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 September 30, 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 September 30, 2012 (unaudited) and December 31, 2011	1
	Condensed Consolidated Schedules of Investments, as of September 30, 2012 (unaudited) and December 31, 2011	2
	Consolidated Statements of Operations, for the three and nine months ended September 30, 2012 and 2011 (unaudited)	3
	Consolidated Statement of Changes in Unitholders’ Capital, for the nine months ended September 30, 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	19
	Item 4. Controls and Procedures	19
PART II. OTHER INFORMATION		20
	Item 1. Legal Proceedings	20
	Item 1A. Risk Factors	20
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	20
	Item 6. Exhibits	21
SIGNATURES		22

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

RJO GLOBAL TRUST AND SUBSIDIARY

Consolidated Statements of Financial Condition

 

		September 30,				December 31,
		2012				2011
		UNAUDITED
Assets
Assets:
Equity in commodity Trading accounts:
Cash on deposit with broker		$	2,530,577			$	2,670,744
Unrealized gain / (loss) on open contracts			159,905				363,947
Purchased options on futures contracts (premiums paid - $1,001,094 and $33,376 respectively)			515,818				22,525
Total due from broker			3,206,300				3,057,216
Cash and cash equivalents on deposit with affiliate			7,908,345				9,596,823
Cash on deposit with bank			53,410				648
Fixed income securities (cost $14,710,463 and $21,993,704, respectively), held by affiliate			14,704,345				21,870,890
Interest receivable			12,407				123,363
Cash on deposit with bank - Non-Trading			736,249				1,647,219
Prepaid expenses - Non-Trading			85,539				95,825
Total Assets		$	26,706,595			$	36,391,984
Liabilities and Unitholders' Capital
Liabilities:
Equity in commodity Trading accounts:
Options written on futures contracts (premiums received - $819,660 and $14,375, respectively)		$	569,588			$	1,006
Accrued commissions			60,364				111,034
Accrued management fees			40,182				48,884
Accrued incentive fees			25,462				-
Accrued operating expenses			298,654				217,118
Accrued offering expenses			32,974				-
Redemptions payable-Trading			262,118				493,332
Accrued legal fees- Non-Trading			5,363				500
Accrued management fees to U.S. Bank-Non-Trading			16,566				31,715
Distribution payable - Non-Trading			-				536,188
Total liabilities			1,311,271				1,439,777
Unitholders' capital:
Unitholders' capital (Trading):
Beneficial owners
Class A (295,067 and 355,858 units outstanding at September 30, 2012 and December 31, 2011, respectively)			23,681,527				32,497,392
Class B (10,067 and 12,697 units outstanding at September 30, 2012 and December 31, 2011, respectively)			870,979				1,231,294
Managing owner (535 Class A units outstanding at September 30, 2012 and December 31, 2011)			42,940				48,857
Unitholders' capital (LLC equity/Non-Trading):
Participating owners (254,976 and 306,807 units outstanding at September 30, 2012 and December 31, 2011, respectively)			89,716				158,535
Nonparticipating owners (2,018,312 and 1,966,481 units outstanding at September 30, 2012 and December 31, 2011, respectively)			710,162				1,016,129
Total unitholders' capital			25,395,324				34,952,207
Total Liabilities and Unitholders' Capital		$	26,706,595			$	36,391,984
Net asset value per unit:
Trading:
Class A		$	80.26			$	91.32
Class B		$	86.52			$	96.98
LLC equity/Non-Trading		$	0.35			$	0.52

 

See accompanying notes to consolidated financial statements.

