JWH Board of Directors, a senior vice president of JWH, and a member of
the JWH Investment Policy Committee. He is responsible for the implementation
and oversight of the firm’s proprietary strategies and investments. Mr. Koshi
joined JWH in August 1988 as a professional in the finance department and since
1990 has held positions of increasing responsibility in the trading department.
Mr. Koshi has been a principal of JWH since May 22, 1992. He has been registered
as an associated person of JWH since September 10, 1998. He received a B.S. in
Finance from California State University at Long Beach.
Mr. David M. Kozak is a senior
vice president, general counsel and secretary to the corporation. Mr. Kozak has
been a principal of JWH since October 24, 1995. He has also been a principal of
WCM since June 27, 1996. Mr. Kozak is also secretary and director of WCM.
Previously Mr. Kozak was a principal (as secretary) of JWH Asset Management Inc.
from July 9, 1996 through February 2, 2000, JWH Financial Products, Inc. (as
secretary) from January 6, 1997 through February 10, 2002, JWH Investment
Management, Inc. (as secretary) from July 7, 2000 through July 25, 2006, and
Global Capital Management Limited (as a director) from February 2, 2004 through
April 30, 2008. Before joining JWH in September 1995, he had been a partner from
June 1989 to August 1995 at the law firm of Chapman and Cutler, where he
concentrated in commodity futures law with an emphasis on commodity money
management.
Mr. Kozak
has served as chairman of the subcommittee on CTA and CPO issues of the Futures
and Derivatives Regulation Committee of the New York City Bar Association. He
formerly served as a member of the NFA's Membership Committee, as well as the
NFA's Special Committee on CPO/CTA Disclosure Issues and the Special Committee
for the Review of Multi-tiered Regulatory Approach to NFA Rules. Mr. Kozak
formerly served as the secretary and a director of the MFA, as a member of MFA’s
Executive Committee, and as chairman of its Government Relations Committee. He
received a B.A. from Lake Forest College, a M.A. from The University of Chicago
and a J.D. from Loyola University of Chicago.
Mr. Edwin B. Twist is a member
of the JWH Board of Directors. Mr. Twist joined JWH as internal projects manager
in August 1991 and has been a director since 1993. Mr. Twist has been a
principal of JWH since July 26, 1993. Mr. Twist was a principal of JWHIMI from
January 19, 1996 to July 18, 1999 and from July 7, 2000 to July 25, 2006. Mr.
Twist was a principal of JWHAM from July 9, 1996 until February 2, 2000, and of
JWHFP from January 1, 1997 to February 10, 2002. His responsibilities include
assisting with internal projects.
Mr. Kenneth L. Mahes is a vice
president and chief technology officer, responsible for the development and
maintenance of all aspects of the JWH technology infrastructure. Mr. Mahes
became a principal of JWH March 20, 2007. Since joining JWH in July 1996, Mr.
Mahes has held positions of increasing responsibility where he has been
responsible for the development and support of JWH’s trade execution, trade
accounting and reconciliation systems as well as related reporting applications.
Prior to joining JWH, Mr. Mahes was a vice president for Bankers Trust Company,
a bank, in charge of systems supporting the bank’s
57
pension
portfolio business for the Investment Management Division from July 1987 to June
1996. From September 1986 to July 1987, Mr. Mahes worked for Merrill Lynch (a
broker dealer) developing software for the Telecommunications group, which was
responsible for keeping track of all telecommunications equipment that was used
throughout Merrill Lynch and the payment of bills for this equipment. From
January 1984 to September 1986, Mr. Mahes worked for Dean Witter (a broker
dealer) developing software for the Corporate Finance group, which was
responsible for corporate transactions such as mergers and acquisitions,
leveraged buyouts, and private equity financing. Mr. Mahes attended Bernard M.
Baruch College.
John W. Henry Trust is a
registered NFA entity principal of JWH since November 27, 1990.
JWH and
its principals may, from time to time, trade securities, futures, and related
contracts for their own proprietary accounts. If JWH or its principals engage in
such trading, investors will not be able to inspect such records.
Neither
JWH nor its principals have any beneficial or ownership interest in the
trust.
Legal
Concerns
There
have been no material administrative, civil, or criminal proceedings against JWH
or any of its principals, which are pending, are on appeal or have concluded at
any time during the last five years.
Trading
Program
The
following description of JWH, its trading systems, methods, models, and
strategies is general and not intended to be exhaustive. Additionally, the
following description of JWH’s trading strategy relates to JWH generally and not
to the trust itself.
Approximately
18% of the trust’s assets traded by JWH are committed as margin (this percentage
will vary from month to month and can be significantly higher or lower than
indicated).
JWH
specializes in managing institutional and individual capital in the global
futures, financial futures and foreign exchange markets. Since 1981, JWH has
developed and implemented proprietary trend-following trading techniques. As of
the date of this prospectus, JWH offers eight trading programs.
Investment
Philosophy and Methodology
The JWH
investment philosophy has been based, since the inception of the firm, on the
premise that market prices, rather than market fundamentals, are the key
aggregator of information necessary to make investment decisions and that market
prices, which may at first seem random, are actually related through time in
complex, but discernible ways. This philosophy is based on analysis of
historical data that revealed that market adjustments sometimes form price
trends that can be exploited for profit. JWH believes there is an inherent
return opportunity in participating in price movement trends that its systematic
and analytic models have identified. JWH trading programs may participate in
either rising or falling trends; they do not have a directional bias nor do they
try to forecast or predict market turning points. Once a program has established
a position in a market that has been identified as trending, no pre-set price
target for profits is established given the highly variable nature of market
trends.
JWH
believes that the behavior of markets is based on investors’ expectations, which
may at times adjust slowly through time and manifest themselves in long-term
price trends. Markets do not adjust immediately to new information. JWH’s
investment decision process has been designed to analyze and exploit these
trends. JWH’s investment philosophy maintains that market prices initially react
to new or emerging information or events, but the aggregate impact on price may
be a lengthy process. While prices may at first represent an over- or
under-reaction to new information, prices eventually will reflect all relevant
information. In other words, anything that could possibly affect the market
price of a commodity or financial instrument –
58
including
fundamental, political, or psychological factors – eventually will be reflected
in the price of that commodity or instrument. The foundation for JWH’s analysis
is, therefore, a study of market price, rather than market fundamentals or the
prediction of trends.
JWH
believes that the price adjustment process takes time, since reactions of market
participants to changing market dynamics initially may be inefficient; that is,
investors may not react immediately to information because of differing
evaluation processes, differing levels of risk tolerance, or uncertainty.
Gradual price adjustments manifest themselves in long-term trends, which
themselves can influence the course of events from which profit opportunities
can arise. JWH believes that such market inefficiencies can be exploited through
a combination of trend detection and risk management.
How
JWH Programs Can Make Money
Style,
Timing and Market Characteristics
JWH’s
investment programs have different combinations of style, timing, and market
characteristics. While some characteristics may overlap, each investment program
has a distinctive combination of style, timing, and markets. This does not mean
that one program will have higher returns than another or that a certain set of
characteristics is preferable for one type of market. Investment style
differences are primarily based on the number of directional phases that
investment programs use for markets – long, short or neutral – and how position
sizes are determined, whether static or dynamic. At times, an investment program
may, for certain markets, use a style different from its primary style. Timing –
whether trends are recognized over a short to very long-term period – is a
distinguishing characteristic of JWH investment programs. JWH investment
programs can also be distinguished by the markets they trade.
Trading
JWH
programs will frequently maintain positions even when markets have short-term
volatility or when no trends exist. In these market conditions, flat or negative
performance may occur because stop-loss risk management or position adjustments
are not initiated by certain adverse price moves. Some JWH programs may take a
neutral position (exit a market) rather than risk trading capital when no trend
is identified. While there can be no guarantee against losses, the JWH trading
systems are designed to preserve capital and maintain an account’s positions,
while waiting for profitable trending opportunities over longer periods of time.
Once a JWH program has identified a long-term trend, positions will be
maintained, even if losses are incurred in the short term. While JWH is waiting
for longer-term trends to develop, significant drawdowns may take
place.
Disciplined
Investment Process
JWH
believes that an investment strategy can only be as successful as the discipline
of the manager to adhere to its requirements in the face of market adversity.
Unlike discretionary traders, whose decisions may be subject to behavioral
biases, JWH practices a disciplined investment process.
By
quantifying the circumstances under which key investment decisions are made, the
JWH methodology offers investors a consistent approach to markets, unaffected by
judgmental bias.
59
Disciplined
Adaptation to Changing Market Conditions
JWH seeks
to maintain a commitment to consistent portfolio construction and program
integrity. JWH generally has not changed the fundamental elements of the
portfolios by short-term performance, although adjustments may be, and have
been, made over time. In addition, JWH has not changed the basic methodologies
that identify signals in the markets for each program. JWH believes that its
long-term track record has benefited substantially from its adherence to its
models during and after periods of negative returns; however, adherence to its
strategy may lead to prolonged periods of market losses and high
risk.
The
dynamic elements of the JWH investment process involve periodic adaptation to
changing market conditions and subjective discretionary decisions on such
matters as portfolio weightings, leverage, position size, effective trade
execution, capacity and entry into new markets – all of which depend on
professional experience and market knowledge. These changes are made as
warranted by JWH’s research findings concerning its portfolios and their
performance.
Duration
of Positions Held
JWH’s
historical performance demonstrates that, because trends often last longer than
most market participants expect, significant returns can be generated from
positions held over a long period of time. Therefore, market exposure to
profitable positions is not changed based on the time horizon of the trade;
positions held for two to four months are not unusual, and positions have been
held for more than one year. Losing positions are generally reversed or
eliminated relatively quickly because a trend did not extend for a requisite
period of time, with most closing within a few days or weeks. However, if the
JWH system detects a profitable underlying trend, a position trading at a loss
may be retained to capture the potential benefits of participating in that
trend. Throughout the investment process, trading methodologies have been
designed to reduce the possibility of an extraordinary loss on a single
position; however, significant profit givebacks or losses may be incurred under
volatile market conditions.
Equity
Drawdowns
Historically
less than one-third of all trades made pursuant to JWH’s investment programs
have been profitable. Large profits on a few trades in positions that typically
exist for several months have produced favorable results overall. The greatest
cumulative percentage decline in net asset value that JWH has experienced since
inception in any single investment program, measured on a month-to-month
composite basis was nearly 60%. Another program incurred a loss, calculated on
the same basis, in excess of 50%. Measured on a day-to-day composite basis,
those program drawdowns exceeded the monthly levels. Prospective investors in
the trust should understand that similar or greater drawdowns are possible in
the future.
Discretionary
Aspects
JWH at
its sole discretion may override computer-generated signals and may at times use
discretion in the application of its quantitative models, which may affect
performance positively or negatively. This could occur, for example, when JWH
determines that markets are illiquid or erratic, such as may occur cyclically
during holiday seasons or on the basis of irregularly occurring market events.
Subjective aspects of JWH’s quantitative models also include the determination
of position size in relation to account equity, when an account should commence
trading, the investment of assets associated with additions, redemptions and
allocations, contracts and contract months traded, and effective trade
execution.
60
Program
Modifications
The basic
philosophy underlying the firm’s investment methodology has remained intact
throughout its history and most investment programs maintain a consistent
portfolio composition to allow profit opportunities in as many major market
trends as possible, in accordance with the investment objectives of each
program.
Proprietary
research may be conducted to refine the JWH investment strategies. The potential
benefits to a program of employing more than one investment methodology,
applying investment methodologies in varying combinations, and the possible
substitution of alternative investment methodologies with respect to particular
contracts may be assessed through the testing of different methodologies, along
with the possible benefits of such modifications to improve program performance
over historical levels. In addition, risk management research and investment
program analysis may suggest modifications regarding the relative weighting
among various contracts, modifying the style and/or timing used by an investment
program to trade a particular contract, the addition or deletion of a contract
traded by an investment program, or a change in position size in relation to
account equity. JWH’s research on these and other issues has resulted in
investment program modifications from time to time in the past, and are expected
to do so in the future.
All cash
in a JWH investment program is available for trading, although the amounts
committed to margin will vary from time to time. As capital in each JWH
investment program increases, additional emphasis and weighting may be placed on
certain markets that have historically demonstrated the greatest liquidity.
Furthermore, the weighting of capital committed to various markets in the
investment programs is dynamic, and JWH may vary the weighting at its discretion
as market conditions, liquidity, position limit considerations, and other
factors warrant. The managing owner will generally not be informed of any such
changes.
Adjusting
the Size of Positions Taken
Position
size adjustments relative to account equity are an integral part of JWH’s
investment strategy and historically have been made in a systematic manner as
equity in the account from trading profits increases. JWH may override indicated
systematic position size adjustments when, in its discretion, it deems that is
warranted by its assessment of market conditions. In the case of declines in
equity, position sizes are generally maintained in spite of any trading losses.
Systematic methods for maintaining or adjusting the trade size to equity in an
account may affect performance and will alter the risk exposure of the account,
with leverage increasing in down markets until losses are offset, and decreasing
in profitable market conditions until systematic adjustments are
made.
JWH may
also use discretion to adjust the size of a position in relation to equity in
the account for markets or for entire investment programs. Such adjustments may
not be made for all JWH programs. Factors that may affect decisions to adjust
the size of a position in relation to account equity include ongoing research,
program volatility, current market volatility, risk exposure, subjective
judgment, and evaluation of these and other general market
conditions.
Decisions
to change the size of a position may positively or negatively affect performance
and will alter risk exposure for an account, since such adjustments will also
alter the volatility of JWH programs. Adjustments in position size relative to
account equity may lead to greater profits or losses, more frequent and larger
margin calls, and greater brokerage expense. No assurance is given that such
adjustments will result in increased program profitability. JWH reserves the
right to alter, at its sole discretion and without notification, its policy
regarding adjustments in position size relative to account equity.
Addition,
Redemption and Reallocation of Capital for Commodity Pool Accounts
Investors
purchase or redeem units at net asset value on the close of business on the last
business day of the month. In order to provide market exposure commensurate with
the trust’s equity on the date of these
61
transactions,
JWH may, at its sole discretion, adjust its investment of the assets associated
with the addition, redemption and reallocation of capital as near as possible to
the close of business on the last business day of the month to reflect the
amount then available for trading.
Based on
JWH’s determination of liquidity or other market conditions, JWH may decide to
commence trading earlier in the day on, or before, the last business day of the
month, or at its sole discretion, delay adjustments to trading for an account to
a date or time after the close of business on the last day of the month. No
assurance is given that JWH will be able to achieve the objectives described
above in connection with trust equity level changes. The use of discretion by
JWH in the application of this procedure may affect performance positively or
negatively.
Physical
and Cash Commodities
JWH may
trade in physical or cash commodities for immediate or deferred delivery,
including specifically gold bullion, as well as futures, options and forward
contracts when JWH believes that cash markets offer comparable or superior
market liquidity or the ability to execute transactions at a single price. Cash
transactions, as opposed to futures transactions, relate to the purchase and
sale of specific physical commodities. Whereas futures contracts are generally
uniform except for price and delivery time, cash contracts may differ from each
other with respect to such terms as quantity, grade, mode of shipment, terms of
payment, penalties, risk of loss, and the like. There is no limitation on daily
price movements of cash, swap, or forward contracts transacted through banks,
brokerage firms, or government dealers, and those entities are not required to
continue to make markets in any commodity. The CFTC does not regulate cash
transactions, which are subject to the risk of counterparty failure, inability
or refusal to perform with respect to such contracts.
Reliance
on Timely and Accurate Market Data
JWH’s
ability to detect market trends and trade them profitably depends on its access
to timely and accurate market price data throughout the trend identification and
trading processes. If price data is not available or is delayed, JWH would be
unable to trade for client accounts until reliable data sources have been
restored. Data reconciliation procedures are applied each day to confirm
accurate price quotations, and on the subsequent day prices that were employed
in the JWH systems are re-reconciled in an attempt to identify changes from
previously posted prices. JWH’s traders are required to confirm a price from
multiple sources before executing a trade, and, during volatile market
conditions, traders request confirmation of high and low prices from the floor
before placing a trade. Inaccurate information may be generated by a data
vendor, or an exchange may transmit inaccurate prices that a vendor then
distributes to JWH, but which are later cancelled or amended by the exchange. In
addition, JWH may obtain from third parties, such as clearing firms, information
about prices or about contract specifications and changes to them. Inaccurate
price information may cause JWH to enter or close trades that it would not
otherwise have entered or closed, to trade or fail to trade at times that would
have been indicated by accurate data, or to be completely unable to place a
trade. Communications or technical failure may also cause an electronic trading
tool to fail, which could cause JWH to fail to act when a trading stop is
reached. As a result of such potential data problems, client accounts may be
unable to exit positions or miss the opportunity to establish new positions. JWH
receives price data electronically. Data providers typically make no
representations or warranties about the accuracy or timeliness of the data they
provide, and assume no financial liability for lost profits, trading losses or
other consequential damages. Data providers also disclaim any responsibility for
events of force majeure, as well as for actions (or inaction) of third party
information, hardware and software providers, and for interruption of means of
communication. Because all of the data required for JWH’s trading is provided
from third parties, JWH, cannot, despite its employment of the precautions
described above, make any assurances that its efforts will detect erroneous or
incomplete data, or prevent client accounts from incurring losses or missing
profit opportunities.
62
Business
Interruption Risk
During
both 2004 and 2005, the operations of JWH at its Boca Raton, Florida offices
were disrupted by hurricanes which required recovery periods to re-establish
communications and other utilities. JWH continued its trading operations during
those periods without interruption from backup locations. Any future business
interruption events, whether weather-related or otherwise, that affect the south
Florida area could similarly disrupt the trading operations of JWH, despite the
backup precautions it has established. JWH has a business continuity plan in
place, but it cannot guarantee that business interruption events will not have
an impact on its operations.
JWH
Diversified Plus Past Performance
You are
cautioned that the information set forth in the following capsule summary is not
necessarily indicative of, and may have no bearing on, any trading results that
may be attained by JWH or the trust in the future, since past results are no
guarantee of futures results. There can be no assurances that JWH or the trust
will make any profits at all, or will be able to avoid incurring substantial
losses. You should also note that interest income may constitute a significant
portion of a commodity pool’s total income, and in certain circumstances, may
generate profits where there have been realized or unrealized losses from
commodity trading. A
portion of the trust’s assets
is allocated to the JWH Diversified Plus program.
Set forth
below in Capsule A is the past performance history of JWH Diversified Plus, one
of the programs that will be traded for the trust.
JWH
Diversified Plus is a broadly diversified program that combines three separate
two-phase reversal systems with a dynamic sizing of individual market positions
based on volatility. The three trend-following models utilize different time
horizons to permit multiple entry and exit points. Portfolio exposure will vary
based on the relative positions (long or short) of the three models used. The
program is designed to have lower volatility compared to most other JWH
programs. Like all JWH trend-following programs, it uses a non-predictive,
disciplined and systematic approach to investing.
JWH
Diversified Plus began trading client capital on January 8, 2007 as an
allocation in the Strategic Allocation Program. It began trading a stand-alone
client account on April 2, 2007.
The
information set forth in the tables below has not been audited; however, JWH
believes that this information is accurate and fairly represented.
63
Capsule
A
John W. Henry & Company,
Inc. – JWH Diversified
Plus
Name
of commodity trading advisor:
|
John
W. Henry & Company, Inc.
|
Name
of program:
|
JWH
Diversified Plus
|
Inception
of trading by CTA:
|
October
1982
|
Inception
of trading in program:
|
April
2007
|
Number
of open accounts:
|
4
|
Aggregate
assets overall as of October 31, 2010:
|
$200
million
|
Aggregate
assets in program as of October 31, 2010:
|
$27
million
|
Worst
monthly drawdown since inception:
|
(16.91)%,
July 2008
|
Worst
peak-to-valley drawdown since inception:
|
(24.25)%,
June 2008 – August 2008
|
2010
year-to-date return:
|
3.89%
(10 months)
|
2009
annual return:
|
(6.10)%
|
2008
annual return:
|
40.09%
|
2007
annual return:
|
24.15%
(9 months)
|
You should read the footnotes located
under “Notes to the Performance Information” on pages 34 to 35, which are an
integral part of the above performance capsule.
PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
NuWave
Investment Management, LLC
|
Introduction
NuWave
Investment Management, LLC, a Delaware limited liability company, was founded in
August 2006 and is engaged in the business of providing trading advisory
services to customers with respect to futures contracts, forward contracts, and
other futures-related interests (collectively, “futures interest contracts”) on
United States and foreign exchanges and markets. NuWave trades futures interest
contracts including, but not limited to, contracts in agricultural items, energy
products, financial instruments and indices, foreign currencies, and metals.
NuWave manages accounts for trading in futures interest contracts on a
discretionary basis and its trading methodologies are speculative in
nature.
NuWave
has been registered with the CFTC as a commodity trading advisor and as a
commodity pool operator since August 29, 2006 and has been a member of the NFA
in such capacities since August 29, 2006.
From
February 1993 through August 2006, NuWave provided trading advice to its clients
through its affiliate NuWave Investment Corp., a Florida corporation. Troy W.
Buckner has been the owner and President of NuWave Investment Corp. since its
inception.
NuWave
has three principals: Troy W. Buckner, John S. Ryan, and Yury V.
Orlov.
NuWave
Principals
Troy W. Buckner has been
a principal of NuWave since August 25, 2006, and an associated person and NFA
associate member of NuWave since August 29, 2006. Mr. Buckner has also been a
principal of NuWave Investment Corp. since February 24, 1993, as well as a NFA
associate member since July 3, 2002 and an associated person since July 23,
2002. Mr. Buckner is the Manager of NuWave and the President of NuWave
Investment Corp. Mr. Buckner is an industry veteran who began his career at
Salomon Brothers, Inc., an investment bank, as a derivatives and portfolio sales
specialist in June 1986. In February 1989, Mr. Buckner
64
left
Salomon Brothers to trade energy derivatives proprietarily at George E. Warren
Corporation, a private energy wholesale distributor and trading firm, and in
January 1991 started his own business to focus on the design and implementation
of sophisticated trading models that would eventually support NuWave Investment
Corp. Mr. Buckner formed NuWave Investment Corp. in the beginning of 1993, at
which time he registered with the NFA as a commodity trading advisor on February
24, 1993. He later transferred his commodity trading advisor registration to
NuWave Investment Corp. in 2000. Mr. Buckner joined Classic Capital Inc., a
commodity trading advisor and a registered investment adviser, as a principal in
January 1994 with responsibility for the design and execution of both futures
and U.S. equity investment models. In June 1995, Mr. Buckner joined Hyman Beck
& Company, a commodity trading advisor, as a principal to develop
systematic, investment strategies capable of trading the world’s liquid futures
and currency markets. His extensive research into innovative, non-correlated
investment programs is complemented by years of trading experience and an
in-depth understanding of market theory. During the time that he was employed by
Classic Capital Inc. and Hyman Beck & Company, Mr. Buckner maintained NuWave
Investment Corp., although no business was conducted through the corporation.
From March 24, 2003 through June 26, 2007, Mr. Buckner was a principal and
associated person of Mt. Kemble Futures, LLC, a registered introducing broker
set up to service the needs of clients in need of a clearing relationship. Mr.
Buckner graduated Magna Cum Laude from the University of Delaware in 1984 with a
double major (finance/accounting) and a minor (economics) before earning his
M.B.A from the University of Chicago in 1986.
John S. Ryan has been
a principal, an associated person, and a NFA associate member of NuWave since
August 29, 2006. He has also been a principal of NuWave Investment Corp. since
May 16, 2001, as well as an associated person since April 5, 2001 and an
associate member of the NFA since December 14, 2001. Mr. Ryan began his career
in December 1988 at IBM (International Business Machines Corp.), a manufacturer
of computers and computer-related technology, where he designed corporate
networks in New York City. Specializing in systems and communications, he
implemented custom solutions for top New York City law firms and universities.
In March 1993, Mr. Ryan was recruited by Hyman Beck & Company, a commodity
trading advisor, to head its technology effort, where he held the titles of
Principal and Director of Technology. He is credited with helping to build the
infrastructure and research effort that was critical to Hyman Beck’s success up
until the time of his departure in February 2001. Since joining NuWave
Investment Corp. in March 2001 as Chief Technology Officer and Chief Operating
Officer, Mr. Ryan has also been actively involved with research and development,
where his programming and quantitative skills have been utilized in the design
of NuWave’s trading systems and electronic trading infrastructure. Mr. Ryan
earned his B.B.A degree in Computer Information Systems from Bernard Baruch
College, City University of New York.
Yury V. Orlov has been
a principal of NuWave since August 25, 2006, and an associated person and NFA
associate member of NuWave since August 29, 2006. Dr. Orlov has also been a
principal and associated person of NuWave Investment Corp. since July 19, 2005,
and an associate member of the NFA since July 15, 2005. Dr. Orlov began his
professional career in April 1986 at the Nuclear Physics Institute, Moscow State
University, where he held the title of Research Scientist until October 2003.
NuWave Investment Corp. engaged Dr. Orlov as an off-site consultant beginning in
September 1997, and by January 2000 he had become integral in the design of
NuWave’s advanced electronic execution and modeling software. In October 2003,
Dr. Orlov moved to the United States, joining NuWave in its New Jersey offices.
Dr. Orlov’s expertise is in the area of pattern recognition, genetic algorithms,
time series analysis, and programming. He obtained his Master's Degree in
Physics in January 1983 and his PhD in Time Series Segmentation and Pattern
Recognition, both from Moscow State University. Dr. Orlov has authored or
co-authored more than 50 publications relating to his specialties and has been
published in several scientific journals.
65
NuWave Investment Corp. is a
Florida corporation. NuWave Investment Corp. has been a registered entity
principal of NuWave since February 13, 2009.
NuWave Principals LLC is a
Delaware limited liability company. NuWave Principals LLC has been a registered
entity principal of NuWave since February 13, 2009.
NuWave
and its principals may, from time to time, trade futures, forwards, and options
contracts and securities for their own proprietary accounts. Such trades may or
may not be in accordance with the NuWave trading program described below. It is
possible that NuWave and/or its principals may from time to time be
inadvertently competing with the trust for similar futures interest contract
positions in one or more markets or may take positions in their proprietary
accounts which are opposite the positions taken for the trust. If NuWave or its
principals engage in such trading, investors will not be able to inspect such
records or NuWave’s written policies related to such trading.
Neither
NuWave nor its principals have any beneficial or ownership interest in the
trust.
Legal
Concerns
There
have been no material administrative, civil or criminal proceedings against
NuWave or any of its principals, which are pending, are on appeal or have
concluded at any time during the last five years.
Trading
Strategy
The
following description of NuWave, its trading systems, methods, models, and
strategies is general and not intended to be exhaustive. Additionally, the
following description of NuWave’s trading strategy relates to NuWave generally
and not to the trust itself.
NuWave
offers the “Combined Futures Portfolio” for investment. The Combined Futures
Portfolio pursues a unique multi-strategy approach to investing in many of the
world’s most liquid financial and commodities markets, offering investors the
potential to achieve compelling risk-adjusted returns in a variety of market
environments while also providing significant diversification and
non-correlation benefits relative to both traditional investments and other
hedge fund strategies.
NuWave’s
systematic trading methodologies employ a sophisticated form of “pattern
recognition” theory to identify and capture repetitive historical tendencies in
price movement that occur across a broad array of markets and time horizons. The
repetitive nature of these “patterns” results from a wide variety of technical
and fundamental factors, including, among other things, the prospects for global
economic growth, the prevailing environment for interest rates, the effects of
dramatic geopolitical shocks and the cyclicality of seasonal or weather-related
concerns. NuWave defines a unique matrix of logical and mathematical values
associated with a given time series in order to define a “profile” of current
price activity for a specific market. Thereafter, pattern recognition algorithms
are utilized to interpret the significance of each time series profile within
the context of history so as to identify directional trading patterns. Although
no two “profiles” are identical, similar profiles can be identified from which
one may infer directional price opportunities. These opportunities often differ
significantly, varying in terms of duration (ranging from mere hours to many
months) and direction (at times running with the prevailing trend, while at
other times runner counter to the prevailing trend). The result is a unique
return profile that is distinct from, and less correlated with, those offered by
both traditional investments and other hedge fund strategies.
The
Combined Futures Portfolio is actually comprised of three distinct sub-programs:
the Long-Term Pattern Recognition Program (formerly, the Alpha Program), the
Intermediate-Term Pattern Recognition Program (formerly, the Pattern Recognition
Program), and the Short-Term Pattern Recognition Program (formerly, the Beta
Program). While each sub-program trades the same set of broadly diversified
markets (with
66
approximately
60% of market exposure being derived from financial futures (such as stock
indices, fixed income and currencies) and approximately 40% of market exposure
being derived from commodity futures (such as energies, metals, grains, softs
and meats)), each sub-program is also differentiated by a unique trading style
and time frame. The aggregate portfolio is therefore broadly diversified across
markets, time horizons and trading styles. Furthermore, NuWave believes, based
upon its proprietary research, that the performance of each of the three
sub-programs exhibits a substantial degree of non-correlation with one another,
as well as with other investment strategies.
|
·
|
Long-Term Pattern Recognition
Program (“LTPR”). The LTPR generally seeks to identify long-term
directional trading opportunities (with an average holding period of three
months or longer), yet does so in a fashion that differs significantly
from many traditional long-term “trend following” strategies. The LTPR
employs a series of proprietary pattern recognition algorithms to
highlight long-term divergence-oriented trading opportunities that may be
consistent with, or counter to, the prevailing long-term trend, often
identifying such trading opportunities in advance of other market
participants. The result is a strategy that exhibits significantly less
correlation to traditional long-term “trend following”
strategies.
|
|
·
|
Intermediate-Term Pattern
Recognition Program (“ITPR”). The ITPR generally seeks to identify
repetitive historical tendencies in price, from which one may infer
directional trading opportunities of medium-term duration (with an average
holding period of approximately one to two months). The ITPR is premised
upon the notion that markets exhibit a certain degree of repetitive price
action that is non-random in nature, and complex pattern recognition
algorithms are utilized in an effort to analyze current pricing patterns
within the context of a particular market’s historical pricing tendencies.
The probabilistic nature of the methodology emphasizes those instances in
which there is a significant likelihood that prices will move in a
particular direction over a certain time
horizon.
|
|
·
|
Short-Term Pattern Recognition
Program (“STPR”). The STPR is designed to capitalize on the more
random nature of short-term price movements within certain markets (with
an average holding period of approximately two to three weeks). The STPR
seeks to identify divergence-oriented trading opportunities of short-term
duration through the analysis of repetitive price behaviors within a given
market, offering a non-correlated complement to both the LTPR and the
ITPR. The more selective nature of the STPR’s pattern recognition
algorithms result in a short-term trading strategy that is not consumed by
high velocity trading costs.
|
In the
future, other sub-programs and/or markets may be included in the Combined
Futures Portfolio at the discretion of NuWave, and client accounts participating
in the Combined Futures Portfolio may be leveraged in a manner that reflects the
addition of other sub-programs. Allocation and leverage decisions are made by
NuWave, with the aid of certain research studies and other experience, in an
effort to minimize risk and maximize profit opportunities.
NuWave
Combined Futures Portfolio (2x) Past Performance
You are
cautioned that the information set forth in the following capsule summary is not
necessarily indicative of, and may have no bearing on, any trading results that
may be attained by NuWave or the trust in the future, since past results are no
guarantee of future results. There can be no assurances that NuWave or the trust
will make any profits at all, or will be able to avoid incurring substantial
losses. You should also note that interest income may constitute a significant
portion of a commodity pool’s total income, and in certain circumstances, may
generate profits where there have been realized or unrealized losses from
commodity trading. A portion of
the trust’s assets is allocated to the NuWave Combined Futures Portfolio (2x)
program.
67
Set forth
in Capsule A is the past performance history of NuWave Combined Futures
Portfolio (2x), one of the programs that will be traded for the trust. The
information set forth in the tables below has not been audited; however, NuWave
believes that the information is accurate and fairly represented.
Capsule
A
NuWave Investment Management, LLC
– Combined Futures
Portfolio (2x)
Name
of commodity trading advisor:
|
NuWave
Investment Management, LLC
|
Name
of program:
|
Combined
Futures Portfolio 2x
|
Inception
of trading by CTA:
|
May
2001
|
Inception
of trading in program:
|
February
2005
|
Number
of open accounts:
|
28
|
Aggregate
assets overall as of October 31, 2010:
|
|
Excluding
“notional” equity:
|
$217,937,389
|
Including
“notional” equity:
|
$880,689,326
|
Aggregate
assets in program as of October 31, 2010:
|
|
Excluding
“notional” equity:
|
$217,937,389
|
Including
“notional” equity:
|
$857,040,847
|
Worst
monthly drawdown since inception:
|
(11.72)%,
August 2007(1)
|
Worst
peak-to-valley drawdown since inception:
|
(13.91)%,
July 2007 to August 2007(1)
|
2010
year-to-date return:
|
8.29%
(10 months)
|
2009
annual return:
|
(8.11)%
|
2008
annual return:
|
51.78%
|
2007
annual return:
|
(0.12)%
|
2006
annual return:
|
11.87%
|
2005
annual return:
|
17.78%
|
(1) NuWave calculates worst monthly drawdown and worth peak-to-valley drawdown on a composite basis instead of by account.
You should read the footnotes located
under “Notes to the Performance Information” on pages 34 to 35, which are an
integral part of the above performance capsule.
PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
Dominion
Capital Management Institutional Advisors,
Inc.
|
Introduction
Dominion
Capital (“Dominion”) is engaged in the business of providing trading advisory
services to customers with respect to futures contracts, forward contracts, and
other futures-related interests across a portfolio which includes global stock
index futures, global interest rate futures, commodity futures, and foreign
exchange markets. Dominion manages customer accounts with a disciplined,
systematic trading and risk management approach. Dominion’s principal business
address is 12935 S. West Bayshore Drive, Suite 420, Traverse City, Michigan
49684. Dominion’s phone number is (231) 995-4412, and its facsimile number is
(231) 995-4450.
Dominion
Capital Management Institutional Advisors, Inc. is a Michigan corporation
incorporated in March 2010 (“DCMIA”) and registered with the CFTC as a commodity
trading advisor in March 2010. Dominion Capital Management Institutional
Advisors, Inc. is an affiliate of Dominion Capital Management, Inc., an Illinois
corporation (“DCM”). DCM was incorporated in May 1994 and was registered with
the CFTC as a commodity trading advisor in July 1994 and as a commodity pool
operator in August 1999 and has been a
68
NFA
member since July 1994. DCMIA and DCM both operate under the assumed name of
Dominion Capital, and are both wholly-owned by Scott A. Foster, a NFA registered
principal and associated person.
DCMIA has
three principals: Scott A. Foster, Joseph H. Vanderbosch and Gregory J. Donahue.
Mr. Foster is responsible for making trading decisions for DCMIA.
Dominion
Principals
Scott A. Foster is the
President, Chief Executive Officer, sole shareholder and the sole director of
Dominion and has also been a registered principal and associated person of DCM
since July 1994 and DCMIA since March 2010. Mr. Foster is responsible for all
investment decisions made by Dominion and the development of all trading models,
money and risk management strategies, portfolio selection and ongoing research
and product development utilized by Dominion. Prior to forming Dominion in May
1994, Mr. Foster was Senior Trader and an associated person of A.O. Management
Corporation (which later changed its name to Abacus Trading Corporation), a
registered CTA, from June 1991 through February 1994, at which time Mr. Foster
left his employment to spend March through April 1994 laying the groundwork for
DCM. His responsibilities at A.O. Management Corporation included research and
development of technical and fundamental trading models, product development,
and supervising execution and trading desk activities. From October 1988 through
June 1991 Mr. Foster was President of and responsible for all investment
decisions made by The Dominion Financial Group, Ltd., a private trading company.
Mr. Foster holds a Bachelor of Arts degree from Grove City College.
