UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

þ Annual Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the Fiscal Year Ended: December 31, 2011

 

or

 

¨ Transition Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

 

Commission File Number: 000-50102

 

GLOBAL MACRO TRUST

(Exact name of registrant as specified in its charter)

 

Delaware		36-7362830
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

 

c/o MILLBURN RIDGEFIELD CORPORATION

411 West Putnam Avenue

               Greenwich, Connecticut  06830              

(Address of principal executive offices) (Zip Code)

 

Registrant’s telephone number, including area code: (203) 625-7554

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Securities registered pursuant to Section 12(g) of the Act: Units of Beneficial Interest 

(Title of Class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

 

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 x (Do not check if a smaller reporting company)	Smaller reporting company ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes £ No x

 

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.

 

Not applicable.

 

Documents Incorporated by Reference

 

Registrant’s Financial Statements for the years ended December 31, 2011, 2010 and 2009 and Report of Independent Registered Public Accounting Firm, the annual report to security holders for the fiscal year ended December 31, 2011, is incorporated by reference into Part II Item 8 and Part IV hereof and filed as an exhibit herewith.

 

 

PART I

 

Item 1.   Business

 

(a)   General development of business

 

Global Macro Trust (the “Trust”) is a Delaware statutory trust organized on July 23, 2001 pursuant to a Declaration of Trust and Trust Agreement (the “Trust Agreement”), under the Delaware Statutory Trust Act.  The Trust originally filed a registration statement, under the Securities Act of 1933, as amended (the “Securities Act”), with the Securities and Exchange Commission (“SEC”) to register $50 million of units of beneficial interest (the “Units”), which registration statement became effective March 26, 2002.  Between April 1, 2002 and June 30, 2002 (the “Initial Offering”), the Units were publicly offered at an initial price of $1,000 per Unit.  The proceeds of the Initial Offering and interest thereon were held in an account in the name of the Trust at FBR National Bank & Trust, Bethesda, Maryland, until July 1, 2002 at which time an aggregate of $1,290,457 was turned over to the Trust and the Trust commenced operations.  The Trust has subsequently registered additional Units with the SEC to bring the total dollar amount of Units registered for sale to $1,450,000,000 of which $3,880,734 expired, and a total of $1,369,353,934 of Units have been sold to the public as of December 31, 2011.  The Net Asset Value of a Series 1 Unit originally sold for $1,000 as of July 1, 2002 was $1,175.07 as of December 31, 2011.  The Net Asset Value of a Series 2 Unit originally sold for $1,278.10 as of April 1, 2010 was $1,261.94 as of December 31, 2011.  The Net Asset Value of a Series 3 Unit originally sold for $1,180.91 as of September 1, 2009 was $1,267.10 as of December 31, 2011.  The Net Asset Value of a Series 4 Unit originally sold for $1,315.33 as of November 1, 2010 was $1,307.09 as of December 31, 2011.  As of December 31, 2011, Units were being offered on a monthly basis at Net Asset Value per Unit.  The Units are offered through a number of registered broker-dealer selling agents on a best efforts basis.

 

The Trust engages in speculative trading in the futures and forward currency markets and may trade options thereon as well as swap contracts. The amount of capital raised for the Trust should not have a significant impact on its operations, as the Trust has no significant capital expenditure or working capital requirements other than to pay trading losses, brokerage fees and charges.

 

Millburn Ridgefield Corporation (the “Managing Owner”), a Delaware corporation operating in Greenwich, Connecticut, organized in May 1982, is the managing owner and the commodity trading advisor for the Trust. It is the corporate successor to a futures trading and advisory organization which has been continuously managing assets in the currency and futures markets using quantitative, systematic techniques since 1971. The Managing Owner has been registered with the Commodity Futures Trading Commission (“CFTC”) as a “commodity pool operator” since July 1, 1982 and as a “commodity trading advisor” since September 13, 1984 and has been a member of the National Futures Association (“NFA”) since July 1, 1982. The Millburn Corporation is an affiliate of the Managing Owner and performs research, trading, technology, operations, marketing, accounting, tax, legal, compliance, human resources, and other administrative functions for the Trust and other commodity pools and investment partnerships managed by the Managing Owner.

 

The Managing Owner invested $400 in the Trust as an initial capital contribution to the Trust and $2,000,000 in the Trust at the outset of trading and subsequently has contributed an additional $3,812,100 and has redeemed $38,671,655 as of December 31, 2011. After reflecting a net gain of $5,359,589 and profit share of $37,144,509 from inception up to and including December 31, 2011, this investment totaled $9,644,943, as of December 31, 2011.

 

(b)   Financial information about industry segments

 

The Trust’s business constitutes only one segment, i.e., a speculative commodity pool. The Trust does not engage in sales of goods and services. Financial information regarding the Trust’s business is set forth in Item 6 “Selected Financial Data” and in the Trust’s Financial Statements included as Exhibit 13.01 to this report.

 

 

(c)   Narrative description of business

 

The Trust engages in the speculative trading of futures and forward currency contracts and may trade options thereon as well as swap contracts. The Trust’s sole trading advisor is the Managing Owner. The Managing Owner trades the Trust’s assets in the agricultural, metals, energy, interest rate and stock indices futures markets and in the currency markets, trading primarily forward contracts in the interbank market. The Managing Owner makes investment and trading decisions pursuant to its investment and trading method, which includes technical trend analysis, certain non-trend-following technical systems, and money management principles, which may be revised from time to time. The objective of the Managing Owner’s investment and trading method is to (i) use trend-following models to participate in all major sustained price moves in the markets traded and (ii) simultaneously deploy shorter-term opportunistic models that may or may not take positions in the same direction as trend-following positions. The Managing Owner’s approach is medium-term to long-term in nature. The Managing Owner’s approach employs models that analyze data over a time spectrum from several minutes to multiple years. A majority of trades generated by quantitative models may be unprofitable. Their objective is to make a few large profits, more than offsetting their numerous but smaller losses. Consequently, during periods in which no major price trends develop in a market, trend-following models are likely to incur substantial losses. Similarly, during periods when market behavior is unsuitable for non-trend following models, such models are likely to incur substantial losses.

