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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2012

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from to

 

Commission File Number: 000-22887

 

RJO GLOBAL TRUST

(Exact name of registrant as specified in its charter)

 

Delaware 36-4113382
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)

 

c/o R.J. O’Brien Fund Management, LLC

222 South Riverside Plaza

Suite 900

Chicago, IL 60606

(Address of principal executive offices) (Zip Code)

 

(312) 373-5000

(Registrant's telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x Yes ¨ No

 

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

x Yes ¨ No

 

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

 

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

 

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

¨ Yes x No

 

 
 

 

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION 1
     
  Item 1. Financial Statements 1
     
  Consolidated Statements of Financial Condition, as of March 31, 2012 (unaudited) and December 31, 2011 1
 
  Condensed Consolidated Schedules of Investments, as of March 31, 2012 (unaudited)  and December 31, 2011  2
     
  Consolidated Statements of Operations, for the three months ended March 31, 2012 and 2011 (unaudited) 3
     
  Consolidated Statement of Changes in Unitholders’ Capital, for the three months ended March 31, 2012 (unaudited) 4
     
  Notes to Consolidated Financial Statements 5
     
  Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14
     
  Item 3. Quantitative and Qualitative Disclosures about Market Risk 17
     
  Item 4. Controls and Procedures 17
     
PART II. OTHER INFORMATION 18
     
  Item 1. Legal Proceedings 18
     
  Item 1A. Risk Factors 18
     
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 18
     
  Item 6. Exhibits 19
     
SIGNATURES   20

 

 
 

  

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

RJO GLOBAL TRUST AND SUBSIDIARY

Consolidated Statements of Financial Condition

 

    March 31,    December 31, 
    2012    2011 
    UNAUDITED      
 Assets          
           
Assets:          
Equity in commodity Trading accounts:          
Cash on deposit with broker  $2,382,766   $2,670,744 
Unrealized gain on open contracts   11,536    363,947 
Purchased options on futures contracts (premiums paid - $37,722 and $33,376, respectively)   55,307    22,525 
Total due from broker   2,449,609    3,057,216 
           
Cash and cash equivalents on deposit with affiliate   5,851,390    9,596,823 
Cash on deposit with bank   1,324    648 
Fixed income securities (cost $22,676,316 and $21,993,704, respectively), held by affiliate   22,629,381    21,870,890 
Interest receivable   71,679    123,363 
Cash on deposit with bank - Non-Trading   1,009,290    1,647,219 
Prepaid expenses - Non-Trading   135,509    95,825 
           
Total Assets  $32,148,182   $36,391,984 
           
Liabilites and Unitholders' Capital          
           
Liabilities:          
Equity in commodity Trading accounts: Options written on futures contracts (premiums received - $14,375)  $-   $1,006 
Accrued commissions   90,841    111,034 
Accrued management fees   43,957    48,884 
Accrued operating expenses   152,593    217,118 
Redemptions payable-Trading   774,512    493,332 
Accrued legal fees- Non-Trading   53,000    500 
Accrued management fees to U.S. Bank-Non-Trading   18,899    31,715 
Distribution payable - Non-Trading   1,530    536,188 
Total liabilities   1,135,332    1,439,777 
           
Unitholders' capital:          
Unitholders' capital (Trading):          
Beneficial owners          
Class A (334,053 and 355,858 units outstanding at March 31, 2012 and December 31, 2011, respectively)   28,853,520    32,497,392 
Class B (11,301 and 12,697 units outstanding at March 31, 2012 and December 31, 2011, respectively)   1,041,735    1,231,294 
Managing owner (535 Class A units outstanding at March 31, 2012 and December 31, 2011)   46,210    48,857 
           
Unitholders' capital (LLC equity/Non-Trading):          
Participating owners (287,669 and 306,807 units outstanding at March 31, 2012 and December 31, 2011, respectively)   135,206    158,535 
Nonparticipating owners (1,985,619 and 1,966,481 units outstanding at March 31, 2012 and December 31, 2011, respectively)   936,179    1,016,129 
           
Total unitholders' capital   31,012,850    34,952,207 
           
Total Liabilities and Unitholders' Capital  $32,148,182   $36,391,984 
           
Net asset value per unit:          
Trading:          
Class A  $86.37   $91.32 
Class B  $92.18   $96.98 
LLC equity/Non-Trading  $0.47   $0.52 

 

See accompanying notes to consolidated financial statements.

 

1
 

 

RJO GLOBAL TRUST AND SUBSIDIARY

Condensed Consolidated Schedules of Investments

 

   March 31, 2012   December 31, 2011 
   Percentage of       Percentage of     
   Net Assets   Fair value   Net Assets   Fair value 
   UNAUDITED         
Long Positions                    
Fixed Income Securities                    
Certificate of Deposit                    
Japan                    
Financials (cost $801,128)   2.58%  $800,016    -   $- 
                     
Commercial Paper                    
South Korea Financials (cost $1,497,579)   4.84%   1,499,940    -    - 
United States Energy (cost $1,242,569)   -    -    3.56%   1,242,938 
Financials (cost $1,896,629)   -    -    5.44%   1,899,873 
Total Commercial Paper   4.84%   1,499,940    9.00%   3,142,811 
                     
Corporate Bonds                    
United States Financials (cost $3,948,291 and $6,682,059, respectively)   12.61%   3,912,133    19.22%   6,717,547 
Australia Financials (cost $4,424,295) Great Britain   14.22%   4,409,269    -    - 
Energy (cost $1,527,135)   -    -    4.31%   1,506,885 
Total Corporate Bonds   26.83%   8,321,402    23.53%   8,224,432 
                     
Government Agencies                    
United States US Government Agency (cost $12,000,029 and $10,499,879, respectively)   38.70%   12,003,030    30.04%   10,498,215 
                     
Short-Term Investment Funds                    
United States Short-Term Investment Funds (cost $4,993 and $5,432, respectively)   0.02%   4,993    0.02%   5,432 
                     
Total Fixed Income Securities (cost $22,676,316 and $21,993,704, respectively)       $22,629,381        $21,870,890 
                     
Long Positions                    
Futures Positions                    
Agriculture   0.15%  $45,082    0.01%  $3,573 
Currency   -0.05%   (16,672)   0.03%   9,244 
Energy   -0.12%   (38,425)   -0.34%   (119,410)
Indices   0.14%   43,768    0.05%   17,851 
Interest rates   0.16%   49,146    0.40%   139,768 
Metals   -0.71%   (221,421)   -0.23%   (80,138)
                     
Forward Positions                    
Currency   0.12%   38,003    -0.99%   (344,428)
                     
Total long positions on open contracts       $(100,519)       $(373,540)
                     
Short Positions                    
Futures Positions                    
Agriculture   0.09%  $26,969    0.02%  $6,835 
Currency   -0.18%   (54,733)   -0.02%   (5,365)
Energy   0.17%   53,989    0.64%   225,038 
Indices   0.06%   19,184    -0.13%   (47,027)
Interest rates   -0.08%   (24,997)   -0.03%   (10,045)
Metals   0.59%   181,887    0.21%   72,320 
                     
Forward Positions                    
Currency   -0.29%   (90,244)   1.42%   495,731 
                     
Total short positions on open contracts       $112,055        $737,487 
                     
Total unrealized gain on open contracts       $11,536        $363,947 
                     
Long put options on future contracts                    
Energy (premiums paid - $10,320)   0.08%  $25,680    -   $- 
Interest rates(premiums paid - $10,359)   0.04%   13,547    -    - 
Currency (premiums paid - $17,043 and $33,376, respectively)   0.05%   16,080    0.06%   22,525 
Total long put options on futures contracts       $55,307        $22,525 
                     
Short put options on future contracts                    
Currency (premiums received - $14,375)   -   $-    -   $(1,006)

 

See accompanying notes to consolidated financial statements.