Joseph H. Vanderbosch is
Executive Vice President of Marketing and Client Services and a registered
principal and associated person of DCM since March 2003 and DCMIA since March
2010. Mr. Vanderbosch is pending as a forex associated person of DCMIA. He is
responsible for maintaining client relationships and new business development.
Prior to joining Dominion, Mr. Vanderbosch worked at Wintrust Financial
Corporation, a bank holding company, in their trust and investment subsidiary
from January 2001 to February 2003. His responsibilities there included
marketing trust and investment services to the holding company’s Chicago based
banking facilities and clients. From April 1995 to December 2000 he served as
Director of Marketing and Client Services for Telesis Management, Inc., a fund
manager in Santa Barbara, California, where he designed and implemented a global
marketing and equity raising campaign. Prior to that Mr. Vanderbosch was Vice
President of marketing for R.J. O’Brien & Associates, Inc, a registered
futures commission merchant, from February 1993 to April 1995. Mr. Vanderbosch
earned a bachelor’s degree in Psychology from Colorado College in Colorado
Springs, Colorado.
Gregory J. Donahue, Esq. is
General Counsel and Vice President of Dominion. He has been a registered
principal of DCM since April 2006 (and was also a registered principal of DCM
from May 2001 to September 2004) and has been a registered principal of DCMIA
since March 2010. Mr. Donahue joined Dominion in July 2000 and is responsible
for providing the firm with guidance on all legal issues including corporate
operation/governance and regulatory compliance, as well as overseeing all of
Dominion’s day-to-day internal business operations. Prior to joining Dominion,
Mr. Donahue was an associate attorney with Stark, Regan & Finnerty, P.C. in
Troy, Michigan (July 1996 through September 1997) and Brandt, Fisher, Alward and
Roy, P.C. (October 1997 through July 2000), where he practiced in the areas of
corporate law, transactional law, mergers and acquisitions and commercial
finance. Mr. Donahue was admitted to the Michigan Bar in November 1996. Mr.
Donahue obtained his Juris Doctor degree from Wayne State University in May 1996
and his Bachelor of Science degree from the University of Michigan in May
1993.
Dominion
and its principals may, from time to time, trade securities, futures, and
related contracts for their own proprietary accounts. If Dominion or its
principals engage in such trading, investors will not be able to inspect such
records.
Dominion,
its principals, and key personnel do not have any beneficial or ownership
interest in the trust.
69
Legal
Concerns
There
have been no material administrative, civil or criminal proceedings against
Dominion or any of its principals, which are pending, are on appeal or have
concluded at any time during the last five years.
Trading
Strategy
The
following description of Dominion, its trading systems, methods, models, and
strategies is general and not intended to be exhaustive. Additionally, the
following description of Dominion’s trading strategy relates to Dominion
generally and not to the trust itself.
Dominion
provides trading advisory services to customers with respect to futures
contracts, forward contracts, and other futures-related interests across a
portfolio which includes global stock index futures, global interest rate
futures, commodity futures, and foreign exchange markets. Dominion’s “Sapphire Program” is
utilized in Dominion’s management of assets on behalf of the trust. The
Sapphire Program and its systems and methodologies are beneficially owned and
controlled by Scott A. Foster, but are licensed to Dominion. Scott A. Foster is
primarily responsible for overseeing Dominion’s trading decisions.
Sapphire
Program Philosophy and Methodology
The
Sapphire Program was developed by Scott A. Foster through intense research,
development and refinement drawn from his experiences and observations that span
over three decades of managing client assets. While the trading approach is
deeply rooted in philosophical concepts and principles, the program models,
system methodologies and trading applications are highly technical in nature and
use momentum, volatility, and pattern recognition to generate buy and sell
signals. All models in the Sapphire Program have no long or short bias and
ignore major trends. The trading is exclusively short-term (approximately 1-5
days), with an average holding period of approximately 2½ days. Within this time
period, Dominion believes that price action is driven primarily by fear, greed,
and money flow. Through the innovative application of concepts and ideas
researched, tested and applied with cutting edge technology, Dominion’s models
attempt to quantify and exploit this “psychology of trading” in the major global
financial markets.
Portfolio
and Risk Management
The cornerstone to Dominion’s approach
to the markets is aggressive risk management. Dominion’s traders monitor the
markets 24 hours a day, implementing Dominion’s disciplined, systematic trading
and risk management strategies. Dominion uses proprietary risk management
software to monitor exposure and risk real-time (by position, sector, and
portfolio). Money and risk management is dynamic and adjusts to different market
conditions.
The
Sapphire Program portfolio currently contains global stock index futures, global
interest rate futures, commodity futures, and foreign exchange markets. Margin
to equity is generally not expected to exceed 40% of the trading level of the
account (average margin to equity ranges from 5-10%). The number of round turns
per each $1,000,000 in a client account is generally not expected to exceed
5,000 in any consecutive 12-month period.
Following is a list of markets
currently monitored and/or traded in Dominion’s Sapphire Program; however,
Dominion reserves the right to add or delete contracts without prior
notification to the client:
|
·
|
Stock Index
Contracts: Dow Jones, S&P 500, CAC 40, DAX, FTSE 100, MIB, AEX,
Kospi, Bovespa, SPI 200, Nikkei 225 (Osaka & Singapore), Hang Seng,
Russell 2000, Nasdaq 100, Taiwan Stock Index, and Euro
Stoxx.
|
70
|
·
|
Commodity
Contracts: Coffee, Silver, Sugar, Gold, Cocoa, Heating Oil, Cotton,
Copper, Crude Oil, Soybeans, Natural Gas, Wheat, Unleaded Gas, Live
Cattle, Brent Crude, Gas Oil, Live Hogs, and
Corn.
|
|
·
|
Foreign
Exchange: Dollar/Yen, Dollar/Swiss, Euro/US Dollar, Pound
Sterling/Dollar, Pound Sterling/Yen, Euro/Yen, Aussie/Dollar,
Dollar/Canada, Dollar/Rand, and
Peso/Dollar.
|
|
·
|
Interest Rate
Contracts: US Bond, Euro Bund, Japanese Government Bond, British
Long Gilt, US 10yr, US 5yr, Bobl, Schatz, and Aussie
10yr.
|
Dominion
Sapphire Program Past Performance
You are
cautioned that the information set forth in the following capsule summary is not
necessarily indicative of, and may have no bearing on, any trading results that
may be attained by Dominion or the trust in the future, since past results are
no guarantee of future results. There can be no assurances that Dominion or the
trust will make any profits at all, or will be able to avoid incurring
substantial losses. You should also note that interest income may constitute a
significant portion of a commodity pool’s total income, and in certain
circumstances, may generate profits where there have been realized or unrealized
losses from commodity trading. A portion of the trust’s assets are
allocated to the Sapphire Program.
Set forth
below in Capsule A is the past performance history of the Dominion Sapphire
Program, one of the programs that is traded for the trust. The past performance
information set forth in Capsule A below has not been audited; however, Dominion
believes that this information is accurate and fairly represented. Please note
that Dominion claims an exemption and operates pursuant to CFTC Regulation 4.7
and, as such, avails itself of all available relief regarding required
disclosures.
Prospective
investors should note that the following table for the Dominion Sapphire Program
presents performance data from a model account with a trading level of
$3,000,000, traded in real-time along with all other customer accounts in the
Sapphire Program. Dominion’s research and performance accounting indicates that
accounts with a trading level of at least $3,000,000, being equal in all
material respects (see variables below), track very closely in performance.
Accordingly, individual accounts may have achieved better or worse results than
those shown in Capsule A. When reviewing performance records, prospective
investors should understand that it is important to note that in a presentation
of past performance data, different accounts, even though they are traded
according to the same set of rules, can have varying investment results. The
reasons for this include (1) the period during which they are active and when
they began trading, (2) the timing of modifications to the trading strategy, (3)
the account size, since an account with a limited amount of funds may have
different results than an account with a greater amount of funds available, (4)
the liquidity of the futures contract traded may not be sufficient to allow an
order to be placed with a sufficient number of contracts to ensure that every
customer account will participate in every trade an advisor makes for its
managed accounts, (5)
the brokerage commission rate charged to an account, since brokerage
commissions will affect the account’s performance, (6) the management fee and
performance fee rates may vary from account to account, and (7) split fills
received on block orders placed by the advisor. However, in Dominion’s opinion,
the following capsule adequately reflects the performance of Dominion’s Sapphire
Program of comparable accounts in all material respects.
Capsule
A
Dominion
Capital Management Institutional Advisors, Inc. – Dominion Sapphire
Program
Name
of commodity trading advisor:
|
Dominion
Capital
|
Name
of program:
|
Dominion
Sapphire Program
|
Inception
of trading by CTA:
|
May
1994
|
Inception
of trading in program:
|
May
2005
|
71
Number
of open accounts:
|
34
|
Aggregate
assets overall as of October 31, 2010:
|
$121
million
|
Aggregate
assets in program as of October 31, 2010:
|
$121
million
|
Worst
monthly drawdown since January 1, 2005:
|
(5.48)%,
October 2010
|
Worst
monthly drawdown year-to-date:
|
(5.48)%,
October 2010
|
Worst
peak-to-valley drawdown since January 1, 2005:
|
(8.71)%,
January 2009 – April 2009
|
Worst
peak-to-valley drawdown year-to-date:
|
(8.19)%,
September 2010 – October 2010
|
2010
year-to-date return:
|
(4.96)%
(10 months)
|
2009
annual return:
|
5.11%
|
2008
annual return:
|
19.21%
|
2007
annual return:
|
6.09%
|
2006
annual return:
|
0.47%
|
2005
annual return:
|
10.26%
|
You
should read the footnotes located under “Notes to the Performance Information”
on pages 34 to 35, which are an integral part of the above performance
capsule.
PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
Trigon
Investment Advisors, LLC
|
Introduction
Trigon
Investment Advisors, LLC, (“Trigon”) is a Delaware limited liability company
formed in October 2002 by Mr. Paul D. Mastroddi and Mr. Ante Basic. Trigon is
engaged in the business of providing trading services to customers with respect
to futures contracts, forward contracts, and other futures related interests
(collectively, “futures interest contracts”) across different global asset
classes. Trigon manages accounts for trading in futures interest contracts on a
discretionary basis and its trading methodologies are speculative in
nature.
Trigon
has been registered with the CFTC as a commodity trading advisors and commodity
pool operator and has been a member of the NFA since April 4, 2003. Trigon has
two principals: Paul D. Mastroddi and Ante Basic. Mr. Mastroddi and Mr. Basic
are responsible for making trading decisions for Trigon.
Trigon
Principals
Paul D. Mastroddi is the
co-founder and portfolio manager of Trigon. He is a registered principal,
associated person, and NFA associate member of Trigon since April 2003. Mr.
Mastroddi is an economist by training, with a Ph.D. in economics from Yale
University (June 1985). He was an economist at JPMorgan Chase, an investment
bank and global financial services firm (September 1985 to June 1996), where he
was managing director and chief U.S. economist. Mr. Mastroddi was ranked one of
the top economists on Wall Street in the mid-1990s in polls such as those
conducted by Institutional
Investor and Greenwich Associates. Mr. Mastroddi began his career as an
investment manager at Lattanzio Group, an alternative asset management company,
where he ran the macro overlay for an equity-oriented hedge fund (July 1996 to
December 1997). From December 1996 to July 1998, Mr. Mastroddi was a registered
principal, associated person and NFA associate member of Lattanzio Group LLC. He
was a registered principal of Lattanzio Capital LLC from December 1996 to July
1998 and an associated person and NFA associate member of Lattanzio Capital LLC
from January 1997 to July 1998. In January 1998, the Lattanzio partners joined
Omega Advisors, an alternative asset management company, as a group and Mr.
Mastroddi briefly advised and traded for Omega Advisors (January 1998 to
December 1998). From February 1998 to March 1999 he was an associated person and
NFA associate member of Omega Associates LLC. Mr. Mastroddi had sole
responsibility for managing up to $100
72
million
in capital at Moore Capital Management, an alternative asset management company
(January 1999 to December 2000). From October 1999 to February 2001 he was an
associated person and from August 1999 to February 2001 he was NFA associate
member of Moore Capital Management LLC. Mr. Mastroddi worked at MLC, a private
investment fund, and along with Mr. Basic jointly managed their alternative and
traditional investment portfolios (January 2001 to September 2002). From July
2001 to June 2004 he was an associated person and from June 2001 to June 2004 he
was NFA associate member of MLC International Investment Group LLC. Mr.
Mastroddi and Mr. Basic co-founded Trigon in October 2002.
Mr.
Mastroddi graduated in June 1981 from Fordham University with a B.A. in
Economics and Philosophy. He received his M.A., M.Phil. and Ph.D. in Economics
from Yale University in June 1985.
Ante Basic is the co-founder
and portfolio manager of Trigon. He is a registered principal, associated
person, and NFA associate member of Trigon since April 2003. He started his
career at JPMorgan Chase, an investment bank and global financial services firm,
(January 1990 to June 1996). During his tenor at JPMorgan Chase, Mr. Basic
worked as a fund analyst and head trader of a quantitative trading group
responsible for portfolio management, research and development of systematic and
quantitative trading strategies. From February 1993 to May 1994 he was an
associated person and NFA associate member of JP Morgan Alternative Asset
Management Inc. Additionally, from October 1994 to April 1996 he was a
registered principal and from May 1994 to April 1996, he was an associated
person and NFA associate member of Chase Manhattan Global Trading Strategies
Inc. Mr. Basic was co-founder, President and head trader of Global Capital
Markets Strategies, Inc., a commodity trading advisor and fund consulting
company, from July 1996 to October 1999. He was responsible for developing and
implementing the firm’s systematic trading strategies. From May 1999 to January
2000 he was a registered principal and from May 1997 to November 1999, Mr. Basic
was an associated person and NFA associate member of Global Capital Markets
Strategies Inc. From November 1999 to July 2000, Mr. Basic was Senior Vice
President of Refco Fund Holdings, an alternative asset management company, where
he traded proprietary capital and oversaw the firm’s alternative asset division.
From June 2000 to July 2000 Mr. Basic was a registered principal and from
February 2000 to July 2000 he was an associated person and from January 2000 to
July 2000 he was a NFA associate member of Refco Fund Holdings LLC. He was a
registered principal of Refco Fund Management LLC from June 2000 to July 2000,
and a registered principal, associated person and NFA associate member of Refco
Alternative Investment Group LLC from June 2000 to July 2000. Mr. Basic was
managing director at MLC, a private investment fund, from August 2000 to
September of 2002. He co-managed with Mr. Mastroddi MLC’s alternative and
traditional investment portfolios and managed a team of external and internal
investment professionals. From July 2001 to June 2004 Mr. Basic was an
associated person and from June 2001 to June 2004 he was a NFA associate member
of MLC International Investment Group LLC. Mr. Basic and Mr. Mastroddi
co-founded Trigon in October 2002.
Mr. Basic
graduated from Brooklyn College of City University of New York with a B.S. in
Business Management and Finance in December of 1989.
Legal
Concerns
There
have been no material administrative, civil, or criminal proceedings against
Trigon or any of its principals, which are pending, are on appeal or have
concluded any time since Trigon’s inception of trading.
Trading
Strategy
The
following description of Trigon, its trading methods and strategies is general
and not intended to be exhaustive. Additionally, the following description of
Trigon’s trading strategy relates to Trigon generally and not to the trust
itself.
Trigon
Discretionary Macro Program
73
Trigon’s
Discretionary Macro Program has been trading since 2007. The program trades
futures and over-the-counter currencies on a purely discretionary basis with a
focus on fixed income, foreign exchange, equity indices and commodities. Capital
is allocated to two strategies. Both strategies begin with Trigon’s fundamental
framework, which is an assessment of economic and policy conditions that
typically drive markets including the stage of the business cycle
(recession/expansion), the momentum of growth and inflation
(accelerating/decelerating), the availability of credit and other fundamental
issues. But non-fundamental inputs are also very important to the strategies as
well.
The
Global Short-Term Interest Rate Strategy trades major fixed income rates markets
in North America, Europe, and Asia. Trading is both trend and countertrend and
includes both flat price and spread positions. This strategy pursues a
methodology in which expectations for the future path of short-term rates are
extracted from yield curves; quantitative screens identify value in calendar and
inter-market spreads; volatility screens identify favorable risk/reward; the
fundamental framework informs choice of trades that pass the method’s more
quantitative hurdles. Trading in short-term rates is unique in that expectations
for central bank policy rates usually comprise virtually the majority of trading
action and this elevates the importance of fundamental inputs. Other inputs
include volatility analysis and valuation models.
The
Opportunistic Strategy trades foreign exchange, the long end of fixed income
markets, equity indices and select commodities. This strategy pursues a
methodology in which the fundamental framework guides biases to be long or short
in each of the major asset classes. Additional inputs are then applied,
including correlation analysis, volatility analysis and balance sheet analysis
(for commodities). Trades are often part of a theme, such as “global economic
recovery” or “Australian economic outperformance.” Thus, this strategy would be
classified as “fundamental macro.”
The
Discretionary Macro Program implements a three-stage risk control framework. At
the portfolio level, capital at risk is limited to 6% of the net asset value.
Thus if all stops are elected and all premium goes to zero (the program is never
net short premium), then the maximum 24-hour drawdown is designed to be limited
to 6% of the net asset value. At the strategy level, the program’s risk is
roughly evenly divided between the Global Short-Term Interest Rate and
Opportunistic Strategies. While some “borrowing” may occur (a strategy’s risk
may edge above 3%), it would likely be modest. This enforces diversification.
Finally, at the trade level, risk control is accomplished through trading of
liquid markets with firm stops. Trades typically risk about 35 basis points of
the net asset value to a maximum of 70 basis points.
Ante
Basic and Paul Mastroddi are the sole risk takers, and this has been the case
for all programs since Trigon’s inception.
Trigon
Discretionary Macro Past Performance
You are
cautioned that the information set forth in the following capsule summary is not
necessarily indicative of, and may have no bearing on, any trading results that
may be attained by Trigon or the trust in the future, since past results are no
guarantee of futures results. There can be no assurance that Trigon or the trust
will make profits at all, or will be able to avoid incurring substantial losses.
You should also note that interest income may constitute a significant portion
of a commodity pool’s total income, and in certain circumstances, may generate
profits where there have been realized or unrealized losses from commodity
trading. A portion of the
trust’s assets is allocated to the Trigon Discretionary Macro
program.
The
information set forth in the tables below has not been audited; however, Trigon
believes that this information is accurate and fairly represented.
Capsule
A
Trigon
Investment Advisors, LLC – Trigon Discretionary Macro
74
Name
of commodity trading advisor:
|
Trigon
Investment Advisors, LLC
|
Name
of program:
|
Discretionary
Macro
|
Inception
of trading by CTA:
|
October
2002
|
Inception
of trading in program:
|
August
2007
|
Number
of open accounts:
|
4
|
Aggregate
assets overall as of October 31, 2010
|
|
Including
“notional” equity:
|
$547,855,703
|
Aggregate
assets in program as of October 31, 2010
|
|
Including
“notional” equity:
|
$377,652,990
|
Worst
monthly drawdown since January 1, 2005:
|
(3.30)%,
August 2007
|
Worst
peak-to-valley drawdown since January 1, 2005:
|
(5.05)%,
May 2010 – September 2010
|
2010
year-to-date return:
|
(2.94)%
(10 months)
|
2009
annual return:
|
8.41%
|
2008
annual return:
|
11.99%
|
2007
annual return:
|
(2.62)%
(5 months)
|
You
should read the footnotes located under “Notes to the Performance Information”
on pages 34 to 35, which are an integral part of the above performance
capsule.
PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
<Remainder of Page Intentionally Left
Blank>
75
Brokerage
Arrangements
The
Futures Broker
R.J.
O’Brien & Associates, LLC is the trust’s futures broker. The futures broker
executes and clears the trust’s futures transactions and provides other
brokerage-related services. The futures broker is a Delaware limited liability
company and a privately-owned futures commission merchant. The futures broker is
a founding member of the Chicago Mercantile Exchange and is a full clearing
member of the Chicago Board of Trade, the New York Mercantile Exchange, the
Commodity Exchange of New York, and the New York Board of Trade.
The
futures broker, and its affiliated entities, are clearing members of principal
exchanges around the world and have clearing relationships on all major
international futures exchanges. The futures broker is registered with the CFTC
as a futures commission merchant and is a member of the NFA.
Certain
employees of the futures broker are members of various futures exchanges and may
serve on the governing bodies and standing committees of those exchanges, their
clearinghouses, and the NFA. In that capacity, these employees have a fiduciary
duty to the exchanges and would be required to act in the best interests of such
exchanges, even if that action might be adverse to the interests of the
trust.
In the
ordinary course of its business, the futures broker is engaged in civil
litigation and subject to administrative proceedings which, in the aggregate,
are not expected to have a material effect upon its condition, financial or
otherwise, or the services it will render to the trust.
The trust
and the futures broker have entered into a customer agreement that provides
that, for as long as the trust maintains an account with the futures broker, the
futures broker will execute and clear trades for the trust upon instruction of
each trading advisor, and will be paid on a per-trade basis. The customer
agreement is terminable immediately upon notice by either party. If for any
reason the trust elects to terminate the customer agreement with the futures
broker, no assurance may be given that the trust will be able to retain the
brokerage services of another futures broker at the same commission rate. The
futures broker is responsible for execution and clearance of futures contracts
(and options, which will only be purchased if the futures broker is able to
sustain the entire loss of the premium and related transaction costs and will
only be sold if the futures broker either owns the underlying futures contract
or is able to withstand substantial financial losses) as well as for certain
administrative duties such as record keeping, transmittal of confirmation
statements and calculating equity balance and margin requirements for the
trust’s account. The agreement provides that the futures broker will not be
liable to the trust except for gross negligence or willful
misconduct.
Trust
assets are deposited with R.J. O’Brien & Associates, LLC in its capacity as
the futures broker. The futures broker credits interest monthly to the trust’s
account of the trust’s average daily balances on deposit at the futures broker.
The trust fulfills its margin requirements with the futures broker on a
cash-only basis.
The
Foreign Currency Broker
Citibank,
N.A. is R.J. O’Brien & Associates, LLC’s prime broker and acts as
counterparty for spot and forward currency trades. Under most normal
circumstances, a trading advisor will contact at least two counterparties for a
quote on each of the trust’s currency trades.
The
Cash Manager
Effective
October 6, 2010, the managing owner retained RJO Investment Management LLC, an
affiliate of the managing owner, to serve as a cash manager to the trust. The
trust’s assets will be held by Wells Fargo Bank,
76
N.A. as
custodian. As of October 31, 2010, Wells Fargo Bank, N.A. held approximately $30
million of the trust’s assets.
Redemptions;
Net Asset Value
Redemptions
The
trust is intended as a medium- to long-term, “buy and hold” investment. The
trust’s objectives are to achieve substantial capital appreciation over time.
The trust is not intended to achieve, nor to attempt to achieve, significant
appreciation over the short-term.
A
unitholder may cause the trust to redeem any or all of such unitholder’s units
at net asset value as of the close of business on the last business day of any
calendar month. Investors must redeem units with a total net asset value of at
least $1,000 and maintain a balance of at least $1,000 of units, unless an
investor is redeeming his or her entire position. Written redemption requests
may be submitted to ACS Securities Services, Inc. or to a redeeming unitholder’s
financial advisor but in either case must be received by ACS Securities
Services, Inc. no later than five business days prior to month-end (including
the last business day of the month) to effect redemption as of such month-end. A
form of Request for Redemption is attached to this prospectus as Exhibit D and
may be obtained upon request from the managing owner.
Redemption
proceeds will generally be paid within ten business days after the month-end of
redemption, either directly to the redeeming unitholder or to the unitholder’s
customer securities account as directed by the unitholder. However, in special
circumstances, including, but not limited to, default or delay in payments due
to the trust from banks or other persons, the trust may, in turn, delay payment
to persons requesting redemption of units of the proportionate part of the
redemption value of their units equal to the proportionate part of the net
assets of the trust represented by the sums that are the subject of such default
or delay.
A unit
which is redeemed at or prior to the end of the eleventh full month after its
issuance will be assessed a redemption charge of 1.5% of the net asset value per
unit as of the date of redemption. In the event that an investor acquires units
at more than one time, such investor’s units will be treated on a “first-in,
first-out” basis for purposes of determining whether redemption charges apply.
The redemption charge will be paid to the managing owner, except that for
investors in the State of Ohio, the redemption charge will be paid to
RJOS.
The
managing owner may declare additional redemption dates, including special
redemption dates under certain circumstances. If as of the close of business on
any day the net asset value of a unit has decreased to less than 50% of the
previous highest month-end net asset value per unit, after adding back all
distributions, the managing owner will liquidate all of the trust’s open
positions, suspend trading and within ten business days after the suspension of
trading declare a special redemption date by notice to unitholders and otherwise
in accordance with the Ninth Amended and Restated Declaration and Agreement of
Trust.
Unitholders
may not transfer or assign units without providing prior written notice to the
managing owner. No assignee may become a substitute unitholder except with the
consent of the managing owner. No transfers will be permitted where, after the
transfer, either the transferee or the transferor would hold less than the
minimum number of units equivalent to an initial minimum purchase.
Notices
of redemption are irrevocable once submitted. The net asset value per unit as of
the date of redemption may differ substantially from the net asset value per
unit as of the date that irrevocable notice of redemption must be
submitted.
77
Net
Asset Value
The net
assets of the trust are its assets less its liabilities determined in accordance
with generally accepted accounting principles. The net asset value per unit is
the net assets of the trust divided by the number of units
outstanding.
Futures
or option contracts traded on a United States commodity exchange are valued at
the settlement price on the date of valuation. If an open position cannot be
liquidated on the day with respect to which net assets are being determined, the
settlement price on the first subsequent day on which the position can be
liquidated shall be the basis for determining the liquidating value of such
position for such day, or such other value as the managing owner may deem fair
and reasonable. The liquidating value of a commodity futures or option contract
not traded on a United States commodity exchange shall mean its liquidating
value as determined by the managing owner on a basis consistently applied for
each different variety of contract. Accrued incentive fee liabilities reduce net
asset value (subject, however, to possible whole or partial reversal if the
trust incurs subsequent losses) even if such accrued incentive fees may never,
in fact, be finally paid to a trading advisor.
General
The
managing owner has not established any formal procedures to resolve the
following conflicts of interest. Consequently, there is no independent control
on how the managing owner resolves these conflicts which can be relied upon by
investors as ensuring that the trust is treated equitably with other clients of
the managing owner. Unitholders will be dependent on the good faith of, and the
legal and fiduciary obligations imposed on, the parties involved with such
conflicts to resolve them equitably. Although the managing owner will attempt to
monitor and resolve these and any other conflicts in good faith, they may result
in losses for the trust.
The North
American Securities Administrators Association, Inc. Guidelines for the
Registration of Commodity Pool Programs, as amended and adopted on May 7, 2007,
provide that certain conflicts of interest are presumed to be materially
sufficient to render a proposed program incapable of accomplishing its stated
objectives in the best interest of the participants in such program. These
presumptively prohibited conflicts include: (1) it shall be presumptively
unreasonable for a trading advisor to be affiliated with the program broker; (2)
it shall be presumptively unreasonable for a trading advisor to be affiliated
with the sponsor of the commodity pool if the sponsor receives, directly or
indirectly, any portion of the brokerage commissions, including trail
commissions, from program operations; (3) unless the issuer can overcome the
presumptions outlined in (1) and (2), the prospectus shall state that at no time
will the above affiliations exist; (4) no loans may be made by the program to
the sponsor or any other person; (5) the funds of a program shall not be
commingled with the funds of any other person. Funds used to satisfy margin
requirements will not be considered commingled; (6) no rebates or give-ups may
be received by the sponsor nor may the sponsor participate in any reciprocal
business arrangements which could circumvent these guidelines; (7) a program’s
charter document shall prohibit the commodity trading advisor or any other
person acting in such capacity from receiving a net asset fee if such trading
advisor or other person shares or participates, directly or indirectly, in any
commodity brokerage commissions generated by the program; (8) the maximum period
covered by any contract of the partnership with the trading advisor or sponsor
shall not exceed one year, and the agreement must be terminable without penalty
upon 60 days’ written notice by the program; (9) any other agreement,
arrangement or transaction, proposed or contemplated, may be restricted in the
discretion of the state regulatory agency if it would be considered unfair to
the participants in the program; and (10) a program may not engage in the
practice of “pyramiding,” defined as a method of using all or a part of an
unrealized program in a
78
commodity
contract position to provide margin for additional commodity contracts of the
same or related commodities.
Although
the following conflicts of interest are present in the operation of the trust,
the managing owner does not believe that they are likely to have a material
adverse effect on the trust’s operations or performance.
The
Managing Owner
The
managing owner and its affiliates are the primary service providers to the trust
and will remain so even if using other firms might be better for the
trust.
The
business terms of the trust — other than the management and incentive fees
payable to the trading advisors, which were individually negotiated between the
managing owner and each trading advisor — were not negotiated. The
managing owner unilaterally established these terms, balancing marketing and
performance considerations and its interest in maximizing the revenues generated
to the managing owner and its affiliates.
The
managing owner’s interest in maximizing its revenues could cause it to take
actions which are detrimental to the trust in order to increase the managing
owner’s income from the trust or decrease its costs in sponsoring the
trust. Also, because the managing owner does not have to compete with
third parties to provide services to the trust, there is no independent check on
the quality of such services.
The
Commodity Trading Advisors
General
The
trading advisors manage many accounts other than the
trust’s. Consequently, the trading advisors may devote fewer
resources to the trust’s trading than the trading advisors otherwise might, to
the detriment of the trust.
The
principals of the trading advisors may devote a substantial portion of their
business time to ventures unrelated to their respective trading advisor and
futures trading, and from time to time certain staff members of the trading
advisors may provide support services for those other business
ventures. Those principals and others who supervise and manage the
trading advisors’ staff who support other business ventures have a conflict of
interest in allocating their time, and the time of certain staff members,
between their duties to their respective trading advisor and duties or
commitments involving such other business ventures. The trust may be at a
competitive disadvantage to other accounts which are managed by advisors whose
principals devote their entire attention to futures trading.
Financial
Incentives to Disfavor the Trust
If the
trust has losses, the trading advisors may have an incentive to prefer other
clients because the trading advisors could begin to receive incentive
compensation from such clients without having to earn back any
losses.
Any
action which the trading advisors take to maximize their revenues by disfavoring
the trust, either in respect of the resources devoted to trading or the programs
selected for the trust, could adversely affect the trust’s performance, perhaps
to a material extent.
The
Selling Agents
The
selling agents, including the lead selling agent, will receive substantial
selling commissions on the sale of units. Consequently, the selling
agents have a conflict of interest in advising their clients whether
to
79
invest in
or sell the units. Additionally, the agreement between the trust and
the lead selling agent has not been negotiated at arm’s-length.
Eligible
selling agents also receive ongoing compensation based on the net asset value of
units sold by them which remain outstanding. Consequently, in
advising clients whether to redeem their units these selling agents will have a
conflict of interest between their interest in maximizing the compensation which
they will receive from the trust and giving their clients the financial advice
which the selling agents believe to be in such clients’ best
interests. The same conflict of interest extends to the wholesalers
and correspondents who distribute units.
The
Futures Broker
The
futures broker is an affiliate of the managing owner. As such, the
commissions charged have not been negotiated at arm’s-length.
Additionally, the managing owner has a conflict of interest in obtaining
favorable brokerage fees for the futures broker. The managing owner also
has a disincentive to replace R.J. O’Brien & Associates, LLC as futures
broker as they are affiliates. While the managing owner could obtain lower
commission rates from other futures brokers, it believes that the customer
agreement and other arrangements with the futures broker are fair, reasonable
and competitive.
The
terms of this offering were not subject to independent due
diligence.
The
trust, futures broker, and the managing owner and lead selling agent are
represented by a single counsel. Therefore, the terms of this
offering relating to those parties were not negotiated at
arm’s-length. In addition, no independent due diligence has been
conducted with respect to this offering.
The
selection of a trading advisor may benefit R.J. O’Brien Associates, LLC as
futures broker.
The
managing owner is responsible for selecting and replacing, if necessary, each
trading advisor. However, since selecting trading advisors who engage in a high
volume of trades will increase commodity broker costs, without necessarily
increasing revenue, the managing owner has an incentive to select trading
advisors who trade less frequently.
Affiliates
of the managing owner, the trading advisors, and the futures broker may trade
for their own
accounts in competition with the trust.
The
managing owner does not trade futures, forwards, or options for its own account,
but officers, directors, and employees of the managing owner, futures broker,
and the trading advisors and their affiliates, principals, officers, directors,
and employees, may trade futures, forwards, and options for their own
proprietary accounts. Their trading records will not be available to
you. As a result, you will not be able to compare the performance of
their trading to the performance of the trust.
Fiduciary
Duty and Remedies
The
managing owner has a fiduciary responsibility for the safekeeping and use of all
funds and assets of the trust and the managing owner will not employ or permit
another to employ such funds or assets in any manner except for the exclusive
benefit of the trust. No unitholder may contract away the fiduciary
obligation owed to the unitholders by the managing owner under common
law.
In
evaluating the conflicts of interest, a prospective investor should be aware
that the managing owner has a responsibility to the unitholders to exercise good
faith and fairness in all dealings affecting the trust. If a
unitholder believes that the managing owner has violated its fiduciary duty to
the unitholders, such unitholder may seek legal relief individually or on behalf
of the trust under applicable laws to recover damages from or
80
require
an accounting by the managing owner. The Ninth Amended and Restated
Declaration and Agreement of Trust is governed by Delaware law, and any breach
of the managing owner’s fiduciary duty under the Ninth Amended and Restated
Declaration and Agreement of Trust will generally be governed by Delaware
law. The managing owner may assert as a defense to claims of breach
of fiduciary duty that the conflicts of interest and fees payable to the
managing owner have been disclosed to you in the prospectus. See
“Conflicts of Interest” beginning on page 78.
The
duties of the commodity trading advisors are set forth in the trading advisory
agreements with the trust and the managing owner. For a summary of
such agreements, please see “Trading Advisory Agreements” beginning on page
32.
The
duties of the selling agents are set forth in the Second Amended and Restated
Selling Agreement, as amended (which we refer to herein as the lead selling
agreement), among the trust, the managing owner, and the lead selling agent, and
the additional selling agent agreements between the lead selling agent and each
additional selling agent. Under the lead selling agreement, the lead
selling agent agrees that it will use its best efforts to retain qualified
additional selling agents. The lead selling agent also agrees that it
will comply fully with all applicable laws and regulations, and the rules,
policy statements, and interpretations of FINRA, the SEC, the CFTC, state
securities administrators, and any other regulatory or self-regulatory body in
connection with appointment of the additional selling agents. Under
the lead selling agreement, the managing owner, and not the trust, will
indemnify the lead selling agent and the additional selling agents against,
among other things, any losses arising out of any material misstatement or
omission in this prospectus, and the lead selling agent agrees to indemnify the
trust, the managing owner and their affiliates for any loss arising out of a
misstatement or omission in this prospectus regarding the lead selling agent
that was furnished or approved by them or arising out of the actions or
capacities of the lead selling agent or any additional selling agent in
connection with the services they render pursuant to their respective
agreements.
Under the
additional selling agent agreements, the additional selling agents agree to use
their reasonable efforts to procure subscriptions for units by investors who
satisfy the trust’s suitability requirements. The additional selling
agents also agree that they will comply fully with all applicable federal and
state securities and commodities laws, including the requirements, rules, policy
statements, and interpretations of the SEC, the CFTC, FINRA, the securities and
Blue Sky laws of the jurisdictions in which they solicit subscriptions, and the
securities and commodities exchanges and other governmental and self-regulatory
authorities and organizations having jurisdiction over it or the
units. Under the additional selling agent agreements, the lead
selling agent, and not the trust or managing owner, will indemnify the
additional selling agents and their controlling persons for losses arising out
of material misstatements or omissions in this prospectus, and the additional
selling agents will indemnify the trust, the managing owner, the lead selling
agent and their controlling persons for any losses arising out of a material
breach of the additional selling agent agreements by the additional selling
agents.