 

 

RJO GLOBAL TRUST AND SUBSIDIARY

Condensed Consolidated Schedule of Investments

 

		September 30, 2012								December 31, 2011
		Percentage of								Percentage of
		Net Assets				Fair value				Net Assets				Fair value
		UNAUDITED
Long Positions
Fixed Income Securities
Commercial Paper
South Korea
Financials (cost $649,412)			2.56	%		$	649,412				-			$	-
Australia
Financials (cost $1,847,851)			7.28	%			1,847,851				-				-
Chile
Financials (cost $998,211)			3.93	%			998,211				-				-
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			13.77	%			3,495,474				9.00	%			3,142,811
Corporate Bonds
United States
Financials (cost $2,305,348 and $6,682,059, respectively)			9.06	%			2,300,965				19.22	%			6,717,547
Australia
Financials (cost $2,906,266)			11.43	%			2,901,846				-				-
Great Britain
Energy (cost $1,527,135)			-				-				4.31	%			1,506,885
Total Corporate Bonds			20.49	%			5,202,811				23.53	%			8,224,432
Government Agencies
United States
US Government Agency (cost $5,999,550 and $10,499,879, respectively)			23.64	%			6,002,235				30.04	%			10,498,215
Short-Term Investment Funds
United States
Short-Term Investment Funds (cost $3,825 and $5,432, respectively)			0.02	%			3,825				0.02	%			5,432
Total Fixed Income Securities (cost $14,710,463 and $21,993,704, respectively)						$	14,704,345							$	21,870,890
Long Positions
Futures Positions
Agriculture			-1.53	%		$	(387,861	)			0.01	%		$	3,573
Currency			-0.06	%			(16,433	)			0.03	%			9,244
Energy			-0.68	%			171,683				-0.34	%			(119,410	)
Indices			-0.08	%			(21,477	)			0.05	%			17,851
Interest rates			0.18	%			44,597				0.40	%			139,768
Metals			2.08	%			527,160				-0.23	%			(80,138	)
Forward Positions
Currency			-				-				-0.99	%			(344,428	)
Total long positions on open contracts						$	317,669							$	(373,540	)
Short Positions
Futures Positions
Agriculture			1.14	%		$	290,772				0.02	%		$	6,835
Currency			0.00	%			370				-0.02	%			(5,365	)
Energy			-0.29	%			(74,850	)			0.64	%			225,038
Indices			0.12	%			30,400				-0.13	%			(47,027	)
Interest rates			0.00	%			(1,160	)			-0.03	%			(10,045	)
Metals			-1.59	%			(403,296	)			0.21	%			72,320
Forward Positions
Currency			-				-				1.42	%			495,731
Total short positions on open contracts						$	(157,764	)						$	737,487
Total unrealized gain on open contracts						$	159,905							$	363,947
Long put options on future contracts
Agriculture (premiums paid - $183,880)			0.51	%			128,350								-
Currency (premiums paid - $33,376)			-				-				0.06	%			22,525
Total long put options on futures contracts						$	128,350							$	22,525
Short put options on future contracts
Agriculture (premiums received -  $340,595)			-1.01	%		$	(256,992	)			-			$	-
Energy (premiums received -  $60,320)			-0.16	%			(41,360	)			-				-
Metals (premiums received -  $12,810)			-0.03	%			(7,980	)			-				-
Indices  (premiums received - $14,375)							-				0.00	%			(1,006	)
Total short put options on futures contracts						$	(306,332	)						$	(1,006	)
Long call options on future contracts
Agriculture (premiums paid - $817,214)			1.58	%			387,468				-				-
Total long call options on futures contracts						$	387,468							$	-
Short call options on future contracts
Agriculture (premiums received -  $273,697)			-0.59	%		$	(150,388	)			-			$	-
Energy (premiums received -  $33,700)			-0.13	%			(33,880	)			-				-
Indices  (premiums received -  $19,125)			-0.05	%			(11,700	)			-				-
Interest rates (premiums received -  $45,063)			-0.14	%			(36,188	)			-				-
Metals (premiums received -  $34,350)			-0.12	%			(31,100	)			-				-
Total short call options on futures contracts						$	(263,256	)						$	-

 

See accompanying notes to consolidated financial statements.