 

2
 

 

RJO GLOBAL TRUST AND SUBSIDIARY

Consolidated Statements of Operations

 

   For the three months ended March 31, 
   2012   2011 
   UNAUDITED     
Trading gain (loss):          
Gain (loss) on trading of commodity contracts:           
Realized gain (loss) on closed positions  $(805,366)  $(563,273)
Change in unrealized gain (loss) on open positions   (337,344)   (425,355)
Foreign currency transaction gain (loss)   (11,477)   137,497 
Total Trading gain (loss)   (1,154,187)   (851,131)
           
Net investment income (loss):          
Interest income   98,940    82,844 
Realized gain (loss) on fixed income securities   (131,014)   (20,130)
Change in unrealized gain (loss) on fixed income securities   81,309    10,316 
Total net investment gain (loss)   49,235    73,030 
           
Expenses:          
Commissions - Class A   386,838    606,676 
Commissions - Class B   8,489    10,103 
Advisory fees   15,319    15,266 
Management fees   135,619    213,022 
Incentive fees   -    58,100 
Ongoing offering expenses   16,466    30,000 
Operating expenses   133,533    185,000 
Total expenses   696,264    1,118,167 
           
Trading income (loss)   (1,801,216)   (1,896,268)
           
Non-Trading income (loss):          
Interest on Non-Trading reserve   59    1,864 
Legal and administrative fees   (756)   (42,100)
Management fees paid to US Bank   (102,582)   (75,608)
Non-Trading income (loss)   (103,279)   (115,844)
           
Net income (loss)  $(1,904,495)  $(2,012,112)

 

See accompanying notes to consolidated financial statements.

 

3
 

 

RJO GLOBAL TRUST AND SUBSIDIARY

Consolidated Statement of Changes in Unitholders’ Capital

For the three months ended March 31, 2012

UNAUDITED

 

Unitholders' Capital (Trading)  Beneficial Owners - Trading Class A   Beneficial Owners - Trading Class B   Managing Owners -Trading Class A 
   Units   Dollars   Units   Dollars   Units   Dollars 
                         
Balances at December 31, 2011   355,858   $32,497,392    12,697   $1,231,294    535   $48,857 
Trading income (loss)   -    (1,740,142)   -    (58,427)   -    (2,647)
Unitholders' contributions   1,574    137,392    -    -    -    - 
Unitholders redemptions   (23,379)   (2,041,122)   (1,396)   (131,132)   -    - 
Balances at March 31, 2012   334,053    28,853,520    11,301    1,041,735    535    46,210 
                               

 

Unitholders' Capital (Trading)  Total Unitholders' Capital - Trading 
   Units   Dollars 
         
Balances at December 31, 2011   369,090   $33,777,543 
Trading income (loss)   -    (1,801,216)
Unitholders' contributions   1,574    137,392 
Unitholders' redemptions   (24,775)   (2,172,254)
Balances at March 31, 2012   345,889    29,941,465 

 

Unitholders' Capital (LLC Equity/Non-
Trading)
  Participating Owners-   Nonparticipating Owners-   Total Unitholders' Capital- 
   LLC Equity/Non-Trading   LLC Equity/Non-Trading   LLC Equity/Non-Trading 
   Units   Dollars   Units   Dollars   Units   Dollars 
                         
Balances at December 31, 2011   306,807   $158,535    1,966,481   $1,016,129    2,273,288   $1,174,664 
Non-Trading income (loss)   -    (14,334)   -    (88,945)   -    (103,279)
Reallocation due to Redemptions   (19,138)   (8,995)   19,138    8,995    -    - 
Balances at March 31, 2012   287,669    135,206    1,985,619    936,179    2,273,288    1,071,385 
                               
Total Unitholders Capital at December 31, 2011                           $31,012,850 

 

   Unitholders' Capital   Unitholders' Capital   Unitholders' Capital 
   Trading Class A   Trading Class B   (LLC Equity/Non-Trading) 
Net asset value per unit at December 31, 2011  $91.32   $96.98   $0.52 
Net change per unit   (4.95)   (4.80)   (0.05)
Net asset value per unit at March 31, 2012  $86.37   $92.18   $0.47 

 

See accompanying notes to consolidated financial statements.

 

4
 

 

RJO GLOBAL TRUST AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2012

(Unaudited)

 

(1) General Information and Summary

 

RJO Global Trust (the “Trust”), a Delaware statutory trust organized on November 12, 1996, was formed to engage in the speculative trading of futures contracts on currencies, interest rates, energy and agricultural products, metals, commodity indices and stock indices, spot and forward contracts on currencies and precious metals, and exchanges for physicals pursuant to the trading instructions of independent trading advisors. Since December 1, 2006, R.J. O’Brien Fund Management, LLC (“RJOFM” or the “Managing Owner”) has been the Managing Owner of the Trust. R.J. O’Brien & Associates, LLC (“RJO”), an affiliate of RJOFM, is the clearing broker and the broker for forward contracts for the Trust. R.J. O’Brien Securities, LLC (“Selling Agent”) is the lead selling agent of the units of beneficial interest of the Trust (the “Units”).

 

The Trust is a multi-advisor commodity pool where trading decisions for the Trust are delegated to nine independent commodity trading advisors (each an “Advisor” and collectively the “Advisors”) as of March 31, 2011, pursuant to advisory agreements executed between the Trust and each Advisor (each an “Advisory Agreement” and collectively the “Advisory Agreements”).

 

Units of beneficial ownership of the Trust commenced selling on April 3, 1997.  Effective July 1, 2011, the Managing Owner determined to discontinue the public offering of the Units and begin offering the Units on a private placement basis only.  The Trust filed a Post-Effective Amendment to its Registration Statement on Form S-1 with the Securities and Exchange Commission (the “SEC”) on July 5, 2011 to deregister the remaining Units that were unsold under the public offering.  The Post-Effective Amendment was declared effective by the SEC on July 8, 2011.

 

The Trust currently offers two classes of Units on a private basis: Class A Units and Class B Units.  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.  Both Class A and Class B Units are traded pursuant to identical trading programs and differ only in respect to selling commissions.  See Note (8) for further detail regarding commissions.