The
Trust and the Trustee
Principal
Office; Location of Records; Reports to Unitholders
The trust
is organized under the Delaware Statutory Trust Act. The trust is
administered by the managing owner, whose office is located at 222 South
Riverside Plaza, Suite 900, Chicago, Illinois 60606 (telephone: (312)
373-5000).
The
records of the trust, including a list of the unitholders and their addresses,
is located at the foregoing address, and available for inspection and copying
(upon payment of reasonable reproduction costs) by unitholders or their
representatives during regular business hours as provided in the Ninth Amended
and Restated Declaration and Agreement of Trust. To the extent
permitted by law, a unitholder may also request a copy of the list of
unitholders and their addresses by mailing to the managing owner such request,
along with payment of reasonable reproduction and mailing costs and a written
statement that the information contained
81
therein
will not be used for commercial purposes, as described in Section 20(c) of the
Ninth Amended and Restated Declaration and Agreement of Trust. The
managing owner will maintain and preserve the books and records of the trust,
including records of the information used to determine that an investment in the
trust is suitable and appropriate for each investor, for a period of not less
than six years. The managing owner may cause the trust to retain the
services of an administrator to assist the managing owner in fulfilling its
obligations to the trust. The managing owner may also engage transfer
agents, custodians, and other agents for the trust.
The
managing owner will provide the following reports with respect to the trust to
all unitholders: monthly statements of account as of the close of each calendar
month in accordance with the rules and regulations of the CFTC; annual reports
containing audited financial statements certified by an independent public
accountant in compliance with the rules and regulations of the CFTC; and any
other information that the CFTC, NFA or the SEC may require from time to
time.
Certain
Aspects of the Trust
Under the
Delaware Statutory Trust Act, unitholders (in their capacities as beneficial
owners (including the managing owner, except to the extent otherwise provided
herein)) are entitled to the same limitation on personal liability as
stockholders in a private corporation for profit organized under the laws of the
State of Delaware. Prospective investors should not anticipate any
legal or practical protection under the Delaware Statutory Trust Act greater
than those available to stockholders of such a corporation. A number
of states do not have business trust statutes such as that under which the trust
has been formed in the State of Delaware. It is possible, although
unlikely, that a court in such a state could hold that, due to the absence of
any statutory provision to the contrary in such jurisdiction, investors in the
trust, although entitled under Delaware laws to the same limitation on personal
liability as stockholders, are not so entitled in such state. The
trust is governed by the Ninth Amended and Restated Declaration and Agreement of
Trust, which is attached to this prospectus as Exhibit A.
The trust
shall indemnify, to the full extent permitted by law, to the extent of the
trust’s assets, each unitholder (excluding the managing owner) against any
claims of liability asserted against such unitholder solely because it is a
beneficial owner of the trust (other than for certain taxes for which such
unitholder may be liable under the Ninth Amended and Restated Declaration and
Agreement of Trust). Every written note, bond, contract, instrument,
certificate or undertaking made or issued by the managing owner shall give
notice to the effect that the same was executed or made by or on behalf of the
trust and that the obligations of such instrument are not binding upon the
unitholders individually but are binding only upon the assets and property of
the trust, and no resort shall be had to the unitholders’ personal property for
satisfaction of any obligation or claim thereunder.
No
special custody arrangements are applicable to the trust which would not be
applicable to a limited partnership, and the existence of a trustee should not
be taken as an indication of any additional level of management or supervision
over the trust. To the greatest extent permissible under Delaware
law, the trustee acts in an entirely passive role, delegating all authority over
the operation of the trust to the managing owner. The managing owner
is the functional equivalent of the general partner in a limited
partnership.
The
Trustee
Wilmington
Trust Company, a Delaware banking corporation, is the sole trustee of the
trust. The trustee’s principal offices are located at Rodney Square
North, 1100 North Market Street, Wilmington, Delaware 19890-0001. The
trustee is unaffiliated with either the managing owner or the selling
agents. The trustee’s duties and liabilities with respect to the
offering of the units and the administration of the trust are limited to its
express obligations under the Ninth Amended and Restated Declaration and
Agreement of Trust.
82
The
rights and duties of the trustee, the managing owner and the unitholders are
governed by the provisions of the Delaware Statutory Trust Act and by the Ninth
Amended and Restated Declaration and Agreement of Trust.
The
trustee serves as the trust’s sole trustee in the State of
Delaware. The trustee will accept service of legal process on the
trust in the State of Delaware and will make certain filings under the Delaware
Statutory Trust Act. The trustee does not owe any other duties to the
trust, the managing owner or the unitholders. The trustee is
permitted to resign upon at least 60 days’ notice to the trust, provided that
any such resignation will not be effective until a successor trustee is
appointed by the managing owner. The Ninth Amended and Restated
Declaration and Agreement of Trust provides that the trustee is compensated by
the trust, and is indemnified by the managing owner against any expenses it
incurs relating to or arising out of the formation, operation or termination of
the trust or the performance of its duties pursuant to the Ninth Amended and
Restated Declaration and Agreement of Trust, except to the extent that such
expenses result from the gross negligence or willful misconduct of the
trustee. The managing owner has the discretion to replace the
trustee.
Only the
managing owner has signed the registration statement of which this prospectus is
a part, and only the assets of the trust and the managing owner are subject to
issuer liability under the federal securities laws for the information contained
in this prospectus and under federal and state laws with respect to the issuance
and sale of the units. Under such laws, neither the trustee, either
in its capacity as trustee or in its individual capacity, nor any director,
officer or controlling person of the trustee is, or has any liability as, the
issuer or a director, officer or controlling person of the issuer of the
units. The trustee’s liability in connection with the issuance and
sale of the units is limited solely to the express obligations of the trustee
set forth in the Ninth Amended and Restated Declaration and Agreement of
Trust.
Under the
Ninth Amended and Restated Declaration and Agreement of Trust, the trustee has
delegated to the managing owner the exclusive management and control of all
aspects of the business of the trust. The trustee has no duty or
liability to supervise or monitor the performance of the managing owner, nor
shall the trustee have any liability for the acts or omissions of the managing
owner. In addition, the managing owner has been designated as the
“tax matters partner” of the trust for purposes of the Internal Revenue Code of
1986, as amended (the “Code”). The unitholders have no voice in the
operations of the trust, other than certain limited voting rights as set forth
in the Ninth Amended and Restated Declaration and Agreement of
Trust. In the course of its management, the managing owner may, in
its sole and absolute discretion, retain such persons, including an affiliate or
affiliates of the managing owner, as the managing owner deems necessary for the
efficient operation of the trust.
The
trust’s Ninth Amended and Restated Declaration and Agreement of Trust
effectively gives the managing owner full control over the management of the
trust. Unitholders have no voice in its operations. In
addition, the managing owner is specifically authorized to engage in the
transactions described herein (including those involving affiliates of the
managing owner), and is exculpated and indemnified by the trust against claims
sustained in connection with the trust, provided that such claims were not the
result of negligence or misconduct and that the managing owner determined that
such conduct was in the best interests of the trust.
Although
unitholders have no right to participate in the control or management of the
trust, they are entitled to: (i) vote on a variety of different matters;
(ii) receive annual audited financial statements, timely tax information,
and such other annual and monthly information as the CFTC may require;
(iii) inspect the trust’s books and records; and (iv) redeem
units.
Unitholders’
voting rights extend to any proposed change in the Ninth Amended and Restated
Declaration and Agreement of Trust which would adversely affect them, as well as
to their right to terminate the trust’s contracts with affiliates of the
managing owner. Unitholders also have the right to call meetings of
the
83
trust in
order to permit unitholders to vote on any matter on which they are entitled to
vote, including the removal of the managing owner.
Unitholders
or their duly authorized representatives may inspect the trust’s books and
records, for any purpose reasonably related to their status as unitholders in
the trust, during normal business hours upon reasonable written notice to the
managing owner. They may also obtain copies of such records upon
payment of reasonable reproduction costs; provided, however, that such
unitholders represent that the inspection and/or copies of such records will not
be for commercial purposes unrelated to such unitholders’ interest in the
trust.
The Ninth
Amended and Restated Declaration and Agreement of Trust contains restrictions on
the managing owner’s ability to raise brokerage fees, administrative fees and
other revenues received by the managing owner and its affiliates from the trust,
as well as certain other limitations on the various conflicts of interest to
which the managing owner and its affiliates is subject in operating the
trust.
The Ninth
Amended and Restated Declaration and Agreement of Trust provides for the
economic and tax allocations of the trust’s profit and loss. Economic
allocations are based on investors’ capital accounts, and the tax allocations
generally attempt to equalize tax and capital accounts by, for example, making a
priority allocation of taxable income to unitholders who redeem at a
profit.
A
unitholder may transfer or assign his or her units upon prior written notice to
the managing owner and subject to approval of the substitute unitholder; the
managing owner will provide consent when it is satisfied that the transfer
complies with applicable laws. An assignee not admitted to the trust
as a unitholder will have only limited rights to share the profits and capital
of the trust and a limited redemption right.
The
managing owner may amend the Ninth Amended and Restated Declaration and
Agreement of Trust in any manner not adverse to the unitholders without need of
obtaining their consent. These amendments can be for clarification of
inaccuracies or ambiguities, modifications in response to changes in tax code or
other regulations, or any other changes the managing owner deems advisable so
long as they do not change the basic investment policy or
structure.
The trust
has agreed to indemnify the managing owner and its affiliates, including the
directors and officers of the managing owner, for actions taken on behalf of the
trust, provided that the conduct of the managing owner or its affiliates (if
performing the duties of the managing owner within the scope of the managing
owner’s authority) was in the best interests of the trust and the conduct was
not the result of negligence or misconduct. Indemnification by the
trust for alleged violation of securities laws is only available if the
following conditions are satisfied:
1)
|
a
successful adjudication on the merits of each count alleged has been
obtained; or
|
2)
|
such
claims have been dismissed with prejudice on the merits by a court of
competent jurisdiction; or
|
3)
|
a
court of competent jurisdiction approves a settlement of the claims and
finds indemnification of the settlement and related costs should be made;
and
|
4)
|
in
the case of 3), the court has been advised of the position of the SEC, the
position of certain state securities divisions and the position of any
other state or applicable regulatory authority with respect to the issue
of indemnification for the
violations.
|
Insofar
as indemnification for liabilities arising under the Securities Act of 1933, as
amended, may be permitted to directors, officers or persons controlling the
trust pursuant to the foregoing provisions, the trust has been informed that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore
unenforceable.
84
The
following is a general summary of certain of the U.S. federal income tax aspects
of an investment in the trust for an investor who is either (i) a U.S. resident
or citizen, a domestic corporation, or a domestic estate or domestic trust
(each, a “U.S. Unitholder”) or (ii) a non-U.S. person that is either an
individual, a corporation, or an estate or trust (each, a “Non-U.S.
Unitholder”). This summary does not address the tax treatment of
units that are held by a partnership or an entity that is treated as a
partnership for U.S. federal income tax purposes, which tax treatment will
generally depend on the status of the partners in such
partnership. This summary is based upon the Code, the Treasury
regulations promulgated thereunder (the “Regulations”), and existing court and
IRS interpretation relating thereto, all as of the date hereof and any of which
could be changed at any time (possibly with retroactive effect). No
tax rulings have been or are anticipated to be requested from the Internal
Revenue Service (the “Service” or “IRS”) or other taxing authorities with
respect to any of the matters discussed herein. The tax
considerations relevant to a specific unitholder depend upon its particular
circumstances, and the following summary does not attempt to discuss all the
potential tax considerations that could be relevant to a prospective unitholder
with respect to the trust or its operations. A complete discussion of
all U.S. federal, state, local, and foreign tax aspects of an investment in the
trust is beyond the scope of this summary. Prospective investors are
urged to consult their own independent tax advisers regarding the tax
consequences of an investment in the trust.
The
Trust’s Tax Status
The
managing owner has made certain representations to Alston & Bird LLP
regarding the trust, and Alston & Bird LLP has relied on these
representations in issuing the opinion referred to below. Without
limiting the generality of the foregoing, the managing owner has represented to
Alston & Bird LLP that in each of its taxable years ended December 31, 1997
through December 31, 2009, at least 90% of the trust’s gross income has
consisted of “qualifying income” as defined in Section 7704 of the Code and the
Treasury Regulations promulgated thereunder, and at least 90% of the trust’s
gross income will consist of such qualifying income for the taxable year ending
December 31, 2010 and subsequent taxable years. Based on this
representation and on the other representations made by the managing owner, in
the opinion of Alston & Bird LLP (subject to the assumptions limitations and
qualifications set forth in that opinion), the trust will be classified as a
partnership for U.S. federal income tax purposes and will not be subject to tax
as a corporation under the provisions applicable to “publicly traded
partnerships.”
There can
be no assurance that the trust will satisfy this “qualifying income” test or
that the IRS will not assert that the trust should be classified as an
association or publicly traded partnership taxable as a
corporation. If it were determined that the trust was taxable as a
corporation (as a result of a material adverse change in facts or otherwise),
the taxable income of the trust would be subject to U.S. corporate income tax
rates, and distributions (other than certain redemptions) generally would be
treated as dividend income to the extent of the trust’s current or accumulated
earnings and profits, and unitholders would not be required to include profits,
or permitted to deduct losses of the trust.
The
following discussion assumes that the trust will be treated as a partnership and
will not be subject to tax as a corporation under the provisions applicable to
publicly traded partnerships for U.S. federal income tax
purposes. Consequently, the unitholders individually, not the trust
itself, are subject to tax on the income of the trust, as further described
below under “—Taxation of U.S. Unitholders on Profits or Losses of the
Trust.”
Taxation
of U.S. Unitholders on Profits or Losses of the Trust
As a
partnership, the trust is not itself subject to U.S. federal income
tax. Instead, each U.S. Unitholder must pay tax on his or her share
of the trust’s income and gains. Such share must be included each
year in a U.S. Unitholder’s taxable income whether or not such U.S. Unitholder
has redeemed units and whether or not the trust will has made distributions with
respect to its units (which the trust does not intend to do). In
addition, a U.S. Unitholder will be required to include in his income his share
of the trust’s interest income even if the net
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asset
value per unit has decreased and the trust has realized trading
losses. See “— Tax on Capital Gains and Losses; Interest Income,”
below.
A U.S.
Unitholder’s share of income, gains, losses, and expenses of the trust for U.S.
federal income tax purposes generally is determined by the allocations made
pursuant to the Ninth Amended and Restated Declaration and Agreement of Trust,
unless such items so allocated do not have “substantial economic effect” under
the Regulations and are not in accordance with the U.S. Unitholder’s interests
in the trust. It is not certain that the allocations required by the
Ninth Amended and Restated Declaration and Agreement of Trust when redemptions
of units occur generally will be respected for tax purposes. If such
tax allocations were challenged and not sustained, some or all of a redeeming
U.S. Unitholder’s capital gain or loss could be converted from short-term to
long-term and each remaining U.S. Unitholder’s share of the capital gain or loss
that is the subject of such allocations would be increased (solely for tax
purposes).
Limited
Deductibility of Trust Losses and Deductions
A U.S.
Unitholder may not deduct trust losses or deductions in excess of his or her tax
basis in his or her units as of year-end. Generally, a U.S.
Unitholder’s tax basis in his or her units is the amount paid for such units
reduced (but not below zero) by his or her share of any trust distributions,
losses and deductions, and increased by his or her share of the trust’s income
and gains.
Similarly,
a U.S. Unitholder that is subject to the “at risk” limitations (generally,
non-corporate taxpayers and closely held corporations) may not deduct losses of
the trust to the extent that they exceed the amount such U.S. Unitholder has “at
risk” with respect to such U.S. Unitholder’s interest in the trust at the end of
the year. The amount that a U.S. Unitholder has at risk will
generally be the same as such U.S. Unitholder’s adjusted basis as described
above, except that it will not include any amount that such U.S. Unitholder has
borrowed on a nonrecourse basis or from a person who has an interest in the
trust or a person related to such person. Losses denied under the
basis or at risk limitations are suspended and may be deducted in subsequent
years, subject to these and other applicable limitations.
The Code
contains rules designed to prevent the deduction of losses from “passive
activities” against income not derived from such activities, including income
from investment activities not constituting a trade or business, such as
interest and dividends (“Portfolio Income”) and salary. The trust’s
trading activities will not constitute a “passive activity” with the result that
income and gain derived from the trust’s trading activities will constitute
Portfolio Income or other income not from a passive activity.
Because
of the limitations imposed upon the deductibility of capital losses (see “— Tax
on Capital Gains and Losses; Interest Income” below), a U.S. Unitholder’s
distributive share of any net capital losses of the trust will not materially
reduce the U.S. federal income tax on his ordinary income.
Limited
Deductibility for Certain Expenses
The Code
provides that, for non-corporate taxpayers who itemize deductions when computing
taxable income, expenses of producing income, including investment advisory
fees, are to be aggregated with unreimbursed employee business expenses and
other expenses of producing income (collectively, the “Aggregate Investment
Expenses”), and the aggregate amount of such expenses will be deductible only to
the extent such amount exceeds 2% of a taxpayer’s adjusted gross
income. The managing owner does not intend to treat the operating
expenses of the trust, including management fees and incentive fees, as
“investment advisory fees” for U.S. federal tax purposes. The IRS
could contend, however, that some or all of the management fees and
incentive fees, as well as other ordinary expenses of the trust, constitute
“investment advisory fees.” If this contention were sustained, each
non-corporate U.S. Unitholder’s pro rata share of the amounts
characterized would be deductible only to the extent that such U.S. Unitholder’s
Aggregate Investment Expenses exceed 2% of such U.S. Unitholder’s adjusted gross
income and, when combined with certain other itemized deductions, exceed the
relevant phase-
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out
amounts (if any). In addition, such Aggregate Investment Expenses are
miscellaneous itemized deductions, which are not deductible by a non-corporate
taxpayer in calculating its alternative minimum tax liability.
PROSPECTIVE
INVESTORS MUST CONSULT THEIR OWN TAX ADVISERS CONCERNING THE FOREGOING
“INVESTMENT ADVISORY FEES” ISSUE, WHICH IS A MATTER OF UNCERTAINTY AND WHICH
COULD HAVE A MATERIAL IMPACT ON AN INVESTMENT IN THE TRUST.
Gain
or Loss on Section 1256 Contracts and Non-Section 1256 Contracts
The term
“Section 1256 Contracts” generally includes futures, futures options traded
on U.S. exchanges, certain foreign currency contracts, and stock index
options. The trust will acquire Section 1256
Contracts. Section 1256 Contracts that remain open at the end of
each year are treated for tax purposes as if such positions had been
sold. Accordingly, any economic gain or loss in a Section 1256
Contract generally must be recognized annually. The gain or loss on
Section 1256 Contracts is characterized as 40% short-term capital gain or
loss and 60% long-term capital gain or loss regardless of how long any given
position has been held. Non-U.S. exchange-traded futures and forwards
are generally non-Section 1256 Contracts. Gain or loss on
non-Section 1256 Contracts will be recognized when sold by the trust and
will be primarily short-term gain or loss.
Taxation
of Foreign Currency Transactions
Certain
of the trading activities of the trust will be “Section 988
transactions.” Section 988 transactions include entering into or
acquiring any forward contract, futures contract or similar instrument if the
amount paid or received is denominated in terms of a nonfunctional currency or
is determined by reference to the value of one or more nonfunctional
currencies. In general, foreign currency gain or loss on Section 988
transactions is characterized as ordinary income or loss except that gain or
loss on regulated futures contracts or non-equity options on foreign currencies
that are Section 1256 Contracts is characterized as capital gain or
loss. The trust has elected to be treated as a qualified fund (as
defined in Section 988(c)(1)(E)(iii) of the Code). Pursuant to such
election, gain or loss with respect to the trust’s Section 988 transactions
(other than foreign currency contracts which are Section 1256 Contracts) will be
short-term capital gain or loss. If the trust fails to meet the
requirements of electing qualified fund status in a taxable year, (i) a net loss
recognized by the trust in such taxable year with respect to all forward
contracts, futures contracts and options with respect to foreign currency trades
by the trust will be characterized as a capital loss, and (ii) a net gain
recognized by the trust in such taxable year with respect to certain contracts
will be characterized as ordinary income.
Trading
and Investing in Derivatives
The trust
will invest in and trade derivative instruments, the proper tax treatment of
which may not be entirely free from doubt. Unitholders will be required to treat
any such derivatives for U.S. federal income tax purposes in the same manner as
they are treated by the trust. In addition, the U.S. Treasury Department has
issued proposed regulations that affect the timing and character of contingent
non-periodic payments on notional principal contracts. If finalized in their
current form, these regulations could affect the tax treatment of payments on
derivatives treated as notional principal contracts. Potential investors should
consult their tax advisors regarding an investment in a partnership that invests
and trades in derivatives.
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Tax
on Capital Gains and Losses; Interest Income
As
described above, the trust’s trading generates 60% long-term capital gains or
losses and 40% short-term capital gains or losses from its Section 1256
Contracts and primarily short-term capital gain or loss from its
non-Section 1256 Contracts. Individuals pay tax on long-term
capital gains at a maximum rate of 15% through 2010 (this rate is currently
scheduled to increase to 20% for sales or exchanges on or after January 1,
2011). Short-term capital gains are subject to tax at the same rates
as ordinary income.
Individual
taxpayers may deduct capital losses only to the extent of their capital gains
plus $3,000. Corporations may deduct capital losses only against
capital gains. Accordingly, even if the trust incurs trading losses,
a U.S. Unitholder will be required to include in his or her income his or her
share of the trust’s interest income.
If an
individual taxpayer incurs a net capital loss for a year, he may elect to carry
back (up to three years) the portion of such loss which consists of a net loss
on Section 1256 Contracts. A taxpayer may deduct such losses
only against net capital gain for a carryback year to the extent that such gain
includes gains on Section 1256 Contracts. To the extent that a
taxpayer could not use such losses to offset gains on Section 1256
Contracts in a carryback year, the taxpayer may carry forward such losses
indefinitely as losses on Section 1256 Contracts.
Cash
Distributions and Redemptions of Units
Cash
received from the trust by a U.S. Unitholder as a distribution with respect to
such U.S. Unitholder’s interest in the trust or in redemption of less than all
of such interest generally is not reportable as taxable income by a U.S.
Unitholder, except as described below. Rather, such distribution
reduces (but not below zero) the total tax basis of all of the units held by the
U.S. Unitholder after the distribution or redemption. Any cash
distribution in excess of a U.S. Unitholder’s adjusted tax basis for such U.S.
Unitholder’s interest in the trust is taxable as gain from the sale or exchange
of such interest. Because the tax basis of a U.S. Unitholder who has
not redeemed all of such U.S. Unitholder’s units is not increased on account of
such U.S. Unitholder’s distributive share of the trust’s income until the end of
the trust’s taxable year, distributions during the taxable year could result in
taxable gain to a U.S. Unitholder even though no gain would result if the same
distributions were made at the end of the taxable year. Furthermore,
the share of the trust’s income allocable to such a U.S. Unitholder at the end
of the trust’s taxable year would also be includible in the U.S. Unitholder’s
taxable income and would increase such U.S. Unitholder’s tax basis in such U.S.
Unitholder’s remaining interest in the trust as of the end of such taxable
year.
Redemption
for cash of a U.S. Unitholder’s entire interest in the trust will result in the
recognition of gain or loss for U.S. federal income tax
purposes. Such gain or loss will be equal to the difference, if any,
between the amount of the cash distribution and the U.S. Unitholder’s adjusted
tax basis for such interest. Such gain generally will be long-term if
the U.S. Unitholder has held the units being redeemed for more than one year and
otherwise generally will be short-term. Under current law, long-term
capital gain of individuals is subject to tax at a rate of 15%, but such rate is
currently scheduled to increase to 20% after December 31, 2010.
Taxation
of Foreign Investors
A
Non-U.S. Unitholder generally is not subject to taxation by the United States on
capital gains from commodity or derivatives trading, provided that such Non-U.S.
Unitholder is not a dealer in stocks, securities, commodities or derivatives and
(in the case of an individual) does not spend more than 182 days in the United
States during his or her taxable year, and provided further, that such Non-U.S.
Unitholder is not engaged in a trade or business within the United States during
a taxable year to which income, gain, or loss is treated as “effectively
connected.” An investment in the trust should not, by itself, cause a
Non-U.S. Unitholder to be engaged in a trade or business within the United
States for the foregoing purposes, assuming that the trading activities of the
trust will be conducted as described in this prospectus. Pursuant to
a “safe harbor” in the Code,
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an
investment fund whose U.S. business activities consist solely of trading
commodities and derivatives for its own account should not be treated as engaged
in a trade or business within the United States provided that neither the
investor nor such investment fund is a dealer in stocks, securities, commodities
or derivatives and that the commodities traded are of a kind customarily dealt
in on an organized commodity exchange. The trust believes that its
investments normally will satisfy the safe harbor. If the contracts
traded by the trust in the future were not covered by the safe harbor, there is
a risk that the trust would be treated as engaged in a trade or business within
the United States. In the event that the trust were found to be
engaged in a United States trade or business, a Non-U.S. Unitholder would be
required to file a United States federal income tax return for such year and pay
tax at full United States rates on income that is effectively connected with
such trade or business. In the case of a Non-U.S. Unitholder that is
a corporation, an additional 30% “branch profits” tax might be
imposed. Furthermore, in such event, the trust would be required to
withhold taxes from the income or gain allocable to such a Non-U.S. Unitholder
under Section 1446 of the Code.
A
Non-U.S. Unitholder is not subject to United States tax on certain interest
income, including income attributable to (i) original issue discount on
Treasury bills having a maturity of 183 days or less or (ii) commercial
bank deposits, provided, in either case, that such Non-U.S. Unitholder is not
engaged in a trade or business within the United States during a taxable
year. Additionally, a Non-U.S. Unitholder, not engaged in a trade or
business within the United States, generally is not subject to United States tax
on interest income (other than certain so-called “contingent interest”)
attributable to obligations issued after July 18, 1984 that are in
registered form if the Non-U.S. Unitholder provides the trust with the
appropriate IRS Form W-8.
Unrelated
Business Taxable Income
Income
earned by the trust will not constitute “unrelated business taxable income”
under Section 511 of the Code to employee benefit plans and other tax-exempt
investors that purchase trust units, provided that no acquisition indebtedness
is incurred by such investors to purchase such units or by the trust to purchase
assets.
IRS
Audits of the Trust and Its Unitholders
The IRS
is required to audit trust-related items at the trust rather than the unitholder
level. The managing owner is the trust’s “tax matters partner” with
general authority to determine the trust’s responses to a tax audit of the
trust. If an audit of the trust results in an adjustment, all
unitholders may be required to pay additional taxes plus interest as well as
penalties and additions to tax.
The Code
and IRS regulations contain certain “reportable transaction” and “list
maintenance” requirements which could apply to the trust and the
unitholders. If such requirements did apply but were not complied
with, penalties could apply for noncompliance. Prospective
investors should consult with their tax advisers regarding the applicability of
these rules to their investment in the trust.
PROSPECTIVE
INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISERS BEFORE
Benefit
Plan Investors
General
The
following section is a summary of the material consequences under the Employee
Retirement Income Security Act of 1974, as amended (“ERISA”), and the Code,
which a fiduciary of an “employee benefit plan” as defined in ERISA or of a
“plan” as defined in Section 4975 of the Code (and including for this purpose,
any entity deemed to hold plan assets) should consider before deciding to invest
any of such plan’s assets in the
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trust. The
following summary is not intended to be complete, but only to address certain
questions under ERISA and the Code that are likely to be raised by the plan
fiduciary’s own counsel.
ERISA and
Section 4975 of the Code together impose restrictions on plans or accounts of
various types which provide retirement benefits or welfare benefits to an
individual or to an employer’s employees and their
beneficiaries. These plans and accounts include, but are not limited
to, corporate pension and profit sharing plans, “simplified employee pension
plans,” Keogh plans for self-employed individuals (including partners),
individual retirement accounts described in Section 408 of the Code and medical
benefit plans as well as entities deemed to hold the assets of these plans and
accounts, but generally do not include any plan maintained by a church or by a
state or local government (however, government plans may be subject to rules
similar to ERISA and the Code).
In
addition, ERISA requires that each plan fiduciary must give appropriate
consideration to the facts and circumstances that are relevant to an investment
in the trust, including the role that an investment in the trust plays in the
plan’s overall investment portfolio. Therefore, fiduciaries of ERISA
plans, before deciding to invest in the trust, must be satisfied
that:
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·
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an
investment in the trust is consistent with their fiduciary obligations
under ERISA;
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an
investment in the trust is a prudent investment for the plan in accordance
with Section 404(a)(1)(B) of
ERISA;
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an
investment in the trust complies with the requirements under Section
404((a)(1)(C) of ERISA that plan investments be diversified so as to
minimize the risk of large losses;
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an
investment in the trust is made in accordance with the documents and
instruments governing the plan, including the plan’s investment policy,
and in accordance with the terms of the trust;
and
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an
investment in the trust will not constitute a prohibited transaction under
Section 406 of ERISA or Section 4975 of the
Code.
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“Plan
Assets”
The
purchase of units by a plan raises the issue of whether that purchase will
cause, for purposes of Title I of ERISA and subject to Section 4975 of the Code,
the underlying assets of the trust to be considered to constitute assets of such
plan. A regulation issued under ERISA contains rules for determining when an
investment by a plan in an equity interest of an entity will result in the
underlying assets of such entity being considered assets of such plan for
purposes of ERISA and Section 4975 of the Code (i.e., “plan assets”). Those
rules provide that assets of an entity will not be considered assets of a plan
which purchases an equity interest in the entity if certain exceptions apply,
including an exception applicable if the equity interest purchased is a
“publicly-offered security.” A publicly-offered security is a security that
is:
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freely
transferable;
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part
of a class of securities that is owned by 100 or more investors
independent of the issuer and of one another by the conclusion of the
offering; and
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either
is (a) part of a class of securities registered under section
12(b) or 12(g) of the Securities Exchange Act of 1934 or
(b) sold to the plan as part of an offering of securities to the
public pursuant to an effective registration statement under the
Securities Act of 1933, if the class of securities of which the security
is a part is registered under the Securities Exchange Act of 1934 within
120 days, or such later time as may be allowed by the Securities and
Exchange Commission, after the end of the fiscal year of the issuer during
which the offering of the securities to the public
occurred.
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90
The units
are expected to qualify as a “publicly-offered security” pursuant to the
foregoing rules. However, because of the facts and
circumstances nature of the “freely transferable” determination, there can be no
absolute assurance that the “publicly-offered security” exception is met or will
continue to be met.
Ineligible
Purchasers
Units may
not be purchased with the assets of a plan if the managing owner, the trust, any
selling agent, any clearing broker or any of their respective affiliates or any
of their respective agents or employees: (1) has investment discretion with
respect to the investment of the assets of such plan to be invested in the
units; (2) has authority or responsibility to give or regularly gives
investment advice with respect to such plan assets, for a fee, and pursuant to
an agreement or understanding that the advice will serve as a primary basis for
investment decisions with respect to the plan assets and that the advice will be
based on the particular investment needs of the plan; or (3) is an employer
maintaining or contributing to the plan, except as is otherwise permissible
under ERISA and Section 4975 of the Code. A party that is described in clause
(1) or (2) of the preceding sentence is a fiduciary under ERISA and
the Code with respect to the plan, and any such purchase might result in a
“prohibited transaction” under ERISA and the Code.
Except as
otherwise set forth, the foregoing statements regarding the consequences under
ERISA and the Code of an investment in the trust are based on the provisions of
the Code and ERISA as currently in effect, and the existing administrative and
judicial interpretations thereunder. No assurance can be given that
administrative, judicial or legislative changes will not occur that will not
make the foregoing statements incorrect or incomplete.
Acceptance
of subscriptions on behalf of plans is in no respect a representation by the
trust, the managing owner, any selling agent or any other party related to the
trust that this investment meets some or all of the relevant legal requirements
with respect to investments by any particular plan or that this investment is
appropriate for any particular plan. The person with investment
discretion should consult with his or her financial and legal advisors as to the
propriety of an investment in the trust in light of the circumstances of the
particular plan and current tax law.
Reporting
and Disclosure
All ERISA
plans subject to Title I of ERISA, or Title I Plans, are required to file annual
reports on Form 5500 with the U.S. Department of Labor (“DOL”) setting forth,
among other things, the fair market value of all plan assets as of the close of
the plan’s fiscal year and certain information regarding direct and indirect
compensation payable to persons who are deemed to be direct or indirect service
providers to investing Title I Plans. For purposes of the direct and
indirect compensation reporting requirements under Schedule C of Form 5500, the
disclosures in this prospectus are intended, to the extent permitted under
applicable DOL guidance, to satisfy the alternative reporting option for
“eligible indirect compensation,” in addition to serving the other purposes for
which this prospectus was created. Filing the annual report with DOL is
the responsibility of the Title I Plan sponsor.
Plan
of Distribution
Subscription
Procedure
Units are
offered at net asset value as of the close of business on the last business day
of each calendar month. The minimum initial investment is $5,000;
$2,000 for trustees or custodians of eligible employee benefit plans and
individual retirement accounts. Subscriptions in excess of these
minimums are permitted in $100 increments. Additional subscriptions
by existing unitholders are permitted in $1,000 minimums with $100
increments. Units are sold in fractions calculated to five decimal
places.
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In order
to invest in Class A or Class B units, an investor must complete, execute and
deliver to a selling agent an original of the corresponding Subscription
Agreement and Power of Attorney Signature Page which accompanies this
prospectus, together with a check for the amount of his or her
subscription. Pending investment in the units, subscriptions will be
held in a subscription account at JP Morgan Chase. Checks should be
made payable to “RJO GLOBAL TRUST SUBSCRIPTIONS,” and will be transmitted to the
escrow agent by noon of the second business day after receipt by the managing
owner.
Subscription
payments by clients of certain selling agents may be made by authorizing the
selling agents to debit a subscriber’s customer securities account with the
amount of the subscription. When a subscriber authorizes such a
debit, the subscriber will be required to have the amount of his or her
subscription payment on deposit in his or her account when the subscription is
submitted. The account will be debited, and amounts so debited will
be transmitted directly to JP Morgan Chase by such selling agent. The
managing owner will determine, in its sole discretion, whether to accept or
reject a subscription in whole or in part. Such determination is made
within five business days after the receipt of a subscription by the managing
owner. The managing owner will send each subscriber whose
subscription for units has been accepted a confirmation of such
acceptance. The managing owner and each selling agent will make every
reasonable effort to determine that the investment is suitable and appropriate
for each investor based on information provided by such investor regarding the
investor’s financial situation and investment objectives. Relevant
information for this purpose will include at least the prospective investor’s
age, investment objectives, investment experience, income, net worth, financial
situation, other investments, as well as other pertinent factors.
Subscription
documents must be received no later than the fifth business day prior to the
month-end of investment (including the last business day of the month) in order
to be accepted as of the last day of the month.
Subscription
funds that are accepted are invested in short-term United States Treasury bills
or comparable authorized instruments while held in escrow pending investment in
the units and will earn interest at the applicable rates paid on these
instruments. Interest actually earned on subscriptions while held in
escrow will be invested in the trust.
No fees
are charged on any subscriptions while held in escrow. Subscribers
are notified prior to any return of their subscriptions, and the amounts
returned to them shall in no event be reduced by any deductions for fees or
expenses.
Subscriptions,
if rejected, will be promptly returned to investors directly or, if applicable,
to the appropriate selling agent for credit to an investor’s customer securities
account.