 

 

RJO GLOBAL TRUST AND SUBSIDIARY

Consolidated Statements of Operations

 

		For the three months ended								For the nine months ended
		September 30,				September 30,				September 30,				September 30,
		2012				2011				2012				2011
		UNAUDITED								UNAUDITED
Trading gain (loss):
Gain (loss) on trading of commodity contracts:							`
Realized gain (loss) on closed positions		$	(779,555	)		$	1,080,701			$	(1,420,214	)		$	1,018,432
Change in unrealized gain (loss) on open positions			273,115				1,570,718				(441,764	)			(361,647	)
Foreign currency transaction gain (loss)			(9,944	)			(28,589	)			(25,345	)			87,503
Total Trading gain (loss)			(516,384	)			2,622,830				(1,887,323	)			744,288
Net investment income (loss):
Interest income			29,255				89,762				183,719				195,896
Realized gain (loss) on fixed income securities			(18,353	)			(10,280	)			(196,445	)			(29,589	)
Change in unrealized gain (loss) on fixed income securities			20,421				(106,051	)			122,128				(110,082	)
Total net investment gain (loss)			31,323				(26,569	)			109,402				56,225
Expenses:
Commissions - Class A			296,274				464,016				1,015,126				1,588,313
Commissions - Class B			6,137				9,944				21,459				30,368
Advisory fees			13,729				15,829				40,594				46,689
Management fees			128,690				164,049				368,089				558,605
Incentive fees			25,462				38,017				29,873				155,519
Ongoing offering expenses			21,000				20,000				58,467				125,000
Operating expenses			150,000				213,950				420,534				586,002
Total expenses			641,292				925,805				1,954,142				3,090,496
Trading income (loss)			(1,126,353	)			1,670,456				(3,732,063	)			(2,289,983	)
Non-Trading income (loss):
Interest on Non-Trading reserve			76				228				218				2,636
Collections in excess of impaired value			-				1,328,832				-				1,672,495
Legal and administrative fees			-				(2,408	)			(139,299	)			(126,524	)
Management fees paid to US Bank			(59,931	)			(37,658	)			(235,705	)			(161,466	)
Non-Trading income (loss)			(59,855	)			1,288,994				(374,786	)			1,387,141
Net income (loss)		$	(1,186,208	)		$	2,959,450			$	(4,106,849	)		$	(902,842	)

 

See accompanying notes to consolidated financial statements.

 

 

RJO GLOBAL TRUST AND SUBSIDIARY

Consolidated Statement of Changes in Unitholders’ Capital

For the nine months ended September 30, 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)			-				(3,610,621	)			-				(115,525	)			-				(5,917	)
Transfers			(52	)			(4,404	)			49				4,404
Unitholders' contributions			1,574				137,436				-				-				-				-
Unitholders redemptions			(62,313	)			(5,338,276	)			(2,679	)			(249,194	)			-				-
Balances at September 30, 2012			295,067			$	23,681,527				10,067			$	870,979				535			$	42,940
Unitholders' Capital (Trading)			Total Unitholders' Capital - Trading
			Units				Dollars
Balances at December 31, 2011			369,090			$	33,777,543
Trading income (loss)			-				(3,732,063	)
Transfers			(3	)			-
Unitholders' contributions			1,574				137,436
Unitholders' redemptions			(64,992	)			(5,587,470	)
Balances at September 30, 2012			305,669			$	24,595,446

 

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)			-				(47,804	)			-				(326,982	)			-				(374,786	)
Reallocation due to Redemptions			(51,831	)			(21,015	)			51,831				21,015				-				-
Balances at September 30, 2012			254,976			$	89,716				2,018,312			$	710,162				2,273,288			$	799,878
Total Unitholders Capital at September 30, 2012																						$	25,395,324
		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			(11.06	)			(10.46	)			(0.17	)
Net asset value per unit at September 30, 2012		$	80.26			$	86.52			$	0.35

 

See accompanying notes to consolidated financial statements.

 

 

RJO GLOBAL TRUST AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 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 five independent commodity trading advisors (each an “Advisor” and collectively the “Advisors”) as of September 30, 2012, 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:

 

 

(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.

 

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 purchased cost of an underlying instrument (for a purchased call option) is adjusted by the amount of the premium paid.