 

The Trust will be terminated on December 31, 2026, unless terminated earlier upon the occurrence of one of the following: (1) beneficial owners holding more than 50% of the outstanding Units notify the Managing Owner to dissolve the Trust as of a specific date; (2) 120 days after the filing of a bankruptcy petition by or against the Managing Owner, unless the bankruptcy court approves the sale and assignment of the interests of the Managing Owner to a purchaser/assignor that assumes the duties of the Managing Owner; (3) 120 days after the notice of the retirement, resignation, or withdrawal of the Managing Owner, unless beneficial owners holding more than 50% of the outstanding Units appoint a successor; (4) 90 days after the insolvency of the Managing Owner or any other event that would cause the Managing Owner to cease being managing owner of the Trust, unless beneficial owners holding more than 50% of the outstanding Units appoint a successor; (5) dissolution of the Managing Owner; (6) insolvency or bankruptcy of the Trust; (7) a decline in the aggregate net assets of the Trust to less than $2,500,000; (8) a decline in the net asset value per Unit to $50 or less; (9) dissolution of the Trust; or (10) any event that would make it unlawful for the existence of the Trust to be continued or require dissolution of the Trust.

 

Prior to December 1, 2006, the managing owner of the Trust was Refco Commodity Management, Inc. (“RCMI”). An affiliate of RCMI, Refco Capital Markets, Ltd. (“RCM”) had held certain assets of the Trust, acting as the Trust’s broker of forward contracts during 2005. During that year, RCM experienced financial difficulties resulting in RCM’s inability to liquidate the assets. RCM filed for bankruptcy protection in October, 2005. As a result, the Trust held a bankruptcy claim against RCM.

 

Effective January 1, 2007, JWH Special Circumstance LLC (the “LLC”), a Delaware limited liability company, was established to pursue the claims against RCM. Any assets or liabilities held by the LLC are designated as “Non-Trading.” Any revenue earned or expenses incurred by the LLC are also designated as “Non-Trading.” The Trust is the sole member of the LLC and holds that membership for the benefit of the unitholders who were investors in the Trust at the time of the bankruptcy of RCM. U.S. Bank National Association (“US Bank”) is the manager of the LLC. US Bank may make distributions to the unitholders, as defined above, upon collection, sale, settlement or other disposition of the bankruptcy claim and after payment of all fees and expenses pro rata to the unitholders, as follows:

 

5
 

 

(a)Any unitholder who had redeemed their entire interest in the Trust prior to distribution shall receive cash.
   
(b)Any unitholder who had continued to own Units in the Trust shall receive additional Units in the Trust at the then net asset value of the Trust.

 

The unitholders have no right to request redemptions from the LLC.

 

The LLC agreed to compensate US Bank, as manager, the following: (1) an initial acceptance fee of $120,000; (2) an annual fee of $25,000; (3) a distribution fee of $25,000 per distribution; (4) out-of-pocket expenses; and (5) an hourly fee for all personnel at the then expected hourly rate ($350 per hour at the time the agreement was executed).

 

See Note (6) for further detail regarding collection and distribution activity related to the assets held at RCM.

 

(2)Summary of Significant Accounting Policies

 

The accounting and reporting policies of the Trust conform to accounting principles generally accepted in the United States of America and to practices in the commodities industry. The following is a description of the more significant of those policies that the Trust follows in preparing its consolidated financial statements.

 

(a)Basis of Presentation

 

The accompanying unaudited consolidated financial statements of the Trust have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with rules and regulations of the SEC. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the financial condition and results of operations of the Trust for the periods presented have been included.

 

The Trust’s unaudited consolidated financial statements and the related notes should be read together with the consolidated financial statements and related notes included in the Trust’s Annual Report on Form 10-K for the year ended December 31, 2011.

 

(b)Principles of Consolidation

 

The accompanying consolidated financial statements include the accounts of the Trust and its wholly-owned subsidiary, JWH Special Circumstance, LLC. All material intercompany transactions have been eliminated upon consolidation.

 

(c)Revenue Recognition

 

Commodity futures contracts, forward contracts, physical commodities, and related options are recorded on the trade date. All such transactions are recorded on the identified cost basis and measured at fair value daily. Unrealized gains on open contracts reflected in the consolidated statements of financial condition represent the difference between original contract amount and fair value (as determined by exchange settlement prices for futures contracts and related options and cash dealer prices at a predetermined time for forward contracts, physical commodities, and their related options) as of the last business day of the year or as of the last date of the consolidated financial statements. As the broker has the right of offset, the Trust presents unrealized gains and losses on open futures contracts (the difference between contract trade price and quoted market price) as a net amount in the consolidated statements of financial condition. Any change in net unrealized gain or loss on futures and forward contracts from the preceding period is reported in the consolidated statements of operations. Gains or losses are realized when contracts are liquidated.

 

6
 

 

The Trust may write (sell) and purchase exchange listed options on commodities or financial instruments. An option is a contract allowing, but not requiring, its holder to buy (call) or sell (put) a specific or standard commodity or financial instrument at a specified price during a specified time period. The option premium is the total price paid or received for the option contract. When the Trust writes an option, the premium received is recorded as a liability in the statement of financial condition and measured at fair value daily. When the Trust purchases an option, the premium paid is recorded as an asset in the consolidated statements of financial condition and measured at fair value daily. Realized gains (losses) and changes in unrealized gains (losses) on options contracts are included in the consolidated statements of operations. When a written option expires or the Trust enters into a closing purchase transaction, the difference between the net premium received and any amount paid at expiration or on executing a closing purchase transaction, including commission, is recognized as a component of realized gain (loss) on closed positions. When a purchased option is exercised, the proceeds on the sale of an underlying instrument (for a purchased put option), or the purchase cost of an underlying instrument (for a purchased call option) is adjusted by the amount of the premium paid.

 

At March 31, 2012, the Trust earns interest on 100% of the Trust’s average daily balances on deposit with RJO during each month at 100% of the average four-week Treasury bill rate for that month in respect of deposits denominated in U.S. dollars. For deposits denominated in other currencies, the Trust earns interest at a rate of one-month LIBOR less 100 basis points. 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. The Trust also earns interest on cash and cash equivalents held at Wells Fargo Bank N.A. and managed by RJO Investment Management, LLC (“RJOIM”), an affiliate of the Managing Owner. As of March 31, 2012, Wells Fargo Bank, N.A. held approximately $28.5 million of the Trust’s assets.

 

Fixed income securities are recorded at fair value, with changes in fair value recorded in the statement of operations as unrealized gain (loss) on fixed income securities. Realized gains (losses) from liquidation of fixed income securities are determined on the specific identification basis. Premiums and discounts on securities purchased are amortized over the lives of the respective instruments. Interest income is recognized on the accrual basis.

 

(d)Ongoing Offering Costs

 

Ongoing offering costs, subject to a ceiling of 0.50% of the Trust’s average month-end net assets, are paid by the Trust and expensed as incurred.

 

(e)Foreign Currency Transactions

 

Trading accounts in foreign currency denominations are susceptible to both movements in the underlying contract markets as well as fluctuation in currency rates. Foreign currencies are translated into U.S. dollars for closed positions at an average exchange rate for the year, while year-end balances are translated at the year-end currency rates. The impact of the translation is reflected in the consolidated statements of operations.