Subscribers’
Representations and Warranties
By
executing a Subscription Agreement and Power of Attorney Signature Page, such
subscriber is representing and warranting, among other things, that: (i) the
subscriber is of legal age to execute and deliver the Subscription Agreement and
Power of Attorney and has full power and authority to do so; (ii) the subscriber
acknowledges “Exhibit B — Subscription Requirements” of this prospectus and
meets or exceeds the applicable suitability criteria of net worth and annual
income set forth therein; and (iii) the subscriber has received a copy of the
final prospectus. These representations and warranties may be used by
the managing owner or others against a subscriber in the event that the
subscriber were to take a position inconsistent therewith. No prospective subscriber who is not
prepared to make such representations and warranties, and accept the terms,
should consider investing in the units.
The
Selling Agents
92
each
additional selling agent. The managing owner will pay the initial
selling commission to the additional selling agents at the time of sale and will
be reimbursed by the trust at a rate of 1/12th of 2.0%
of the net asset value of each Class A unit on a monthly basis until the earlier
of: (i) such time as the managing owner has been reimbursed up to 2.0% of the
initial net asset value of the Class A units sold or (ii) such time as the Class
A units have been held for 12 months. In addition, the managing owner
will cause ongoing compensation to be paid by the trust to selling agents in the
amount of 1/12th of 2.0%
of the average month-end net asset value per unit for all Class A units sold by
them which remain outstanding, following the month in which the managing owner
is no longer reimbursed by the trust for the selling commission it initially
paid. There is no selling commission paid with respect to Class B
units.
The lead
selling agent, an affiliate of the managing owner, serves as a wholesaler of the
trust by marketing to additional selling agents. The managing owner
will pay the lead selling agent 0.12% of the subscription price for the services
it will provide over the anticipated term of the offering of
units. Wholesaling services consist of an allocable portion of the
compensation payable to those employees of the managing owner who provide
wholesaling services on behalf of the lead selling agent, legal fees for
services provided to the lead selling agent, travel-related expenses, and office
overhead.
The
maximum amount of underwriting compensation paid to the lead selling agent, the
additional selling agents, and other entities for units sold pursuant to this
prospectus will not exceed 10% of the offering proceeds in accordance with FINRA
Rule 2310.
Lawyers
Alston
& Bird LLP, New York, New York, acts as counsel generally for the managing
owner and advises the managing owner with respect to its responsibilities as
managing owner of, and with respect to matters relating to, the
trust. In acting as counsel to the trust and the managing owner,
Alston & Bird LLP has not represented and will not represent investors in
the trust. No independent counsel has been retained to represent
investors in the trust. In assisting in the preparation of this
prospectus, Alston & Bird LLP has relied upon information provided to it by
the trust and the managing owner.
Accountants
The
consolidated statements of financial condition of RJO Global Trust, including
the condensed consolidated schedules of investments, as of December 31, 2009 and
2008, and the related consolidated statements of operations, and consolidated
statement of changes in unitholders’ capital for each of the three years in
the period ended December 31, 2009, have been audited by CF & Co., L.L.P.,
an independent registered public accounting firm, as stated in their reports,
which are incorporated by reference in this prospectus and elsewhere in the
registration statement. The financial statements of RJO Global Trust are
incorporated by reference.
As an
investor in the trust, the following applies to you. The managing
owner believes that protecting the privacy of your nonpublic personal
information (“Personal Information”) is of the utmost
importance. Personal Information is nonpublic information about you
that is personally identifiable and that the managing owner obtains in
connection with providing a financial product or service to you. For
example, Personal Information includes information regarding the value of your
investment in commodity pool(s) or hedge fund(s). This notice
describes the Personal Information that that managing owner collects about you,
and the managing owner’s treatment of that information.
· The
managing owner collects Personal Information about you from the following
sources:
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(i)
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Information
it receives from you in subscription agreements and related forms (for
example, name, address, Social Security number, birth date, assets,
income, and investment experience);
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(ii)
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Information
about your transactions with the managing owner, its affiliates, or
others (for example, account activity and balances);
and
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(iii)
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Information
the managing owner receives from a consumer reporting agency, such as your
credit history.
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· The
managing owner may disclose all of the Personal Information it collects about
its customers or former customers, as described above, as permitted by
law. In addition, the managing owner may disclose all of the Personal
Information it collects to companies that perform services on its behalf,
including selling agents. Otherwise, the managing owner does not
disclose any Personal Information it collects about its customers or former
customers to unaffiliated third parties (i.e., parties not within its
corporate family).
· The
managing owner may disclose the name, address, or other identifying information
relating solely to its transactions or experiences with its customers or former
customers, as well as other information it is permitted by law to share, among
companies within its corporate family.
· The
managing owner restricts access to Personal Information it collects about you to
its personnel who need to know that information in order to provide products or
services to you. The managing owner maintains physical, electronic
and procedural controls in keeping with federal standards to safeguard your
Personal Information.
· The
managing owner reserves the right to change this notice, and to apply changes to
information previously collected, as permitted by law. The managing
owner will inform you of any changes as required by law.
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94
PART
TWO
STATEMENT
OF ADDITIONAL INFORMATION
This
prospectus is in two parts: a Disclosure Document and a Statement of
Additional
Information. These
parts are bound together, and both contain important information.
The
trust is one type of managed futures fund. These types of investments
products offer, in varying degrees, the possibility of achieving substantial
capital appreciation as well as diversifying a portion of a traditional
portfolio. Managed futures funds may also incur substantial
losses. The purpose of this section is to provide prospective
investors a general overview of where the trust is positioned in the spectrum of
managed futures funds.
Managed
Futures Funds
A managed
futures fund is a professionally managed portfolio typically trading in a wide
range of markets through futures, forwards and options
contracts. These markets may include global currencies, interest
rates, energy, stock indices, metals and agricultural
commodities. Managed futures funds may trade either or both the short
or long side of the market, often on a 24-hour basis, and are generally riskier
and have more volatile performance than many other traditional
investments. However, managed futures investments offer a unique
return pattern when compared to traditional long-only equity or fixed income
investments. As a result, professional management can be an important
advantage in this highly complex and specialized investment area.
Not all
managed futures funds are the same. Like other investment products,
managed futures funds are designed with a variety of risk/reward
parameters. The variety of available managed futures funds matches a
wide range of individual investment objectives.
The
Different Types of Managed Futures Funds
Risk/reward
parameters of a managed futures fund may be modified by adjusting the number of
trading advisors, trading strategies and/or markets traded. The
increase of diversification in one or more of these categories is generally
expected to produce lower but more consistent returns.
Certain
managed futures funds are more aggressive than others. For example,
single-advisor, single-strategy funds are typically expected to have higher
profit potential as well as risk because of their dependence upon just one
advisor’s performance and, in many cases, a limited number of markets
traded. The returns in these types of managed futures funds often
fluctuate significantly from month to month.
The
performance volatility of single advisor funds may be reduced by a multi-advisor
approach. Multi-advisor funds typically have lower returns, but also
lower risk and volatility than single-advisor managed futures funds (although
more risk and volatility than many other investments). The trust is a
multi-advisor, multi-strategy investment.
Managed
Futures and the Asset Allocation Process
The
primary objective of an asset allocation process is to diversify a portfolio
into a variety of investment components. Each investment component
may respond differently to economic cycles and shifts in the financial
markets. Thus, each investment component contributes differently to a
portfolio’s overall performance.
95
A
traditional investment portfolio is invested in stocks, bonds and cash
equivalents. Adding “non-traditional” or “alternative” investments,
such as managed futures, to a traditional portfolio can be beneficial in the
asset allocation process. Because of its potential non-correlation
with the performance of stocks and bonds, the non-traditional component can, if
it outperforms either stocks or bonds, improve long-term returns and can also
help to reduce volatility of a portfolio.
Prospective
investors should carefully evaluate managed futures, weighing its return and
diversification potential against the risks, before
investing. Managed futures are speculative investments and are not
appropriate for everyone. There can be no assurance that these
investments will be profitable or will avoid losses.
Growth
in Futures Investments
There has
been a dramatic increase over the past 25 years in the volume of futures
contracts traded in general as well as the amount of assets invested in the
managed futures industry.
The first
chart below, “Futures Volume by Market Sector,” depicts the increased volume of
futures contracts traded by market sector from 1980 to 2009. The
second chart on the next page, “Growth in Managed Futures Industry,” illustrates
the substantial increase in the amount of assets invested in managed
futures. In 1980, the amount of assets in the managed futures
industry was estimated at approximately $300 million; by 2010, this estimate was
approximately $260 billion.
Futures
Volume by Market Sector
Source: Futures
Industry Association
The
futures volume figures and market sector distributions presented above include
both speculative and hedging transactions, as well as options on
futures. A significant portion of currency trading is done in the
forward rather than in the futures markets, and, accordingly, is not reflected
in the foregoing chart.
Growth
in Managed Futures Industry
96
The
assets categorized above as invested in managed futures are invested in a wide
range of different products, including single-advisor and multi-advisor funds,
“funds of funds,” “principal protection” pools (in which only a fraction of the
assets invested are committed to trading) and to individual managed accounts.
The
Role of Managed Futures in Your Portfolio
The
managing owner’s objective in sponsoring the trust on a multi-advisor platform
is to offer an investment which has the potential of achieving substantial
capital appreciation over time to those investors whose risk tolerance levels
can accept significant risk and expected volatility in
performance. If substantial losses can be avoided, of which there can
be no assurance, the managing owner believes that the trust has a reasonable
opportunity to generate significant profits over time, despite exhibiting
considerable intra-period volatility, by capitalizing on major price movements
when they do occur. If successful, the trust offers investors the
following potential advantages.
Access
to the Trading Advisors and the Trading Programs
By
investing in the trust, subscribers have the opportunity to place assets with
multiple experienced managed futures advisors.
Investment
Diversification
The
globalization of the world’s economy offers potentially valuable trading
opportunities, as major political and economic events continue to influence
world markets, at times dramatically. In recent years, the
futures
markets have expanded to include a wide array of innovative products to capture
potential profit opportunities that arise from volatility in interest rates,
significant fluctuations in the value of commodities and
97
currencies,
the consolidation of European currencies, fragility in world banking and credit
mechanisms and the growing interdependence among national
economies. Moreover, trading on the major exchanges in Chicago,
Frankfurt, London, New York, Paris, Singapore, Sydney and Tokyo has expanded and
gives managed futures investors access to international markets and global
diversification.
Unlike a
traditional diversified portfolio of stocks, bonds and real estate, the profit
potential of the trust does not depend upon favorable general economic
conditions and the trust is as likely to be profitable (or unprofitable) during
periods of declining stock, bond and real estate markets as at any other
time. In addition to the expected non-correlation in its performance
with the performance of the general equity and debt markets, the trust’s
flexibility to take either long or short positions, as opposed to traditional
portfolios which are typically heavily weighted towards the former, can be an
important advantage in times of economic uncertainty.
An
investor who is not prepared to spend substantial time trading in the futures
and forward markets may nevertheless participate in the commodities and
financial markets through investing in the trust, thereby obtaining potentially
valuable diversification from traditional investments such as a diversified
portfolio of stocks, bonds and real estate. By allocating a portion
of the risk segment of a traditional diversified portfolio to the trust, an
investor has the potential, if the trust is successful, to enhance the prospects
for superior performance of the overall portfolio as well as to reduce the
volatility of the portfolio over time and the dependence of such portfolio on
any single country’s economy.
Opportunity
to Profit in Declining as Well as in Rising Markets
The
futures markets offer the ability to trade either side of the
market. Unlike short selling in the securities markets, taking short
positions in the futures market (or buying a put option or selling a call
option) in anticipation of a drop in price can be accomplished without
additional restrictions or special margin requirements. Selling short
in the futures markets is no more difficult than establishing a long
position.
The
profit and loss potential of futures trading is not dependent upon economic
prosperity or interest rate or currency stability. Positive and
negative returns may be realized in both rising and declining
markets. It is potentially advantageous for investors to own assets
which can appreciate during a period of generally declining prices, financial
disruption or economic instability. Investors must realize, however,
that the trust is not specifically designed to appreciate in declining
markets. Rather, it is designed to perform independent of the
direction of stocks and bonds and the general economy.
The
Barclay B-Top 50 Index
In some instances in this statement of
additional information, we reference the Barclay B-Top 50 Index to represent the
performance of managed futures generally. The Barclay B-Top 50 Index
seeks to replicate the overall composition of the managed futures industry with
regard to trading style and overall market exposure. The Barclay
B-Top 50 Index employs a top-down approach in selecting its
constituents. The largest investable commodity trading advisor
programs, as measured by assets under management, are selected for inclusion in
the Barclay B-Top 50 Index. In each calendar year the selected
commodity trading advisors represent, in aggregate, no less than 50% of the
investable assets of the Barclay CTA Universe. To be included in the
Barclay B-Top 50 Index, the following criteria must be met:
|
·
|
Program
must have at least two years of trading
activity;
|
|
·
|
Program’s
commodity trading advisor must have at least three years of operating
history;
|
|
·
|
The
Barclay B-Top 50 Index’s portfolio will be equally weighted among the
selected programs at the beginning of each calendar year and will be
rebalanced annually.
|
Source: BarclayHedge
website.
98
The
biggest limitation of the Barclay B-Top 50 Index is that you cannot actually
invest in the index.
Non-Correlation
Managed
futures investments have often performed differently from stocks and
bonds. In addition, different types of alternative investments are
frequently non-correlated with each other. This creates the potential
to assemble a combination of alternative investments with the potential to
profit in different economic cycles and international markets, while reducing
the portfolio concentration of traditional long equity and debt
holdings.
Statistically,
investments with a correlation of 1.00 make or lose money at the same
time. Investments with a correlation of –1.00 always move in the
opposite direction. The following charts illustrate correlations
across investment styles and during certain market conditions. There
can be no assurance, however, that these patterns of correlation will continue
in the future.
The table
below provides an indication of the negative correlation and the positive
correlation attributes of managed futures, as represented by the Barclay B-Top
50 Index, as compared to the S&P 500® during
four different equity market phases.
Correlation
Study of S&P 500® vs.
Barclay B-Top 50 Index
January
1995 – October 2010
Period
|
Equity Market
Phase
|
Number of
Months
|
S&P 500®
Annualized
Return
|
Managed Futures
(Barclay B-Top 50)
Annualized Return
|
S&P 500® -
Barclay B-Top 50
Correlation
|
|||||||||||||
Jan
95 – Dec 99
|
Bullish
|
60 | 26.20 | % | 10.48 | % | 0.08 | |||||||||||
Jan
00 – Dec 02
|
Bearish
|
36 | (15.70 | )% | 7.96 | % | (0.51 | ) | ||||||||||
Jan
03 – Dec 07
|
Bullish
|
60 | 10.80 | % | 6.33 | % | 0.39 | |||||||||||
Jan
08 – Oct 10
|
Bearish
|
34 | (5.21 | )% | 4.35 | % | (0.27 | ) |
Annualized
return for managed futures is represented by the Barclay B-Top 50 Managed
Futures Index.
Source
for Barclay Annualized Return: Barclays Database
Source
for S&P 500® Total
Return Index: Standard and Poor’s
Futures
Markets and Trading Methods
The
Futures and Forward Markets
The
Commodity Futures Modernization Act of 2000 (“CFMA”) became effective in
December 2000 and substantially amended various laws relating to the trading of
futures and derivatives contracts. The following discussion describes
traditional futures trading and briefly describes the characteristics of new
exchanges permitted by the CFMA.
Futures
and Forward Contracts
Futures
contracts normally have standardized terms, such as size and delivery month, and
call for the future delivery of various commodities. These
contractual obligations may be satisfied either by taking or making physical
delivery or by making an offsetting sale or purchase of a futures
contract.
99
Prior to
the enactment of the CFMA, futures contracts could only be traded on exchanges
that were designated as “contract markets” by the CFTC. The CFMA
permits certain commodity contracts between sophisticated parties to be traded
“off exchange.” The CFMA permits several new categories of exchanges
to be created, each of which is subject to less regulation than traditional
CFTC-approved contract markets. Forward currency contracts are traded
off-exchange through banks or dealers. In such instances, the bank or
dealer generally acts as principal in the transaction and charges “bid-ask”
spreads.
Futures
and forward trading is a “zero-sum,” risk transfer economic
activity. For every gain there is an equal and offsetting
loss.
Exchange
of Futures for Physicals (“EFP”) Transactions
Although
futures contracts are normally entered into through competitive bidding and
offering on an exchange floor (or its electronic equivalent), most U.S.
exchanges allow futures contracts also to be established in a transaction known
as an exchange of futures for physicals (“EFP”). In an EFP
transaction where two parties engage in a cash sale of a commodity underlying a
futures contract, those same two parties are permitted to establish futures
positions of an equivalent quantity opposite to their cash
transaction. For example, a seller of a cash commodity would be
permitted to establish a long futures position of an equivalent quantity and the
buyer of the cash commodity would be permitted to establish a short futures
position of the equivalent commodity. In some futures markets, the
cash transaction upon which the EFP is based can be the reversal of a previously
entered into but unsettled cash transaction. In those markets,
because the cash transaction is essentially “transitory,” EFPs can serve as a
means for parties to enter into futures contracts at negotiated prices and at
other than during normal trading hours.
Hedgers
and Speculators
The two
broad classifications of persons who trade futures are “hedgers” and
“speculators.” Hedging is designed to minimize the losses that may
occur because of price changes, for example, between the time a merchandiser
contracts to sell a commodity and the time of delivery. The futures
and forward markets enable the hedger to shift the risk of price changes to the
speculator. The speculator risks capital with the hope of making
profits from such changes. Speculators, such as the trust, rarely
make or take delivery of the physical commodity but rather close out their
futures positions through offsetting futures contracts.
Exchanges;
Position and Daily Limits; Margins
Each of
the existing futures exchanges in the United States has an associated
“clearinghouse.” Once trades made between members of an exchange have
been cleared, each clearing broker looks only to the clearinghouse for all
payments in respect of such broker’s open positions. The
clearinghouse “guarantee” of performance on open positions does not run to
customers. If a member firm goes bankrupt, customers could lose
money.
The CFTC
and the United States exchanges have established “speculative position limits”
on the maximum positions that trades may hold or control in futures contracts on
certain commodities.
Most
United States futures exchanges limit the maximum change in futures prices
during any single trading day. Once the “daily limit” has been
reached, it becomes very difficult to execute trades. Because these
limits
apply on a day-to-day basis, they do not limit ultimate losses, but may reduce
or eliminate liquidity and could make it difficult for the trust to liquidate
unprofitable positions.
When a
position is established, “initial margin” is deposited. On most
futures exchanges, at the close of each trading day “variation margin,”
representing the unrealized gain or loss on the open positions, is either
credited to or debited from a trader’s account. If “variation margin”
payments cause a trader’s “initial margin”
100
to fall
below “maintenance margin” levels, a “margin call” is made, requiring the trader
to deposit additional margin or have his position closed out.
The
trust’s assets are traded on a number of foreign commodities
exchanges. Foreign commodity exchanges differ in certain respects
from their United States counterparts and are not regulated by any United States
agency.
Trading
Methods
Managed
futures strategies are generally classified as either (i) systematic or
discretionary; and (ii) technical or fundamental.
Systematic
and Discretionary Trading Approaches
A
systematic trader relies on trading programs or models to generate trading
signals. Discretionary traders make trading decisions on the basis of
their own judgment.
Each
approach involves inherent risks. For example, systematic traders may
incur substantial losses when fundamental or unexpected forces dominate the
markets, while discretionary traders may overlook price trends which would have
been signaled by a system.
Technical
and Fundamental Analysis
Technical
analysis operates on the theory that market prices, momentum and patterns at any
given point in time reflect all known factors affecting the supply and demand
for a particular commodity. Consequently, technical analysis focuses
on market data as the most effective means of attempting to predict future
prices.
Fundamental
analysis, in contrast, focuses on the study of factors external to the markets,
for example: weather, the economy of a particular country, government policies,
domestic and foreign political and economic events, and changing trade
prospects. Fundamental analysis assumes that markets are imperfect
and that market mispricings can be identified.
Trend-Following
Trend-following
advisors try to take advantage of major price movements, in contrast with
traders who focus on making many small profits on short-term trades or through
relative value positions. Trend-following traders assume that most of
their trades will be unprofitable. They look for a few large profits from big
trends. During periods with no major price movements, a
trend-following trading program is likely to have big losses.
Risk
Control Techniques
Trading
advisors often adopt risk management principles. Such principles
typically restrict the size of positions taken as well as establishing stop-loss
points at which losing positions are to be liquidated. However, no
risk control technique can assure that big losses will be avoided.
Interest
on Trust Assets
The trust
receives interest income on its assets. By the third business day of
each month, R.J. O’Brien & Associates, LLC credits the trust’s account
holding U.S. dollar deposits with interest equal to the average four-week
Treasury Bill rate. With respect to non-U.S. dollar deposits, the
rate of interest is equal to a rate of one-month LIBOR less 1.0%. The
interest earned on the trust’s assets can offset a portion, although at current
rates not all, of its routine costs. The trust’s interest income
represents a source of revenue entirely independent of its speculative futures
and forward trading, but is subject to the risk of trading
losses. Interest is currently
101
estimated
to be earned at a rate of 0.20% per annum.
Effective
October 6, 2010, the managing owner retained RJO Investment Management LLC, an
affiliate of the managing owner, to serve as a cash manager to the trust.
The trust’s assets will be held by Wells Fargo Bank, N.A. as
custodian. As of October 31, 2010, Wells Fargo Bank, N.A. held
approximately $30 million of the trust’s assets.
Small
Minimum Investment
Investors
in the trust are currently able to gain access to the trust for a minimum
investment of only $5,000; $2,000 in the case of eligible employee benefit plans
and individual retirement accounts. A small minimum investment
requirement makes the trust accessible to a wide range of investors and also
means that no investor must commit a significant amount of assets in order to
participate in the trust.
Limited
Liability
An
investor who opens an individual futures account is generally liable for all
losses incurred in such account, and may lose substantially more than such
investor committed to the account, particularly in light of the large positions
in relation to capital used in futures and forward trading. However,
a unitholder cannot lose more than his or her investment in the trust plus
undistributed profits. In the event the net asset value of a unit
decreases to less than 50% of the previous highest month-end net asset value per
unit as of the close of business on any day, the managing owner is required to
cause the trust to liquidate all open positions, suspend trading and declare a
special redemption date in accordance with the provisions in the Ninth Amended
and Restated Declaration and Agreement of Trust. Without limited
liability, it could be imprudent for an investor to participate in strategies
like those applied by the trust’s trading advisors where positions may be large
in relation to account equity.
Administrative
Convenience
The trust
is structured so as to substantially eliminate the administrative burden which
would otherwise be involved in unitholders engaging directly in futures and
forward trading. Unitholders receive monthly unaudited and annual
certified financial reports as well as all tax information relating to the trust
necessary for unitholders to complete their federal and state income tax
returns. The approximate daily net asset value per unit is available
by calling your financial advisor or the managing owner toll free at
(888) 292-9399.
Diversification
by Sector
The chart
below reflects the total markets and sectors traded by the eight trading
advisors. Re-allocations of the trust’s assets among these programs
and other manager programs may change from time to time. Investors
should not treat the trust as a means of participating in any one specific
sector. There is no way to predict which markets the trust will trade
or what its relative commitments to the different markets will be.
Trust
Sector Allocation as of October 2010
Financial
Exposure: 50.41%
Commodity
Exposure: 49.59%
102
PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
Trading
futures is speculative, involves substantial risk, and is not suitable for all
investors.
Diversification
by Holding Period
The chart
below reflects the approximate percentage of assets allocated by position
holding periods by the eight trading advisors. Re-allocations of the
trust’s assets among these programs and other manager programs may change the
distribution of holding periods from time to time. Investors should
not treat the trust as a means of participating in any one specific investment
horizon.
103
Diversified
Time Frames for Trust Assets
(Holding
Periods for Positions by Trading Advisors)
PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
Trading
futures is speculative, involves substantial risk, and is not suitable for all
investors.
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104
Diversification
by Investment Style
The chart
below reflects the approximate percentage of assets allocated by investment
style of the eight trading advisors. Re-allocations of the trust’s
assets among the trading advisors and any new advisor may change this allocation
from time to time. Investors should not treat the trust as a means of
participating in any one specific investment style.
Diversified
Investment Styles for Trust Assets
(Investment
Styles of Trading Advisors)
PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
Trading
futures is speculative, involves substantial risk, and is not suitable for all
investors.
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105
Correlation
Analysis between the Barclay B-Top 50 Index and the S&P 500®
(January
2005 through October 2010)
The
charts below show that the performance of the Barclay B-Top 50 Index may not
have been negatively correlated with the S&P 500®.
In fact, the Barclay B-Top 50 Index performed independently, in a statistical
sense, in the period shown. Out of the 70 months shown below in the
pie chart, the Barclay B-Top 50 Index frequently experienced the same
performance–loss or gain–as the S&P 500®
Index. However, as the pie chart shows, in 41.43%, or 29 of 70
months, Barclay B-Top 50 Index performance was in the opposite direction of the
S&P 500®.
PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
Trading
futures is speculative, involves substantial risk, and is not suitable for all
investors.
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106
Non-correlation
is not, however, negative correlation. The Barclay B-Top 50 Index’s
performance is not expected to be opposite, but rather unrelated, to the
performance of stocks and bonds. For example, as shown in the graphs
below, during certain periods, the Barclay B-Top 50 Index would have
demonstrated a strong degree of positive correlations to the S&P 500® Stock
Index and the Barclay Capital Government Bond Index (BCGI).
Correlation
Analysis between the Barclay B-Top 50 Index and the BCGI
(January
2005 through October 2010)
The chart
below shows that the performance of the Barclay B-Top 50 Index would not have
been negatively correlated with the BCGI. In fact, the Barclay B-Top
50 Index performed independently, in a statistical sense, during the period
shown. As the pie chart shows, 58.57% or 41 out of 70 months, Barclay
B-Top 50 Index performance would have been in the opposite direction of the
BCGI.
PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
Trading
futures is speculative, involves substantial risk, and is not suitable for all
investors.
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107
Worst
Decline in Equity Indexes (June 1989 – October 2010)
Managed
Futures Performance during Worst Drawdown (WDD) periods for Stocks
Managed Futures:
Barclay CTA Index
S&P
500® Total Return
Index
Nasdaq Composite
Index
International
Stocks & Morgan Stanley International Europe, Australasia and Far East
(EAFE)
Source: Barclay
Trading Group, Ltd.
PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
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108
The
following chart compares the monthly performance of the Barclay B-Top 50 Index
since January 2005 to the S&P 500® Stock
Index (assuming the reinvestment of all dividends) and a portfolio consisting of
10% of the Barclay B-Top 50 Index and 90% of the S&P 500® Stock
Index (assuming the reinvestment of all dividends).
Performance
Information of the Barclay B-Top 50 Index versus the
S&P
500Ò
Stock Index and a 10%/90% BTOP 50/S&P 500Ò
Weighted Portfolio
January
2005 through October 2010
Past
performance is not necessarily indicative of future results.
Graphic
comparisons of securities indices and the Barclay B-Top 50 Index, a managed
futures index, may not adequately reflect all differences between the securities
and futures markets or between passive and managed investments.
Neither
the managing owner nor its trading advisors recommend that any investor allocate
50% of his or her portfolio to managed futures.
109
Volatility
Volatility,
as measured by the standard deviation of returns, is a common investment
industry measure of risk. To understand how the Barclay B-Top 50
Index is positioned in the marketplace when comparing historical volatility
among other indices, “upside” and “downside” volatility must be
defined. Downside volatility is movement from the mean
downwards. Upside volatility is movement from the mean
upwards. In other words, downside volatility reflects the performance
below the average monthly return and upside volatility reflects performance
above the average monthly return. Overall volatility by itself is not
necessarily the only factor to evaluate when considering to invest.
Selected
Indices versus the S&P 500Ò
Stock Index
January
2005 – October 2010
Past
performance is not necessarily indicative of future results.
The
overall volatility is the standard deviation of all of the Barclay B-Top 50
Index’s actual returns from January 2005 through October 2010 for the Barclay
B-Top 50 Index and the indices shown above. The upside volatility for
the Barclay B-Top 50 Index and each of the indices shown in the chart above was
derived by taking the standard deviation of all the returns greater than the
mean for that specific product. The downside volatility for the
Barclay B-Top 50 Index and each of the indices shown in the chart above was
derived by taking the standard deviation of all the returns less than the mean
for that specific product. The mean is derived by calculating the
average of all of the monthly returns from January 2005 through October
2010. Standard deviation measures the variability of a probability
distribution and is widely used as a measure of risk. Figures
110
are annualized using the monthly rates of return on a compounded
basis from January 2005 through October 2010.
Efficient
Frontier
As discussed above and in Part One of
this two-part prospectus, by allocating a
portion of the risk segment of a traditional portfolio of stocks and bonds to
managed futures, an investor has the potential to enhance the prospects for
superior performance of an overall portfolio as well as to reduce
the volatility of
the portfolio over time.
The
following graph prepared by Liberty Funds Group and the managing owner
demonstrates the potential effects of adding managed futures, as represented by
the Barclay B-Top 50 Index, to a diversified stock portfolio, represented by the
S&P 500Ò
Stock Index. Adding managed futures has the potential to increase the
portfolio’s overall returns while decreasing the standard deviation of returns
(a common measure of risk). The graph was prepared using the
performance of the Barclay B-Top 50 Index for the period from January 2005
through October 2010.
The
following graph does not reflect the risk of the Barclay B-Top 50 Index
incurring sudden, major losses as the graph is based on statistical averages
over time.
Performance
of the Barclay B-Top 50 Index and the S&P 500Ò
Stock Index
January
2005 through October 2010
Source:
PerTrac
PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
111
Standard
deviation measures the variability of a probability distribution and is widely
used as a measure of risk. Figures are annualized using the monthly
rates of return of the Barclay B-Top 50 Index on a compounded basis for the
period from January 2005 through October 2010.
Each
point represents a 5% incremental allocation to managed futures, as represented
by the Barclay B-Top 50 Index, to a diversified stock portfolio, represented by
the S&P 500® Stock
Index.
“10% BTOP
50/90%S&P” represents the risk return profile of a hypothetical portfolio
with 10% of the assets invested in managed futures, as represented by the
Barclay B-Top 50 Index, and 90% in the S&P 500® Index.
S&P
500® is a trademark of The McGraw-Hill
Companies. The S&P 500® Index tracks the stock performance
of 500 U.S. companies across four industry groups. It is a
market-value weighted
index with each stock’s
weight in the index proportionate to its market value. The S&P
500® is a passively managed index that
is neither available for direct investment nor subject to advisory fees or other
expenses. Comparisons of actively managed investments to passive
indices have certain inherent material limitations. All data for
S&P 500® is obtained from PerTrac (a product
of Strategic Financial Solutions, LLC.(2008)) 1-775-851-5880
www.pertrac.com.
The
foregoing graph is provided for illustrative purposes
only. Prospective investors should note that neither the managing
owner nor the commodity trading advisors have managed any pools or accounts
consisting of the portfolio mixes shown in the above charts and that the charts
are presented only as an illustration of the potential advantage of adding a
managed futures component to a portfolio of stocks or a portfolio of stock and
bonds, not as a recommendation that any investor should allocate more than 10%
of his or her portfolio to managed futures. For a portfolio
consisting of managed futures, stocks and bonds to outperform a portfolio
consisting solely of stocks or of stocks and bonds, the managed futures
component itself must outperform stocks or bonds over the period being
measured. There can be no assurance that that will, in fact,
occur.
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Blank>
112
The
following graph prepared by Liberty Funds Group and the managing owner
demonstrates the potential effects of adding managed futures, as represented by
the Barclay B-Top 50 Index, to a diversified portfolio containing stocks,
represented by the S&P 500Ò
Stock Index, and bonds, represented by the BCGI. Adding managed
futures has the potential to increase the portfolio’s overall returns while
decreasing the standard deviation of returns (a common measure of
risk). The graph was prepared using the performance of the Barclay
B-Top 50 Index for the period from January 2005 through October
2010.
The
following graph does not reflect the risk of the Barclay B-Top 50 Index
incurring sudden, major losses as the graph is based on statistical averages
over time.
Performance
of the Barclay B-Top 50 Index, S&P 500Ò
Stock Index, and
Barclay
Capital Government Bond Index (BCGI)
January
2005 through October 2010
Source: PerTrac
PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
Standard
deviation measures the variability of a probability distribution and is widely
used as a measure of risk. Figures are annualized using the monthly
rates of return of the Barclay B-Top 50 Index on a compounded basis for the
period from January 2005 through October 2010.
Each
point represents a 5% incremental allocation to managed futures, as represented
by the Barclay B-Top 50 Index, to a diversified portfolio containing stocks,
represented by the S&P 500® Stock
Index, and bonds, represented by the Barclay Capital Government Bond
Index.
“54/36/10-BTOP
50” represents the hypothetical performance of a portfolio which has 54% of its
assets invested in the S&P 500® Index,
36% in bonds, as represented by the Barclay Capital Government Bond Index and
10% in the Barclay B-Top 50 Index.
S&P 500®
is a trademark of The McGraw-Hill Companies. The
S&P 500® Index tracks the
stock performance of 500 U.S. companies
113
across four industry
groups. It is a market-value weighted index with each
stock’s weight in the
index proportionate to its market value. The S&P 500® is a passively managed index that
is neither available for direct investment nor subject to advisory fees or other
expenses. Comparisons of actively managed
investments to passive indices have certain inherent material
limitations. All data for S&P 500® is obtained from PerTrac (a product
of Strategic Financial Solutions, LLC.(2008)) 1-775-851-5880
www.pertrac.com.
The
foregoing graph is provided for illustrative purposes
only. Prospective investors should note that neither the managing
owner nor the commodity trading advisors have managed any pools or accounts
consisting of the portfolio mixes shown in the above charts and that the charts
are presented only as an illustration of the potential advantage of adding a
managed futures component to a portfolio of stocks or a portfolio of stock and
bonds, not as a recommendation that any investor should allocate more than 10%
of his or her portfolio to managed futures. For a portfolio
consisting of managed futures, stocks and bonds to outperform a portfolio
consisting solely of stocks or of stocks and bonds, the managed futures
component itself must outperform stocks or bonds over the period being
measured. There can be no assurance that that will, in fact,
occur.