 

 

At September 30, 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 September 30, 2012, Wells Fargo Bank, N.A. held approximately $22.6 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.

 

 

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 fees.

 

(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 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.

 

 

Net trading results from derivatives for the periods ended September 30, 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 agreement between the Trust and RJOIM to include, but not be 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								Collections in				Cash Distributions to				Additional Units in Trust for
		Received from				Balance of				Excess of				Non-Participating				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.

 

 

(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 September 30, 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 September 30, 2012 and December 31, 2011, respectively:

 

		September 30, 2012
		Level 1				Level 2				Level 3				Total
Assets
Unrealized gain on open contracts:
Futures positions		$	159,905			$	-			$	-			$	159,905
Purchased options on futures contracts			515,818				-				-				515,818
Fixed income securities			-				14,704,345				-				14,704,345
			675,723				14,704,345				-				15,380,068
Liabilities
Unrealized loss on open contracts:
Options written on futures contracts			(569,588	)			-				-				(569,588	)
Total liabilities			(569,588	)			-				-				(569,588	)
Total fair value		$	106,135			$	14,704,345			$	-			$	14,810,480

 

		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

 

 

(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 Payment		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 and nine-month periods ended September 30, 2012 and 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.

 

 

		Class A								Class B								Class A								Class B
		Three months ended								Three months ended								Nine months ended								Nine months ended
		September 30,								September 30,								September 30,								September 30,
		2012				2011				2012				2011				2012				2011				2012				2011
Per share operating performance:
Net asset value of Trading units, beginning of period		$	83.93			$	92.14			$	90.03			$	96.87			$	91.32			$	100.64			$	96.98			$	104.75
Total Trading income (loss):
Trading gain (loss)			(1.73	)			6.39				(1.87	)			6.73				(5.59	)			1.45				(5.98	)			2.28
Investment income			0.10				0.29				0.11				0.30				0.32				0.51				0.34				0.56
Expenses			(2.04	)			(2.53	)			(1.75	)			(2.16	)			(5.79	)			(6.31	)			(4.82	)			(5.85	)
Trading income (loss)			(3.67	)			4.15				(3.51	)			4.87				(11.06	)			(4.35	)			(10.46	)			(3.01	)
Net asset value of Trading units, end of period		$	80.26			$	96.29			$	86.52			$	101.74			$	80.26			$	96.29			$	86.52			$	101.74
Total return:
Total return before incentive fees			(4.48	)%			4.61	%			(4.00	)%			5.13	%			(12.18	)%			(3.96	)%			(10.85	)%			(2.54	)%
Less incentive fee allocations			(0.10	)%			(0.10	)%			(0.10	)%			(0.10	)%			(0.07	)%			(0.36	)%			(0.07	)%			(0.34	)%
Total return			(4.58	)%			4.51	%			(4.10	)%			5.03	%			(12.25	)%			(4.32	)%			(10.92	)%			(2.88	)%
Ratios to average net assets:
Trading income (loss)			(1.98	)%			4.43	%			(2.00	)%			4.94	%			(6.51	)%			(5.39	)%			(6.48	)%			(3.13	)%
Expenses:
Expenses, less incentive fees			(2.58	)%			(2.58	)%			(2.06	)%			(2.04	)%			(6.86	)%			(7.07	)%			(5.34	)%			(5.59	)%
Incentive fees			(0.10	)%			(0.10	)%			(0.10	)%			(0.10	)%			(0.07	)%			(0.36	)%			(0.07	)%			(0.34	)%
Total expenses			(2.68	)%			(2.68	)%			(2.16	)%			(2.14	)%			(6.93	)%			(7.43	)%			(5.41	)%			(5.93	)%

 

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 and nine-month periods ended September 30, 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 September 30, 2012, the Trust’s deposits held by RJOIM consisted of cash of $7,908,345 and fixed income securities of $14,704,345. Advisory fees earned by RJOIM aggregated $13,729 and $40,594 for the three and nine months ended September 30, 2012, respectively.