 

The Managing Owner is engaged in an ongoing research effort to improve its investment and trading methods and to apply its quantitative analytic expertise to new financial products.

 

Successful systematic futures trading depends on several factors. Two of the main factors are development and selection of the trading systems used in each market and allocation of portfolio risk among the markets available for trading.

 

Market environments change over time, and particular systems may perform well in one environment but poorly in another. Likewise, market sectors and individual markets go through periods where systematic trading is very profitable and other periods where no system is able to generate any profits.

 

The goal of the Managing Owner’s research has been to develop and select a mix of systems in each market and to allocate risk across a wide array of markets, so as to contain overall portfolio risk within a targeted range, while allowing exposure to profitable opportunities. Over more than 40 years, the Managing Owner has developed hundreds of trading systems. These trading systems generate buy or sell decisions in a particular market based on the direction of price movements in the market, some non-price information or combination of both.

 

Of course, systems can be materially different — better in some periods and worse in others. The main distinguishing features are: the time-frame over which systems work (intra-day to long-term); the granularity of data fed into them (tick data to daily, weekly or monthly frequencies); type (market or economic statistics); source (cash-, futures- or option markets-generated data or government and industry generated statistical information), and the objective of the system (profiting from trends, mean reversion, trading-ranges or volatility). No single approach will work all the time. Therefore, the Managing Owner’s objective is to have several approaches operating simultaneously. Since the early 1980s, the Managing Owner has selected multiple systems for each market.

 

When arriving at the portfolio allocation, the Managing Owner seeks maximum diversification subject to liquidity constraints and each market is traded using a diversified (but generally not optimized for each particular market) set of trading systems. The markets traded and allocations are reviewed at least monthly, although changes may occur more or less frequently. The following factors, among others, are considered in constructing a universe of markets to trade for the Trust: profitability, liquidity of markets, professional judgment, desired diversification and transaction costs, exchange regulations and depth of market. Once the universe of markets is established, the Managing Owner’s simulation and optimization techniques help determine which markets to include in the Trust’s portfolio. The current allocation to any market in the portfolio does not exceed 2.5% of total market exposure, measured by risk allocation.

 

 

Risk is a function of both price level and price volatility. For example, a 100,000 barrel crude oil position is worth more and is, therefore, probably more risky with oil at $90 per barrel than with oil at $50 per barrel. Similarly, oil would be more risky if prices are moving in a 5% daily range than if prices are moving in a 1% daily range. The Managing Owner sizes the position in each market taking into account its measurement of risk based on price level and volatility in that market. Market exposure is then managed by the position-sizing models which measure the risk in the portfolio’s position in each market. In the event the model determines that the risk has changed beyond an acceptable threshold, it will signal a change in the position — a decrease in position size when risk increases and an increase in position size when risk decreases. The Managing Owner’s position-sizing models maintain overall portfolio risk and distribution of risk across markets within designated ranges. The position-sizing model manages the position traded by each of the directional trading systems discussed above. A secondary benefit of the position-sizing model can be timely profit taking. Because markets tend to become more volatile after a profitable trend has been long underway, the position-sizing model often signals position reductions before trend reversals.

 

In addition, the Managing Owner’s risk management focuses on money management principles applicable to the portfolio as a whole rather than to individual markets. The first principle is portfolio diversification, which attempts to improve the quality of profits by reducing volatility.

 

Additional money management principles applicable to the portfolio as a whole include: (1) limiting the assets committed as margin or collateral, generally within a range of 5% to 35% of an account’s net assets though the amount may at any time be higher or lower; (2) prohibiting pyramiding — that is, using unrealized profits in a particular market as margin for additional positions solely in the same market; and (3) changing the equity used for trading by an account solely on a controlled periodic basis, not automatically due to an increase in equity from trading profits.

 

Another important risk management function is the careful control of leverage or total portfolio exposure. Leverage levels are determined by simulating the entire portfolio — all markets, all systems, all risk control models, the exact weightings of the markets in the portfolio and the proposed level of leverage — over the past five or ten years to determine the portfolio’s simulated risk and return characteristics as well as the worst case experienced by the portfolio in the simulation period. The worst case, or peak-to-trough drawdown, is measured from a daily high in portfolio assets to the subsequent daily low whether that occurs days, weeks or months after the daily high. If the Managing Owner considers the drawdown too severe or the portfolio’s simulated volatility too high, it reduces the leverage or total portfolio exposure. There are, however, no restrictions on the amount of leverage the Trust may use at any given time.

 

Decisions whether to trade a particular market require the exercise of judgment. The decision not to trade certain markets for certain periods, or to reduce the size of a position in a particular market, may result at times in missing significant profit opportunities.

 

The Managing Owner employs discretion in the execution of trades where The Millburn Corporation’s trader expertise plays a role in timing of orders and, from time to time, the Managing Owner may adjust the size of a position, long or short, in any given market indicated by its systematic trading strategies. This exercise of discretion (other than in trade execution) generally occurs only in response to unusual market conditions that may not have been factored into the design of the trading systems and is generally intended to reduce risk exposure. Decisions to make such adjustments also require the exercise of judgment and may include consideration of the volatility of the particular market; the pattern of price movements, both inter-day and intra-day; open interest; volume of trading; changes in spread relationships between various forward contracts; and overall portfolio balance and risk exposure.