<Remainder of Page Intentionally Left
Blank>
114
RJO
GLOBAL TRUST
NINTH
AMENDED AND RESTATED
DECLARATION
AND AGREEMENT OF TRUST
Dated
as of September 1, 2010
RJO
GLOBAL TRUST
NINTH
AMENDED AND RESTATED
DECLARATION
AND AGREEMENT OF TRUST
TABLE
OF CONTENTS
Page
|
|||
1.
|
Definitions
|
1
|
|
2.
|
Declaration
of Trust
|
2
|
|
3.
|
The
Trustee
|
2
|
|
(a) Term;
Resignation
|
2
|
||
(b) Powers
|
2
|
||
(c) Compensation
and Expenses of the Trustee
|
3
|
||
(d) Indemnification
|
3
|
||
(e) Successor
Trustee
|
3
|
||
(f) Liability
of the Trustee
|
3
|
||
(g) Reliance
by the Trustee and the Managing Owner; Advice of Counsel
|
4
|
||
(h) Not
Part of Trust Estate
|
4
|
||
4.
|
Principal
Office
|
4
|
|
5.
|
Business
|
4
|
|
6.
|
Term,
Dissolution, Fiscal Year and Net Asset Value
|
5
|
|
(a) Term
|
5
|
||
(b) Dissolution
|
5
|
||
(c) Fiscal
Year
|
5
|
||
(d) Net
Asset Value
|
5
|
||
7.
|
Net
Worth of Managing Owner
|
6
|
|
8.
|
Capital
Contributions; Units; Managing Owner’s Liability
|
6
|
|
(a) Capital
Contributions; Units
|
6
|
||
(b) Managing
Owner’s Liability
|
6
|
||
9.
|
Allocation
of Profits and Losses
|
6
|
|
(a) Capital
Accounts and Allocations
|
6
|
||
(b) Allocation
of Profit and Loss for Federal Income Tax Purposes
|
6
|
||
(c) Expenses
|
8
|
||
(d) Limited
Liability of Unitholders
|
8
|
||
(e) Return
of Capital Contributions
|
8
|
||
10.
|
Management
of the Trust
|
8
|
|
(a) Authority
of the Managing Owner
|
8
|
||
(b) Fiduciary
Duties
|
9
|
||
(c) Loans;
Investments
|
9
|
||
(d) Certain
Conflicts of Interest Prohibited
|
9
|
||
(e) Certain
Agreements
|
9
|
||
(f) Prohibition
on “Pyramiding”
|
10
|
||
(g) Freedom
of Action
|
10
|
||
11.
|
Audits
and Reports to Unitholders
|
10
|
|
12.
|
Assignability
of Units
|
11
|
|
13.
|
Redemptions
|
11
|
|
14.
|
Offering
of Units
|
12
|
|
15.
|
Additional
Offerings
|
13
|
|
16.
|
Special
Power of Attorney
|
13
|
|
17.
|
Withdrawal
of a Unitholder
|
13
|
|
18.
|
Benefit
Plan Investors
|
14
|
A-i
TABLE
OF CONTENTS
Page
|
|||
19.
|
Standard
of Liability; Indemnification
|
14
|
|
(a) Standard
of Liability for the Managing Owner
|
14
|
||
(b) Indemnification
of the Managing Owner by the Trust
|
14
|
||
(c) Indemnification
by the Unitholders
|
15
|
||
20.
|
Amendments;
Meetings
|
15
|
|
(a) Amendments
with Consent of the Managing Owner
|
15
|
||
(b) Amendments
and Actions without Consent of the Managing Owner
|
15
|
||
(c) Meetings;
Other
|
16
|
||
(d) Consent
by Trustee
|
16
|
||
21.
|
Governing
Law
|
16
|
|
22.
|
Miscellaneous
|
16
|
|
(a) Notices
|
16
|
||
(b) Binding
Effect
|
16
|
||
(c) Captions
|
16
|
||
23.
|
Certain
Definitions
|
16
|
|
24.
|
No
Legal Title to Trust Estate
|
16
|
|
25.
|
Legal
Title
|
16
|
|
26.
|
Creditors
|
16
|
A-ii
RJO
GLOBAL TRUST
NINTH
AMENDED AND RESTATED
DECLARATION
AND AGREEMENT OF TRUST
This
NINTH AMENDED AND RESTATED DECLARATION AND AGREEMENT OF TRUST of RJO Global Trust is made
and entered into as of this 1st day
of September, 2010 by and among R.J. O’Brien Fund Management,
LLC, a Delaware limited liability corporation, as a managing owner, Wilmington Trust Company, a
Delaware banking corporation, as trustee, and each other party who shall execute
a counterpart of this Declaration and Agreement of Trust as an owner of a unit
of beneficial interest of the Trust or who becomes a party to this Declaration
and Agreement of Trust as a unitholder by execution of a Subscription Agreement
and Power of Attorney Signature Page or otherwise and who is shown in the books
and records of the Trust as a unitholder.
WITNESSETH:
WHEREAS,
the parties hereto desire to operate the Trust for the business and purpose of
issuing Units, the capital of which shall be used to engage in speculative
trading, buying, selling or otherwise acquiring, holding or disposing of futures
and forward contracts on currencies, interest rate, energy and agricultural
products, metals and stock indices, hybrid instruments, swaps, any rights
pertaining thereto and any options thereon or on physical commodities, with the
objective of capital appreciation through speculative trading, and to amend and
restate the Eighth Amended and Restated Declaration and Agreement of Trust of
the Trust in its entirety, except with respect to the First Amendment to the
Sixth Amended and Restated Declaration and Agreement of Trust. The
First Amendment to the Sixth Amended and Restated Declaration and Agreement of
Trust, which only pertains to investors in the Trust as of October 12, 2005 and
has no impact on investments made after such date, shall survive for its limited
purpose and shall be a part of the Ninth Amended and Restated Declaration and
Agreement of Trust.
NOW
THEREFORE, the parties hereto agree as follows:
1. Definitions.
“Act” means the Delaware
Statutory Trust Act, 12 Del. C. §§ 3801 et. seq.
“Advisor” means any Person who
for any consideration engages in the business of advising others, either
directly or indirectly, as to the value, purchase, or sale of Commodity
Contracts or commodity options.
“Affiliate” of a Person means,
subject to Section 19(b), (a) any Person directly or indirectly owning,
controlling or holding with power to vote 10% or more of the outstanding voting
securities of such Person; (b) any Person 10% or more of whose outstanding
voting securities are directly or indirectly owned, controlled or held with
power to vote, by such Person; (c) any Person, directly, or indirectly,
controlling, controlled by, or under common control of such Person; (d) any
officer, director or partner of such Person; or (e) if such Person is an
officer, director or partner, any Person for which such Person acts in any such
capacity.
“Brokerage Fee” has the
meaning set forth in Section 9(c).
“Capital Contributions” means
the total investment in the Trust by a Unitholder or by all Unitholders, as the
case may be.
“CFTC” means the Commodity
Futures Trading Commission.
“Code” means the Internal
Revenue Code of 1986, as amended.
“Commodity Broker” means any
Person who engages in the business of effecting transactions in Commodity
Contracts for the account of others or for his own account.
“Commodity Contract” means a
contract or option thereon providing for the delivery or receipt at a future
date of a specified amount and grade of a traded commodity at a specified price
and delivery point.
“Declaration and Agreement of
Trust” means this Ninth Amended and Restated Declaration and Agreement of
Trust of the Trust.
“ERISA” means the Employee
Retirement Income Security Act of 1974, as amended.
“Escrow Agent” means JP Morgan
Chase.
“Expenses” has the meaning set
forth in Section 3(d).
“Guidelines” mean the North
American Securities Administrators Association, Inc. Guidelines for the
Registration of Commodity Pool Programs.
“Indemnified Parties” has the
meaning set forth in Section 3(d).
“Managing Owner” means R.J.
O’Brien Fund Management, LLC, a Delaware limited liability corporation, the
managing owner of the Trust.
“Net Assets” has the meaning
set forth in Section 6(d).
A-1
“Net Asset Value per Unit” has
the meaning set forth in Section 6(d).
“Net Worth” means the excess
of total assets over total liabilities as determined by generally accepted
accounting principles.
“Organizational and Initial Offering
Costs” means all expenses incurred by the Trust in connection with and in
preparing the Trust for registration and subsequently offering and distributing
it to the public, including, but not limited to, total underwriting and
brokerage discounts and commissions (including fees of the underwriter's
attorneys), expenses for printing, engraving, mailing, salaries of employees
while engaged in sales activity, charges of transfer agents, registrars,
trustees, escrow holders, depositories, experts, expenses of qualification of
the sale of the Units under federal and state law, including taxes and fees,
accountants’ and attorneys’ fees.
“Person” means any natural
Person, partnership, corporation, association or other legal
entity.
“Pit Brokerage Fee” shall
include floor brokerage, clearing fees, National Futures Association fees, and
exchange fees.
“Plan” has the meaning set
forth in Section 18.
“Plan Fiduciary” has the
meaning set forth in Section 18.
“Program Broker” means a
Commodity Broker that effects trades in Commodity Contracts for the account of
the Trust.
“Prospectus” means the
prospectus relating to the public offering of the Units, as supplemented or
updated from time to time.
“Pyramiding” means a method of
using all or a part of an unrealized profit in a Commodity Contract position to
provide margin for any additional Commodity Contracts of the same or related
commodities.
“Trust” means the RJO Global
Trust, a Delaware statutory trust formed and operated for the purpose of
investing in Commodity Contracts.
“Trust Estate” has the meaning
set forth in Section 3(d).
“Trustee” means Wilmington
Trust Company, a Delaware banking corporation, the trustee of the Trust, acting
not in its individual capacity but solely as the trustee of the Trust under the
Declaration and Agreement of Trust.
“Unit” means a unit of
beneficial interest of the Trust.
“Unitholder” means a party to
this Declaration and Agreement of Trust by execution of a Subscription Agreement
and Power of Attorney Signature Page or otherwise and who is shown in the books
and records of the Trust as holding a Unit.
“Valuation Date” means the
date as of which the Net Assets of the Trust are determined.
2. Declaration
of Trust.
The
Trustee hereby declares that it holds the investments in the Trust in trust upon
and subject to the conditions set forth herein for the use and benefit of the
Unitholders. It is the intention of the parties hereto that the Trust
shall be a statutory trust under the Act, and that this Declaration and
Agreement of Trust shall constitute the governing instrument of the
Trust. The Trustee has filed the Certificate of Trust required by
Section 3810 of the Act.
Nothing
in this Declaration and Agreement of Trust shall be construed to make the
Unitholders partners or members of a joint stock association except to the
extent that such Unitholders, as constituted from time to time, are deemed to be
partners under the Code, and applicable state and local tax
laws. Notwithstanding the foregoing, it is the intention of the
parties hereto that the Trust be treated as a partnership for purposes of
taxation under the Code and applicable state and local tax
laws. Effective as of the date hereof, the Trustee shall have all of
the rights, powers and duties set forth herein and in the Act with respect to
accomplishing the purposes of the Trust.
3. The Trustee.
(a) Term;
Resignation. (i) Wilmington Trust Company
has been appointed and has agreed to serve as the Trustee of the
Trust. The Trust shall have only one trustee unless otherwise
determined by the Managing Owner. The Trustee shall serve until such
time as the Managing Owner removes the Trustee or the Trustee resigns and a
successor Trustee is appointed by the Managing Owner in accordance with the
terms of Section 3(e) hereof.
(ii)
The Trustee may resign at any time upon the giving of at least 60 days’ advance
written notice to the Trust; provided, that such resignation shall not become
effective unless and until a successor Trustee shall have been appointed by the
Managing Owner in accordance with Section 3(e) hereof. If the
Managing Owner does not act within such 60 day period, the Trustee may apply to
the Court of Chancery of the State of Delaware for the appointment of a
successor Trustee.
(b) Powers. Except
to the extent expressly set forth in this Section 3, the duty and authority
of the Trustee to manage the business and affairs of the Trust are hereby
delegated to the Managing Owner. The Trustee shall have only the
rights, obligations or liabilities specifically provided for herein and in the
Act and shall have no implied rights, obligations or liabilities with respect to
the business or affairs of the Trust. The Trustee shall have the
power and authority to execute, deliver, acknowledge and file all necessary
A-2
documents, including any amendments to or cancellation of the
Certificate of Trust, and to maintain all necessary records of the Trust as
required by the Act. The Trustee shall provide prompt notice to the
Managing Owner of the Trustee’s performance of any of the
foregoing. The Managing Owner shall keep the Trustee informed of any
actions taken by the Managing Owner with respect to the Trust that affect the
rights, obligations or liabilities of the Trustee hereunder or under the
Act.
(c) Compensation and Expenses of the
Trustee. The Trustee shall be entitled to receive from the
Trust or, if the assets of the Trust are insufficient, from the Managing Owner,
reasonable compensation for its services hereunder in accordance with the
Trustee’s standard fee schedule, and shall be entitled to be reimbursed by the
Trust or, if the assets of the Trust are insufficient, by the Managing Owner,
for reasonable out-of-pocket expenses incurred by the Trustee in the performance
of its duties hereunder, including without limitation, the reasonable
compensation, out-of-pocket expenses and disbursements of counsel and such other
agents as the Trustee may employ in connection with the exercise and performance
of its rights and duties hereunder, to the extent attributable to the
Trust.
(d) Indemnification. The
Managing Owner agrees, to assume liability for, and does hereby indemnify,
protect, save and keep harmless the Trustee and its successors, assigns, legal
representatives, officers, directors, agents and servants (the “Indemnified
Parties”) from and against any and all liabilities, obligations, losses,
damages, penalties, taxes (excluding any taxes payable by the Trustee on or
measured by any compensation received by the Trustee for its services hereunder
or as indemnity payments pursuant to this Section 3(d)), claims, actions, suits,
costs, expenses or disbursements (including legal fees and expenses) of any kind
and nature whatsoever (collectively, “Expenses”), which may be imposed on,
incurred by or asserted against the Indemnified Parties in any way relating to
or arising out of the formation, operation or termination of the Trust, the
execution, delivery and performance of any other agreements to which the Trust
is a party or the action or inaction of the Trustee hereunder or thereunder,
except for Expenses resulting from the gross negligence or willful misconduct of
the Indemnified Parties. The indemnities contained in this Section
3(d) shall survive the termination of this Declaration and Agreement of Trust or
the removal or resignation of the Trustee. In addition, the
Indemnified Parties shall be entitled to indemnification from any cash, net
equity in any commodity futures, forward and option contracts, all funds on
deposit in the accounts of the Trust, any other property held by the Trust, and
all proceeds therefrom, including any rights of the Trust pursuant to any
agreements to which the Trust is a party (the “Trust Estate”) to the extent such
expenses are attributable to the formation, operation or termination of the
Trust as set forth above, and to secure the same the Trustee shall have a lien
against the Trust Estate which shall be prior to the rights of the Managing
Owner and the Unitholders to receive distributions from the Trust
Estate. The Trustee nevertheless agrees that it will, at its own cost
and expense, promptly take all action as may be necessary to discharge any liens
on any part of the Trust Estate which result from claims against the Trustee
personally that are not related to the ownership or the administration of the
Trust Estate or the transactions contemplated by any documents to which the
Trust is a party.
(e) Successor
Trustee. Upon the resignation or removal of the Trustee,
the Managing Owner shall appoint a successor Trustee by delivering a written
instrument to the outgoing Trustee. Any successor Trustee must
satisfy the requirements of Section 3807 of the Act. Any resignation
or removal of the Trustee and appointment of a successor Trustee shall not
become effective until a written acceptance of appointment is delivered by the
successor Trustee to the outgoing Trustee and the Managing Owner and any fees
and expenses due to the outgoing Trustee are paid. Following
compliance with the preceding sentence, the successor Trustee shall become fully
vested with all of the rights, powers, duties and obligations of the outgoing
Trustee under this Declaration and Agreement of Trust, with like effect as if
originally named as Trustee, and the outgoing Trustee shall be discharged of its
duties and obligations under this Declaration and Agreement of
Trust. Any successor Trustee shall file an amendment to the
Certificate of Trust as required by the Act.
(f) Liability of the
Trustee. Except as otherwise provided in this Section 3,
in accepting the trust created hereby, Wilmington Trust Company acts solely as
Trustee hereunder and not in its individual capacity, and all Persons having any
claim against the Trustee by reason of the transactions contemplated by this
Declaration and Agreement of Trust and any other agreement to which the Trust is
a party shall look only to the Trust Estate for payment or satisfaction
thereof. The Trustee shall not be liable or accountable hereunder or
under any other agreement to which the Trust is a party, except for the
Trustee’s gross negligence or willful misconduct. In particular, but
not by way of limitation:
(i)
the Trustee shall have no liability or responsibility for the validity or
sufficiency of this Declaration and Agreement of Trust or for the form,
character, genuineness, sufficiency, value or validity of the Trust
Estate;
(ii) the
Trustee shall not be liable for any actions taken or omitted to be taken by it
in accordance with the instructions of the Managing Owner;
(iii) the
Trustee shall not have any liability for the acts or omissions of the Managing
Owner;
(iv) the
Trustee shall not be liable for its failure to supervise the performance of any
obligations of the Managing Owner, any Commodity Broker, any Advisor, any
selling agent, any additional selling agent, “wholesaler” selling agent or
“correspondent” selling agent;
(v) no
provision of this Declaration and Agreement of Trust shall require the Trustee
to expend or risk funds or otherwise incur any financial liability in the
performance of any of its rights or powers hereunder if the Trustee shall have
reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured or provided
to it;
A-3
(vi) under
no circumstances shall the Trustee be liable for indebtedness evidenced by or
other obligations of the Trust arising under this Declaration and Agreement of
Trust or any other agreements to which the Trust is a party;
(vii) the
Trustee shall be under no obligation to exercise any of the rights or powers
vested in it by this Declaration and Agreement of Trust, or to institute,
conduct or defend any litigation under this Declaration and Agreement of Trust
or any other agreements to which the Trust is a party, at the request, order or
direction of the Managing Owner or any Unitholders unless the Managing Owner or
such Unitholders have offered to the Trustee security or indemnity satisfactory
to it against the costs, expenses and liabilities that may be incurred by the
Trustee (including, without limitation, the reasonable fees and expenses of its
counsel) therein or thereby; and
(viii) notwithstanding
anything contained herein to the contrary, the Trustee shall not be required to
take any action in any jurisdiction other than in the State of Delaware if the
taking of such action will (a) require the consent or approval or authorization
or order of or the giving of notice to, or the registration with or taking of
any action in respect of, any state or other governmental authority or agency of
any jurisdiction other than the State of Delaware, (b) result in any fee, tax or
other governmental charge under the laws of any jurisdiction or any political
subdivision thereof in existence as of the date hereof other than the State of
Delaware becoming payable by the Trustee or (c) subject the Trustee to personal
jurisdiction other than in the State of Delaware for causes of action arising
from personal acts unrelated to the consummation by the Trustee of the
transactions contemplated hereby.
(g) Reliance by the Trustee and the
Managing Owner; Advice of Counsel. (i) In the
absence of bad faith on the part of the Trustee or negligence or misconduct on
the part of the Managing Owner, the Trustee and the Managing Owner may
conclusively rely upon certificates or opinions furnished to the Trustee or the
Managing Owner and conforming to the requirements of this Declaration and
Agreement of Trust in determining the truth of the statements and the
correctness of the opinions contained therein, and shall incur no liability to
anyone in acting on any signature, instrument, notice, resolution, request,
consent, order, certificate, report, opinion, bond or other document or paper
which is believed to be genuine and believed to be signed by the proper party or
parties, and need not investigate any fact or matter pertaining to or in any
such document; provided, however, that the Trustee or the Managing Owner shall
have examined any certificates or opinions so as to determine compliance of the
same with the requirements of this Declaration and Agreement of
Trust. The Trustee or the Managing Owner may accept a certified copy
of a resolution of the board of directors or other governing body of any
corporate party as conclusive evidence that such resolution has been duly
adopted by such body and that the same is in full force and
effect. As to any fact or matter the method of the determination of
which is not specifically prescribed herein, the Trustee or the Managing Owner
may for all purposes hereof rely on a certificate, signed by the president or
any vice-president or by the treasurer or other authorized officers of the
relevant party, as to such fact or matter, and such certificate shall constitute
full protection to the Trustee or the Managing Owner for any action taken or
omitted to be taken by either of them in good faith in reliance
thereon.
(ii) In
the exercise or administration of the Trust hereunder and in the performance of
its duties and obligations under this Declaration and Agreement of Trust, the
Trustee, at the expense of the Trust, (i) may act directly or through its
agents, attorneys, custodians or nominees pursuant to agreements entered into
with any of them, and the Trustee shall not be liable for the conduct or
misconduct of such agents, attorneys, custodians or nominees if such agents,
attorneys, custodians or nominees shall have been selected by the Trustee with
reasonable care and (ii) may consult with counsel, accountants and other skilled
professionals to be selected with reasonable care by the Trustee; provided that
the Trustee shall not allocate any of its internal expenses or overhead to the
account of the Trust. The Trustee shall not be liable for anything
done, suffered or omitted in good faith by it in accordance with the opinion or
advice of any such counsel, accountant or other such Persons.
(h) Not Part of Trust
Estate. Amounts paid to the Trustee from the Trust
Estate, if any, pursuant to this Section 3 shall not be deemed to be part of the
Trust Estate immediately after such payment.
4. Principal
Office.
The
address of the principal office of the Trust is c/o R.J. O’Brien Fund
Management, LLC, 222 South Riverside Plaza, Suite 900, Chicago,
IL 60606. The Trustee is located at Rodney Square North,
1100 North Market Street, Wilmington, Delaware 19890,
Attention: Corporate Trust Administration. The Trustee
shall receive service of process on the Trust in the State of Delaware at the
foregoing address. In the event Wilmington Trust Company resigns or
is removed as the Trustee, the Trustee of the Trust in the State of Delaware
shall be the successor Trustee.
5. Business.
The
Trust’s business and purpose is to trade, buy, sell or otherwise acquire, hold
or dispose of all futures contracts including, but not limited to, those on
currencies, interest rates, energy and agricultural products, metals and stock
indices; spot and forward contracts in currencies and precious metals; any
rights pertaining thereto and any options thereon or on physical commodities; as
well as securities and any rights pertaining thereto and any options thereon,
and to engage in all activities necessary, convenient or incidental
thereto. The Trust may also engage in “hedge,” arbitrage and cash
trading of any of the foregoing instruments. The Trust may engage in
such business and purpose either directly or through joint ventures, entities or
partnerships, provided that the Trust’s participation in any of the foregoing
has no adverse economic or liability consequences for the Unitholders, which
consequences would not be present had the Trust engaged in that same business or
purpose directly.
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The
objective of the Trust’s business is appreciation of its assets through
speculative trading. The Trust shall have the power to engage in all
activities which are necessary, suitable, desirable, convenient or incidental to
the accomplishment to the foregoing business and purpose. The Trust
shall do so under the direction of the Managing Owner.
The
Managing Owner may designate an Advisor or Advisors for the Trust and may
apportion to such Advisor(s) the management of such Net Assets as the Managing
Owner shall determine in its absolute discretion.
6. Term, Dissolution, Fiscal Year and
Net Asset Value.
(a) Term. The term of
the Trust commenced on the day on which the Certificate of Trust was filed with
the Secretary of State of the State of Delaware pursuant to the provisions of
the Act and shall end upon the first to occur of the following: (1) December 31,
2026; (2) receipt by the Managing Owner of the determination by Unitholders
owning more than 50% of the Units then outstanding to dissolve the Trust, notice
of which is sent by certified mail, return receipt requested, to the Managing
Owner not less than 90 days prior to the effective date of such dissolution; (3)
120 days after either (i) the date of filing by, or against, the Managing Owner
of a petition for relief under the bankruptcy laws, or (ii) the notice of the
retirement, resignation, or withdrawal of the Managing Owner is provided
pursuant to the last sentence of this Section 6(a), unless prior to such 120th
day (A) Unitholders owning more than 50% of the Units then outstanding vote (or
agree in writing) to approve the appointment of one or more successor managing
owners to continue the business of the Trust, or (B) in the event of (i) above,
the bankruptcy court approves the sale and assignment of the interests of the
Managing Owner to a purchaser/assignor and the purchaser/assignor assumes the
duties and obligations of “Managing Owner” and the purchaser/assignor begins
serving as the successor Managing Owner, or (4) 90 days after either (i) the
insolvency of the Managing Owner, or (ii) any other event that would cause the
Managing Owner to cease to be managing owner of the Trust, unless prior to such
90th day Unitholders owning more than 50% of the Units then outstanding vote (or
agree in writing) to approve the appointment of one or more successor managing
owners to continue the business of the Trust; (5) the dissolution of the
Managing Owner; (6) the insolvency or bankruptcy of the Trust; (7) a decline in
the aggregate Net Assets of the Trust to less than $2,500,000 (except as
provided in Section 13); (8) a decline in the Net Asset Value per Unit to $50 or
less (except as provided in Section 13); (9) dissolution of the Trust pursuant
hereto; or (10) any other event which shall make it unlawful for the existence
of the Trust to be continued or require dissolution of the Trust. The Managing
Owner shall have no right to retire, resign or withdraw without first providing
not less than 120 days’ prior written notice to all Unitholders of such proposed
action. The Managing Owner shall be responsible for seeking the requisite vote
of (or signatures from) Unitholders during the applicable period of time for the
events covered by Section 6(a)(3) or 6(a)(4) above.
(b) Dissolution. Upon
the occurrence of an event causing the dissolution of the Trust, the Trust shall
be dissolved and its affairs wound up. Upon the dissolution of the
Trust, the Managing Owner or, in the event that dissolution of the Trust
pursuant to Section 6(a)(5) has caused the Managing Owner to cease to be
managing owner of the Trust, a Person or Persons approved by the affirmative
vote of more than 50% of the Units then owned by Unitholders, shall wind up the
Trust’s affairs and, in connection therewith, shall distribute the Trust’s
assets in the following manner and order:
(i) FIRST
TO payment and discharge of all claims of creditors of the Trust (including, to
the extent otherwise permitted by law, creditors who are Unitholders or the
Trustee), including by the creation of any reserve that the Managing Owner (or
its successor), in its sole discretion, may consider reasonably necessary for
any losses, contingencies, liabilities or other matters of or relating to the
Trust; provided, however, that if and when the cause for such reserve ceases to
exist, the monies, if any, then in such reserve shall be distributed in the
manner hereinafter provided; and
(ii) SECOND
TO distribution in cash of the remaining assets to the Unitholders in proportion
to their capital accounts, after giving effect to the allocations pursuant to
Section 9 hereof as if the date of distribution were the end of a calendar
year.
(c) Fiscal
Year. The fiscal year of the Trust shall begin on
January 1 of each year and end on the following
December 31.
(d) Net Asset
Value. The “Net Assets” of the Trust are its total assets less
its total liabilities, determined in accordance with generally accepted
accounting principles, and includes any unrealized profits or losses on open
positions, and any fee or expense including Net Asset fees accruing to the
Trust. The “Net Asset Value per Unit” is to be determined on a per
class or series basis and calculated by dividing the Net Assets of each such
class and/or series by the outstanding number of Units of each such class and/or
series, subject to the provisions of Section 9(a) hereof.
A futures
or futures option contract traded on a United States commodity exchange shall be
valued at the settlement price on the date of valuation. If such a
contract held by the Trust cannot be liquidated on the day with respect to which
Net Assets are being determined, the settlement price on the first subsequent
day on which the contract can be liquidated shall be the basis for determining
the liquidating value of such contract for such day, or such other value as the
Managing Owner may deem fair and reasonable. The liquidating value of
a futures, forward or option contract not traded on a United States commodity
exchange shall mean its liquidating value as determined by the Managing Owner on
a basis consistently applied for each different variety of such
contract.
The
Managing Owner may only cause the Trust to invest in joint ventures, entities or
partnerships which conform to the foregoing valuation
principles.
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Organizational
and Initial Offering Cost reimbursement shall not reduce Net Asset Value for any
purpose, including calculating the redemption value of Units; however, the
amount of Organizational and Initial Offering Costs amortized at each month-end
during the amortization period will reduce Net Asset Value as of each such
month-end.
Accrued
incentive fees shall reduce the Net Asset Value of the Trust.
7. Net
Worth of Managing Owner.
The
Managing Owner agrees that at all times so long as it remains the managing owner
of the Trust, it will maintain a Net Worth at an amount not less than 5% of the
total contributions by all Unitholders to the Trust and all entities of which
the Managing Owner is general partner or managing owner. In no event
shall the Managing Owner be required to maintain a Net Worth in excess of the
greater of (i) $1,000,000 or (ii) the amount which the Managing Owner is advised
by counsel as necessary or advisable to ensure that the Trust is taxed as a
partnership for federal income tax purposes.
8. Capital
Contributions; Units; Managing Owner’s Liability.
(a) Capital Contributions;
Units. The beneficial interests in the Trust shall consist of
two types: a general liability interest and limited liability
Units. The Managing Owner shall acquire the general liability
interest, and investors shall all acquire limited liability Units.
Upon the
initial contribution by the Managing Owner to the Trust, the Managing Owner
became the holder of the general liability interest of the Trust.
No
certificates or other evidences of beneficial ownership of the Units will be
issued. The Unitholders’ respective Capital Contributions to the
Trust shall be as shown on the books and records of the Trust.
Every
Unitholder, by virtue of having purchased or otherwise acquired Units, shall be
deemed to have expressly consented and agreed to be bound by the terms of this
Declaration and Agreement of Trust.
Any Units
acquired by the Managing Owner or any of its Affiliates will be non-voting, and
will not be considered outstanding for purposes of determining whether the
majority approval of the outstanding Units has been obtained.
The
general liability interest in the Trust held by the Managing Owner will be
non-voting.
(b) Managing Owner’s
Liability. The Managing Owner shall have unlimited liability
for the repayment, satisfaction and discharge of all debts, liabilities and
obligations of the Trust to the full extent, and only to the extent, of the
Managing Owner’s assets.
The
Managing Owner shall be liable for the acts, omissions, obligations and expenses
of the Trust, to the extent not paid out of the assets of the Trust, to the same
extent that the Managing Owner would be so liable if the Trust were a
partnership under the Delaware Revised Uniform Limited Partnership Act and the
Managing Owner were the general partner of such partnership. The
obligations of the Managing Owner under this paragraph shall be evidenced by its
ownership of the general liability interest.
The
Managing Owner, so long as it is generally liable for the obligations of the
Trust, shall invest in the Trust, as a general liability interest, no less than
1% of the total Capital Contributions to the Trust (including the Managing
Owner’s contributions). The Managing Owner may (i) withdraw any
interest it may have in excess of such requirement as of any month-end or (ii)
redeem any Units which it may acquire, in each case on the same terms as any
Unitholder (although without early redemption charges).
9. Allocation
of Profits and Losses.
(a) Capital Accounts and
Allocations. A capital account shall be established for each
Unit and for the Managing Owner. The initial balance of each capital
account shall be the aggregate amount contributed to the Trust with respect to a
Unit, which amount shall be equal to the Net Asset Value per Unit on the date
each Unit is purchased after all accrued fees, expenses and incentive fee
allocations (other than unamortized Organizational and Initial Offering
Costs).
As of the
close of business (as determined by the Managing Owner) on the last business day
of each month, any increase or decrease in the Net Assets of the Trust as
compared to the last such determination of Net Assets shall be credited or
charged equally among the Units of all Unitholders on a per class or per series
basis.
In making
the month-end adjustments to the capital accounts described in the preceding
paragraph, capital accounts of all Units shall be adjusted to reflect the
Brokerage Fee.
(b) Allocation of Profit and Loss for
Federal Income Tax Purposes. As of the end of each fiscal
year, the Trust’s income and expense and capital gain or loss shall be allocated
among the Unitholders (including the Managing Owner on a Unit-equivalent basis)
pursuant to the following provisions of this Section 9(b) for federal income tax
purposes. Allocations of profit and loss shall be pro rata from net
capital gain or loss and net ordinary income or loss realized by the Trust
unless allocation of items of gain or income or loss or expense are necessary to
satisfy the requirements in Sections 9(b)(1)(B) and 9(b)(1)(D) that sufficient
profit and loss be allocated to tax accounts such that tax accounts attributable
to redeemed Units equal distributions in redemption of such
Units. Notwithstanding the foregoing requirement that annual
allocations of profit and loss be pro rata from capital and ordinary income,
gain, loss and expense, adjustments to such allocations shall be made to reflect
the extent to which income or expense is otherwise
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determined and periodically allocated to the Unitholders, and such
periodic allocations and adjustment shall be determined in a manner that in the
judgment of the Managing Owner is consistent with the intent of this Section
9(b).
(1) Trust
profit and loss shall be allocated as follows:
(A) For
the purpose of allocating profit or loss among the Unitholders, there shall be
established a tax account with respect to each outstanding Unit and with respect
to the Managing Owner. The initial balance of each tax account shall
be the amount contributed to the Trust for each Unit and the amount contributed
by the Managing Owner. As of the end of each of the first sixty
months after the Trust begins operations, the balance of such tax account shall
be reduced by each Unit’s allocable share of the amount of Organizational and
Initial Offering Cost reimbursements amortized as of the end of such month by
the Trust, as provided in Section 9(c). As of the end of each month
after the Trust begins operations, the balance of such tax account shall be
further reduced by each Unit’s allocable share of any amount payable by the
Trust in respect of that month for the costs of the ongoing offering of
Units. The adjustment to reflect the amortization of Organizational
and Initial Offering Cost reimbursements as well as ongoing offering costs shall
be made prior to the following allocations of Trust profit and loss (and shall
be taken into account in making such allocations). Tax accounts shall
be adjusted as of the end of each fiscal year and as of the date a Unitholder
redeems any Units as follows:
(i) Each
tax account shall be increased by the amount of profit allocated to the
Unitholder pursuant to Section 9(b)(1)(B) and 9(b)(1)(C) below.
(ii) Each
tax account shall be decreased by the amount of loss allocated to the Unitholder
pursuant to Section 9(b)(1)(D) and 9(b)(1)(E) below and by the amount of any
distributions the Unitholder has received with respect to such
Unit.
(iii) When
a Unit is redeemed, the tax account attributable to such Unit (determined after
making all allocations set forth in Section 9(b)) shall be
eliminated.
(B) Profits
shall be allocated first to each Unitholder who has redeemed any Units during
the fiscal year up to the excess, if any, of the amount received upon redemption
of the Units over the amount in the Unitholder’s tax account attributable to the
redeemed Units.
(C) Profit
remaining after the allocation thereof pursuant to Section 9(b)(1)(B) shall be
allocated next among all Unitholders who hold Units outstanding at the end of
the applicable fiscal year whose capital accounts with respect to such Units are
in excess of their tax accounts in the ratio that each such Unitholder’s excess
bears to all such Unitholders’ excesses. Profit remaining after the
allocation described in the preceding sentence shall be allocated among all
Unitholders in proportion to their holdings of outstanding Units.
(D) Loss
shall be allocated first to each Unitholder who has redeemed any Units during
the fiscal year up to the excess, if any, of the amount in such Unitholder’s tax
account attributable to the redeemed Units over the amount received upon
redemption of the Units.
(E) Loss
remaining after the allocation thereof pursuant to Section 9(b)(1)(D) shall be
allocated next among all Unitholders who hold Units outstanding at the end of
the applicable fiscal year whose tax accounts with respect to such Units are in
excess of their capital accounts in the ratio that each such Unitholder’s excess
bears to all such Unitholders’ excesses. Loss remaining after the
allocation pursuant to the preceding sentence shall be allocated among all
Unitholders in proportion to their holding of outstanding Units.
(2) In
the event that a Unit has been assigned, the allocations prescribed by this
Section 9(b) shall be made with respect to such Unit without regard to the
assignment, except that in the year of assignment the allocations prescribed by
this Section 9(b) shall, to the extent permitted for federal income tax
purposes, be allocated between the assignor and assignee using the interim
closing of the books method.
(3) The
allocation for federal income tax purposes of profit and loss, as set forth
herein, is intended to allocate taxable profit and loss among Unitholders
generally in the ratio and to the extent that net profit and net loss are
allocated to such Unitholders under Section 9(a) hereof so as to eliminate, to
the extent possible, any disparity between a Unitholder’s capital account and
his tax account with respect to each Unit then outstanding, consistent with the
principles set forth in Section 704(c) of the Code.
(4) Notwithstanding
anything herein to the contrary, in the event that at the end of any Trust
taxable year any Unitholder’s capital account is adjusted for, or such
Unitholder is allocated, or there is distributed to such Unitholder any item
described in Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6) in
an amount not reasonably expected at the end of such year, and such treatment
creates a deficit balance in such Unitholder’s capital account, then such
Unitholder shall be allocated all items of income and gain of the Trust for such
year and for all subsequent taxable years of the Trust until such deficit
balance has been eliminated. In the event that any such unexpected
adjustments, allocations or distributions create a deficit balance in the
capital accounts of more than one Unitholder in any Trust taxable, all items of
income and gain of the Trust for such taxable year and all subsequent taxable
years shall be allocated among all such Unitholders in proportion to their
respective deficit balances until such deficit balances have been
eliminated.
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(5) The
allocations of profit and loss to the Unitholders shall not exceed the
allocations permitted under Subchapter K of the Code, as determined by the
Managing Owner, whose determination shall be binding.
The
Managing Owner may adjust the allocations set forth in this Section 9(b), in the
Managing Owner’s discretion, if the Managing Owner believes that doing so will
achieve more equitable allocations or allocations more consistent with the
Code.
(c) Expenses.