 

(11) Derivative Instruments and Hedging Activities

 

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

 

  

Derivatives not designated as hedging instruments:

 

As of September 30, 2012
		Asset				Liability
Type of		Derivatives				Derivatives				Net
Futures Contracts		Fair Value				Fair Value				Fair Value
Agriculture		$	970,188			$	(958,839	)		$	11,349
Currency			31,309				(47,372	)			(16,063	)
Energy			143,943				(122,350	)			21,593
Indices			25,788				(28,565	)			(2,777	)
Interest Rates			40,242				(32,993	)			7,249
Metals			269,400				(184,616	)			84,784
		$	1,480,870			$	(1,374,735	)		$	106,135

 

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/(loss) on open contracts, purchased options on futures contracts and in options written on futures contracts on the consolidated statements of financial condition as of September 30, 2012 and December 31, 2011, respectively.

 

Trading gain (loss) for the following periods:

 

		Three months ended September 30,								Nine months ended September 30,
Type of Futures Contracts		2012				2011				2012				2011
Agriculture		$	16,161			$	(402,415	)		$	(300,187	)		$	(1,014,096	)
Currency			(176,598	)			(131,022	)			(819,922	)			(1,356,729	)
Energy			(261,344	)			(187,631	)			(79,134	)			8,390
Indices			(189,706	)			1,125,206				(526,943	)			1,391,291
Interest Rates			26,825				1,637,315				164,439				1,250,639
Metals			68,278				581,377				(325,576	)			464,793
		$	(516,384	)		$	2,622,830			$	(1,887,323	)		$	744,288

 

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.

 

(12) Subsequent Events

 

None.

 

 

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 and allocated less than 10% of the Trust’s assets. At April 30, 2012, DCM, TIM, and HCM were terminated as Advisors. CCG was terminated as of June 30, 2012. At March 30, 2012, the Trust entered into an Advisory Agreement with Liberty Funds Group, Inc. (“LFG”) and Hyman Beck & Company, Inc. (“HBC”). At June 30, 2012, the Trust entered into an Advisory Agreement with Aventis Asset Management, LLC (“AAM”). At August 31, 2012, the Trust entered into an Advisory Agreement with Global AG, LLC (“GA”). As such, as of September 30, 2012, the Trust’s assets were allocated to the following five Advisors: NW (21.93%), HBC (9.71%), LFG (21.97%), AAM (22.28%), and GA (18.24%), the remaining percentage was allocated to cash.

 

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 nine-month period ended September 30, 2012, 1,574 Class A Units for $137,436 were purchased by the beneficial owners. The Managing Owner purchased no Units during this time. For the nine-month period ending September 30, 2012, the unitholders redeemed a total of 62,313 Class A Units for $5,338,276 and 2,679 Class B Units for $249,194.

 

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.

 

 

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 nine-month period ending September 30, 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 September 30, 2012 and 2011, the Trust has received or accrued to receive trading interest of $1,181 and $6,509, 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 September 30, 2012, Wells Fargo Bank, N.A. held approximately $22.6 million of the Trust’s assets. For the quarter ended September 30, 2012 and 2011, the assets held in this account earned $29,255 and $89,762 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.

 

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 September 30, 2012

 

The Trust recorded net trading losses of $(1,091,211) or $(3.67) per trading unit for Class A units and a loss of $(35,142) or $(3.51) per trading unit for Class B units in the third 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 September 30, 2012, the Trust (Class A units) has lost 1.89% since its inception in June 1997. Class B units have lost 27.53% since their inception in January 2009.

 

As of September 30, 2012, the Trust’s assets were allocated to the following five Advisors: NW (21.93%), HBC (9.71%), LFG (21.97%), AAM (22.28%), and GA (18.24%), the remaining percentage was allocated to cash.