 

The Trust is open-ended and may offer Series 1, Series 2, Series 3 and Series 4 Units at their respective Net Asset Value as of the first day of each month. The only differences between the Units of each Series are the applicable fees and expenses. Otherwise, the Units of each Series are identical to the Units of such other Series and share pro rata in the profits and losses of the Trust. Series 2 and Series 3 Units are available only to investors participating in a registered investment adviser’s asset-based fee or fixed fee advisory program through which an investment adviser recommends a portfolio allocation to the Trust. The only difference between the Series 2 and Series 3 Units is the custodial fee applicable to Series 2 Units. Series 4 Units are available only to employees and former employees of the Managing Owner and its affiliates who purchase their Units through The Millburn Corporation 401(k) and Profit Sharing Plan. Unitholders (“Unitholders”) may redeem any or all of their Units upon 10-business days’ written notice to the Managing Owner at their Net Asset Value as of the last day of any month. Series 1 Units redeemed on or prior to the end of the first six-month period after their sale will pay a redemption charge of 4% of the Net Asset Value at which such Series 1 Units are redeemed. Series 1 Units redeemed on or prior to the end of the first eleven months but after the end of the first six-month period after their sale will pay a redemption charge of 3% of the Net Asset Value at which such Series 1 Units are redeemed. These redemption charges are paid to the Managing Owner. Redemption charges are reduced, in the case of subscriptions for Series 1 Units in amounts of $100,000 or more. Series 2, Series 3 and Series 4 Units are not subject to redemption charges. Requests for redemption will be honored and payment will be made, except in the event of highly unusual market disruptions, within 15 business days of the effective date of redemption.

 

 

Pursuant to the Trust Agreement, the Managing Owner receives a flat-rate monthly brokerage fee equal to 0.58 of 1% of the month-end Series 1 Net Assets (a 7.0% annual rate). The Managing Owner charges less than the annual brokerage rate of 7% to those subscribers who invest in amounts of $100,000 or more in the Series 1 Units or subscribed without incurring the selling commissions paid by the Managing Owner. These reductions have no effect on other investors. From this amount, the Managing Owner pays approximately 0.25% to the Trust’s executing and clearing brokers, and up to 4% to the Selling Agents. For Series 1 Units sold after June 4, 2009, the amount paid to Selling Agents shall not, however, exceed 9.5% of the gross offering proceeds. Once the 9.5% threshold is reached with respect to a Series 1 Unit, the Selling Agent will receive no future compensation and the up to 4% amount that would otherwise be paid to the Selling Agent for that Series 1 Unit will instead be rebated to the Trust for the benefit of all holders of Series 1 Units. The Managing Owner also receives a profit share equal to 20% of any new trading profit of Series 1 Units, determined as of the end of each calendar year. The annual profit share is calculated net of brokerage fees and administrative expenses and excluding interest income. The Managing Owner pays all the routine costs of executing and clearing the Trust’s trades and all compensation due to the selling agents with respect to the Series 1 Units.

 

The Trust pays the Managing Owner an annual management fee equal to 2% of the average month-end Net Assets attributable to the Series 2 Units and Series 3 Units after reduction for expenses but before reduction for any accrued but unpaid management fees, custodial fees or Series 2/3 profit shares. The Trust will pay the Managing Owner a custodial fee equal to 0.25% of the average month-end Net Assets attributable to the Series 2 Units, after reduction for expenses but before reduction for any accrued but unpaid management fees, custodial fees or Series 2/3 profit shares, which the Managing Owner will pay on to brokers acting as custodian of Series 2 Units for the benefit of investors in Series 2 Units. Series 2 and Series 3 Units are also charged for their pro rata share of the Trust’s actual trade execution and clearing costs, including electronic platform trading costs, estimated at approximately 0.25% of the Trust’s average month-end Net Assets per year attributable to the Series 2 and Series 3 Units. The Trust pays the Managing Owner a Series 2/3 profit share equal to 20% of any cumulative new trading profit of the Series 2 and Series 3 Units in the aggregate, determined as of the end of each calendar year. The annual Series 2/3 profit share is calculated net of management fees, execution and clearing costs, custodial fees, and ongoing offering and administrative expenses and excluding interest income.

 

Series 4 Units are charged for their pro rata share of the Trust’s actual trade execution and clearing costs, including electronic platform trading costs, estimated at approximately 0.25% of the Trust’s average month-end Net Assets per year attributable to the Series 4 Units. Series 4 Units are not charged a management fee or profit share.

 

The Trust’s organizational and initial offering costs were paid by the Managing Owner without reimbursement from the Trust or the Unitholders. The Trust pays its own offering costs including registration and filing fees and the legal and accounting costs of updating the Trust’s prospectus and printing and postage costs associated with producing and distributing the Trust’s prospectus and related sales literature to the selling agents, as well as payments to administrators for processing subscription agreements. The Trust pays all routine legal, accounting, administrative (including, if applicable, the services of an administrator unaffiliated with the Managing Owner), printing and similar costs associated with its day-to-day operations, including the fees of Wilmington Trust Company (the “Trustee”).

 

J.P. Morgan Securities LLC (“J.P. Morgan”), Deutsche Bank Securities Inc. (“Deutsche Bank”), Merrill Lynch, Pierce, Fenner & Smith Incorporated (“Merrill Lynch”), Newedge USA, LLC (“Newedge”) and Barclays Capital Inc. (“Barclays”) act as the futures brokers for the Trust. The Trust executes currency forward trades with several brokers and banks, including Morgan Stanley & Co., LLC, Deutsche Bank AG and Barclays Bank PLC, and primarily clears all such trades with Morgan Stanley & Co., LLC, Deutsche Bank AG, and Barclays Bank PLC serving as prime brokers. The Trust pays “bid asked” spreads on its forward trades, as such spreads are incorporated into the pricing of forward contracts. The Managing Owner monitors the Trust’s trades to ensure that the prices it receives are competitive.