The Trust
shall pay the monthly Brokerage Fee of 3.22% to 3.57% of the Trust’s month-end
assets on an annual basis (approximately 0.268% to 0.298% monthly) with respect
to Class A Units and 1.22% to 1.57% of the Trust’s month-end assets on an annual
basis (approximately 0.102% to 0.131% monthly) with respect to Class B Units,
payable as follows: selling commission to the selling agents of 2.0%
annually (with respect to Class A Units only; Class B Units will not be charged
the 2.0% selling commission payable to the selling agents); and clearing, NFA
and exchange fees (including fees related to foreign currency transactions and
other off-exchange transactions) (paid as incurred and estimated at 1.22% to
1.42% annually and capped at 1.57%) (the “Brokerage Fee”). The Trust
shall pay the Managing Owner a managing owner fee of 0.75% of Net Assets
annually and shall reimburse the Managing Owner for underwriting expenses of up
to 0.35% of Net Assets annually. The Trust shall pay its consultant,
Liberty Funds Group, an annual fee equal to 0.33% of Net Assets
annually.
Any goods
and services provided to the Trust by the Managing Owner shall be provided at
rates and terms at least as favorable as those which may be obtained from third
parties in arm’s-length negotiations. All of the expenses which are
for the Trust’s account shall be billed directly to the Trust, as
appropriate. Appropriate reserves may be created, accrued and charged
against Net Assets for contingent liabilities, if any, as of the date any such
contingent liability becomes known to the Managing Owner.
The Trust
shall bear the costs of the continuous offering of the Units (other than selling
commissions and ongoing compensation), as incurred; provided that the Managing
Owner shall absorb, without reimbursement from the Trust, all such costs to the
extent that such costs exceed 0.5% of the Trust’s average month-end Net Assets
in any fiscal year. The amount of any such costs borne by the Trust
shall be allocated on a pro rata basis to each Unit outstanding at any month-end
(determined prior to any redemptions).
Net
Assets, for purposes of calculating the 0.5% limitations on continuous offering
costs set forth in this Section 9(c), shall be calculated in the same manner as
calculation of the redemption value of a Unit, i.e., net of all accrued fees and
expenses including any accrued incentive fee(s) (but prior to redemption
charges).
In no
event shall ongoing and offering costs (including redemption fees, but excluding
ongoing compensation) exceed 15% of the Capital Contributions to the
Trust.
The
Managing Owner shall not allocate any of its internal expenses or overhead to
the account of the Trust.
(d) Limited Liability of
Unitholders. Each Unit, when purchased in accordance with this
Declaration and Agreement of Trust, shall, except as otherwise provided by law,
be fully-paid and nonassessable. Any provisions of this Declaration
and Agreement of Trust to the contrary notwithstanding, Unitholders (including
the Managing Owner, except to the extent otherwise provided herein) shall be
entitled to the same limitation on personal liability extended to stockholders
of private corporations for profit organized under the General Corporation Law
of the State of Delaware.
The Trust
will indemnify, to the full extent permitted by law, each Unitholder (other than
the Managing Owner in the event that the Managing Owner acquires Units) against
any claims of liability asserted against such Unitholder solely because such
Unitholder is a beneficial owner of the Trust (other than in respect of taxes
due from such Unitholder as such a beneficial owner).
Every
written note, bond, contract, instrument, certificate or undertaking made or
issued by the Managing Owner shall give notice to the effect that the same was
executed or made by or on behalf of the Trust and that the obligations of any of
the foregoing are not binding upon the Unitholders individually but are binding
only upon the assets and property of the Trust, and that no resort shall be had
to the Unitholders’ personal property for the satisfaction of any obligation or
claim thereunder, and appropriate references may be made to this Declaration and
Agreement of Trust and may contain any further recital which the Managing Owner
deems appropriate, but the omission thereof shall not operate to bind the
Unitholders individually or otherwise invalidate any such note, bond, contract,
instrument, certificate or undertaking.
(e) Return of Capital Contributions. No
Unitholder or subsequent assignee shall have any right to demand the return of
its capital contribution or any profits added thereto, except through redeeming
Units or upon dissolution of the Trust, in each case as provided
herein. In no event shall a Unitholder or subsequent assignee be
entitled to demand or receive property other than cash.
10. Management
of the Trust.
(a) Authority of the Managing
Owner. Pursuant to Section 3806 of the Act, the Trust shall be
managed by the Managing Owner, and the conduct of the Trust’s business shall be
controlled and conducted solely by the Managing Owner in accordance with this
Declaration and Agreement of Trust.
The Managing Owner, to the exclusion of all other Unitholders,
shall control, conduct and manage the business of the Trust. The
Managing Owner shall have sole discretion in determining what distributions of
profits and income, if any, shall be made to the
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Unitholders
(subject to the allocation provisions hereof), shall execute various documents
on behalf of the Trust and the Unitholders pursuant to powers of attorney and
shall supervise the liquidation of the Trust if an event causing dissolution of
the Trust occurs.
The
Managing Owner may, in furtherance of the business of the Trust, cause the Trust
to buy, sell, hold or otherwise acquire or dispose of commodities, futures
contracts, options on futures contracts, and spot and forward contracts traded
on exchanges or otherwise, arbitrage positions, repurchase agreements,
interest-bearing securities, deposit accounts and similar instruments and other
assets, and cause the trading of the Trust to be limited to only certain of the
foregoing instruments. The Managing Owner is specifically authorized
to enter into brokerage, custodial and margining arrangements as described in
the Prospectus. The Managing Owner may engage, and compensate on
behalf of the Trust from funds of the Trust, or agree to share profits and
losses with, such Persons, firms or corporations, including (except as described
in this Declaration and Agreement of Trust) the Managing Owner and any
affiliated Person, as the Managing Owner in its sole judgment shall deem
advisable for the conduct and operation of the business of the Trust; provided,
that no such arrangement shall allow brokerage commissions paid by the Trust in
excess of such amount as permitted under the Guidelines in effect as of the date
of the Prospectus (i.e., 14% annually—including Pit Brokerage Fees and service
fees—of the Trust’s average Net Assets, excluding the assets, if any, not
directly related to trading activity). The Managing Owner shall
reimburse the Trust, on an annual basis, to the extent that the Trust’s
brokerage commissions have exceeded 14% of the Trust’s average Net Assets during
the preceding year.
During
any fiscal year of the Trust, if the management fee exceeds the 6% annual
management fee contemplated by the Guidelines, the Managing Owner shall
reimburse the Trust for such excess.
The
Managing Owner may take such other actions on behalf of the Trust as the
Managing Owner deems necessary or desirable to manage the business of the
Trust.
Any
material change in the Trust’s basic investment policies or structure shall
require the approval of Unitholders owning more than 50% of the Units then
outstanding. In addition, the Managing Owner shall notify Unitholders
of any material changes relating to the Trust as provided in Section 11
hereof.
The
Managing Owner is hereby authorized to perform all duties imposed by Sections
6221 through 6232 of the Code on the Managing Owner as the “tax matters partner”
of the Trust.
(b) Fiduciary
Duties. The Managing Owner shall be under a fiduciary duty to
conduct the affairs of the Trust in the best interests of the Trust, provided
that the Managing Owner shall not be obligated to engage in any conduct on
behalf of the Trust to the detriment of any other commodity pool to which the
Managing Owner owes similar fiduciary duties. Except as otherwise
provided herein or disclosed in the Prospectus, the Unitholders will under no
circumstances be deemed to have contracted away the fiduciary obligations owed
them by the Managing Owner under the common law. The Managing Owner’s
fiduciary duty includes, among other things, the safekeeping of all funds and
assets of the Trust and the use thereof for the benefit of the
Trust. The funds of the Trust will not be commingled with the
funds of any other Person (deposit of funds with a commodity or securities
broker, clearinghouse or forward dealer shall not be deemed to constitute
“commingling” for these purposes). The Managing Owner will take no
actions with respect to the property of the Trust which do not benefit the
Trust. The Managing Owner shall at all times act with integrity and
good faith and exercise due diligence in all activities relating to the conduct
of the business of the Trust and in resolving conflicts of
interest.
(c) Loans;
Investments. The Trust shall not make loans to any
party. The Managing Owner shall make no loans to the Trust unless
approved by the Unitholders in accordance with Section 20(a). If
the Managing Owner makes a loan to the Trust, the Managing Owner shall not
receive interest in excess of its interest costs, nor may the Managing Owner
receive interest in excess of the amounts which would be charged to the Trust
(without reference to the Managing Owner’s financial resources or guarantees) by
unrelated banks on comparable loans for the same purpose. The
Managing Owner shall not receive “points” or other financing charges or fees
regardless of the amount. The Trust shall not invest in any debt
instruments other than government securities and other CFTC-authorized
investments, or invest in any equity security without prior notice to
Unitholders.
(d) Certain Conflicts of Interest
Prohibited. No Person may receive, directly or
indirectly, any advisory or management fees, profit shares or any profit-sharing
allocation, from joint ventures, partnerships or similar arrangements in which
the Trust participates, for investment advice or management who shares or
participates in any commodity brokerage commissions paid by the Trust; no broker
may pay, directly or indirectly, rebates or give-ups to any Advisor, manager or
joint venturer, or to the Managing Owner or any of its Affiliates; and such
prohibitions may not be circumvented by any reciprocal business
arrangements. No Advisor shall be affiliated with the Program Broker
or any of its Affiliates.
(e) Certain Agreements. Any
agreements between the Trust and the Managing Owner or any Affiliate of the
Managing Owner, or an Advisor, shall be terminable by the Trust, without
penalty, on no more than 60 days’ written notice.
In
addition to any specific contract or agreements described herein, the Trust and
the Managing Owner on behalf of the Trust may enter into any other contracts or
agreements specifically described in or contemplated by the Prospectus without
any further act, approval or vote of the Unitholders, notwithstanding any other
provisions of this Declaration and Agreement of Trust, the Act or any applicable
laws, rules or regulations; provided, however, any material change in the
Trust’s basic investment policies or structure shall
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require the approval of Unitholders owning more than 50% of the
Units then outstanding and the Managing Owner shall notify Unitholders of any
material changes relating to the Trust as provided in Section 11 hereof.
The
Managing Owner shall not enter into any advisory agreement with any Advisor that
does not satisfy the relevant experience requirements under the Guidelines
(i.e., a minimum of three years’ experience in the managed futures
industry).
The
maximum period covered by any contract entered into by the Trust, except for the
various provisions of the Selling Agreement which survive the final closing of
the sale of the Units, shall not exceed one year.
The
brokerage commissions paid by the Trust shall be competitive. The
Trust shall seek the best price and services available for its commodity
transactions.
R.J.
O’Brien & Associates, LLC credits the Trust with interest at 100% of the
Trust’s average daily U.S. dollar balances on deposit with R.J. O’Brien &
Associates, LLC during each month at a rate equal to the average 4-week Treasury
Bill rate and at 1-month LIBOR less 1.0% in respect of non-U.S. dollar deposits,
or as otherwise disclosed in the Prospectus. The economic benefit
from the possession of the Trust’s assets in excess of the interest credited by
R.J. O’Brien & Associates, LLC to the Trust will be retained by R.J. O’Brien
& Associates, LLC. The Trust and the Managing Owner reserve the
right to deposit, at any time, a portion of the Trust assets with a custodian
and engage the services of a third-party cash manager to manage such assets with
the goal of enhancing net return on such assets.”
(f) Prohibition on
“Pyramiding.” The Trust is prohibited from engaging in
Pyramiding. An Advisor of the Trust taking into account the Trust’s
open-trade equity on existing positions in determining generally whether to
acquire additional commodity positions on behalf of the Trust will not be
considered to be engaging in Pyramiding.
(g) Freedom of
Action. The Managing Owner is engaged, and may in the future
engage, in other business activities and shall not be required to refrain from
any other activity nor forgo any profits from any such activity, whether or not
in competition with the Trust. Neither the Trust nor any of the
Unitholders shall have any rights by virtue of this Declaration and Agreement of
Trust in and to such independent ventures or the income or profits derived
therefrom. Unitholders may similarly engage in any such other
business activities. The Managing Owner shall devote to the Trust
such time as the Managing Owner may deem advisable to conduct the Trust’s
business and affairs.
11. Audits
and Reports to Unitholders.
The
Trust’s books shall be audited annually by an independent certified public
accountant. The Trust shall cause each Unitholder to receive
(i) within 90 days after the close of each fiscal year certified financial
statements for the fiscal year then ended, (ii) within 90 days of the end
of each fiscal year (but in no event later than March 15 of each year) such
tax information as is necessary for a Unitholder to complete its federal income
tax return and (iii) such other annual and monthly information as the CFTC
may by regulation require. The Managing Owner shall include in the
annual reports sent to Unitholders an approximate estimate (calculated as
accurately as may be reasonably practicable) of the round-turn equivalent
brokerage commission rate paid by the Trust during the preceding year (including
forward contracts on a futures-equivalent basis for purposes of such
calculation).
Unitholders
or their duly authorized representatives may inspect the books and records of
the Trust during normal business hours upon reasonable written notice to the
Managing Owner and obtain copies of such records upon payment of reasonable
reproduction costs; provided, however, that upon request by the Managing Owner,
the requesting Unitholder shall represent that the inspection and/or copies of
such records will not be used for commercial purposes unrelated to such
Unitholder’s interest as a beneficial owner of the Trust. The
Managing Owner shall have the right to keep confidential from the Unitholders,
for such period of time as the Managing Owner deems reasonable, any information
that the Managing Owner reasonably believes to be in the nature of trade secrets
or other information the disclosure of which the Managing Owner in good faith
believes is not in the best interest of the Trust or could damage the Trust or
its business or which the Trust is required by law or by agreement with a third
party to keep confidential.
The
Managing Owner shall calculate the Net Asset Value per Unit on a monthly basis
and sell and redeem Units at Net Asset Value.
The
Managing Owner shall notify the Unitholders of (i) changes to the trading method
of the Trust’s Advisor(s) which the Managing Owner believes to be material, (ii)
changes in Brokerage Fee, incentive fee(s) or other fees paid by the Trust or
(iii) material changes in the basic investment policies or structure of the
Trust. The Managing Owner shall so notify Unitholders, by certified
mail or other means of notification providing for evidence of delivery, prior to
any such change. Such notification shall contain a ballot (if
applicable), a description of the Unitholders’ voting and redemption rights, and
a description of any material effect of such change. The Managing
Owner will send written notice to each Unitholder within seven days of any
decline in the Net Asset Value per Unit to 50% or less of such value as of the
previous month-end. Any such notice shall contain a description of
the Unitholders’ voting and redemption rights. The Trust shall pay
the cost of any notification delivered pursuant to this paragraph.
The
Managing Owner shall prepare or cause to be prepared and shall file on or before
the due date (or any extension thereof) any federal, state or local tax returns
required to be filed by the Trust. The Managing Owner shall cause the
Trust to pay any taxes payable by the Trust; provided, however, that such taxes
need not be paid if the Managing Owner or the Trust is in good faith and by
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appropriate legal proceedings contesting the validity,
applicability or amount thereof, and such contest does not materially endanger
any right or interest of the Trust.
The
Managing Owner shall maintain and preserve all required records relating to the
Trust for a period of not less than six years from the receipt of such
records.
In
particular, and not by way of limitation, the Managing Owner will retain all
Subscription Agreement and Power of Attorney Signature Pages submitted by
Persons admitted as Unitholders, and all other records necessary to substantiate
that Units are sold only to purchasers for whom the Units are a suitable
investment, for at least six years after Units are sold to such
Persons.
The
Managing Owner shall seek the best price and services for the Trust’s trading,
and will, with the assistance of the Program Broker(s), make an annual review of
the commodity brokerage arrangements applicable to the Trust. Not by
way of qualifying the Managing Owner’s obligations to ensure that the Trust’s
brokerage arrangements are competitive, but rather as a means of providing
additional information to the Unitholders, in connection with such review, the
Managing Owner will ascertain, to the extent practicable, the commodity
brokerage rates charged to other major commodity pools whose trading and
operations are, in the opinion of the Managing Owner, comparable to those of the
Trust, in order to assess whether the rates charged the Trust are reasonable in
light of the services it receives and the terms upon which the Trust was
promoted to subscribers. If, as a result of such review, the Managing
Owner determines that such rates are unreasonable in light of the services
provided to the Trust and the terms upon which the Trust was promoted, the
Managing Owner will notify the Unitholders, setting forth the rates charged to
the Trust and several funds which are, in the Managing Owner’s opinion,
comparable to the Trust. The Managing Owner shall also make an annual
review of the spot and forward trading arrangements for the Trust in an attempt
to determine whether such arrangements are competitive with those of other
comparable pools in light of the circumstances.
In
addition to the undertakings in the preceding paragraph, the Trust will seek the
best price and services available on its commodity brokerage
transactions. All brokerage transactions will be effected at
competitive rates. Brokerage commissions may not exceed the cap set
forth in Section 10(a). The Managing Owner will annually review the
brokerage rates paid by the Trust to guarantee that the criteria set forth in
this paragraph are followed. The Managing Owner may not rely solely
on the rates charged by other major commodity pools in complying with this
paragraph.
12. Assignability
of Units.
Each
Unitholder expressly agrees that it will not assign, transfer or dispose of, by
gift or otherwise, any of its Units or any part or all of its right, title and
interest in the capital or profits of the Trust in violation of any applicable
federal or state securities laws or, except by involuntary operation of law,
without giving written notice to the Managing Owner. No assignment,
transfer or disposition by an assignee of Units or of any part of its right,
title and interest in the capital or profits of the Trust shall be effective
against the Trust, the Trustee or the Managing Owner until the Managing Owner
has received the written notice of the assignment; the Managing Owner shall not
be required to give any assignee any rights hereunder prior to receipt of such
notice. The Managing Owner may, in its sole discretion, waive any
such notice. No such assignee, except with the consent of the
Managing Owner, may become a substituted Unitholder, nor will the estate or any
beneficiary of a deceased Unitholder or assignee have any right to redeem Units
from the Trust except by redemption as provided in Section 13
hereof. The Managing Owner’s consent is required for the admission of
a substituted Unitholder, and the Managing Owner intends to so consent;
provided, that the Managing Owner and the Trust receive an opinion of counsel to
the Managing Owner and of counsel to the Trust that such admission will not
adversely affect the classification of the Trust as a partnership for federal
income tax purposes; and provided further, that an assignee shall not become a
substituted Unitholder without first having executed an instrument reasonably
satisfactory to the Managing Owner accepting and adopting the terms and
provisions of this Declaration and Agreement of Trust, including a Subscription
Agreement and Power of Attorney Signature Page, a counterpart signature page to
this Declaration and Agreement of Trust or other comparable document, and
without having paid to the Trust a fee sufficient to cover all reasonable
expenses of the Trust in connection with its admission as a substituted
Unitholder. Each Unitholder agrees that with the consent of the
Managing Owner any assignee may become a substituted Unitholder without need of
the further act or approval of any Unitholder. If the Managing Owner
withholds consent, an assignee shall not become a substituted Unitholder, and
shall not have any of the rights of a Unitholder, except that the assignee shall
be entitled to receive that share of capital and profits and shall have that
right of redemption to which its assignor would otherwise have been
entitled. No assignment, transfer or disposition of Units shall be
effective against the Trust or the Managing Owner until the last day of the
month in which the Managing Owner receives notice of such assignment, transfer
or disposition.
13. Redemptions.
A
Unitholder (including the Managing Owner except to the extent that its power to
redeem is limited by any other provision of this Declaration and Agreement of
Trust) to the extent that it owns Units or any assignee of Units of whom the
Managing Owner has received written notice as described above, may redeem all or
part of its Units, effective as of the close of business (as determined by the
Managing Owner) on the last day of any month, provided, that (i) all
liabilities, contingent or otherwise, of the Trust, except any liability to
Unitholders on account of their Capital Contributions, have been paid or there
remains property of the Trust sufficient to pay them, (ii) the Unitholder
redeems at least $1,000 of Units, (iii) in the case of partial redemption, such
Unitholder’s investment in the Trust after the partial redemption will be at
least $1,000, and (iv) the Managing Owner shall have timely received a
request for redemption (as provided below). If Units are redeemed by
a Unitholder at a time when there are accrued incentive fee(s) due to
the
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Trust’s Advisor(s), the amount of such accrual attributable to the
Units being redeemed will be deducted from the redemption proceeds payable to
the redeeming Unitholder and paid to the Trust’s Advisor(s). Units
redeemed on or before the end of the eleventh full calendar month after such
Units are issued by the Trust are subject to early redemption charges of 1.5% of
the Net Asset Value at which they are redeemed. Such charges will be
deducted from redemption proceeds due to the Unitholder making the redemption
and will be paid to the Managing Owner. Units are issued, for
purposes of determining whether an early redemption charge is due, as of the
date as of which the subscription price of such Units is invested in the Trust,
not when subscriptions are submitted by Unitholders or accepted by the Managing
Owner or subscription funds are accepted into escrow. No redemption
charges shall be applicable to Unitholders who redeem because the Trust’s
expenses have been increased.
In the
event that a Unitholder acquires Units as of the end of more than one month,
such Units will be treated on a “first-in, first-out” basis for purposes of
identifying which of such Units are being redeemed so as to determine whether
early redemption charges apply.
Requests
for redemption as of any month-end must be received by the Managing Owner on or
before the fifth business day prior to the month-end of redemption (including
the last business day of the month), or such later date as shall be acceptable
to the Managing Owner.
If as of
the close of business (as determined by the Managing Owner) on any day, the Net
Asset Value of a Unit has decreased to less than 50% of the Net Asset Value per
Unit as of the previous highest month-end Net Asset Value per Unit or to $50 or
less, after adding back all distributions, the Managing Owner shall cause the
Trust to liquidate all open positions as expeditiously as possible and suspend
trading. Within ten business days after the suspension of trading,
the Managing Owner shall declare a Special Redemption Date. Such
Special Redemption Date shall be a business day within 30 business days from the
suspension of trading by the Trust, and the Managing Owner shall mail notice of
such date to each Unitholder and assignee of Units of whom it has received
written notice as described above, by first-class mail, postage prepaid, not
later than ten business days prior to such Special Redemption Date, together
with instructions as to the procedure such Unitholder or assignee must follow to
have its Units redeemed on such Date (only entire, not partial, interests in the
Trust may be redeemed on a Special Redemption Date, unless otherwise determined
by the Managing Owner). Upon redemption pursuant to a Special
Redemption Date, a Unitholder or any other assignee of whom the Managing Owner
has received written notice as described above, shall receive from the Trust an
amount equal to the Net Asset Value of its Units, determined as of the close of
business (as determined by the Managing Owner) on such Special Redemption
Date. No redemption charges shall be assessed on any such Special
Redemption Date. As in the case of a regular redemption, an assignee
shall not be entitled to redemption until the Managing Owner has received
written notice as described above of the assignment, transfer or disposition
under which the assignee claims an interest in the Units to be
redeemed. If, after a Special Redemption Date, the Net Assets of the
Trust are at least $1,000,000 and the Net Asset Value per Unit is in excess of
$25, the Trust may, in the discretion of the Managing Owner, resume
trading.
The
Managing Owner may at any time and in its discretion declare a Special
Redemption Date, should the Managing Owner determine that it is in the best
interests of the Trust to do so. If the Managing Owner declares a
Special Redemption Date, the Managing Owner shall not be required to again call
a Special Redemption Date (whether or not a Special Redemption Date would
otherwise be required to be called as described above); and the Managing Owner
in its notice of a Special Redemption Date may, at its discretion, establish the
conditions, if any, under which other Special Redemption Dates must be called,
which conditions may be determined in the sole discretion of the Managing Owner,
irrespective of the provisions of the preceding paragraph. The
Managing Owner may also, in its discretion, declare additional regular
redemption dates for Units, permit certain Unitholders to redeem at other than
at month-end and waive the notice period otherwise required to effect
redemptions.
Redemption
payments will be made within ten business days after the month-end of
redemption, except that under special circumstances, including, but not limited
to, inability to liquidate commodity positions as of a redemption date or
default or delay in payments due the Trust from Commodity Brokers, banks or
other Persons, the Trust may in turn delay payment to Unitholders or assignees
requesting redemption of their Units of the proportionate part of the Net Asset
Value of such Units equal to the proportionate part of the Trust’s aggregate Net
Asset Value represented by the sums which are the subject of such default or
delay.
The
Managing Owner may require a Unitholder to redeem all or a portion of such
Unitholder’s Units if the Managing Owner considers doing so to be desirable for
the protection of the Trust, and will use best efforts to do so to the extent
necessary to prevent the Trust from being deemed to hold “plan assets” under the
provisions of ERISA or the Code, with respect to any “employee benefit plan”
subject to ERISA or with respect to any “plan” or “account” subject to
Section 4975 of the Code.
14. Offering
of Units.
The
Managing Owner, on behalf of the Trust shall (i) cause to be filed a
Registration Statement or Registration Statements, and such amendments thereto
as the Managing Owner may deem advisable or necessary, with the Securities and
Exchange Commission for the registration and continuous public offering of the
Units, (ii) use its best efforts to qualify the Units for sale under the
securities laws of such States of the United States or other jurisdictions as
the Managing Owner may deem advisable and (iii) take such action with
respect to the matters described in (i) and (ii) as the Managing Owner
may deem advisable or necessary.
Fractional
Units, calculated to five decimal places, may be sold.
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All sales
of Units in the United States will be conducted by registered
brokers.
The
Managing Owner shall not accept any subscriptions for Units if doing so would
cause the Trust to hold “plan assets” under ERISA or the Code with respect to
any “employee benefit plan” subject to ERISA or with respect to any “plan” or
“account” subject to Section 4975 of the Code. If a subscriber
has its subscription reduced for such reason, such subscriber shall be entitled
to rescind its subscription in its entirety even though subscriptions are
otherwise irrevocable.
All
subscriptions will be held in a subscription account by the Escrow Agent until
released as of the last business day of the month. The Managing Owner
may terminate any offering of Units at any time. The aggregate of all
Capital Contributions shall be available to the Trust to carry on its business,
and no interest shall be paid by the Trust on any such contributions after such
contributions are released by the Escrow Agent.
15. Additional
Offerings.
The
Managing Owner may, in its discretion, continue, suspend or discontinue the
public offering of the Units, as well as make additional public or private
offerings of Units, provided that the net proceeds to the Trust of any such
sales shall in no event be less than the Net Asset Value per Unit at the time of
sale (unless the new Unit’s participation in the profits and losses of the Trust
is appropriately adjusted). No Unitholder shall have any preemptive,
preferential or other rights with respect to the issuance or sale of any
additional Units, other than as set forth in the preceding
sentence.
16. Special
Power of Attorney.
Each
Unitholder by virtue of having purchased or otherwise acquired Units does hereby
irrevocably constitute and appoint the Managing Owner and each officer of the
Managing Owner, with full power of substitution, as its true and lawful
attorney-in-fact, in its name, place and stead, to execute, acknowledge, swear
to (and deliver as may be appropriate) on its behalf and file and record in the
appropriate public offices and publish (as may in the reasonable judgment of the
Managing Owner be required by law): (i) this Declaration and
Agreement of Trust, including any amendments and/or restatements hereto duly
adopted as provided herein; (ii) certificates in various jurisdictions, and
amendments and/or restatements thereto; (iii) all conveyances and other
instruments which the Managing Owner deems appropriate to qualify or continue
the Trust in the State of Delaware and the jurisdictions in which the Trust may
conduct business, or which may be required to be filed by the Trust or the
Unitholders under the laws of any jurisdiction or under any amendments or
successor statutes to the Act, to reflect the dissolution or termination of the
Trust or the Trust being governed by any amendments or successor statutes to the
Act or to reorganize or refile the Trust in a different jurisdiction; and
(iv) to file, prosecute, defend, settle or compromise litigation, claims or
arbitrations on behalf of the Trust. The Power of Attorney granted
herein shall be irrevocable and deemed to be a power coupled with an interest
(including, without limitation, the interest of the other Unitholders in the
Managing Owner being able to rely on its authority to act as contemplated by
this Section 16) and shall survive and shall not be affected by the
subsequent incapacity, disability or death of a Unitholder.
17. Withdrawal
of a Unitholder.
The Trust
shall be dissolved upon the death, insanity, bankruptcy, retirement,
resignation, expulsion, withdrawal, insolvency or dissolution of the Managing
Owner, or any other event that causes the Managing Owner to cease to be the
managing owner of the Trust, unless the Trust is continued pursuant to the terms
of Section 6(a)(3). In addition, the Managing Owner may withdraw from
the Trust, without any breach of this Declaration and Agreement of Trust, at any
time upon 120 days’ written notice by first class mail, postage prepaid, to the
Trustee, each Unitholder and each assignee of whom the Managing Owner has
notice. If the Managing Owner withdraws from the Trust and all
Unitholders agree in writing to continue the business of the Trust and to the
appointment, effective as of the date of withdrawal of the Managing Owner, of
one or more managing owners, the Managing Owner shall pay all expenses incurred
as a result of its withdrawal. Upon removal or withdrawal, the
Managing Owner shall be entitled to redeem its interest in the Trust at its Net
Asset Value on the next Valuation Date following the date of removal or
withdrawal.
The
Managing Owner may not assign its general liability interest or its obligation
to manage the Trust without the consent of each Unitholder; provided, however,
that the consent of Unitholders is not required if the Managing Owner assigns
its general liability interest and its obligation to manage the Trust to an
entity controlling, controlled by or under common control with the Managing
Owner, provided that such entity (i) expressly assumes all obligations of the
Managing Owner under this Declaration and Agreement of Trust and (ii) is
entitled to act in the capacity of managing owner for the benefit of the
Trust. The Managing Owner shall notify all Unitholders of such
assignment. The Managing Owner will notify all Unitholders of any
change in the principals of the Managing Owner.
The
death, incompetency, withdrawal, insolvency or dissolution of a Unitholder or
any other event that causes a Unitholder to cease to be a beneficial owner
(within the meaning of the Act) in the Trust shall not terminate or dissolve the
Trust, and a Unitholder, the Unitholder’s estate, custodian or personal
representative shall have no right to redeem or value such Unitholder’s interest
except as provided in Section 13 hereof. Each Unitholder that is a
natural Person expressly agrees that in the event of his or her death, he or she
waives on behalf of himself or herself and his or her estate, and directs the
legal representatives of his or her estate and any Person interested therein to
waive, the furnishing of any inventory, accounting or appraisal of the assets of
the Trust and any right to an audit or examination of the books of the
Trust. Nothing in this Section 17 shall, however, waive any right
given elsewhere
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in this Declaration and Agreement of Trust for Unitholders to be
informed of the Net Asset Value of their Units, to receive periodic reports,
audited financial statements and other information from the Managing Owner or
the Trust or to redeem or transfer Units.
18. Benefit
Plan Investors.
Each
Unitholder or assignee that is an “employee benefit plan” as defined in and
subject to ERISA, or a “plan” as defined in Section 4975 of the Code (each such
employee benefit plan and plan, a “Plan”), and each fiduciary thereof who has
caused the Plan to become a Unitholder or assignee (a “Plan Fiduciary”),
represents and warrants that: (a) the Plan Fiduciary has considered
an investment in the Trust by such Plan in light of the risks relating thereto;
(b) the Plan Fiduciary has determined that, in view of such considerations, the
investment in the Trust by the Plan is consistent with the Plan Fiduciary’s
responsibilities under ERISA; (c) the investment in the Trust by the Plan does
not violate, and is not otherwise inconsistent with, the terms of any legal
document constituting the Plan or any trust agreement thereunder; (d) the Plan’s
investment in the Trust has been duly authorized and approved by all necessary
parties; (e) none of the Managing Owner, the Trustee, the Escrow Agent, any of
their respective Affiliates or any of their respective agents or
employees: (i) has investment discretion with respect to the
investment of assets of the Plan used to purchase Units; (ii) has authority or
responsibility to or regularly gives investment advice with respect to the
assets of the Plan used to purchase Units for a fee and pursuant to an agreement
or understanding that such advice will serve as a primary basis for investment
decisions with respect to the Plan and that such advice will be based on the
particular investment needs of the Plan; or (iii) is an employer maintaining or
contributing to the Plan; and (f) the Plan Fiduciary: (i) is
authorized to make, and is responsible for, the decision of the Plan to invest
in the Trust, including the determination that such investment is consistent
with the requirement imposed by Section 404 of ERISA that Plan investments be
diversified so as to minimize the risks of large losses; (ii) is independent of
the Managing Owner, the Trustee, the Escrow Agent, and any of their respective
Affiliates; and (iii) is qualified to make such investment
decision.
19. Standard
of Liability; Indemnification.
(a) Standard of Liability for the
Managing Owner. The Managing Owner and its Affiliates shall
have no liability to the Trust or to any Unitholder for any loss suffered by the
Trust which arises out of any action or inaction of the Managing Owner or its
Affiliates, if the Managing Owner, in good faith, determined that such course of
conduct was in the best interests of the Trust, and such course of conduct did
not constitute negligence or misconduct of the Managing Owner or its
Affiliates.
(b) Indemnification of the Managing
Owner by the Trust. To the fullest extent permitted by law,
subject to this Section 19, the Managing Owner and its Affiliates shall be
indemnified by the Trust against any losses, judgments, liabilities, expenses
and amounts paid in settlement of any claims sustained by them in connection
with the Trust; provided that such claims were not the result of negligence or
misconduct on the part of the Managing Owner or its Affiliates, and the Managing
Owner, in good faith, determined that such conduct was in the best interests of
the Trust; and provided further that Affiliates of the Managing Owner shall be
entitled to indemnification only for losses incurred by such Affiliates in
performing the duties of the Managing Owner and acting wholly within the scope
of the authority of the Managing Owner.
Notwithstanding
anything to the contrary contained in the preceding two paragraphs, the Managing
Owner and its Affiliates and any Persons acting as selling agent for the Units
shall not be indemnified for any losses, liabilities or expenses arising from or
out of an alleged violation of federal or state securities laws unless
(1) there has been a successful adjudication on the merits of each count
involving alleged securities law violations as to the particular indemnitee and
the court approves indemnification of the litigation costs, or (2) such
claims have been dismissed with prejudice on the merits by a court of competent
jurisdiction as to the particular indemnitee and the court approves
indemnification of the litigation costs, or (3) a court of competent
jurisdiction approves a settlement of the claims against a particular indemnitee
and finds that indemnification of the settlement and related costs should be
made.
In any
claim for indemnification for federal or state securities law violations, the
party seeking indemnification shall place before the court the position of the
Securities and Exchange Commission, the California Department of Corporations,
the Massachusetts Securities Division, the Missouri Securities Division, the
Pennsylvania Securities Commission, the Tennessee Securities Division, the Texas
Securities Board and any other state or applicable regulatory authority with
respect to the issue of indemnification for securities law
violations.
The Trust
shall not bear the cost of that portion of any insurance which insures any party
against any liability the indemnification of which is herein
prohibited.
For the
purposes of this Section 19, the term “Affiliates” shall mean any Person acting
on behalf of or performing services on behalf of the Trust
who: (1) directly or indirectly controls, is controlled by, or
is under common control with the Managing Owner; or (2) owns or controls
10% or more of the outstanding voting securities of the Managing Owner; or
(3) is an officer or director of the Managing Owner; or (4) if the
Managing Owner is an officer, director, partner or trustee, is any entity for
which the Managing Owner acts in any such capacity.
Advances
from the funds of the Trust to the Managing Owner or its Affiliates for legal
expenses and other costs incurred as a result of any legal action initiated
against the Managing Owner by a Unitholder are prohibited.
Advances from the funds of
the Trust to the Managing Owner or its Affiliates for legal expenses and other
costs incurred as a result of a legal action will be made only if the following
three conditions are satisfied: (1) the legal action relates to
the performance
A-14
of duties
or services by the Managing Owner or its Affiliates on behalf of the Trust;
(2) the legal action is initiated by a third party who is not a Unitholder;
and (3) the Managing Owner or its Affiliates undertake to repay the
advanced funds, with interest from the initial date of such advance, to the
Trust in cases in which they would not be entitled to indemnification under the
standard of liability set forth in Section 19(a).
In no
event shall any indemnity or exculpation provided for herein be more favorable
to the Managing Owner or any Affiliate than that contemplated by the Guidelines
as in effect on the date of this Declaration and Agreement of
Trust.