 

Stock and commodity sectors climbed higher in September. Stocks rose a little over 2.5% and the S&P 500 has now gained almost 16.5% for the year to date. The market has benefited from a Federal Reserve Bank dedicated to supporting a timid economic recovery at all costs. After climbing for the last 3 years, the S&P rests approximately 9% below its October 2007 peak. Oil touched a price of $100 dollars per barrel but immediately sold off $10 dollars and now trades in a range based in the low $90’s. The drought across the mid section of the U.S. has dramatically damaged Corn and Soybean crops. Prices remain at high levels as we approach the harvest season. Doubts about crop yields have kept volatility unusually high as well. Interest rates rose during the middle of the month but pressure subsided after weaker than expected economic news was revealed. Interest rates remain in a narrow trading range near historical lows.

 

Fiscal Quarter ended September 30, 2011

 

The Trust recorded net trading gain of $1,670,456 or $4.15 per trading unit for Class A units and a gain of $4.87 per trading unit for Class B units in the third 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 September 30, 2011, the Trust (Class A units) had gained 17.71% since its inception in June 1997. Class B units have lost 14.78% since their inception in January of 2009.

 

As of September 30, 2011, the Trust’s assets were allocated to the following Advisors as follows: ATC (16.61%), CCG (17.07%), GAJL (15.69%), HCM (9.37%), JWH (7.31%), NW (17.03%), DCM (8.88%) and TIM (8.04%).

 

 

Stocks continued their losing streak in July finishing with a lackluster 2% loss. The market continues to struggle with anemic economic data and a stressful political climate related to debt management both here in the U.S. and in Europe. While the European community avoided an immediate crisis in Greece, problems remain critical in Italy and in Spain. For the first time our country’s history, our government flirted with default as our leaders could not agree on a plan to increase our debt limit or a long term plan to balance the U.S. budget. With this environment as a backdrop and investors looking for safe havens to protect value, gold and the Swiss Franc each made new highs. Interest rates remain at or near record lows. Many commodities began climbing back to higher price levels seen earlier this spring. As a result, the Dow Jones UBS commodity index returned to positive territory at month end for the year to date.

 

At one point during August, stocks were down almost 12%. The S&P rallied 5 straight days to finish the month with a loss of 5.43%. The final monthly result masks the fear that was present in early August. As stocks were in free fall, Gold rocketed to an all time high nominal price of over $1,900 per ounce. The Swiss Franc rose to an all time high against the U.S. Dollar and against the Euro as global investors worried over the viability of the European Union and the ability of the U.S. economy to avoid another recession. Ten-year note yields dipped below 2% for a few days for the first time since 1960 seeming to signal desperation on the part of investors seeking to avoid stock exposure and market risk. With no evidence of a solution to numerous global economic and political problems, it was somewhat surprising to see that stocks and commodities finished the month on a positive note. The market seems to have embraced the Federal Reserve Bank’s plan to leave interest rates at or near zero until 2013. It seems that something would have to give between weakening global economies and increasing global debt problems.

 

Global stock markets continued their slide during September and posted their worst quarterly performance since the fall of 2008. Concerns over slumping global demand for commodities caused a 15% drop in the Dow Jones UBS Commodity index, its second worst month ever and the worst month since October 2008. After making new highs earlier this summer gold and corn are each almost 25% below their peaks. Crude oil, coffee, and copper have fallen between 15 and 20%. It would appear that the markets are pricing in a Greek default and the impact such a default might have on the European Union. While the direct economic impact of such a problem is uncertain, the thought of it has created a lack of confidence that has been pervasive across many markets and has been reflected in many recent consumer and business reports. Consumers appear reluctant to spend and businesses are hesitant to hire new employees and invest in new projects. Not a good combination for economic growth.

 

Fiscal Quarter ended June 30, 2012

 

The Trust recorded net trading losses of $(782,539) or $(2.44) per trading unit for Class A units and a loss of $(21,956) or $(2.15) per trading unit for Class B units in the second 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 June 30, 2012, the Trust (Class A units) had gained 2.60% since its inception in June 1997. Class B units have lost 24.59% since their inception in January 2009.

 

As of June 30, 2012, the Trust’s assets were allocated to the following Advisors: ATC (17.04%), CCG (15.74%), NW (16.45%), JWH (8.08%), Hyman Beck & Company, Inc., and Liberty Funds Group Inc. each controlled less than 10% of the portfolio.