 

 

The Trust’s cash and short-term U.S. Treasury instruments are used by the Trust to engage in its trading activities and as reserves to support that trading. The Trust’s assets deposited with the Trust’s futures brokers as margin are maintained in “customer segregated funds accounts” or “foreign futures and foreign options secured amount accounts” and are held in cash, or U.S. Treasury instruments. Trust assets not deposited as margin are maintained in bank or brokerage accounts and are held primarily in bank money market funds or short-term U.S. Treasury instruments or a U.S. government securities and related instruments money market fund.

 

The Trust does not engage in lending (other than through permitted securities investments).

 

Regulation

 

Under the Commodity Exchange Act, as amended (the “CEA”), commodity exchanges and futures trading are subject to regulation by the CFTC. NFA, a “registered futures association” under the CEA, is the only non-exchange self-regulatory organization for futures industry professionals. The CFTC has delegated to NFA responsibility for the registration of “commodity trading advisors,” “commodity pool operators,” “futures commission merchants,” “introducing brokers” and their respective associated persons and “floor brokers” and “floor traders.” The CEA requires commodity pool operators and commodity trading advisors, such as the Managing Owner, and commodity brokers or futures commission merchants (“FCMs”), such as J.P. Morgan, Deutsche Bank, Merrill Lynch, Newedge and Barclays to be registered and to comply with various reporting and record keeping requirements. The CFTC may suspend a commodity pool operator’s or commodity trading advisor’s registration if it finds that its trading practices tend to disrupt orderly market conditions or in certain other situations. In the event that the registration of the Managing Owner as a commodity pool operator or a commodity trading advisor were terminated or suspended, the Managing Owner would be unable to continue to manage the business of the Trust. Should the Managing Owner’s registration be suspended, termination of the Trust might result.

 

In addition to such registration requirements, the CFTC and certain commodity exchanges have established limits on the maximum net long or net short positions which any person may hold or control in certain futures contracts. Most exchanges also limit the changes in futures contract prices that may occur during a single trading day. In November 2011, the CFTC adopted a new position limits regime for 28 so-called “exempt” (i.e., metals and energy) and agricultural futures and options contracts and their economically equivalent swap contracts. These position limits are not yet effective and there is considerable uncertainty surrounding their application. All accounts controlled by the Managing Owner are combined for speculative position limit purposes. The Managing Owner believes that the limits are sufficiently large that they should not restrict the Trust’s trading strategy.

 

Currency forward contracts are not currently subject to regulation by any United States (“U.S.”) government agency. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Reform Act”) was enacted in July 2010. The Reform Act includes provisions that comprehensively regulate the over-the-counter derivatives markets for the first time. The Reform Act will mandate that a substantial portion of over-the-counter derivatives must be executed in regulated markets and submitted for clearing to regulated clearinghouses. The mandates imposed by the Reform Act may result in the Trust bearing higher upfront and mark-to-market margin, less favorable trade pricing, and the possible imposition of new or increased fees.

 

The Reform Act also amended the definition of “eligible contract participant,” and the CFTC is interpreting that definition in such a manner that the Trust may no longer be permitted to engage in currency forward transactions by directly accessing the interbank market. Rather, the Trust may be limited to engaging in “retail forex transactions” which could limit the Trust’s potential currency forward counterparties. Limiting the Trust’s potential currency forward counterparties could lead to the Trust bearing higher upfront and mark-to-market margin, less favorable trade pricing, and the possible imposition of new or increased fees. The “retail forex” markets could also be significantly less liquid than the interbank market. Moreover, the creditworthiness of the currency forward counterparties with whom the Trust may be required to trade could be significantly weaker than the creditworthiness of the financial institutions with whom the Trust currently engages for its currency forward transactions. The imposition of credit controls by governmental authorities or the implementation of regulations pursuant to the Reform Act might limit such forward trading to less than that which the Managing Owner would otherwise recommend, to the possible detriment of the Trust.

 

 

(i)   through (xii) - not applicable.

 

(xiii)   the Trust has no employees.

 

(d)   Financial information about geographic areas

 

The Trust does not engage in material operations in foreign countries (although it does trade from the U.S. in foreign currency forward contracts and on foreign futures exchanges), nor is a material portion of its revenues derived from foreign customers.

 

Item 1A.   Risk Factors

 

You Could Lose Your Entire Investment in the Trust

 

An investment in the Trust is a speculative investment. You will be relying on the Managing Owner to trade profitably for the Trust and profitability is not assured. You could lose all or a substantial portion of your investment in the Trust.

 

Past Performance is not Necessarily Indicative of Future Results

 

The Trust began trading July 1, 2002 and has traded in both rising and falling markets. Nevertheless, prospective investors and Unitholders should note that the past performance of the Trust is not necessarily indicative of the Trust’s future results.

 

The Trust is a Highly Leveraged Investment

 

The Trust generally holds positions with an aggregate face value of as much as eight, and possibly as much as ten or more, times its total equity. Consequently, small adverse movements in the prices of the Trust’s open positions can cause significant losses.

 

The Performance of the Trust Will be Volatile

 

The Managing Owner expects that the performance of the Trust will be volatile. The Trust may suffer sudden and substantial losses from time to time and the day-to-day value of the Units will be variable and uncertain. The Net Asset Value per Unit may change materially between the date on which you subscribe for Units and the date the Units are issued or the date you request a redemption and the month-end redemption date. In the last five years, monthly returns for the Series 1 Units, which are the highest fee paying Units, have ranged from up 8.52% to down 10.33%.

 

The Trust’s Expenses Will Cause Losses Unless Offset by Profits and Interest Income

 

The Trust pays annual expenses of up to approximately 7.35% of its average month-end Net Assets attributable to the Series 1 Units and annual expenses of up to approximately 2.85%, 2.60% and 0.60% of its average month-end Net Assets attributable to the Series 2 Units, Series 3 Units and Series 4 Units, respectively. The Trust must earn trading profits and interest income allocable to each Series at least equal to these expenses to avoid losses.