In no
event shall any indemnification permitted by this subsection (b) of Section
19 be made by the Trust unless all provisions of this Section for the payment of
indemnification have been complied with in all respects. Furthermore,
it shall be a precondition of any such indemnification that the Trust receive a
determination of qualified independent legal counsel in a written opinion that
the party which seeks to be indemnified hereunder has met the applicable
standard of conduct set forth herein. Receipt of any such opinion
shall not, however, in itself, entitle any such party to indemnification unless
indemnification is otherwise proper hereunder. Any indemnification
payable by the Trust hereunder shall be made only as provided in the specific
case.
In no
event shall any indemnification obligations of the Trust under this subsection
(b) of Section 19 subject a Unitholder to any liability in excess of the
capital contributed by such Unitholder, his or her share of undistributed
profits and assets and the amount of any distributions wrongfully distributed to
such Unitholder.
(c) Indemnification by the
Unitholders. In the event that the Trust is made a party to
any claim, dispute or litigation or otherwise incurs any loss or expense as a
result of or in connection with any activities of a Unitholder, obligations or
liabilities unrelated to the business of the Trust or as a result of or in
connection with a transfer, assignment or other disposition or an attempted
transfer, assignment or other disposition by a Unitholder or an assignee of its
Units or of any part of its right, title and interest in the capital or profits
of the Trust in violation of this Declaration and Agreement of Trust, such
Unitholder shall indemnify and reimburse the Trust for all loss and expense
incurred, including reasonable attorneys’ fees.
The
Managing Owner shall indemnify and hold the Trust harmless from all loss or
expense which the Trust may incur (including, without limitation, any indemnify
payments) as a result of the difference between the standard of liability and
indemnity under the Trading Advisory Agreement(s) and the Customer Agreement, on
the one hand, and the Managing Owner’s standards of liability as set forth
herein, on the other hand.
20. Amendments;
Meetings.
(a) Amendments with Consent of the
Managing Owner. If at any time during the term of the Trust
the Managing Owner shall deem it necessary or desirable to amend this
Declaration and Agreement of Trust, the Managing Owner may proceed to do so,
provided that such amendment shall be effective only if embodied in an
instrument approved by the Managing Owner and, pursuant to a vote called by the
Managing Owner, by the holders of Units representing a majority of the
outstanding Units. Such vote shall be taken at least 30 but not more
than 60 days after delivery by the Managing Owner to each Unitholder of record
by certified mail of notice of the proposed amendment and voting
procedures. Notwithstanding the foregoing, the Managing Owner may
amend this Declaration and Agreement of Trust without the consent of the
Unitholders in order (i) to clarify any clerical inaccuracy or ambiguity or
reconcile any inconsistency (including any inconsistency between this
Declaration and Agreement of Trust and the Prospectus), (ii) to effect the
intent of the allocations proposed herein to the maximum extent possible in the
event of a change in the Code or the interpretations thereof affecting such
allocations, (iii) to attempt to ensure that the Trust is not treated as an
association taxable as a corporation for federal income tax purposes,
(iv) to qualify or maintain the qualification of the Trust as a trust in
any jurisdiction, (v) to delete or add any provision of or to this
Declaration and Agreement of Trust required to be deleted or added by the Staff
of the Securities and Exchange Commission or any other federal agency or any
state “Blue Sky” or similar official or in order to opt to be governed by any
amendment or successor statute to the Act, (vi) to make any amendment to
this Declaration and Agreement of Trust which the Managing Owner deems
advisable, provided that such amendment is for the benefit of and not adverse to
the Unitholders or the Trustee, or that is required by law, (vii) to make
any amendment that is appropriate or necessary, in the opinion of the Managing
Owner, to prevent the Trust or the Managing Owner or its directors, officers or
controlling Persons from in any manner being subjected to the provisions of the
Investment Company Act of 1940, as amended, or to avoid causing the assets of
the Trust from being considered for any purpose of ERISA or Section 4975 of the
Code to constitute assets of any “employee benefit plan,” as defined in and
subject to ERISA, or of a “plan,” as defined in and subject to Section 4975 of
the Code.
(b) Amendments and Actions without
Consent of the Managing Owner. In any vote called by the
Managing Owner or pursuant to subsection (c) of this Section 20, upon the
affirmative vote (which may be in person or by proxy) of more than 50% of the
Units then owned by Unitholders, the following actions may be taken with respect
to the Trust, irrespective of whether the Managing Owner
concurs: (i) this Declaration and Agreement of Trust may be
amended, provided, however, that approval of all Unitholders shall be required
in the case of amendments changing or altering this Section 20 or extending the
term of the Trust; in addition, reduction of the capital account of any
Unitholder or assignee or modification of the percentage of profits, losses or
distributions to which a Unitholder or an assignee is entitled hereunder shall
not be effected by any amendment or supplement to this Declaration and Agreement
of Trust without such Unitholder’s or assignee’s written consent; (ii) the
Trust may be dissolved; (iii) the Managing Owner may be removed and
replaced; (iv) a new managing owner or managing owners may be elected if
the Managing Owner withdraws
A-15
from
the Trust; (v) the sale of all or substantially all of the assets of the
Trust may be approved; and (vi) any contract with the Managing Owner or any
Affiliate thereof may be disapproved and, as a result, terminated upon 60 days’
notice.
(c) Meetings;
Other. Any Unitholder upon request addressed to the
Managing Owner shall be entitled to obtain from the Managing Owner, upon payment
in advance of reasonable reproduction and mailing costs, a list of the names and
addresses of record of all Unitholders and the number of Units held by each
(which shall be mailed by the Managing Owner to the Unitholder within ten days
of the receipt of the request); provided, that the Managing Owner may require
any Unitholder requesting such information to submit written confirmation that
such information will not be used for commercial purposes. Upon
receipt of a written proposal, signed by Unitholders owning Units representing
at least 10% of all Units then owned by Unitholders, that a meeting of the Trust
be called to vote upon any matter upon which the Unitholders may vote pursuant
to this Declaration and Agreement of Trust, the Managing Owner shall, by written
notice to each Unitholder of record sent by certified mail within 15 days after
such receipt, call a meeting of the Trust. Such meeting shall be held
at least 30 but not more than 60 days after the mailing of such notice, and such
notice shall specify the date of, a reasonable place and time for, and the
purpose of such meeting. Such notice shall establish a record date
for Units entitled to vote at the meeting, which shall be not more than 15 days
prior to the date established for such meeting.
The
Managing Owner may not restrict the voting rights of Unitholders as set forth
herein.
(d)
Consent by
Trustee. The Trustee’s written consent to any amendment
of this Declaration and Agreement of Trust shall be required, such consent not
to be unreasonably withheld; provided, however, that the Trustee may, in its
sole discretion, withhold its consent to any such amendment that would adversely
affect any right, duty or liability of, or immunity or indemnity in favor of,
the Trustee under this Declaration and Agreement of Trust or any of the
documents contemplated hereby to which the Trustee is a party, or would cause or
result in any conflict with or breach of any terms, conditions or provisions of,
or default under, the charter documents or by-laws of the Trustee or any
document contemplated hereby to which the Trustee is a party; provided further,
that the Trustee may not withhold consent for any action listed in subsections
20(b)(ii)-(vi). Notwithstanding anything to the contrary contained in
this Declaration and Agreement of Trust, the Trustee may immediately resign if,
in its sole discretion, the Trustee determines that the Unitholders’ actions
pursuant to subsections 20(b)(i)-(vi) would adversely affect the Trustee in any
manner.
21. Governing
Law.
The
validity and construction of this Declaration and Agreement of Trust shall be
determined and governed by the laws of the State of Delaware without regard to
principles of conflicts of law; provided, that causes of action for violations
of federal or state securities laws shall not be governed by this Section
21.
22. Miscellaneous.
(a) Notices. All
notices under this Declaration and Agreement of Trust shall be in writing and
shall be effective upon personal delivery, or if sent by first class mail,
postage prepaid, addressed to the last known address of the party to whom such
notice is to be given, upon the deposit of such notice in the United States
mails.
(b) Binding
Effect. This Declaration and Agreement of Trust shall
inure to and be binding upon all of the parties, their successors and assigns,
custodians, estates, heirs and personal representatives. For purposes
of determining the rights of any Unitholder or assignee hereunder, the Trust and
the Managing Owner may rely upon the Trust records as to who are Unitholders and
assignees, and all Unitholders and assignees agree that their rights shall be
determined and they shall be bound thereby.
(c) Captions. Captions
in no way define, limit, extend or describe the scope of this Declaration and
Agreement of Trust nor the effect of any of its provisions.
23. Certain
Definitions.
[Reserved]
24. No
Legal Title to Trust Estate.
The
Unitholders shall not have legal title to any part of the Trust
Estate.
25. Legal
Title.
Legal
title to all the Trust Estate shall be vested in the Trust as a separate legal
entity; except where applicable law in any jurisdiction requires any part of the
Trust Estate to be vested otherwise, the Managing Owner (or the Trustee, if
required by law) may cause legal title to the Trust Estate or any portion
thereof to be held by or in the name of the Managing Owner or any other Person
as nominee.
26. Creditors.
No
creditors of any Unitholders shall have any right to obtain possession of, or
otherwise exercise legal or equitable remedies with respect to, the Trust
Estate.
A-16
IN
WITNESS WHEREOF, the undersigned have duly executed this Ninth Amended and
Restated Declaration and Agreement of Trust and Trust Agreement as of the day
and year first above written.
WILMINGTON
TRUST COMPANY
not
individually but solely as Trustee
|
||
By:
|
/s/ Joseph B. Feil
|
|
Name: Joseph
B. Feil
|
||
Title:
Vice President
|
||
R.J.
O’BRIEN FUND MANAGEMENT, LLC
|
||
as
Managing Owner
|
||
By:
|
/s/ Annette A. Cazenave
|
|
Name:
Annette A. Cazenave
|
||
Title:
Executive Vice President
|
All
Unitholders now and hereafter admitted as Unitholders of the Trust, pursuant to
powers of attorney now and hereafter executed in favor of, and granted and
delivered to, the Managing Owner.
By:
|
R.J.
O’BRIEN FUND MANAGEMENT, LLC
|
|
as
Attorney-in-Fact
|
By:
|
/s/ Annette A. Cazenave
|
|
Name:
Annette A. Cazenave
|
||
Title:
Executive Vice President
|
A-17
<This Page Intentionally Left
Blank>
EXHIBIT
B
RJO
GLOBAL TRUST
SUBSCRIPTION
REQUIREMENTS
By
executing a Subscription Agreement and Power of Attorney Signature Page for
RJO Global
Trust (the “Trust”), each purchaser (“Purchaser”) of
units of beneficial interest
(“Units”) in the Trust subscribes for Units at the net asset value per
Unit, as described in the Trust’s current Prospectus (the
“Prospectus”). The minimum initial subscription is $5,000;
$2,000 for trustees or custodians of eligible employee benefit plans and
individual retirement accounts. Incremental subscriptions will be
accepted in multiples of $100 in excess of such minimums. Existing
unitholders may make additional investments in the Trust in $1,000 minimums,
also with $100 increments. Units are sold in fractions calculated to
five decimal places.
Purchaser
is herewith delivering to Purchaser’s selling agent (hereinafter, “Selling
Agent”) an executed Subscription Agreement and Power of Attorney Signature Page
and either (i) delivering a check in the full amount of the Purchaser’s
subscription or (ii) hereby authorizing such Selling Agent to debit Purchaser’s
customer securities account maintained with such Selling Agent for the full
amount of Purchaser’s subscription in accordance with the procedures
described under “Plan of Distribution — Subscription Procedure” in the
Prospectus. If Purchaser’s Subscription Agreement and Power of
Attorney is accepted by R.J.
O’Brien Fund Management, LLC, the managing owner of the Trust (the “Managing Owner”), Purchaser
agrees to contribute Purchaser’s subscription to the Trust and to be bound by
the terms of the Trust’s Ninth Amended and Restated Declaration and Agreement of
Trust (Exhibit A to the Prospectus). Purchaser agrees to reimburse
the Trust and the Managing Owner for any expense or loss incurred by either as a
result of the cancellation of Purchaser’s Units due to a failure of the
Purchaser to deliver good funds in the amount of the subscription price of any
or all of such Units.
If the
undersigned is acting on behalf of an “employee benefit plan,” as defined in and
subject to the Employee Retirement Income Security Act of 1974, as amended
(“ERISA”), or any “plan,” as defined in Section 4975 of the Internal Revenue
Code of 1986, as amended (the “Code”) (each such employee benefit plan and plan,
a “Plan”), the individual signing this Subscription Agreement and Power of
Attorney on behalf of the undersigned, in addition to the representations and
warranties set forth above, hereby further represents and warrants as, or on
behalf of, the fiduciary of the Plan responsible for purchasing a Unit (the
“Plan Fiduciary”) that: (a) the Plan Fiduciary has considered an investment in
the Trust for such Plan in light of the risks relating thereto; (b) the Plan
Fiduciary has determined that, in view of such considerations, the investment in
the Trust for such Plan is consistent with the Plan Fiduciary’s responsibilities
under ERISA; (c) the Plan’s investment in the Trust does not violate and is not
otherwise inconsistent with the terms of any legal document constituting the
Plan or any trust agreement thereunder; (d) the Plan’s investment in the Trust
has been duly authorized and approved by all necessary parties; (e) none of the
Managing Owner, the trading advisors, R.J. O’Brien & Associates, LLC, any
Selling Agent, wholesaler or correspondent, JP Morgan Chase (the “Escrow
Agent”), Wilmington Trust Company (the “Trustee”), any of their respective
affiliates or any of their respective agents or employees (i) has investment
discretion with respect to the investment of assets of the Plan used to purchase
Units; (ii) has authority or responsibility to or regularly gives investment
advice with respect to the assets of the Plan used to purchase Units for a fee
and pursuant to an agreement or understanding that such advice will serve as a
primary basis for investment decisions with respect to the Plan and that such
advice will be based on the particular investment needs of the Plan; or (iii) is
an employer maintaining or contributing to the Plan; and (f) the Plan Fiduciary
(i) is authorized to make, and is responsible for, the decision to invest in the
Trust, including the determination that such investment is consistent with the
requirement imposed by Section 404 of ERISA that Plan investments be diversified
so as to minimize the risk of large losses, (ii) is independent of the Managing
Owner, the trading advisors, R.J. O’Brien & Associates, any Selling Agent,
wholesaler or correspondent, the Escrow Agent, the Trustee, and any of their
respective affiliates, and (iii) is qualified to make such investment
decision. The undersigned will, at the request of the Managing Owner,
furnish the Managing Owner with such information as the Managing Owner may
reasonably require to establish that the purchase of Units by the Plan does not
violate any provision of ERISA or the Code, including, without limitation, those
provisions relating to “prohibited transactions” by “parties in interest” or
“disqualified persons” as defined therein.
B-1
Investor
Suitability
Purchaser
acknowledges that the purchase of Units may be made only by persons who, at a
minimum, have (i) a net worth of at least $250,000 (exclusive of home,
furnishings and automobiles) or (ii) an annual gross income of at least $70,000
and a net worth (exclusive of home, furnishings and automobiles) of at least
$70,000.
It
is recommended that no individual Purchaser should invest more than 10% of his
or her net worth in the Units, and no entity Purchaser, including ERISA plans,
should invest more than 10% of its liquid net worth (readily marketable
securities) in the Units.
Residents
of the following states must meet the specific requirements set forth below (net
worth is, in all cases, to be calculated exclusive of home, furnishings and
automobiles).
1.
|
Alabama
|
An
Alabama purchaser may not invest in the Units unless he or she (i) has a
liquid net worth of at least 10 times his or her investment in the Units
and other similar programs, and (ii) has a net worth of at least $250,000
(exclusive of home, furnishings and automobiles) or has an annual gross
income of at least $70,000 and a net worth (exclusive of home, furnishings
and automobiles) of at least $70,000.
|
2.
|
California
|
Annual
gross income of at least $65,000 and a net worth of at least $250,000, or
a net worth of at least $500,000. A California Purchaser may
not invest more than 10% of his or her net worth in the
Units.
|
3.
|
Iowa
|
An
Iowa Purchaser may not invest more than 10% of his or her liquid net worth
in the Trust and its affiliates.
|
4.
|
Kansas
|
Net
worth of at least $250,000, or a net worth of at least $70,000 and an
annual gross income of at least $70,000. It is recommended by
the Office of the Kansas Securities Commissioner that Kansas investors not
invest, in the aggregate, more than 10% of their liquid net worth in this
and similar direct participation investments. Liquid net worth
is defined as that portion of net worth which consists of cash, cash
equivalents, and readily marketable securities.
|
5.
|
Kentucky
|
Liquid
net worth of at least $300,000, or a combined liquid net worth of $85,000
and annual income of $85,000. A Kentucky Purchaser may not
invest more than 10% of his or her liquid net worth in the
Units.
|
6.
|
Maine
|
Minimum
subscription per investment, both initial and subsequent, of
$5,000.
|
7.
|
Michigan
|
A
Michigan Purchaser may not invest more than 10% of his or her net worth in
the Units.
|
8.
|
New
Jersey
|
Annual
gross income of at least $65,000 and a net worth of at least $250,000, or
a net worth of at least $500,000. A New Jersey Purchaser may
not invest more than 10% of his or her net worth in the
Units.
|
9.
|
Oregon
|
An
Oregon Purchaser may not invest more than 10% of his or her net worth in
the Units.
|
10.
|
Pennsylvania
|
A
Pennsylvania Purchaser may not invest more than 10% of his or her net
worth in the Units.
|
11.
|
South
Carolina
|
Net
worth of at least $100,000 or a net income in the preceding year some
portion of which was subject to maximum federal and state income
tax.
|
In the
case of IRA and SEP plans, the foregoing suitability standards are applicable to
the beneficiary of the plan for whose account the Units are being
acquired. In the case of a custodian purchasing Units for a minor,
the Units will be either a gift to the minor and not paid with funds of the
minor or the minor must meet the foregoing suitability standards. In
the case of sales to fiduciary accounts, these minimum standards shall be met by
the beneficiary, the fiduciary account, or by the donor or grantor who directly
or indirectly supplies the funds to purchase the Units if the donor or grantor
is the fiduciary.
B-2
The
foregoing suitability standards are regulatory minimums only. Merely
because Purchaser meets such requirements does not necessarily mean that a high
risk, speculative, and illiquid investment such as the Trust is, in fact,
suitable for Purchaser.
B-3
EXHIBIT
C-A
RJO
GLOBAL TRUST
SUBSCRIPTION
INSTRUCTIONS
FOR
CLASS
A UNITS OF BENEFICIAL INTEREST
CUSIP
74963T106
|
ISIN
US74963T1060
|
Any
person considering subscribing for Class A units of beneficial interest (“Class
A Units”) should carefully read and review the Prospectus, including the Privacy
Policy of the Managing Owner contained therein. The Prospectus must
be accompanied by the most recent Account Statement of the Trust (current within
60 calendar days).
The
Class A Units are speculative and involve a high degree of risk. It
is recommended that no subscriber should invest more than 10% of such
subscriber’s net worth (which excludes home, furnishings and automobiles) in the
Trust.
Attached
to these subscription instructions is a detachable carbonless copy set of the
Subscription Agreement and Power of Attorney Signature Page (the “Signature
Page”) with the Subscription Agreement and Power of Attorney on the reverse
side. The Signature Page is the document which you must execute if
you wish to subscribe for Class A Units. One copy of such Signature
Page should be retained by you for your records and the others delivered to your
Financial Advisor.
FILL
IN ALL THE INFORMATION ON THE ATTACHED SIGNATURE PAGE, USING BLUE OR BLACK INK
ONLY, AS FOLLOWS:
Item
1
|
•
|
Enter
the whole dollar amount of the subscription (no cents).
|
|
Item
2
|
•
|
Enter
the investor’s securities account number and check the appropriate box to
indicate if this is an additional investment.
|
|
Item
3
|
•
|
Enter
the Social Security or Taxpayer ID Number of the
investor.
|
|
Items
4 through 8
|
•
|
The
following specific instructions are provided for certain ownership types
identified on the Signature Page:
|
|
Trust — Enter the
trust’s name in Item 4 and the trustee’s name in Item 5, followed by
“Ttee.”
|
|||
Custodian Under Uniform Gifts
to Minors Act — Complete Item 4 with the name of minor followed by
“UGMA.” Enter the minor’s Social Security Number in Item
3. In Item 8, enter the custodian’s name followed by
“Custodian.” Be sure to furnish the Taxpayer ID Number of the
Custodian.
|
|||
Partnership or
Corporation — The partnership’s or corporation’s name is required
in Item 4. Enter a partner’s or officer’s name in Item
5. Enter the Taxpayer ID Number of the partnership or
corporation in Item 3.
|
|||
Non-Taxable Investor —
If applicable, complete Item 8 for the Custodian. Be sure to
furnish the Taxpayer ID Number of the Custodian as well as the Custodian
name and address. The Custodian must sign in the space
provided.
|
|||
•
|
Complete
residence address in Item 6 and mailing address (if different) in Item
7.
|
||
•
|
Check
the appropriate box to indicate the type of ownership (Tax Category) for
the entity that is subscribing. In the case of joint ownership,
either Social Security Number may be used. If the Non-Taxable
Investor is a plan or IRA of a Financial Advisor, check the box for
“Other” and indicate “Selling Agent Plan” in the space
provided.
|
||
•
|
The
investor(s) must review the representations relating to backup withholding
tax (“United States Investors Only” section) or non-resident alien status
(“Non-United States Investors Only” section) following Item
8. Check box if applicable.
|
||
Item
9
|
•
|
U.S.
investors must check the box, as appropriate.
|
|
Item
10
|
•
|
Maine
investors must initial the indicated lines, as
appropriate.
|
|
Item
11
|
•
|
All
investor(s) must sign where indicated.
|
|
Item
12
|
•
|
Financial
Advisor must complete.
|
The
Financial Advisor’s copy of the Subscription Agreement and Power of Attorney
Signature Page
may
be required to be retained in the Branch Office.
C-A-1
RJO
GLOBAL TRUST
CLASS
A UNITS OF BENEFICIAL INTEREST
CUSIP
74963T106
|
ISIN
US74963T1060
|
BY
EXECUTING THIS SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
SUBSCRIBERS
ARE NOT WAIVING ANY RIGHTS UNDER THE SECURITIES ACT OF 1933
OR
THE SECURITIES EXCHANGE ACT OF 1934
SUBSCRIPTION
AGREEMENT AND POWER OF ATTORNEY
RJO
GLOBAL TRUST
c/o
ACS Securities Services, Inc.
3988
North Central Expwy, Bldg 5, Floor 6
Dallas,
TX 75204
|
Dear
Sirs:
1. Subscription for
Units. I hereby subscribe for the dollar amount of Class A units of beneficial
interest (“Class A
Units”) in RJO Global
Trust (the “Trust”) set forth in the Subscription Agreement and Power of
Attorney Signature Page attached hereto (minimum $5,000; $2,000 for trustees or
custodians of eligible employee benefit plans and individual retirement
accounts), at a purchase price per Class A Unit of net asset
value. Incremental subscriptions in excess of the foregoing minimums
are permitted in $100 multiples. Existing investors may subscribe for
additional Class A Units in $1,000 minimums, also with $100
increments. Fractional Class A Units will be issued to five decimal
places. The terms of the offering of the Class A Units are described
in the current prospectus of the Trust (the “Prospectus”). I have
either (i) authorized my financial advisor to debit my customer securities
account in the amount of my subscription or (ii) delivered a check to my
Financial Advisor made payable to “RJO Global Trust
Subscriptions.” If I have chosen to subscribe by account
debit, I acknowledge that I must have my subscription payment in such account
when I submit my subscription. My financial advisor shall debit my
account and the amounts so debited will be transmitted directly to the Trust’s
subscription account with JP Morgan Chase. R.J. O’Brien Fund Management, LLC
(the “Managing Owner”) may, in its sole and absolute discretion, accept
or reject this subscription in whole or in part. All Class A Units are offered subject
to prior sale.
Subscriptions
must be received by the Managing Owner no later than five business days before
month-end (including the last business day of the month) in order to be invested
in the Class A Units as of the end of the month. Any natural person,
partnership, corporation, association or other legal entity, including the
Managing Owner, selling the Class A Units may not complete a sale of the Class A
Units to a prospective investor until at least five business days after the date
the prospective investors receives the final Prospectus. The Managing
Owner will send each subscriber whose subscription for Units has been accepted a
confirmation of such acceptance and their purchase of the Units.
2. Representations and
Warranties of Subscriber. (INITIAL AS
APPROPRIATE):
________
|
I
have received the Prospectus and an account statement (current within 60
days) relating to the Trust.
|
|
________
|
I
meet the applicable requirements relating to net worth and annual income
as set forth in “Exhibit B – Subscription Requirements” to the
Prospectus.
|
|
|
||
________
|
I
am purchasing the Class A Units for my own account.
|
|
________
|
I
acknowledge that my investment in the Trust is not liquid except for
limited redemption provisions.
|
|
________
|
(FOR EMPLOYEE BENEFIT PLANS
ONLY): The investment in the Class A Units by such employee benefit
plan is in compliance with all federal laws relating to such
plans.
|
|
________
|
(FOR TRUSTS UNDER EMPLOYEE
BENEFIT PLANS ONLY): None of the Trustee, the Managing Owner, the
Trading Advisors, the futures broker, any Selling Agent, Wholesaler or
correspondent, or the Escrow Agent, any of their respective affiliates or
any of their respective agents or employees: (i) has investment discretion
with respect to the investment of the assets of such trust being used to
purchase Class A Units; (ii) has authority or responsibility to give or
regularly gives investment advice with respect to such trust assets for a
fee and pursuant to an agreement or understanding that such advice will be
based on the particular investment needs of the trust; or (iii) is an
employer maintaining or contributing to the trust.
|
|
________
|
(FOR NON-INDIVIDUAL SUBSCRIBERS
ONLY): Subscriber is authorized to invest in the Trust and the
person signing the Subscription Agreement and Power of Attorney Signature
Page on behalf of the subscriber is duly authorized to execute such
Signature Page.
|
|
________
|
Subscriber
is registered with the Commodity Futures Trading Commission and is a
member of National Futures Association in all capacities that subscriber
is required to be registered or such a member.
|
|
________
|
(FOR CUSTODIANS OF MINORS
ONLY): The Class A Units purchased will be either a gift to the
minor and not paid with funds of the minor or the minor meets the net
worth and annual income requirements set forth in “Exhibit B —
Subscription Requirements” to the Prospectus.
|
|
________
|
(FOR MAINE INVESTORS
ONLY): I have (i) a net worth of at least $250,000 (exclusive of
home, furnishings and automobiles) or (ii) an annual gross income of at
least $70,000 and a net worth of at least $70,000 (exclusive of home,
furnishings and automobiles). If a subscriber is an individual
purchaser, subscriber is not investing more than 10% of his or her net
worth (exclusive of home, furnishings and automobiles) in the Class A
Units. If subscriber is an entity purchaser, including an ERISA
plan, subscriber is not investing more than 10% of its liquid net worth
(readily marketable securities) in the Class A Units.
|
|
________
|
(FOR KANSAS INVESTORS
ONLY): I have (i) a net worth of at least $250,000 (exclusive of
home, furnishings, and automobiles) or (ii) an annual gross income of at
least $70,000 and a net worth of at least $70,000 (exclusive of home,
furnishings, and automobiles). It is recommended by the Office
of the Kansas Securities Commissioner that Kansas investors not invest, in
the aggregate, more than 10% of their liquid net worth in this and similar
direct participation investments. Liquid net worth is defined
as that portion of net worth which consists of cash, cash equivalents, and
readily marketable
securities.
|
3. Power of
Attorney. In connection with my purchase of Class A
Units, I do hereby irrevocably constitute and appoint the Managing Owner and its
successors and assigns, as my true and lawful Attorney-in-Fact, with full power
of substitution, in my name, place and stead, to (i) file, prosecute, defend,
settle or compromise litigation, claims or arbitrations on behalf of the Trust
and (ii) make, execute, sign, acknowledge, swear to, deliver, record and file
any documents or instruments which may be considered necessary or desirable by
the Managing Owner to carry out fully the provisions of the Ninth Amended and
Restated Declaration and Agreement of Trust of the Trust, including, without
limitation, the execution of the said Agreement itself and the execution of all
amendments permitted by the terms thereof. The Power of Attorney
granted hereby shall be deemed to be coupled with an interest, shall be
irrevocable, shall survive, and shall not be affected by, my subsequent death,
incapacity, disability, insolvency or dissolution or any delivery by me of an
assignment of the whole or any portion of my Class A Units.
Signature:
|
|
Date:
|
|
4. Governing
Law. Subscriber hereby acknowledges and agrees that this
Subscription Agreement and Power of Attorney derives from a
business initiated in and concluded in the United States of America
and shall be governed by and be interpreted in accordance with the laws of the
State of Delaware, without regard to principles of conflicts of laws
thereof.
5. Risks. These securities are
speculative and involve a high degree of risk. It is recommended that
you should invest no more than 10% of your net worth (excluding home,
furnishings and automobiles) in the Trust. Risk factors relating to
the Class A Units include the following:
(i)
You could lose all or substantially all of your investment in the Trust; (ii)
the Trust is speculative and it takes positions with total values that are
bigger than the total amount of the Trust’s assets; the face value of the
Trust’s positions typically range from two to fifteen times its aggregate Net
Asset Value; (iii) performance has been volatile; past performance is not
necessarily indicative of future results; (iv) the Trust must generate trading
profits, after taking into account estimated interest income of 0.20%, of 7.70%
with respect to Class A Units to cover its expenses and break even; (v) there is
no market for the Class A Units; Class A Units may only be redeemed as of the
end of a calendar month subject to a 1.5% redemption charge through the end of
the eleventh month after issuance; (vi) the Trust trades to a substantial degree
on non-U.S. markets which are not subject to the same degree of regulation as
U.S. markets; (vii) investors are required to make representations and
warranties in connection with their investment; and (viii) each prospective
investor is encouraged to discuss the investment with his/her individual
financial, legal and tax adviser.
See “The
Risks You Face” beginning at page 12 of the Prospectus.
PLEASE
COMPLETE THE SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY SIGNATURE PAGE WHICH
ACCOMPANIES THIS PROSPECTUS CAREFULLY AND ENSURE THAT YOUR FINANCIAL ADVISOR
KNOWS WHETHER YOU ARE SUBSCRIBING BY CHECK OR ACCOUNT DEBIT.
C-A-2
RJO
GLOBAL TRUST
SUBSCRIPTION
AGREEMENT AND POWER OF ATTORNEY SIGNATURE PAGE
CLASS
A UNITS
(See
Subscription Instructions on Cover)
The
investor named below, by executing and delivering this Signature Page and by
payment of the purchase price for Class A units of beneficial interest (“Class A
Units”) in RJO Global
Trust (the “Trust”), and by either (i) enclosing a check payable to “RJO Global Trust
Subscriptions” or (ii) authorizing the Selling Agent (or Additional
Selling Agent, as the case may be) to debit investor’s securities account in the
amount set forth below, hereby subscribes for the purchase of Class A Units at a
purchase price of 100% of the net asset value per Unit.
The named
investor further acknowledges receipt of the current Prospectus of the Trust
(the “Prospectus”), together with a recent Account Statement relating to the
Trust (current within 60 calendar days) and the Trust’s most recent Annual
Report if not included in the Prospectus. The Prospectus includes the
Trust’s Ninth Amended and Restated Declaration and Agreement of Trust,
Subscription Requirements and Subscription Agreement and Power of Attorney, the
terms of which govern the investment in the Class A Units being subscribed for
hereby.
1)
|
Investment
Amount $_________________________________
|
2)
|
Investor’s
securities account: Account #____________________
|
|
(minimum
$5,000, except $2,000 minimum for IRAs and
|
¨ Check box if debiting investor’s securities account | |||
other
qualified accounts; $1,000 minimum for additional investments; $100
increments)
|
¨ Check box if making an additional investment | |||
3)
|
Social
Security # |___|___|___| - |___|___| -
|___|___|___|___|
|
or
|
Taxpayer ID
# |___|___|- |___|___|___|___|___|___|___|
|
|
Taxable
Investors (check one)
|
||||
¨ Individual
Investor
¨ Community
Property
¨ Partnership
¨ Tenants
in Common ¨ Estate
|
||||
¨ Joint
Tenants with Right of Survivorship ¨ Limited
Liability Company ¨ UGMA/UTMA (Minor) ¨ Corporation ¨ Trust
|
||||
Non-Taxable
Investors — Custodian Signature Required (check
one)
|
||||
¨ IRA ¨ IRA
Rollover ¨ Profit
Sharing ¨ SEP
IRA ¨ 401(k)
|
||||
¨ Roth
IRA ¨ Pension ¨ Defined
Benefit ¨
Other
___________________________________________
|
||||
4)
|
Investor(s)
Name(s): ______________________________________________________________________________________________________
|
|||
5)
|
Additional
Information (For Estates, Partnerships, Trusts and
Corporations)___________________________________________________________
|
|||
6)
|
Residence
Address of Unitholder:
|
|||
|
||||
Street
(P.O. Box numbers are not acceptable for residence
address)
|
City State Zip
|
|||
7)
|
Mailing
Address (if different):
|
|||
|
||||
Street
|
City
State Zip
|
|||
8)
|
Custodian
Information: Taxpayer
ID# |___|___|
-|___|___|___|___|___|___|___| Custodian
Account Number ____________________
|
|||
|
||||
Name
Street
City
State Zip
|
9)
|
UNITED
STATES INVESTORS ONLY
|
I
have checked the following box if I am subject to backup withholding under the
provisions of Section 3406(a)(1)(C) of the Internal Revenue Code: o. Under
penalty of perjury, I certify that: (1) the number shown on this form is my
correct taxpayer identification number (or I am waiting for a number to be
issued to me); (2) I am not subject to backup withholding because: (a) I am
exempt from backup withholding, (b) I have not been notified by the Internal
Revenue Service (IRS) that I am subject to backup withholding as a result of a
failure to report all interest or dividends, or (c) the IRS has notified me that
I am no longer subject to backup withholding; and (3) I am a U.S. citizen or
other U.S. person.
NON-UNITED
STATES INVESTORS ONLY
Under
penalties of perjury, by signature below I hereby certify that I am not a U.S.
Person (including (a) a citizen or resident of the United States or (b) (in the
case of an investor which is not an individual) a United States corporation,
partnership, estate or trust). Moreover, under penalties of perjury,
by signature below I certify that I am (or am authorized to sign for) the
beneficial owner (as defined in the Internal Revenue Code) of all the income to
which this form relates. I have attached an original Form
W-8.
10)
|
MAINE
INVESTOR(S) ONLY MUST INITIAL
|
__________
|
I/We
have received the current Prospectus of the Trust (the “Prospectus”),
including the Ninth Amended and Restated Declaration and Agreement of
Trust and a Subscription Agreement and Power of Attorney, the terms of
which govern my investment in the Class A Units, together with the Trust’s
most recent Annual Report (unless the information in such Annual Report
has been included in the Prospectus).
|
__________
|
I/We
meet the minimum income and net worth standards as set forth in Exhibit B
to the Prospectus with respect to Maine investors.
|
__________
|
I/We
am/are purchasing Class A Units for my/our own account.
|
__________
|
If
this investment is for a qualified employee benefit plan, an individual
retirement account or other tax-exempt investor, in making this investment
on behalf of each entity, I/we have satisfied myself/ourselves as to the
potential tax consequences on this
investment.
|
11)
|
INVESTOR(S)
MUST SIGN
|
The
Internal Revenue Service does not require your consent to any provisions of this
document other than the certifications required to avoid backup withholding set
forth after Section 8 above.
|
|
|||
Signature
|
Date
|
Signature
of Joint Investor (if any)
|
Date
|
Executing
and delivering this Subscription Agreement and Power of Attorney shall in no
respect be deemed to constitute a waiver of any rights under the Securities Act
of 1933 or under the Securities Exchange Act of 1934.