 

(f)Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

(g)Valuation of Assets Held at Refco Capital Markets, Ltd.

 

The Trust recorded an impairment charge against its assets held at RCM at December 31, 2005, based on management’s estimate of fair value at that time. Subsequent recoveries from RCM were credited against the then book value of the claim. On June 28, 2007, the Trust’s cumulative recoveries from RCM exceeded the book value of the impaired assets held at RCM, which resulted in no remaining book value for those assets. All recoveries in excess of the book value of the impaired assets have been recorded as “Collections in excess of impaired value” on the Trust’s consolidated statements of operations. Any future administrative and/or legal expenses associated with liquidation of the assets held at RCM have not been reflected as such future expenses are not capable of being estimated. See Note (6) for further details.

 

(3)Fees

 

Management fees are accrued and paid monthly. Incentive fees are accrued monthly and paid quarterly. Trading decisions for the periods covered by these financial statements were made by the Advisors.

 

7
 

 

Pursuant to the Advisory Agreements, each Advisor receives a monthly management fee at the rate of up to 0.167% (a 2.0% annual rate) of the Trust’s month-end net assets calculated after deduction of brokerage fees, but before reduction for any incentive fee or other costs and before inclusion of new unitholder subscriptions and redemptions for the month. These management fees are not paid on the LLC net assets.

 

The Trust also pays the Advisors a quarterly incentive fee of up to 20% of the “New Trading Profit,” if any, of the Trust. The incentive fee is based on the performance of each Advisor’s portion of the assets allocated to it. New Trading Profit in any quarter is equal to the “Trading Profit” for such quarter that is in excess of the highest level of such cumulative trading profit as of any previous calendar quarter-end. Trading Profit is calculated by including realized and unrealized profits and losses, excluding interest income, and deducting the management fee and brokerage fee.

 

(4)Income Taxes

 

No provision for U.S. federal income taxes has been made in the accompanying consolidated financial statements as each beneficial owner is responsible for reporting income (loss) based on the pro rata share of the profits or losses of the Trust. The LLC is also treated as a partnership. Generally, for both U.S. federal and state tax purposes, trusts, such as the RJO Global Trust, are treated as partnerships. The only significant differences in financial and income tax reporting basis are ongoing offering costs.

 

The Trust files income tax returns in the U.S. federal jurisdiction and in various state and local jurisdictions. The Trust’s U.S. federal income tax returns for all tax years ended on or after December 31, 2009, remain subject to examination by the Internal Revenue Service. The Trust’s state and local income tax returns are subject to examination by the respective state and local authorities over various statutes of limitations, most ranging from three to five years from the date of filing.

 

(5)Trading Activities and Related Risks

 

The Trust engages in the speculative trading of U.S. and foreign futures contracts, options, and forward contracts (collectively derivatives) through the Advisors. These derivatives include both financial and non-financial contracts held as part of a diversified trading strategy. The Trust is exposed to both market risk, the risk arising from changes in the market value of the contracts, and credit risk, the risk of failure by another party to perform according to the terms of a contract.

 

The purchase and sale of futures requires margin deposits with a futures commission merchant (“FCM”). Additional deposits may be necessary for any loss on contract value. The Commodity Exchange Act requires FCMs to segregate or secure all customer transactions and assets from the FCM’s proprietary activities. A customer’s cash and other property, such as U.S. Treasury Bills, deposited with an FCM are considered commingled with all other customer funds subject to the FCM’s segregation requirements. In the event of an FCM’s insolvency, recovery may be limited to a pro rata share of segregated funds available. It is possible that the recovered amount could be less than the total of cash and other property deposited.

 

The Trust has cash on deposit with an affiliate interbank market maker in connection with its trading of forward contracts. In the normal course of business, the Trust does not require collateral from such interbank market maker. Due to forward contracts being traded in unregulated markets between principals, the Trust also assumes a credit risk, the risk of loss from counterparty non-performance.

 

For derivatives, risks arise from changes in the market value of the contracts. Theoretically, the Trust is exposed to a market risk equal to the value of futures and forward contracts purchased and unlimited liability on such contracts sold short.

 

The Trust, as writer of an option, has no control over whether the underlying instrument may be sold (called) and as a result bears the risk of an unfavorable change in the market value of the instrument underlying the written option. There is also the risk the Trust may not be able to enter into a closing transaction because of an illiquid market.

 

The Trust is a buyer of exchange-traded options. As such, the Trust pays a premium at the outset and then bears the risk of unfavorable changes in the price of the contract underlying the option. Purchased options expose the Trust to a risk of loss limited to the premiums paid.

 

8
 

 

Net trading results from derivatives for the three-month periods ended March 31, 2012 and 2011 are reflected in the consolidated statements of operations and equal gain or loss from trading less brokerage commissions. Such trading results reflect the net gain or loss arising from the Trust’s speculative trading of futures contracts, options and forward contracts.

 

The Trust’s primary exposure to fixed income securities are defined by the U.S. Commodity Futures Trading Commission (“CFTC”) guidelines of acceptable securities for investment of segregated assets. The scope of the acceptable securities by the CFTC are defined further by the RJOIM agreement with the Trust to include but not limited to, U.S. Treasury and government agencies’ securities, purchase agreements collateralized by U.S. Treasury and government agencies, corporate debt securities, and bank debt securities. The Trust’s total investment in corporate debt securities, bank deposit securities, and certificate of deposits combined cannot exceed 40% of the Trust’s total assets.

 

The beneficial owners bear the risk of loss only to the extent of the market value of their respective investments in the Trust.

 

(6)Assets Held at Refco Capital Markets, Ltd.

 

Effective October 31, 2005, $57,544,206 of equity and 2,273,288 in substitute Units, which represented the assets held at RCM plus $1,000,000 in cash, were transferred to a Non-Trading account, as explained in Note (2)(g). On December 31, 2005 the $56,544,206 of assets held at RCM were reduced by $39,580,944 for impairment to $16,963,262, or 30% of the original value of the assets. The table below summarizes all recoveries from RCM and distributions to redeemed and continuing unitholders.