 

An Investment in the Trust is not Liquid

 

There is no secondary market for the Units. You may redeem your Units only as of the close of business on the last day of a calendar month, and you must give the Trust at least 10 days’ prior written notice of your intent to redeem. Early redemption charges apply if you redeem Series 1 Units through the end of the first eleven months you own them.

 

 

Series 1 Units Redeemed on or Before the End of the First Eleven Months after Purchase will be Assessed a Redemption Charge

 

Series 1 Units redeemed on or prior to the end of the first six-month period after their sale will pay a redemption charge of up to 4% of the Net Asset Value at which such Series 1 Units are redeemed. Series 1 Units redeemed on or prior to the end of the first eleven months but after the end of the first six-month period after their sale will pay a redemption charge of up to 3% of the Net Asset Value at which such Series 1 Units are redeemed.

 

The Timing of Your Investment and Redemption Decisions Will Affect the Profitability of Your Investment

 

The Managing Owner expects that a majority of the Trust’s trades will result in small profits only or in losses. The majority of any profits earned by the Trust will most likely come from a small number of trades each year. Accordingly, you will not know when is a good time to invest in the Trust or to redeem your Units, and the timing of your investment and redemption decisions will affect the amount of profit or loss you experience as an investor in the Trust.

 

The Managing Owner Alone Directs the Trust’s Trading

 

The Trust is a single-advisor fund. The use of a single advisor trading one program involves a greater risk of loss than the diversified, multi-advisor approach employed by many futures funds. In addition, if the management services of the Managing Owner were to become unavailable for any reason, the Trust would terminate. Furthermore, were the Managing Owner to lose the services of its key principals, the Managing Owner could decide to dissolve the Trust, possibly causing it to realize losses.

 

The Managing Owner is a Technical Trader and Does not Analyze Economic Factors External to Market Price

 

The Managing Owner’s systematic strategies are developed on the basis of a statistical analysis of market prices. Consequently, any factor external to the market itself that dominates prices may cause major losses. For example, a pending political or economic event may be very likely to cause a major price movement, but the Managing Owner would continue to maintain positions indicated by its trading method that would incur major losses if the event proved to be adverse.

 

The Managing Owner’s systematic strategies retain certain discretionary aspects. Decisions, for example, to adjust the size of the positions indicated by the systematic strategies, which contracts to trade and method of order entry require judgmental input from the Managing Owner’s principals. Additionally, the Managing Owner may determine not to enter a new position indicated by its strategies if the Managing Owner determines prevailing market conditions to be unusual, for example, significantly more volatile than the expected volatility factored into the design of the strategies. The Managing Owner does, however, exit positions when its trading strategies indicate that it should do so. Discretionary decision-making may result in the Managing Owner making unprofitable trades when a more wholly systematic approach would not have done so.

 

Lack of Price Trends Will Cause Losses; There Have Been Sustained Periods With Insufficient Price Trends for the Trust to Trade Profitably. The Managing Owner Expects That There Will be Similar Periods in the Future

 

The Trust cannot trade profitably unless there are major price trends in at least some of the markets it trades. Moreover, the price trends must be of a type the Managing Owner’s systems are designed to identify. In the past there have been sustained periods with few trending markets where gains from trading those markets were insufficient to offset losses from trades in non-trending markets. For example, the Trust incurred a loss for the year in 2003, 2004, 2009 and 2011. The Managing Owner expects that there will be similar periods in the future.

 

 

Markets in which prices move rapidly and then reverse and then do so again may cause losses. In such “whipsaw” market conditions, the Managing Owner may establish positions for the Trust on the basis of incorrectly identifying the rapid movement or the reversal as a trend.

 

Lack of Market Liquidity Could Make it Impossible for the Trust to Realize Profits or Limit Losses

 

In illiquid markets, the Trust could be unable to close out positions to limit losses or to take positions in order to follow trends. There are too many different factors that can contribute to market illiquidity to predict when or where illiquid markets may occur.

 

Unexpected market illiquidity has caused major losses for some traders in recent years in such market sectors as emerging markets and mortgage-backed securities. There can be no assurance that the same will not happen in the markets traded by the Trust. In addition, the large size of the positions the Trust may take increases the risk of illiquidity by both making its positions more difficult to liquidate and increasing the losses incurred while trying to do so.

 

U.S. commodity exchanges impose limits on the amount the price of some, but not all, futures contracts may change on a single day. Once a futures contract has reached its daily limit, it may be impossible for the Trust to liquidate a position in that contract, if the market has moved adversely to the Trust, until the limit is either raised by the exchange or the contract begins to trade away from the limit price.

 

The Managing Owner’s Trading Systems Have Been Developed Over Time and are Subject to Change

 

In executing its trading method, the Managing Owner uses combinations of trading systems to generate buy and sell signals in the various markets traded. The Managing Owner has developed, modified, retained and discarded numerous systems over more than 40 years. Consequently, some of the trading systems and combinations of systems currently being used to trade accounts pursuant to the Managing Owner’s diversified portfolio as the Trust is so traded, are not identical to those used 5, 10, 15, 20 or more years ago.

 

Trading on Foreign Exchanges Presents Greater Risk Than Trading on U.S. Exchanges

 

The Trust will trade on commodity exchanges outside the U.S. Trading on foreign exchanges is not regulated by any U.S. governmental agency and may involve certain risks that do not arise when trading on U.S. exchanges. For example, some foreign exchanges are “principals’ markets” in which performance is the responsibility only of the individual member with whom the Trust has traded, not of the exchange or a clearing facility. In such cases, the Trust will be subject to a risk that the member with whom the Trust has traded is unable or unwilling to perform its obligations under the transaction. Additionally, an adverse change in the exchange rate between the U.S. dollar and the currency in which a non-U.S. futures contract is denominated would reduce the profit or increase the loss on a trade in that contract.