 

Stocks scored another gain in what has been a near perfect environment for the market over the last 12 months. The S&P 500 has doubled since March 2009 and remains just 13% below an all time high. Interest rates have remained at near historic lows and economic activity has been quietly improving. Still, there is a certain uneasiness surrounding the current situation, as many prudent market watchers are concerned that the Federal Reserve Bank’s accommodative monetary policy is the only support underlying the market. If the Fed were unable to maintain accommodative monetary policy the market would have to deal quickly with inflationary evidence and questions of currency stability. Commodities remain in a steady uptrend and, although experiencing some brief pullbacks, have been led higher by food, metal, and energy markets.

 

Fiscal Quarter ended June 30, 2011

 

The Trust recorded net trading losses of $(2,064,169) or $(4.74) per trading unit for Class A units and a loss of $(4.47) per trading unit for Class B units in the second 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 June 30, 2011, the Trust (Class A units) had gained 12.63% since its inception in June 1997. Class B units have lost 18.86% since their inception in January 2009.

 

 

On June 30, 2011, the Trust’s assets were allocated to the following Advisors as follows: ATC (16.61%), CCG (17.07%), GAJL (15.69%), HCM (9.37%), JWH (7.31%), NW (17.03%), DCM (8.88%) and TIM (8.03%).

 

In April stocks scored another gain in what has been a near perfect environment for the market over the last 12 months. The S&P 500 has doubled since March 2009 and remains just 13% below an all time high. Interest rates have remained at near historic lows and economic activity has been quietly improving. Still, there is a certain uneasiness surrounding the current situation, as many prudent market watchers are concerned that the Federal Reserve Bank’s accommodative monetary policy is the only support underlying the market. If the Fed were unable to maintain accommodative monetary policy the market would have to deal quickly with inflationary evidence and questions of currency stability. Commodities remain in a steady uptrend and, although experiencing some brief pullbacks, have been led higher by food, metal, and energy markets.

 

Stocks lost just over 1% during May while commodities lost just over 5%. The markets seemed concerned that domestic global economic growth to be slowing. Concerns over the European Union’s situation with Greece and its debt situation have brought credit market tensions to the forefront. As a result, U.S. treasuries showed strength again this month with the benchmark 10-year note closing out the month with its yield hovering near 3%. Given the markets concern over budget deficits and commodity led inflation, it is remarkable that the yield on the 10-year note is trading so low. The markets appear to be very nervous about the potential of a U.S. budget impasse and a double dip recession.

 

Stocks staged a strong rally during the last few days of June but still finished the month down almost 2%. Commodities lost 5% during the month as crude oil and grains sold off dramatically from recent highs. On the energy front, the International Energy Agency orchestrated the release of 60 million barrels of oil to help loosen the oil market and to keep prices below $100 per barrel. The USDA reported that farmers have planted a record amount of corn. In fact, planted acreage is 9% higher than ever before. Greece avoided a financial default by approving an austerity package despite a series of violent domestic protests. Allowing Greece to solve its debt problem by creating more debt from within the European Community in a global environment that includes the U.S. fighting its own rising debt problems, finally got the attention of treasury markets around the world. The unfolding events caused rates to creep up slightly during the month. July should be interesting as politicians position themselves in the effort to increase the U.S. debt ceiling or face our own credit default.

 

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.

 

 

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 September 30, 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 September 30, 2012.

 

 

Changes in Internal Control Over Financial Reporting: There were no changes in the Trust’s internal control over financial reporting, during the quarter ended September 30, 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 September 30, 2012, the Trust issued 1,574 Units in exchange for $137,436 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 third quarter of 2012:

 

		Units Redeemed								Redemption Date NAV per Unit
Month		Class A				Class B				Class A				Class B
July			8,345				194			$	85.21			$	91.56
August			4,311				200			$	83.07			$	89.41
September			3,281				-			$	80.26			$	86.52
Total			15,937				394

 

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

 

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.

 

 

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:	November 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