 

Recoveries from RCM, Distributions paid by US Bank from the LLC, and effect on impaired value of assets held at RCM
   Amounts
Received from
   Balance of   Collections in
Excess of
   Cash Distributions to
Non-Participating
   Additional Units in Trust for
Participating Owners
 
Date  RCM   Impaired Value   Impaired Value   Owners   Units   Dollars 
12/29/06  $10,319,318   $6,643,944   $-   $4,180,958    54,914   $5,154,711 
04/20/07   2,787,629    3,856,315    -    -    -    - 
06/07/07   265,758    3,590,557    -    -    -    - 
06/28/07   4,783,640    -    1,193,083    -    -    - 
07/03/07   5,654    -    5,654    -    -    - 
08/29/07   -    -    -    2,787,947    23,183    1,758,626 
09/19/07   2,584,070    -    2,584,070    -    -    - 
12/31/07   2,708,467    -    2,708,467    -    -    - 
03/28/08   1,046,068    -    1,046,068    -    -    - 
04/29/08   -    -    -    2,241,680    10,736    1,053,815 
06/26/08   701,148    -    701,148    -    -    - 
12/31/08   769,001    -    769,001    -    -    - 
06/29/09   2,748,048    -    2,748,048    -    -    - 
12/30/09   1,102,612    -    1,102,612    -    -    - 
05/19/10   1,695,150    -    1,695,150    -    -    - 
06/04/10   14,329,450*   -    14,329,450*   -    -    - 
08/01/10   -    -    -    16,076,112    40,839    3,928,806 
10/15/10   282,790*   -    282,790*   -    -    - 
12/30/10   563,163*   -    563,163*   -    -    - 
06/02/11   343,664*   -    343,664*   -    -    - 
08/30/11   1,328,832*   -    1,328,832*   -    -    - 
12/01/11   -    -    -    3,689,555    6,168    561,489 
                               
Totals  $48,364,462   $-   $31,401,200   $28,976,252    135,840   $12,457,447 

 

*The collections on June 4, 2010 were from a settlement agreement reached with Cargill, Inc. and Cargill Investors Services, Inc. (together, "Cargill"). The gross collections of $15,300,000 on June 4, 2010, were reduced by $970,550, which represented Cargill' s percentage of distributions, as defined in the Settlement Agreement. All subsequent collections are shown net and were reduced by Cargill's percentage of distributions at 57.25% of the gross collections.

 

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(7)Fair Value Measurements

 

In accordance with the Fair Value Measurements Topic of the Financial Accounting Standards Board Accounting Standards Codification, the Trust established a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:

 

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Trust has the ability to access at the measurement date. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. The value of the Trust’s exchange-traded futures contracts and options fall into this category.

 

Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. This category includes forward currency contracts, options on forward currency contracts and fixed income securities that the Trust values using models or other valuation methodologies derived from observable market data.

 

Level 3 inputs are unobservable inputs for an asset or liability. Unobservable inputs shall be used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. As of March 31, 2012 and December 31, 2011, the Trust did not have any Level 3 assets or liabilities.

 

An asset or liability’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The fair value hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).

 

The following table presents the Trust’s fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of March 31, 2012 and December 31, 2011, respectively:

 

   March 31, 2012     
   Level 1   Level 2   Level 3   Total 
Assets                    
Unrealized gain (loss) on open contracts:                    
Futures positions  $63,777   $-   $-   $63,777 
Forward currency positions   -    (52,241)   -    (52,241)
Purchased options on futures contracts   55,307    -    -    55,307 
Fixed income securities   -    22,629,381    -    22,629,381 
Total fair value  $119,084   $22,577,140   $-   $22,696,224 

 

   December 31, 2011     
   Level 1   Level 2   Level 3   Total 
Assets                    
 Unrealized gain on open contracts:                     
Futures positions  $212,644   $-   $-   $212,644 
Forward currency positions   -    151,303    -    151,303 
Purchased options on futures contracts   22,525    -    -    22,525 
Fixed income securities   -    21,870,890    -    21,870,890 
Total assets   235,169    22,022,193    -    22,257,362 
                     
Liabilities                    
Options written on futures contracts   (1,006)   -    -    (1,006)
Total fair value  $234,163   $22,022,193   $-   $22,256,356 

 

10
 

 

(8)Operations

 

Redemptions

 

A beneficial owner may cause any or all of his or her Units to be redeemed by the Trust effective as of the last business day of any month based on the net asset value per Unit on such date on five business days’ written notice to NAV Consulting, Inc., the Trust’s administrator, or the Managing Owner. Payment will generally be made within 10 business days of the effective date of the redemption. Any redemption made during the first 11 months of investment is subject to a 1.5% redemption penalty, payable to the Managing Owner. Any redemption made in the twelfth month of investment or later will not be subject to any redemption penalty. The Trust’s Ninth Amended and Restated Declaration and Agreement of Trust, as amended (the “Trust Agreement”), contains a full description of redemption and distribution policies.

 

Subscriptions

 

Investors that are eligible to participate in the private offering of the Units may purchase Units in the Trust pursuant to the terms of the Trust’s Confidential Private Placement Memorandum and Disclosure Document (the “Memorandum”) and a signed subscription form.  The Trust Agreement and the Memorandum contain a full description of subscription policies.  An investment in the Trust does not include a beneficial interest or investment in the LLC.

 

Commissions

 

The Managing Owner and/or affiliates act as commodity brokers for the Trust through RJO. 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 4.67% of the Trust’s month-end assets on an annual basis (0.389167% monthly) with respect to Class A Units and 2.67% of the Trust’s month-end assets on an annual basis (0.2225% monthly) with respect to Class B Units, which covers the fees described below. “Brokerage fee” includes the following across each class of Units:

 

Recipient    Nature of Payments   Class A Units     Class B Units  
Managing Owner   Managing Owner fee     0.75 %     0.75 %
Selling Agent   Selling commission     2.00 %     0.00 %
Managing Owner   Underwriting expenses     0.35 %     0.35 %
Managing Owner   Clearing, NFA, and exchange fees (capped at)     1.57 %     1.57 %
Totals         4.67 %     2.67 %

 

Commissions were not paid with respect to the LLC net assets.

 

(9) Financial Highlights

 

The following financial highlights show the Trust’s financial performance for the three-month periods ended March 31, 2012 and March 31, 2011. Total return is calculated as the change in a theoretical beneficial owner’s investment over the entire period and is not annualized. Total return is calculated based on the aggregate return of the Trust taken as a whole.

 

11
 

 

   Class A   Class B 
   Three months ended   Three months ended 
   March 31,   March 31, 
   2012   2011   2012   2011 
Per share operating performance:                    
Net asset value of Trading units, beginning of period  $91.32   $100.64   $96.98   $104.75 
Total Trading income (loss):                    
Trading gain (loss)   (3.15)   (1.61)   (3.35)   (1.71)
Investment income   0.14    0.13    0.14    0.14 
Expenses   (1.93)   (2.28)   (1.60)   (1.84)
Trading income (loss)   (4.94)   (3.76)   (4.81)   (3.41)
Net asset value of Trading units, end of period  $86.38   $96.88   $92.17   $101.34 
                     
Total return:                    
Total return before incentive fees   (5.42)%   (3.62)%   (4.94)%   (3.15)%
Less incentive fee allocations   0.00%   (0.12)%   0.00%   (0.11)%
Total return   (5.42)%   (3.74)%   (4.94)%   (3.26)%
                     
Ratios to average net assets:                    
Trading income (loss)   (3.63)%   (3.92)%   (3.69)%   (3.29)%
Expenses:                    
Expenses, less incentive fees   (2.21)%   (2.20)%   (1.71)%   (1.65)%
Incentive fees   0.00%   (0.12)%   0.00%   (0.11)%
Total expenses   (2.21)%   (2.32)%   (1.71)%   (1.76)%

 

The calculations above do not include activity within the Trust’s Non-Trading Accounts.

 

The net income and expense ratios are computed based upon the weighted average net assets for the Trust for the three-month periods ended March 31, 2012 and 2011, respectively. The amounts are not annualized.