 

Trading on foreign exchanges also presents risks of loss due to (1) the possible imposition of exchange controls, which could make it difficult or impossible for the Trust to repatriate some or all of its assets held by non-U.S. counterparties; (2) possible government confiscation of assets; (3) taxation; (4) possible government disruptions, which could result in market closures and thus an inability to exit positions and repatriate Trust assets for sustained periods of time, or even permanently; and (5) limited rights in the event of the bankruptcy or insolvency of a foreign broker or exchange resulting in a different and possibly less favorable distribution of the bankrupt’s assets than would occur in the U.S.

 

The Managing Owner Anticipates the Trust’s Performance to be Non-Correlated to Stocks and Bonds, not Negatively Correlated

 

The performance of the Trust has been generally non-correlated to the performance of the stock and bond markets, as represented by the S&P 500 Stock Index and the Barclays Long-Term Treasury Index. Non-correlation means that there is no statistically valid relationship between two asset classes and should not be confused with negative correlation, where the performance of two asset classes would be opposite. Because of this non-correlation, you should not expect the Trust to be automatically profitable during unfavorable periods for the stock and/or bond markets, or vice versa.

 

 

If the Trust does not perform in a manner non-correlated with the general financial markets or does not perform successfully, an investor will obtain no diversification benefits by investing in the Units and the Trust may have no gains to offset an investor’s losses from other investments.

 

The Trust May be Subject to Profit Shares Despite Certain Units Having Declined in Value

 

Investors will purchase Units at different times and will, accordingly, recognize different amounts of profit and loss on their investments. Profit shares are accrued, or the accruals are reversed to reflect losses, on a monthly basis so that Units are not sold with an embedded profit share liability. However, Series 1 profit shares are ultimately calculated on the basis of the net trading profits, if any, recognized by the Series 1 Units as a whole and Series 2/3 profit shares are ultimately calculated on the basis of the cumulative net trading profits, if any, recognized by the Series 2 Units and Series 3 Units as a whole, not on the profits recognized by any particular Unit or Units. Consequently, the Managing Owner may still be allocated a profit share even though certain Units have lost value since the date they were purchased.

 

Conversely, Units purchased at a Net Asset Value reduced by accrued profit shares will benefit from any reversal of such accruals, and the benefit of such reversals to Units outstanding at the time of such purchase will be diluted.

 

Similarly, Units may incur losses generating a loss carryforward for purposes of calculating subsequent profit shares. The benefit of any such loss carryforward will, in the case of Series 1 Units be diluted by the sale of additional Series 1 Units and, in the case of Series 2 and Series 3 Units, be diluted by the sale of additional Series 2 Units or Series 3 Units.

 

The Managing Owner’s Increased Equity Under Management Could Lead to Lower Returns for Investors

 

The Managing Owner has not agreed to limit the amount of money it may manage and is actively seeking additional accounts. The more money the Managing Owner manages, the more difficult it may become for the Managing Owner to trade profitably for the Trust because of the difficulty of trading larger positions without negatively affecting prices and performance.

 

Increased Competition Among Trend-Following Traders Could Reduce the Managing Owner’s Profitability

 

A substantial number of commodity trading advisors use technical trading systems, particularly trend-following systems, like the Managing Owner’s systems. As the amount of money under the management of such systems increases, competition for the same positions increases, making the positions more costly and more difficult to acquire.

 

The Trust is Subject to Conflicts of Interest

 

The Trust is subject to numerous actual and potential conflicts of interest, including: (1) the compensation that the Trust’s selling agents receive gives them an incentive to promote the sale of Units as well as to discourage redemptions; (2) the brokerage commissions that selling agents receive if they also serve as clearing brokers for the Trust gives an additional incentive to promote the sale of Units as well as to discourage redemptions; (3) the Managing Owner has significant financial incentives both to promote the sale of the Units and to discourage their redemption; and (4) the Managing Owner of the Trust will not select any other trading advisor even if doing so would be in the best interests of the Trust.

 

 

The Managing Owner has not Established Formal Procedures to Resolve Conflicts of Interest

 

Because the Managing Owner has not established any formal procedures for resolving conflicts of interest, investors will be dependent on the good faith of the parties with conflicts to resolve the conflicts equitably. The Managing Owner cannot assure that conflicts of interest will not result in losses for the Trust.

 

Investors Will be Taxed Each Year on Your Share of Trust Profits

 

An investor that is an individual or entity subject to U.S. taxes (e.g., not a tax-exempt entity such as an IRA or pension plan) will be taxed on its share of Trust income or gain each year, whether or not it redeems Units or receives distributions from the Trust.

 

Because a substantial portion of the Trust’s open positions are “marked-to-market” at the end of each year, some of an investor’s tax liability will be based on unrealized gains which the Trust may, in fact, never realize.

 

40% of any trading profits on certain U.S. exchange-traded futures contracts and certain foreign currency forward contracts are taxed as short-term capital gains at ordinary income rates (unless offset by capital losses), while 60% of any such trading profits are taxed as long-term capital gains at a lower maximum rate for individuals (15% for most gains recognized in taxable years beginning on or before December 31, 2012). 100% of any trading profits from non-U.S. exchange traded interest rate futures contracts and certain forward currency contracts that do not have an equivalent U.S. exchange traded futures contract are “marked-to-market” at the end of each year and taxed as short-term capital gains at ordinary income tax rates (unless offset by capital losses). These rates apply regardless of how long the Trust holds a contract, or an investor his or her Units.

 

Due to the different tax rates for long-term and short-term capital gains and limitations on the deductibility of capital losses, and depending on the tax character of income and loss an investor receives on other investments in your portfolio, it is possible for an investor to have a pre-tax economic gain on its investment in the Trust but an after-tax loss.

 

Over time, the compounding effects of the annual taxation of the Trust’s income are material to the economic consequences of investing in the Trust. For example, a 10% compound annual rate of return over five years would result in an initial $10,000 investment compounding to $16,105. However, if one factors in a 30% tax rate each year, the result would be $14,025.