12)
|
FINANCIAL
ADVISOR MUST SIGN
|
I hereby
certify that I have provided the investor with a copy of the Prospectus and
informed the investor of all pertinent facts relating to the: risks; tax
consequences; liquidity and marketability; management; and control of the
Managing Owner with respect to an investment in the Class A Units, as set forth
in the Prospectus. I have also informed the investor of the
unlikelihood of a public trading market developing for the Class A Units and the
restrictions on the redemption of Class A Units. I do not have
discretionary authority over the account of the investor.
I have
reasonable grounds to believe, based on information obtained from the investor
concerning his/her investment objectives, other investments, financial situation
and needs and any other information known by me, that an investment in the Trust
is suitable for such investor in light of his/her financial position, net worth
and other suitability characteristics. The Financial Advisor MUST sign below
in order to substantiate compliance with Rule 2310 of the
FINRA.
X
|
|
X
|
|
||||
Financial
Advisor Signature
|
Date
|
CRD#
|
Office
Manager Signature (if required)
|
Date |
13)
|
Broker-Dealer
Firm: ____________________
|
Financial
Advisor: ____________________________
|
|
First M.I. Last
|
Financial
Advisor Mailing Address:
________________________________________________________________
Street (P.O.
Box numbers are not acceptable for residence
address) City State Zip
|___|___|___|-|___|___|___|-|___|___|___|___|
|
|___|___|___|-|___|___|___|-|___|___|___|___|
|
___________________________________
|
||
Financial
Advisor Phone
|
Financial
Advisor Fax
|
E-mail
address
|
C-A-3
<This Page Intentionally Left
Blank>
EXHIBIT
C-B
RJO
GLOBAL TRUST
____________________
SUBSCRIPTION
INSTRUCTIONS
FOR
CLASS
B (zero commission class) UNITS OF BENEFICIAL INTEREST
CUSIP
74963T205
|
ISIN
US74963T2050
|
Any
person considering subscribing for Class B units of beneficial interest (“Class
B Units”) should carefully read and review the Prospectus, including the Privacy
Policy of the Managing Owner contained therein. The Prospectus must
be accompanied by the most recent Account Statement of the Trust (current within
60 calendar days).
The
Class B Units are speculative and involve a high degree of risk. It
is recommended that no subscriber should invest more than 10% of such
subscriber’s net worth (which excludes home, furnishings and automobiles) in the
Trust.
Attached
to these subscription instructions is a detachable carbonless copy set of the
Subscription Agreement and Power of Attorney Signature Page (the “Signature
Page”) with the Subscription Agreement and Power of Attorney on the reverse
side. The Signature Page is the document which you must execute if
you wish to subscribe for Class B Units. One copy of such Signature
Page should be retained by you for your records and the others delivered to your
Financial Advisor.
FILL
IN ALL THE INFORMATION ON THE ATTACHED SIGNATURE PAGE, USING BLUE OR BLACK INK
ONLY, AS FOLLOWS:
Item
1
|
•
|
Enter
the whole dollar amount of the subscription (no cents).
|
|
Item
2
|
•
|
Enter
the investor’s securities account number and check the appropriate box to
indicate if this is an additional investment.
|
|
Item
3
|
•
|
Enter
the Social Security or Taxpayer ID Number of the
investor.
|
|
Items
4 through 8
|
•
|
The
following specific instructions are provided for certain ownership types
identified on the Signature Page:
|
|
Trust — Enter the
trust’s name in Item 4 and the trustee’s name in Item 5, followed by
“Ttee.”
|
|||
Custodian Under Uniform Gifts
to Minors Act — Complete Item 4 with the name of minor followed by
“UGMA.” Enter the minor’s Social Security Number in Item
3. In Item 8, enter the custodian’s name followed by
“Custodian.” Be sure to furnish the Taxpayer ID Number of the
Custodian.
|
|||
Partnership or
Corporation — The partnership’s or corporation’s name is required
in Item 4. Enter a partner’s or officer’s name in Item
5. Enter the Taxpayer ID Number of the partnership or
corporation in Item 3.
|
|||
Non-Taxable Investor —
If applicable, complete Item 8 for the Custodian. Be sure to
furnish the Taxpayer ID Number of the Custodian as well as the Custodian
name and address. The Custodian must sign in the space
provided.
|
|||
•
|
Complete
residence address in Item 6 and mailing address (if different) in Item
7.
|
||
•
|
Check
the appropriate box to indicate the type of ownership (Tax Category) for
the entity that is subscribing. In the case of joint ownership,
either Social Security Number may be used. If the Non-Taxable
Investor is a plan or IRA of a Financial Advisor, check the box for
“Other” and indicate “Selling Agent Plan” in the space
provided.
|
||
•
|
The
investor(s) must review the representations relating to backup withholding
tax (“United States Investors Only” section) or non-resident alien status
(“Non-United States Investors Only” section) following Item
8. Check box if applicable.
|
||
Item
9
|
•
|
U.S.
investors must check the box, as appropriate.
|
|
Item
10
|
•
|
Maine
investors must initial the indicated lines, as
appropriate.
|
|
Item
11
|
•
|
All
investor(s) must sign where indicated.
|
|
Item
12
|
•
|
Financial
Advisor must complete.
|
The
Financial Advisor’s copy of the Subscription Agreement and Power of Attorney
Signature Page
may
be required to be retained in the Branch Office.
C-B-1
RJO
GLOBAL TRUST
CLASS
B UNITS OF BENEFICIAL INTEREST
CUSIP
74963T205
|
ISIN
US74963T2050
|
BY
EXECUTING THIS SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
SUBSCRIBERS
ARE NOT WAIVING ANY RIGHTS UNDER THE SECURITIES ACT OF 1933
OR
THE SECURITIES EXCHANGE ACT OF 1934
SUBSCRIPTION
AGREEMENT AND POWER OF ATTORNEY
RJO
GLOBAL TRUST
c/o
ACS Securities Services, Inc.
3988
North Central Expwy, Bldg 5, Floor 6
Dallas,
TX 75204
Dear
Sirs:
1. Subscription for
Units. I hereby subscribe for the dollar amount of Class B units of beneficial
interest (“Class B
Units”) in RJO Global
Trust (the “Trust”) set forth in the Subscription Agreement and Power of
Attorney Signature Page attached hereto (minimum $5,000; $2,000 for trustees or
custodians of eligible employee benefit plans and individual retirement
accounts), at a purchase price per Class B Unit of net asset
value. Incremental subscriptions in excess of the foregoing minimums
are permitted in $100 multiples. Existing investors may subscribe for
additional Class B Units in $1,000 minimums, also with $100
increments. Fractional Class B Units will be issued to five decimal
places. The terms of the offering of the Class B Units are described
in the current prospectus of the Trust (the “Prospectus”). I have
either (i) authorized my financial advisor to debit my customer securities
account in the amount of my subscription or (ii) delivered a check to my
Financial Advisor made payable to “RJO Global Trust
Subscriptions.” If I have chosen to subscribe by account
debit, I acknowledge that I must have my subscription payment in such account
when I submit my subscription. My financial advisor shall debit my
account and the amounts so debited will be transmitted directly to the Trust’s
subscription account with JP Morgan Chase. R.J. O’Brien Fund Management, LLC
(the “Managing Owner”) may, in its sole and absolute discretion, accept
or reject this subscription in whole or in part. All Class B Units are offered subject
to prior sale.
Subscriptions
must be received by the Managing Owner no later than five business days before
month-end (including the last business day of the month) in order to be invested
in the Class B Units as of the end of the month. Any natural person,
partnership, corporation, association or other legal entity, including the
Managing Owner, selling the Class B Units may not complete a sale of the Class B
Units to a prospective investor until at least five business days after the date
the prospective investors receives the final Prospectus. The Managing
Owner will send each subscriber whose subscription for Units has been accepted a
confirmation of such acceptance and their purchase of the Units.
2. Representations and
Warranties of Subscriber. (INITIAL AS
APPROPRIATE):
________
|
I
have received the Prospectus and an account statement (current within 60
days) relating to the Trust.
|
|
________
|
I
meet the applicable requirements relating to net worth and annual income
as set forth in “Exhibit B – Subscription Requirements” to the
Prospectus.
|
|
________
|
I
am purchasing the Class B Units for my own account.
|
|
________
|
I
acknowledge that my investment in the Trust is not liquid except for
limited redemption provisions.
|
|
________
|
(FOR EMPLOYEE BENEFIT PLANS
ONLY): The investment in the Class B Units by such employee benefit
plan is in compliance with all federal laws relating to such
plans.
|
|
________
|
(FOR TRUSTS UNDER EMPLOYEE
BENEFIT PLANS ONLY): None of the Trustee, the Managing Owner, the
Trading Advisors, the futures broker, any Selling Agent, Wholesaler or
correspondent, or the Escrow Agent, any of their respective affiliates or
any of their respective agents or employees: (i) has investment discretion
with respect to the investment of the assets of such trust being used to
purchase Class B Units; (ii) has authority or responsibility to give or
regularly gives investment advice with respect to such trust assets for a
fee and pursuant to an agreement or understanding that such advice will be
based on the particular investment needs of the trust; or (iii) is an
employer maintaining or contributing to the trust.
|
|
________
|
(FOR NON-INDIVIDUAL SUBSCRIBERS
ONLY): Subscriber is authorized to invest in the Trust and the
person signing the Subscription Agreement and Power of Attorney Signature
Page on behalf of the subscriber is duly authorized to execute such
Signature Page.
|
|
________
|
Subscriber
is registered with the Commodity Futures Trading Commission and is a
member of National Futures Association in all capacities that subscriber
is required to be registered or such a member.
|
|
________
|
(FOR CUSTODIANS OF MINORS
ONLY): The Class B Units purchased will be either a gift to the
minor and not paid with funds of the minor or the minor meets the net
worth and annual income requirements set forth in “Exhibit B —
Subscription Requirements” to the Prospectus.
|
|
________
|
(FOR MAINE INVESTORS
ONLY): I have (i) a net worth of at least $250,000 (exclusive of
home, furnishings and automobiles) or (ii) an annual gross income of at
least $70,000 and a net worth of at least $70,000 (exclusive of home,
furnishings and automobiles). If a subscriber is an individual
purchaser, subscriber is not investing more than 10% of his or her net
worth (exclusive of home, furnishings and automobiles) in the Class B
Units. If subscriber is an entity purchaser, including an ERISA
plan, subscriber is not investing more than 10% of its liquid net worth
(readily marketable securities) in the Class B Units.
|
|
________
|
(FOR KANSAS INVESTORS
ONLY): I have (i) a net worth of at least $250,000 (exclusive of
home, furnishings, and automobiles) or (ii) an annual gross income of at
least $70,000 and a net worth of at least $70,000 (exclusive of home,
furnishings, and automobiles). It is recommended by the Office
of the Kansas Securities Commissioner that Kansas investors not invest, in
the aggregate, more than 10% of their liquid net worth in this and similar
direct participation investments. Liquid net worth is defined
as that portion of net worth which consists of cash, cash equivalents, and
readily marketable
securities.
|
3. Power of
Attorney. In connection with my purchase of Class B
Units, I do hereby irrevocably constitute and appoint the Managing Owner and its
successors and assigns, as my true and lawful Attorney-in-Fact, with full power
of substitution, in my name, place and stead, to (i) file, prosecute, defend,
settle or compromise litigation, claims or arbitrations on behalf of the Trust
and (ii) make, execute, sign, acknowledge, swear to, deliver, record and file
any documents or instruments which may be considered necessary or desirable by
the Managing Owner to carry out fully the provisions of the Ninth Amended and
Restated Declaration and Agreement of Trust of the Trust, including, without
limitation, the execution of the said Agreement itself and the execution of all
amendments permitted by the terms thereof. The Power of Attorney
granted hereby shall be deemed to be coupled with an interest, shall be
irrevocable, shall survive, and shall not be affected by, my subsequent death,
incapacity, disability, insolvency or dissolution or any delivery by me of an
assignment of the whole or any portion of my Class B Units.
Signature:
|
|
Date:
|
|
4. Governing
Law. Subscriber hereby acknowledges and agrees that this
Subscription Agreement and Power of Attorney derives from a
business initiated in and concluded in the United States of America
and shall be governed by and be interpreted in accordance with the laws of the
State of Delaware, without regard to principles of conflicts of laws
thereof.
5. Risks. These securities are
speculative and involve a high degree of risk. It is recommended that
you should invest no more than 10% of your net worth (excluding home,
furnishings and automobiles) in the Trust. Risk factors relating to
the Class B Units include the following:
(i)
You could lose all or substantially all of your investment in the Trust; (ii)
the Trust is speculative and it takes positions with total values that are
bigger than the total amount of the Trust’s assets; the face value of the
Trust’s positions typically range from two to fifteen times its aggregate Net
Asset Value; (iii) performance has been volatile; past performance is not
necessarily indicative of future results; (iv) the Trust must generate trading
profits, after taking into account estimated interest income of 0.20%, of 5.70%
with respect to Class B Units to cover its expenses and break even; (v) there is
no market for the Class B Units; Class B Units may only be redeemed as of the
end of a calendar month subject to a 1.5% redemption charge through the end of
the eleventh month after issuance; (vi) the Trust trades to a substantial degree
on non-U.S. markets which are not subject to the same degree of regulation as
U.S. markets; (vii) investors are required to make representations and
warranties in connection with their investment; and (viii) each prospective
investor is encouraged to discuss the investment with his/her individual
financial, legal and tax adviser.
See “The
Risks You Face” beginning at page 12 of the Prospectus.
PLEASE
COMPLETE THE SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY SIGNATURE PAGE WHICH
ACCOMPANIES THIS PROSPECTUS CAREFULLY AND ENSURE THAT YOUR FINANCIAL ADVISOR
KNOWS WHETHER YOU ARE SUBSCRIBING BY CHECK OR ACCOUNT DEBIT.
C-B-2
RJO
GLOBAL TRUST
SUBSCRIPTION
AGREEMENT AND POWER OF ATTORNEY SIGNATURE PAGE
CLASS
B UNITS
(See
Subscription Instructions on Cover)
The
investor named below, by executing and delivering this Signature Page and by
payment of the purchase price for Class B units of beneficial interest (“Class B
Units”) in RJO Global
Trust (the “Trust”), and by either (i) enclosing a check payable to “RJO Global Trust
Subscriptions” or (ii) authorizing the Selling Agent (or Additional
Selling Agent, as the case may be) to debit investor’s securities account in the
amount set forth below, hereby subscribes for the purchase of Class B Units at a
purchase price of 100% of the net asset value per Unit.
The named
investor further acknowledges receipt of the current Prospectus of the Trust
(the “Prospectus”), together with a recent Account Statement relating to the
Trust (current within 60 calendar days) and the Trust’s most recent Annual
Report if not included in the Prospectus. The Prospectus includes the
Trust’s Ninth Amended and Restated Declaration and Agreement of Trust,
Subscription Requirements and Subscription Agreement and Power of Attorney, the
terms of which govern the investment in the Class B Units being subscribed for
hereby.
1)
|
Investment
Amount $_________________________________
|
2)
|
Investor’s
securities account: Account #____________________
|
|
(minimum
$5,000, except $2,000 minimum for IRAs and
|
¨ Check box if debiting investor’s securities account | |||
other
qualified accounts; $1,000 minimum for additional investments; $100
increments)
|
¨ Check box if making an additional investment | |||
3)
|
Social
Security # |___|___|___| - |___|___| -
|___|___|___|___|
|
or
|
Taxpayer ID
# |___|___|- |___|___|___|___|___|___|___|
|
|
Taxable
Investors (check one)
|
||||
¨ Individual
Investor
¨ Community
Property
¨ Partnership
¨ Tenants
in Common ¨ Estate
|
||||
¨ Joint
Tenants with Right of Survivorship ¨ Limited
Liability Company ¨ UGMA/UTMA (Minor) ¨ Corporation ¨ Trust
|
||||
Non-Taxable
Investors — Custodian Signature Required (check
one)
|
||||
¨ IRA ¨ IRA
Rollover ¨ Profit
Sharing ¨ SEP
IRA ¨ 401(k)
|
||||
¨ Roth
IRA ¨ Pension ¨ Defined
Benefit ¨
Other
___________________________________________
|
||||
4)
|
Investor(s)
Name(s): ______________________________________________________________________________________________________
|
|||
5)
|
Additional
Information (For Estates, Partnerships, Trusts and
Corporations)___________________________________________________________
|
|||
6)
|
Residence
Address of Unitholder:
|
|||
|
||||
Street
(P.O. Box numbers are not acceptable for residence
address)
|
City State Zip
|
|||
7)
|
Mailing
Address (if different):
|
|||
|
||||
Street
|
City
State Zip
|
|||
8)
|
Custodian
Information: Taxpayer
ID# |___|___|
-|___|___|___|___|___|___|___| Custodian
Account Number ____________________
|
|||
|
||||
Name
Street
City
State Zip
|
9)
|
UNITED
STATES INVESTORS ONLY
|
I
have checked the following box if I am subject to backup withholding under the
provisions of Section 3406(a)(1)(C) of the Internal Revenue Code: o. Under
penalty of perjury, I certify that: (1) the number shown on this form is my
correct taxpayer identification number (or I am waiting for a number to be
issued to me); (2) I am not subject to backup withholding because: (a) I am
exempt from backup withholding, (b) I have not been notified by the Internal
Revenue Service (IRS) that I am subject to backup withholding as a result of a
failure to report all interest or dividends, or (c) the IRS has notified me that
I am no longer subject to backup withholding; and (3) I am a U.S. citizen or
other U.S. person.
NON-UNITED
STATES INVESTORS ONLY
Under
penalties of perjury, by signature below I hereby certify that I am not a U.S.
Person (including (a) a citizen or resident of the United States or (b) (in the
case of an investor which is not an individual) a United States corporation,
partnership, estate or trust). Moreover, under penalties of perjury,
by signature below I certify that I am (or am authorized to sign for) the
beneficial owner (as defined in the Internal Revenue Code) of all the income to
which this form relates. I have attached an original Form
W-8.
10)
|
MAINE
INVESTOR(S) ONLY MUST INITIAL
|
__________
|
I/We
have received the current Prospectus of the Trust (the “Prospectus”),
including the Ninth Amended and Restated Declaration and Agreement of
Trust and a Subscription Agreement and Power of Attorney, the terms of
which govern my investment in the Class B Units, together with the
Trust’s most recent Annual Report (unless the information in such Annual
Report has been included in the Prospectus).
|
__________
|
I/We
meet the minimum income and net worth standards as set forth in Exhibit B
to the Prospectus with respect to Maine investors.
|
__________
|
I/We
am/are purchasing Class B Units for my/our own
account.
|
__________
|
If
this investment is for a qualified employee benefit plan, an individual
retirement account or other tax-exempt investor, in making this investment
on behalf of each entity, I/we have satisfied myself/ourselves as to the
potential tax consequences on this
investment.
|
11)
|
INVESTOR(S)
MUST SIGN
|
The
Internal Revenue Service does not require your consent to any provisions of this
document other than the certifications required to avoid backup withholding set
forth after Section 8 above.
|
|
|||
Signature
|
Date
|
Signature
of Joint Investor (if any)
|
Date
|
Executing
and delivering this Subscription Agreement and Power of Attorney shall in no
respect be deemed to constitute a waiver of any rights under the Securities Act
of 1933 or under the Securities Exchange Act of 1934.
12)
|
FINANCIAL
ADVISOR MUST SIGN
|
I hereby
certify that I have provided the investor with a copy of the Prospectus and
informed the investor of all pertinent facts relating to the: risks; tax
consequences; liquidity and marketability; management; and control of the
Managing Owner with respect to an investment in the Class B Units, as set
forth in the Prospectus. I have also informed the investor of the
unlikelihood of a public trading market developing for the Class B Units
and the restrictions on the redemption of Class B Units. I do
not have discretionary authority over the account of the investor.
I have
reasonable grounds to believe, based on information obtained from the investor
concerning his/her investment objectives, other investments, financial situation
and needs and any other information known by me, that an investment in the Trust
is suitable for such investor in light of his/her financial position, net worth
and other suitability characteristics. The Financial Advisor MUST sign below
in order to substantiate compliance with Rule 2310 of the
FINRA.
X
|
|
X
|
|
||||
Financial
Advisor Signature
|
Date
|
CRD#
|
Office
Manager Signature (if required)
|
Date |
13)
|
Broker-Dealer
Firm: ____________________
|
Financial
Advisor: ____________________________
|
|
First M.I. Last
|
Financial
Advisor Mailing Address:
________________________________________________________________
Street (P.O.
Box numbers are not acceptable for residence
address) City State Zip
|___|___|___|-|___|___|___|-|___|___|___|___|
|
|___|___|___|-|___|___|___|-|___|___|___|___|
|
___________________________________
|
||
Financial
Advisor Phone
|
Financial
Advisor Fax
|
E-mail
address
|
C-B-3
<This Page Intentionally Left
Blank>
EXHIBIT
D
RJO
GLOBAL TRUST
UNITS
OF BENEFICIAL INTEREST
REQUEST
FOR REDEMPTION
Date
|
RJO
GLOBAL TRUST
c/o
ACS Securities Services, Inc.
3988
North Central Expwy, Bldg 5, Floor 6
Dallas,
TX 75204
Dear
Sirs:
The
undersigned hereby requests redemption subject to all the terms and conditions
of the Ninth Amended and Restated Declaration and Agreement of Trust (the
“Declaration and Agreement of Trust”) of RJO GLOBAL TRUST (the “Trust”) of
either Class A or Class B Units of Beneficial Interest (“Units”) in the
Trust. (Insert
class and number of Units to be redeemed below. Unitholders need not
redeem all of their Units, provided that at least $1,000 of Units are redeemed
and a minimum investment of $1,000 is maintained after any partial
redemption. If no number of Units is indicated, ALL Units held by the
undersigned will be redeemed.) Units are redeemed at the net
asset value per Unit, as defined in the Declaration and Agreement of Trust, less
any applicable redemption charge (see below). Redemption shall be
effective as of the end of the current calendar month, provided this Request for
Redemption is received no later than five business days before the end of such
month (including the last business day of the month). Payment of the
redemption proceeds will generally be made within ten business days of the date
of redemption.
The
undersigned hereby represents and warrants that the undersigned is the true,
lawful and beneficial owner of the Units to which this Request for Redemption
relates, with full power and authority to request redemption of such
Units. Such Units are not subject to any pledge or otherwise
encumbered in any fashion.
Units
redeemed at or prior to the end of the eleventh full month after such Units are
sold are subject to redemption charges of 1.5% of the net asset value of Units
at which they are redeemed. Such charges will be deducted from the
redemption proceeds and paid to R.J. O’Brien Fund Management, LLC, the Trust’s
managing owner. If the undersigned has purchased Units at more than
one closing, such Units will be treated on a first-in/first-out basis for
purposes of determining whether redemption charges continue to be applicable to
such Units.
___________________
United
States Unitholders Only:
The
undersigned has checked the following box if he, she or it is subject to backup
withholding under the provisions of Section 3406(a)(1)(C) of the Internal
Revenue Code: □. Under the penalties of perjury, I certify that: (1)
the number shown on this form is my correct taxpayer identification number (or I
am waiting for a number to be issued to me); (2) I am not subject to backup
withholding because: (a) I am exempt from backup withholding, I have not been
notified by the Internal Revenue Service (IRS) that I am subject to backup
withholding as a result of a failure to report all interest or dividends, or (c)
the IRS has notified me that I am no longer subject to backup withholding; and
(3) I am a U.S. citizen or other U.S. person.
Non-United
States Unitholders Only:
Under
penalties of perjury, by signature: below, the undersigned hereby certifies that
he, she or it is not a U.S. person (including (a) a citizen or resident of the
United States or (b) (in the case of an investor which is not an individual) a
United States corporation, partnership, estate or trust). Moreover,
under penalties of perjury, by signature below the undersigned certifies that
he, she or it is (or is authorized to sign for) the beneficial owner (as defined
in the Internal Revenue Code) of all the income to which this form
relates. The undersigned has attached the appropriate Form W-8 as
instructed by his, her or its Financial Advisor.
X_______________________________________.
D-1
Tax ID –
SS# or Fed No. (No hyphens):
___________________ Account
Number: ___________________
Account
Name:
_______________________________________________________________________________
Type of
Account:
_____________________________________________________________________________
(i.e.,
IRA, Individual, Trust, Joint Tenant)
Please
note that custodial signatures & medallion stamps are required for all IRA
accounts
Account Mailing Address (this
must match mailing address on account):
Street or
P.O. Box
____________________________________________________________________________
City
_______________________________________________________________________________________
State
___________________________ Zip_________________________ Country_______________________
Phone______________________________________________________________________________________
RJO
Global Trust:
Redeem:
Class of Units (write “A” or “B”):
________________________________________________________
Number of
Units (Write “ALL” for full redemption):
________________________________________________
(Check
one)
__________
Mail check to the address above
__________
Credit my customer securities account at:
(custodial
accounts can ONLY be credited back to the customer’s securities
account)
Name of Broker Dealer:
_____________________________________________________________
Account Name:
___________________________________________________________________
Account Number:
____________________________________________________________
SIGNATURES
MUST BE IDENTICAL TO NAME(S) IN WHICH UNITS ARE REGISTERED.
Please
place custodian medallion stamp in box below
|
|||
|
|||
Individual
Unitholder (required in all cases)
|
|||
|
|||
Individual
Unitholder (if Joint Tenant account)
|
|||
|
|||
Authorized
Corporate Officer, Partner, Trustee, or Custodian (if
applicable)
|
D-2
No
person is authorized to give any information or to make any representation not
contained in this prospectus in connection with the matters described herein,
and, if given or made, such information or representation must not be relied
upon as having been authorized. This prospectus does not constitute
an offer by any person within any jurisdiction in which such offer is not
authorized, or in which the person making such offer is not qualified to do so,
or to any person to whom such offer would be unlawful. The delivery
of this prospectus at any time does not imply that information contained herein
is correct as of any time subsequent to the date of its issue.
Until
,
2010 (40 days after the date of this prospectus), all dealers effecting
transactions in the registered securities whether or not participating in the
distribution, may be required to deliver a prospectus. This
requirement is in addition to the obligation of dealers to deliver a prospectus
when acting as underwriters.
PART
TWO
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item
13. Other Expenses of Issuance and Distribution
The
following is an estimate of the costs incurred in connection with preparing and
filing this registration statement. The trust will pay all such
costs.
Approximate
Amount
|
||||
Registration
Fee
|
$ | 0 | ||
FINRA
Fee
|
$ | 500 | ||
Printing
Expenses
|
$ | 12,000 | ||
Fees
of Certified Public Accountants
|
$ | 5,000 | ||
Blue
Sky Expenses (Excluding Legal Fees)
|
$ | 110,000 | ||
Fees
of Counsel
|
$ | 60,000 | ||
Escrow
Fees
|
$ | 0 | ||
Advertising
and Sales Literature
|
$ | 13,000 | ||
Miscellaneous
Offering Costs
|
$ | 8,000 | ||
Total
|
$ | 208,500 |
Item
14. Indemnification of Directors and Officers
Section
19 of the Ninth Amended and Restated Declaration and Agreement of Trust, as
amended (attached as Exhibit A to the prospectus which forms a part of this
registration statement) provides for the indemnification of the managing owner,
certain of its affiliates and certain of their respective directors, officers
and controlling persons by the registrant in certain circumstances. Such
indemnification is limited to claims sustained by such persons in connection
with the registrant, provided that such claims were not the result of negligence
or misconduct on the part of the managing owner or its affiliates, directors,
officers and controlling persons. The trust is prohibited from incurring
the cost of any insurance covering any broader indemnification than that
provided for in the Ninth Amended and Restated Declaration and Agreement of
Trust. Advances of trust funds to cover legal expenses and other costs
incurred as a result of any legal action initiated against the managing owner by
a unitholder are prohibited.
Item
15. Recent Sales of Unregistered Securities
There
have been no unregistered sales of the securities of the trust within the last
three years.
II-1
Item
16. Exhibits and Financial Statement Schedules
The
following documents (unless indicated) are filed herewith and made a part of
this registration statement.
(a)
|
Exhibits.
|
Exhibit
|
||
Number
|
Description of Document
|
|
1.01
|
Second
Amended and Restated Selling Agreement among R.J.
O’Brien Securities, LLC (the “Lead Selling Agent”), RJO Global
Trust (the “Registrant”), R.J. O’Brien Fund Management LLC (the “Managing
Owner”) (1)
|
|
1.02
|
First
Amendment to the Second Amended and Restated Selling Agreement, made as of
June 29, 2010, among the Lead Selling Agent, the Registrant, and the
Managing Owner
|
|
3.01
|
Ninth
Amended and Restated Declaration and Agreement of Trust, dated as of
September 1, 2010 (included as Exhibit A to the
Prospectus)
|
|
3.02
|
Restated Certificate
of Trust (2)
|
|
5.01
|
Opinion
of Richards, Layton & Finger, P.A. regarding the legality of the
Units
|
|
8.01
|
Opinion
of Alston & Bird LLP with respect to Federal Income Tax
Aspects
|
|
10.01
|
Form
of Subscription Agreement and Power of Attorney (included as Exhibits C-A
and C-B to the Prospectus)
|
|
10.02*
|
Amended
and Restated Advisory Agreement, made as of September 16, 2008, among JWH
Global Trust, R.J. O’Brien Fund Management, LLC, and John W. Henry &
Company, Inc. (3)
|
|
10.03*
|
Advisory
Agreement, made as of August 25, 2008, among JWH Global Trust, R.J.
O’Brien Fund Management, LLC, and Abraham Trading, L.P.
(3)
|
|
10.04*
|
Advisory
Agreement, made as of February 1, 2009, among RJO Global Trust, R.J.
O’Brien Fund Management, LLC, and NuWave Investment Management, LLC
(1)
|
|
10.05*
|
Advisory
Agreement, made as of June 1, 2009, among RJO Global Trust, R.J. O’Brien
Fund Management, LLC, and Global Advisors (Jersey) Limited
(4)
|
|
10.06*
|
Advisory
Agreement, made as of July 1, 2009, among RJO Global Trust, R.J. O’Brien
Fund Management, LLC, and Conquest Capital LLC (4)
|
|
10.07*
|
Advisory
Agreement, made as of July 1, 2009, among RJO Global Trust,
R.J. O’Brien Fund Management, LLC, and Haar Capital Management, LLC
(4)
|
|
10.08*
|
Advisory
Agreement, made as of October 1, 2010, among RJO Global Trust, R.J.
O’Brien Fund Management, LLC, and Dominion Capital Management
Institutional Advisors, Inc. (5)
|
|
10.09*
|
Advisory
Agreement, made as of October 1, 2010, among RJO Global Trust, R.J.
O’Brien Fund Management, LLC, and Trigon Investment Advisors, LLC
(5)
|
|
10.10
|
Customer
Agreement between the Registrant and R.J. O’Brien & Associates, Inc.,
dated as of September 27, 2006 (6)
|
|
13.01
|
Annual
Report to Unitholders for Fiscal Year 2009 (7)
|
|
23.01
|
Consent
of CF & Co., L.L.P., dated December 2, 2010
|
|
23.02
|
Consent
of KPMG LLP, dated April 5, 2010
(8)
|
II-2
*Confidential
Treatment was requested and granted with respect to the omitted portions of
these exhibits.
(1)
|
Incorporated
by reference herein from the exhibit of the same description filed on
March 30, 2009 with the Registrant’s Annual Report on Form
10-K.
|
(2)
|
Incorporated
by reference herein from the exhibit of the same description filed on
September 30, 2008 on Form 8-K.
|
(3)
|
Incorporated
by reference herein from the exhibit of the same description filed on
October 6, 2008 with Post-Effective Amendment No. 2 to the Registrant’s
Registration Statement on Form S-1 (Reg. No.
333-146177).
|
(4)
|
Incorporated
by reference herein from the exhibit of the same description filed on
August 14, 2009 with the Registrant’s Quarterly Report on Form
10-Q.
|
(5)
|
Incorporated
by reference herein from the exhibit of the same description filed on
November 12, 2010 with the Registrant’s Quarterly Report on Form
10-Q.
|
(6)
|
Incorporated
by reference herein from the exhibit of the same description filed on July
5, 2007 with the Registrant’s Annual Report on Form
10-K.
|
(7)
|
Incorporated
by reference herein from the exhibit of the same description filed on
March 31, 2010 with the Registrant’s Annual Report on Form
10-K.
|
(8)
|
Incorporated
by reference herein from the exhibit of the same description filed on
April 7, 2010 with Post-Effective Amendment No. 5 to the Registrant’s
Registration Statement on Form S-1 (Reg. No.
333-146177).
|
(b) Financial
Statement Schedules.
The
financial statements of the registrant are incorporated by reference from
Exhibit 13.01 to the trust’s Annual Report on Form 10-K, filed with the SEC on
March 31, 2010.
Item
17. Undertakings
The
undersigned registrant hereby undertakes:
(a)(1) To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To
include any prospectus required by Section 10(a)(3) of the Securities Act of
1933;
(ii) To
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20 percent
change in the maximum aggregate offering price set forth in the “Calculation of
Registration Fee” table in the effective registration statement;
(iii) To
include any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change to
such information in the registration statement.
(2) That,
for the purpose of determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
II-3
(3) To
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
(4) That,
for the purpose of determining liability under the Securities Act of 1933 to any
purchaser, each prospectus filed pursuant to Rule 424(b) as part of a
registration statement relating to an offering, other than registration
statements relying on Rule 430B or other than prospectuses filed in reliance on
Rule 430A (§230.430A of this chapter), shall be deemed to be part of and
included in the registration statement as of the date it is first used after
effectiveness. Provided, however, that no
statement made in a registration statement or prospectus that is part of the
registration statement or made in a document incorporated or deemed incorporated
by reference into the registration statement or prospectus that is part of the
registration statement will, as to a purchaser with a time of contract of sale
prior to such first use, supersede or modify any statement that was made in the
registration statement or prospectus that was part of the registration statement
or made in any such document immediately prior to such date of first
use.
(5) The
undersigned registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the registrant’s
annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan’s annual
report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona fide offering
thereof.
(b) Insofar
as indemnification from liabilities under the Securities Act of 1933 may be
permitted to the directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant had been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to the court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-4
Signatures
Pursuant
to the requirements of the Securities Act of 1933, the managing owner of the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Chicago,
State of Illinois on the 2nd day of
December, 2010.
RJO
GLOBAL TRUST
|
|
By: R.J.
O’Brien Fund Management, LLC,
|
|
its
Managing Owner
|
|
By:
|
/s/ Annette A. Cazenave
|
Name: Annette
A. Cazenave
|
|
Title: Executive
Vice President
|
Pursuant
to the requirements of the Securities Act of 1933, this registration statement
has been signed by the following persons in the capacities and on the date
indicated.
Signature
|
Title
|
Date
|
|||
R.J.
O’BRIEN FUND MANAGEMENT, LLC
|
|||||
Managing
Owner of the Registrant
|
|||||
R.J.
O' Brien Fund Management, LLC
|
|||||
By:
|
/s/ Annette A. Cazenave
|
December
2, 2010
|
|||
Annette
A. Cazenave
|
|||||
Executive
Vice President and Director,
|
|||||
R.J.
O’Brien Fund Management, LLC
|
|||||
/s/ Gerald Corcoran
|
Chief
Executive Officer and Director,
|
||||
Gerald
Corcoran
|
R.J.
O’Brien Fund Management, LLC
|
December
2, 2010
|
|||
/s/ Thomas J. Anderson
|
Chief
Financial Officer and Director,
|
||||
Thomas
J. Anderson
|
R.J.
O’Brien Fund Management, LLC
|
December
2, 2010
|
|||
/s/ Annette A. Cazenave
|
Executive
Vice President and Director,
|
||||
Annette
A. Cazenave
|
R.J.
O’Brien Fund Management, LLC
|
December
2, 2010
|
II-5