 

(10)Cash Management Agreement with Affiliate

 

On October 6, 2010, the Managing Owner retained RJOIM, an SEC registered investment adviser and an affiliate of the Managing Owner, as cash manager. The assets managed by RJOIM are held in segregated accounts in custody by Wells Fargo Bank, N.A. RJOIM is paid an annual fee, currently 0.20%, calculated and accrued daily at a rate equal to 1/360 of the principal balance. As of March 31, 2012, the Trust’s deposits held by RJOIM consisted of cash of $5,851,390 and fixed income securities of $22,629,381. Advisory fees earned by RJOIM aggregated $15,319 and $15,266 for the three months ended March 31, 2012 and 2011, respectively.

 

(11)Derivative Instruments and Hedging Activities

 

The Trust does not utilize hedge accounting and marks its derivatives to market through operations.

 

12
 

 

Derivatives not designated as hedging instruments:

 

As of March 31, 2012
   Asset   Liability     
Type of  Derivatives   Derivatives   Net 
Futures Contracts  Fair Value   Fair Value   Fair Value 
             
Agriculture  $187,817   $(115,766)  $72,051 
Currency   23,283    (130,849)   (107,566)
Energy   65,422    (24,178)   41,244 
Indices   91,940    (28,988)   62,952 
Interest Rates   80,365    (42,669)   37,696 
Metals   37,629    (77,163)   (39,534)
   $486,456   $(419,613)  $66,843 

 

As of December 31, 2011
   Asset   Liability     
Type of  Derivatives   Derivatives   Net 
Futures Contracts  Fair Value   Fair Value   Fair Value 
             
Agriculture  $10,408   $-   $10,408 
Currency   527,500    (350,799)   176,701 
Energy   225,038    (119,410)   105,628 
Indices   17,851    (47,027)   (29,176)
Interest Rates   139,768    (10,045)   129,723 
Metals   72,320    (80,138)   (7,818)
   $992,885   $(607,419)  $385,466 

 

The above reported fair values are included in equity in commodity Trading accounts – unrealized gain on open contracts and in purchased and written options on futures contracts on the consolidated statements of financial condition as of March 31, 2012 and December 31, 2011 respectively.

 

Trading gain (loss) for the following periods:

 

   Three Months Ended March 31, 
Type of Futures Contracts  2012   2011 
Agriculture  $(200,022)  $(98,432)
Currency   (438,307)   (524,630)
Energy   198,001    262,719 
Indices   38,216    46,768 
Interest Rates   (287,594)   (628,477)
Metals   (464,481)   90,921 
   $(1,154,187)  $(851,131)

 

See Note (5) for additional information on the Trust’s purpose for entering into derivatives not designed as hedging instruments and its overall risk management strategies.

 

13
 

 

(12)Subsequent Events

 

As of April 30, 2012, the managing owner chose to remove three of the Trust’s CTAs which managed less than 10% of the Trust’s assets each. The managing owner has not yet reallocated the assets that were being traded by these CTAs.

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

(a)Introduction

 

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.

 

The Trust was originally established and operated as a single-advisor commodity pool. John W. Henry & Company, Inc. (“JWH”) served as the Trust’s sole trading Advisor until October 31, 2008. As of November 1, 2008, the Trust became a multi-advisor commodity pool where trading decisions for the Trust were delegated to five independent commodity trading advisors: JWH, AIS Futures Management (“AIS”), Abraham Trading Corp. (“ATC”), Global Advisors LP (“GALP”) and Peninsula LP (“PLP”), pursuant to Advisory Agreements executed between the Trust and each Advisor. Effective February 1, 2009, NuWave Investment Management, LLC (“NW”) became the Trust’s sixth Advisor. As of March 31, 2009, PLP was terminated as an Advisor to the Trust. Effective June 1, 2009, the Trust entered into an Advisory Agreement with Global Advisors (Jersey) Limited (“GAJL”) to replace its Advisory Agreement with GALP, in connection with GALP’s initiative to migrate all of its clients to its Jersey-based (UK) entity. As of June 30, 2009, AIS was terminated as an Advisor to the Trust and the Trust’s assets were reallocated with equal weighting of 16.666% each to the remaining four Advisors along with Conquest Capital Group (“CCG”) and Haar Capital Management (“HCM”) beginning July 1, 2009. As of September 30, 2010, the Advisors to the Trust consisted of JWH, NW, ATC, GAJL, CCG, and HCM. Beginning October 1, 2010, the Trust entered into Advisory Agreements with two additional Advisors. On October 1, 2010 Trigon Investment Management (“TIM”) and Dominion Capital Management Institutional Advisers, Inc. (“DCM”) were each allocated approximately 8.33% of the Trust’s assets. Those eight Advisors traded the Trust’s assets for the period of October 1, 2010 to March 31, 2012.  As of April 1, 2012 GAJL was terminated and two new Trading Advisors were appointed with funds reallocated to each new advisor of less than 10%. As of March 31, 2012, the Trust’s assets were allocated to the current nine Advisors as follows: ATC (16.66%), CCG (16.66%), NW (16.66%), and six other advisors managing less than 10% each.

 

Effective July 1, 2011, the Managing Owner determined to discontinue the public offering of the Units and begin offering the Units on a private placement basis only.

 

(b)Capital Resources

 

The Trust’s capital resources fluctuate based upon the purchase and redemption of Units and the gains and losses of the Trust’s trading activities. For the three-month period ended March 31, 2012, 1,574 Class A Units for $137,392 were purchased by the beneficial owners. The Managing Owner purchased no Units during this time. For the three-month period ending March 31, 2012, the unitholders redeemed a total of 23,379 Class A Units for $2,041,122 and 1,396 Class B Units for $131,132.

 

The Trust’s involvement in the futures and forward markets exposes the Trust to both market risk — the risk arising from changes in the market value of the futures and forward contracts held by the Trust — and credit risk — the risk that another party to a contract will fail to perform its obligations according to the terms of the contract. The Trust is exposed to a market risk equal to the value of the futures and forward contracts purchased and theoretically unlimited risk of loss on contracts sold short. The Advisors monitor the Trust’s trading activities and attempt to control the Trust’s exposure to market risk by, among other things, refining their respective trading strategies, adjusting position sizes of the Trust’s futures and forward contacts, and re-allocating Trust assets to different market sectors. The Trust’s primary exposure to credit risk is its exposure to the non-performance of the Trust’s forward currency broker. The forward currency broker generally enters into forward contracts with large, well-capitalized institutions and then enters into a back-to-back contract with the Trust. The Trust also may trade on exchanges that do not have associated clearing houses whose credit supports the obligations of its members and that operate as principals markets, in which case the Trust will be exposed to the credit risk of the other party to such trades.

 

14
 

 

The Trust’s trading activities involve varying degrees of off-balance sheet risk whereby changes in the market values of the futures and forward contracts underlying the financial instruments or the Trust’s satisfaction of the obligations may exceed the amount recognized in the statement of financial condition of the Trust.