 

Investors Will be Taxed on the Trust’s Interest Income Even if the Trust Suffers Trading Losses

 

Losses on the Trust’s trading are almost exclusively capital losses. Non-corporate investors may use net capital losses to offset up to $3,000 of ordinary income each year. So, for example, if an investor’s share of the Trust’s trading (i.e., capital) loss was $10,000 in a given fiscal year and the investor’s share of interest income was $5,000, the investor would incur a net loss in the Net Asset Value of the investor’s Units equal to $5,000, but would nevertheless recognize taxable income of $2,000.

 

Limitations on the Deductibility of “Investment Advisory Fees”

 

The Managing Owner does not intend to treat the ordinary expenses of the Trust as “investment advisory fees” for federal income tax purposes. The Managing Owner believes that this is the position adopted by virtually all U.S. futures fund sponsors. However, were the ordinary expenses of the Trust characterized as “investment advisory fees,” non-corporate taxpayers would be subject to substantial restrictions on the deductibility of those expenses, would pay increased taxes in respect of an investment in the Trust and could actually recognize taxable income despite having incurred a financial loss.

 

 

The IRS Could Audit Both the Trust and Individual Unitholders

 

The Internal Revenue Services (“IRS”) could audit the Trust’s tax returns and require the Trust to adjust such returns. If an audit results in an adjustment, you could be audited and required to pay additional taxes, plus interest and possibly penalties.

 

Accounting for Uncertain Tax Positions

 

Financial Accounting Standards Board Accounting Standards Codification Topic No. 740, “Income Taxes” (“ASC 740,” in part formerly known as “FIN 48”), provides guidance on the recognition of uncertain tax positions.  ASC 740 prescribes the minimum recognition threshold that a tax position is required to meet before being recognized in an entity’s financial statements.  It also provides guidance on recognition, measurement, classification, interest and penalties with respect to tax positions.  A prospective investor should be aware that, among other things, ASC 740 could have a material adverse effect on the periodic calculations of the net asset value of the Trust, including reducing the net asset value of the Trust to reflect reserves for income taxes, such as foreign withholding taxes, that may be payable by the Trust.  This could cause benefits or detriments to certain Unitholders, depending upon the timing of their subscriptions and withdrawals from the Trust.

 

Failure of Brokerage Firms and Forward Market Participants

 

The CEA requires a clearing broker to segregate all funds received from such broker’s customers in respect of futures (but not forward) transactions from such broker’s proprietary funds. If any of the Trust’s futures brokers were not to do so to the full extent required by law, or in the event of a substantial default by one or more of such broker’s other customers, the assets of the Trust might not be fully protected in the event of the bankruptcy of such broker. Furthermore, in the event of such a bankruptcy, the Trust would be limited to recovering only a pro rata share of all available funds segregated on behalf of the affected futures broker’s combined customer accounts, even though certain property specifically traceable to the Trust (for example, U.S. Treasury bills or cash deposited by the Trust with such broker) was held by such broker. Futures broker bankruptcies have occurred in which customers were not able to recover from the broker’s estate the full amount of their funds on deposit with such broker and owing to them, and it is possible in a futures broker bankruptcy that customers recover nothing. Further, as demonstrated by the recent insolvency and liquidation of MF Global Inc., customer funds held by a broker in bankruptcy may not be distributed promptly and may be subject to a lengthy claims process. Futures broker bankruptcies are not insured by any governmental agency, and investors would not have the benefit of any protection such as that afforded customers of bankrupt securities broker-dealers by the Securities Investors Protection Corporation.

 

In respect of its forward trading, the Trust is subject to the risk of the inability or refusal to perform with respect to such contracts on the part of the principals or agents with or through which the Trust trades. Any failure or refusal to discharge their contractual obligations by the counterparties with which the Trust may deal on the forward markets, whether due to insolvency, bankruptcy or other causes, could subject the Trust to substantial losses. The Trust may not be excused from performance under any forward contracts into which it has entered due to defaults under other forward contracts which in the Managing Owner’s strategy were to have substantially “covered” the former. The Trust deals in the forward markets only with major financial institution counterparties which the Managing Owner considers to be creditworthy. However, defaults have occurred in the forward markets, and the risk of such defaults cannot be eliminated from the Trust’s trading. Moreover, events such as the failure of Bear Stearns and Lehman Brothers have demonstrated that even major financial institutions with which the Trust may deal in the forward markets may fail, potentially resulting in losses to the Trust.

 

The Trust is Not Regulated as an Investment Company or Mutual Fund

 

Although the Managing Owner is subject to regulation by the CFTC and the Trust itself is subject to reporting requirements and other regulation applicable to public companies in the U.S., the Trust is not registered under the Investment Company Act of 1940. Accordingly, investors in the Trust are not accorded the protections of such legislation.

 

 

Forward Trading is Currently Unregulated and Involves Counterparty Risk

 

None of the CFTC, NFA, futures exchanges or banking authorities currently regulates the inter-bank currency markets or trading in these markets. Because a principal portion of the Trust’s currency forward trading takes place in these markets, investors must recognize that much of the Trust’s activity takes place in unregulated markets rather than on futures exchanges or through “retail” foreign exchange markets subject to the jurisdiction of the CFTC or other regulatory bodies, and the responsibility for performing under a particular transaction rests solely with the counterparties to such transaction, not with any exchange or clearinghouse. This results in the risk that a counterparty may not settle a transaction with the Trust in accordance with its terms because the counterparty is either unwilling or unable to do so (for example, because of a credit or liquidity problem affecting the counterparty), potentially resulting in significant loss. In addition, counterparties generally have the right to terminate trades under a number of circumstances including, for example, declines in the Trust’s net assets and certain “key person” events. Any premature termination of the Trust’s currency forward trades could result in material losses for the Trust, as the Trust may be unable to quickly re-establish those trades and may only be able to do so at disadvantageous prices. Trust funds on deposit with the currency forward counterparties with which the Trust trades are not protected by the same segregation requirements imposed on CFTC-regulated commodity brokers in respect of customer funds deposited with them. Although the Trust deals only with major financial institutions as currency forward counterparties, the insolvency or bankruptcy of a currency forward counterparty could subject the Trust to the loss of its entire deposit with such counterparty. The forward markets are well established. However, it is impossible to predict how, given certain unusual market scenarios, the unregulated nature of these markets might affect the Trust, and the events underlying the bankruptcy of Refco, Inc. and its related entities have underscored the risks of maintaining capital at unregulated entities.