 

The amount of assets invested in the Trust generally does not affect its performance, as typically this amount is not a limiting factor on the positions acquired by the Advisors, and the Trust’s expenses are primarily charged as a fixed percentage of its asset base, however large, or by number of investors. To a lesser extent, some expenses are incurred as minimums regardless of the size of the asset base, such as audit and legal fees.

 

The Trust borrows only to a limited extent and only on a strictly short-term basis in order to finance losses on non-U.S. dollar denominated trading positions pending the conversion of the Trust’s U.S. dollar deposits. These borrowings are at a prevailing short-term rate in the relevant currency. They have been immaterial to the Trust’s operation to date and are expected to continue to be so.

 

During the three-month period ending March 31, 2012, the Trust had no material credit exposure to a counterparty which is a foreign commodities exchange.

 

There are no known material trends, favorable or unfavorable, that would affect, nor any expected material changes, to the Trust’s capital resource arrangements at the present time.

 

(c)Liquidity

 

The Trust’s net assets are held in brokerage accounts with RJO. Such assets are used as margin to engage in trading and may be used as margin solely for the Trust’s trading. Except in very unusual circumstances, the Trust should be able to close out any or all of its open trading positions and liquidate any or all of its securities holdings quickly and at market prices. This should permit the Advisors to limit losses as well as reduce market exposure on short notice should their programs indicate reducing market exposure.

 

The Trust earns interest on 100% of the Trust’s average daily balances on deposit with RJO during each month at 100% of the average four-week Treasury bill rate for that month in respect of deposits denominated in U.S. dollars. For deposits denominated in other currencies, the Trust earns interest at a rate of one-month LIBOR less 100 basis points. For the quarters ended March 31, 2012 and 2011, the Trust has received or accrued to receive trading interest of $125 and $5,417, respectively from RJO.

 

Additionally, effective October 6, 2010, the Managing Owner retained RJOIM, an affiliate of the Managing Owner, to serve as a cash manager to the Trust.  The Trust’s assets which are managed by the cash manager are held by Wells Fargo Bank, N.A. as custodian.  As of March 31, 2012, Wells Fargo Bank, N.A. held approximately $28.5 million of the Trust’s assets. For the quarters ended March 31, 2012 and 2011, the assets held in this account earned $98,815 and $77,427 of interest income, respectively.

 

Most United States commodity exchanges limit the amount of fluctuation in commodity futures contract prices during a single trading day by regulations. These regulations specify what are referred to as “daily price fluctuation limits” or “daily limits.” The daily limits establish the maximum amount the price of a futures contract may vary either up or down from the previous day’s settlement price at the end of a trading session. Once the daily limit has been reached in a particular commodity, no trades may be made at a price beyond the limit. Positions in the commodity could then be taken or liquidated only if traders are willing to effect trades at or within the limit during the period for trading on such day. Because the “daily limit” rule only governs price movement for a particular trading day, it does not limit losses. In the past, futures prices have moved the daily limit for numerous consecutive trading days and thereby prevented prompt liquidation of futures positions on one side of the market, subjecting commodity futures traders holding such positions to substantial losses for those days.

 

It is also possible for an exchange or the CFTC to suspend trading in a particular contract, order immediate settlement of a particular contract, or direct that trading in a particular contract be for liquidation only.

 

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There are no known material trends, demands, commitments, events or uncertainties at the present time that are reasonably likely to result in the Trust’s liquidity increasing or decreasing in any material way. Additionally, no material deficiencies in liquidity were identified, and there are no material unused sources of liquid assets.

 

(d)Results of Operations

 

The Trust’s success depends on the Advisors’ ability to recognize and capitalize on major price movements and other profit opportunities in different sectors of the world economy. Because of the speculative nature of its trading, operational or economic trends have little relevance to the Trust’s results, and its past performance is not necessarily indicative of its future results. The Managing Owner believes, however, that there are certain market conditions — for example, markets with major price movements — in which the Trust has a better opportunity of being profitable than in others.

 

Certain Advisors to the Trust are technical traders, and as such, their programs do not predict price movements. No fundamental economic supply or demand analysis is used in attempting to identify mispricings in the market, and no macroeconomic assessment of the relative strengths of different national economies or economic sectors is made. However, there are frequent periods during which fundamental factors external to the market dominate prices. For the discretionary Advisors, economic fundamentals and macroeconomic assessments are made.

 

The performance summaries set forth below outline certain factors that affected the performance of the Trust for the periods presented. The fact that certain trends or market movements were captured does not imply that others, perhaps larger and potentially more profitable trends or market movements, were not missed or that the Advisors will be able to capture similar trends or movements in the future. Moreover, the fact that the programs were profitable in certain market sectors in the past does not mean that they will be so in the future.

 

The performance summaries are an outline description of how the Trust performed in the past, not necessarily any indication of how it will perform in the future. Furthermore, the general causes to which certain trends or market movements are attributed may or may not in fact have caused such trends or movements, as opposed to simply having occurred at about the same time.

 

Fiscal Quarter ended March 31, 2012

 

The Trust recorded net trading loss of $(1,742,789) or $(4.95) per trading Unit for Class A Units and a loss of $(58,427) or $(4.80) per trading Unit for Class B Units in the first quarter of 2012 (*** Please see “Notes to Consolidated Financial Statements” in Part I — Item 1 for explanation of net asset value/Unit pursuant to events of October 2005, as the following excludes the Trust’s Non-Trading accounts). As of March 31, 2012, the Trust (Class A Units) had gained 5.58% since its inception in June 1997. Class B Units have lost 22.79% since their inception in January of 2009.

 

As of March 31, 2012, the Trust’s assets were allocated to the following Advisors as follows: ATC (16.66%), CCG (16.66%), NW (16.66%), and six other advisors managing less than 10% each.

 

With short-term interest rates at or near zero and no implosion in the European debt saga, the stock market continued to drift higher with little resistance during January. Bonds were choppy but only slightly lower on the month as interest rates inched higher. Commodities were higher as a sector thanks to strength in crude oil, cattle, and soybean markets. Gold, corn, and natural gas markets were a drag on the sector finishing flat to lower on the month. In February, the stock market moved ahead on light volume during the month and posted its best February since 1997. Bonds and Commodities also posted small gains to start the year. The managed futures industry continues to struggle. A violent reversal by grains, bonds, and some metals caused losses during the month. The Barclay Top 50 which is representative of all managed futures strategies and over 50% of the industry’s assets finished 2012 with its worst 36 month performance period since the index began in 1987. Erratic volatility, fluctuating volume, and government intervention in Europe, Asia, the U.S., and China have been blamed by traders for the difficult environment. The index finds itself two standard deviations from its positive historical average annual return. Some would argue that the U.S. Federal Reserve is already in the middle of its third round of quantitative easing. With short-term interest rates continuing at or near zero and no further shocks in the European debt saga, the stock market continued a climb higher during March and posted its best first quarter in 14 years. Bonds were lower posting their worst quarter in two years. The commodity sector was lower on the month due to weakness in the energy, base metals, meats, and corn markets.

 

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Fiscal Quarter ended March 31, 2011

 

The Trust recorded net trading losses of $(1,851,345) or $(3.76) per trading Unit for Class A Units and a loss of $(44,923) or $(3.41) per trading Unit for Class B Units in the first quarter of 2011 (*** Please see “Notes to Consolidated Financial Statements” in Part I — Item 1 for explanation of net asset value/Unit pursuant to events of October 2005, as the following excludes the Trust’s Non-Trading accounts). As of March 31, 2011, the Trust (Class A Units) had gained 18.43% since its inception in June 1997. Class B Units have lost 15.12% since their inception in January 2009.

 

On March 31, 2011, the Trust’s assets were allocated to the following Advisors as follows: ATC (16.92%), CCG (15.56%), GAJL (17.37%), HCM (8.57%), JWH (8.50%), NW (16.07%), DCM (9.08%) and TIM (7.93%).

 

The stock market started the year with a solid gain. U.S. treasuries and the U.S. dollar were slightly weaker. Precious metals were decidedly weaker during the month but other commodities, lead higher by grains, allowed the Dow Jones UBS commodity index to post a gain of 1%. The stock market benefitted from low interest rates and strong corporate earnings. The U.S. bond market has not responded to signs of inflation that have begun to surface in the emerging economies of China, India, and Brazil. In particular the economies of several Northern African countries have shown stress over food prices. The political stress in Egypt and Tunisia added significant support to grain and energy prices. Near month end, market participants saw evidence of those governments beginning to hoard food to make sure supplies are adequate at any cost. Concern over access to the Suez Canal and the flow of oil exports from the region were reasons given for strength in oil prices.

 

Stocks kept climbing higher quietly during the month of February. The rally was disrupted in the latter part of February as violence erupted in Libya. Stress in the Middle East sparked a renewed rally in the petroleum markets. In an odd turn of events, market participants identified climbing fuel prices, which on their own might be considered inflationary and negative for fixed income markets, as a reason that global economies might slow and therefore lessen inflationary pressures. With this as a backdrop, U.S. treasuries posted a modest gain. Commodity indices led higher by energy and metals markets posted all-time highs. Domestically, the House and Senate have undertaken a project to revise and pass a budget that will reign in the country’s ballooning budget deficit. Negotiations do not appear to be going well. This all adds up to a volatile market outlook.

 

In March, an earthquake in Japan and the tsunami that followed unleashed a series of events that will change that country forever. Stocks and commodities plunged following the disaster but recovered during the latter part of the month to finish unchanged. A coalition of foreign forces decided to intervene in Libya to support the rebel groups battling against Gaddafi. Unemployment in the U.S. was reported to be improving with the best number since 2008. The USDA reports the lowest corn inventories in years.

 

(e)Off-Balance Sheet Arrangements; Disclosure of Contractual Obligations

 

The Trust does not have any off-balance sheet arrangements (as defined in Regulation S-K 303(a)(4)(ii)) that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

There has been no material change with respect to the Trust’s market risk as described in the section entitled “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2011.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures: Under the supervision and with the participation of the management of R.J. O’Brien Fund Management, LLC, the Managing Owner of the Trust at the time this quarterly report was filed, the Managing Owner’s Chief Executive Officer (the Trust’s principal executive officer) and Chief Financial Officer (the Trust’s principal financial officer), have evaluated the effectiveness of the design and operation of the Trust’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of March 31, 2012. The Trust’s disclosure controls and procedures are designed to provide reasonable assurance that information the Trust is required to disclose in the reports that the Trust files or submits under the Exchange Act are recorded, processed and summarized and reported within the time period specified in the applicable rules and forms. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer of the Managing Owner have concluded that the disclosure controls and procedures of the Trust were effective at March 31, 2012.

 

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Changes in Internal Control Over Financial Reporting: There were no changes in the Trust’s internal control over financial reporting, during the quarter ended March 31, 2012, that have materially affected, or are reasonably likely to materially affect, the Trust’s internal control over financial reporting.

 

Limitations on the Effectiveness of Controls: Any control system, no matter how well designed and operated, can provide reasonable (not absolute) assurance that its objectives will be met. Furthermore, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

The Trust is not a party to any material pending legal proceedings.

 

Item 1A. Risk Factors

 

See Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report for a discussion of the conditions in the financial markets and economic conditions affecting our business.

 

There have been no material changes from the risk factors disclosed under the heading “Risk Factors” in the Trust’s Annual Report on Form 10-K for the year ended December 31, 2011.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

a) For the quarter ended March 31, 2012, the Trust issued 1,574 Units in exchange for $137,392 in transactions that were not registered under the Securities Act of 1933, as amended (the “Securities Act”).  The Units were issued in reliance upon applicable exemptions from registration under Section 4(2) of the Securities Act and Section 506 of Regulation D promulgated there under.

 

b) The Trust permits unitholders to redeem Units at the end of each month at the net asset value per Unit on the redemption date. The redemption of Units has no impact on the net asset value of the Units that remain outstanding and Units may not be reissued once they are redeemed.

 

The following table summarizes the redemptions by unitholders during the first quarter of 2012:

 

   Units Redeemed   Redemption Date NAV per Unit 
Month  Class A   Class B   Class A   Class B 
January   5,122    915   $88.94   $94.61 
February   9,531    242   $87.27   $92.99 
March   8,726    239   $86.37   $92.18 
                     
Total   23,379    1,396           

 

100% of all subscription proceeds are invested directly into the Trust.

 

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Item 6. Exhibits

 

a)Exhibits

 

Index to Exhibits

 

Exhibit Number Description of Document

 

3.01 Ninth Amended and Restated Declaration and Agreement of Trust of the Registrant, dated as of September 1, 2010.1
   
3.02 First Amendment to the Ninth Amended and Restated Declaration and Agreement of Trust of the Registrant, dated as of July 13, 2011.2
   
3.03 Restated Certificate of Trust of the Registrant.3
   
31.01 Rule 13a-14(a)/15d-14(a) Certifications of Principal Executive Officer.
   
31.02 Rule 13a-14(a)/15d-14(a) Certifications of Principal Financial Officer.
   
32.01 Section 1350 Certification of Principal Executive Officer and Principal Financial Officer.

 

101.INS**   XBRL Instance Document
     
101.SCH**   XBRL Taxonomy Extension Schema
     
101.CAL**   XBRL Taxonomy Extension Calculation Linkbase
     
101.DEF**   XBRL Taxonomy Extension Definition Linkbase
     
101.LAB**   XBRL Taxonomy Extension Label Linkbase
     
101.PRE**   XBRL Taxonomy Extension Presentation Linkbase

 

 

1 Incorporated by reference herein from the exhibit of the same description filed on September 7, 2010 on Form 8-K.

2 Incorporated by reference herein from the exhibit of the same description filed on July 15, 2011 on Form 8-K.

3 Incorporated by reference herein from the exhibit of the same description filed on September 30, 2008 on Form 8-K. 

** Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned and thereunto duly authorized.

 

RJO Global Trust
   
Date: May 14, 2012
   
By: R.J. O’Brien Fund Management, LLC
  Managing Owner
   
By: /s/   Jason Manumaleuna
  Jason Manumaleuna
  Principal Financial Officer and duly authorized officer

 

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