 

The Reform Act amended the definition of “eligible contract participant,” and the CFTC is interpreting that definition in a such manner that the Trust may no longer be permitted to engage in currency forward transactions by directly accessing the inter-bank market. Rather, the Trust may be limited to engaging in “retail forex transactions” which could limit the Trust’s potential currency forward counterparties. Thus, limiting the Trust’s potential currency forward counterparties could lead to the Trust bearing higher upfront and mark-to-market margin, less favorable trade pricing, and the possible imposition of new or increased fees. The “retail forex” markets could also be significantly less liquid than the interbank market. Moreover, the creditworthiness of the currency forward counterparties with whom the Trust may be required to trade could be significantly weaker than the creditworthiness of the financial institutions with whom the Trust currently engages for its currency forward transactions. The imposition of credit controls by governmental authorities or the implementation of regulations pursuant to the Reform Act might limit such forward trading to less than that which the Managing Owner would otherwise recommend, to the possible detriment of the Trust.

 

Swap Trading is Currently Unregulated and Involves Counterparty Risk

 

The Trust may engage in trading commodity swaps.  Swaps involve many of the same risks as those described above with respect to forward contracts.  Swap contracts are not currently traded on exchanges; rather, banks and dealers act as principals in the swap market.  As a result, the Trust will be subject to the risk of the inability or refusal to perform with respect to such contracts on the part of the counterparties with which the Trust trades.  The Managing Owner intends to enter into swaps on behalf of the Trust only with highly creditworthy banks and dealers, but there can be no assurance that even highly creditworthy banks and dealers will have the ability to, or will not refuse to, perform with respect to such contracts. The swap market is not currently regulated by any U.S. or foreign governmental authority.  In addition to the speculative limits described below, the counterparties with which the Trust will deal may limit the size or duration of positions available to the Trust as a consequence of credit considerations.  Finally, swaps may be illiquid and participants in the swap market are not required to make continuous markets in the swap contracts they trade.

 

 

Speculative Position Limits May Alter Investment Decisions for the Trust

 

The CFTC has established limits on the maximum net long or net short positions which any person may hold or control in certain futures contracts. Exchanges also have established such limits. In October 2011, the CFTC adopted position limits for 28 so-called “exempt” (e.g., metal and energy contracts) and agricultural commodity derivatives, futures and option contracts and their economically equivalent swaps. All accounts controlled by the Managing Owner, including the account of the Trust, are combined for speculative position limit purposes. These position limits are not yet effective and there is considerable uncertainty surrounding their application. If position limits are exceeded by the Managing Owner in the opinion of the CFTC or any other regulatory body, exchange or board, the Managing Owner will liquidate positions to the extent necessary to comply with applicable position limits.

 

Forwards, Swaps and Other Derivatives are Subject to Varying CFTC Regulation, Which Could Result in Increased Costs to the Trust

 

Enacted in July 2010, the Reform Act includes provisions that comprehensively regulate the over-the-counter derivatives markets for the first time. The Reform Act will require that a substantial portion of over-the-counter derivatives must be executed in regulated markets and submitted for clearing to regulated clearinghouses. Over-the-counter trades submitted for clearing will be subject to minimum initial and variation margin requirements set by the relevant clearinghouse, as well as possible CFTC-mandated margin requirements. The regulators also have broad discretion to impose margin requirements on non-cleared over-the-counter derivatives. Although the Reform Act includes limited exemptions from the clearing and margin requirements for so-called “end-users”, the Trust does not expect to be able to rely on such exemptions. In addition, the over-the-counter derivative dealers with which the Trust may execute the majority of its over-the-counter derivatives transactions will not be able to rely on the end-user exemptions under the Reform Act and therefore such dealers will be subject to clearing and margin requirements notwithstanding whether the Trust is subject to such requirements. Over-the-counter derivative dealers also will be required to post margin to the clearinghouses through which they clear their customers’ trades instead of using such margin in their operations, as they currently are allowed to do. This will further increase the dealers’ costs, which costs are expected to be passed through to other market participants in the form of higher fees and less favorable dealer marks.

 

The CFTC may also require a substantial portion of derivative transactions that are currently executed on a bi-lateral basis in the over-the-counter markets to be executed through a regulated securities, futures, or swap exchange or execution facility. Such requirements may make it more difficult and costly for investment funds, including the Trust, to enter into highly tailored or customized transactions. They may also render certain strategies in which the Trust might otherwise engage impossible or so costly that they will no longer be economical to implement.

 

Trading in Options Requires an Assessment of Market Volatility as Well as Direction

 

The Managing Owner may trade futures and forward options on behalf of the Trust.  Although successful options trading requires many of the same skills as successful futures and forward trading, the risks involved are somewhat different.  For example, the assessment of near-term market volatility – which is directly reflected in the price of outstanding options – can be of much greater significance in trading options than it is in many long-term futures strategies.  The use of options can be extremely expensive if market volatility is incorrectly predicted.

 

The Failure of Computer Systems Could Result in Losses for the Trust

 

The Managing Owner relies heavily on computer hardware and software, online services and other computer-related or electronic technology and equipment to facilitate the Trust’s investment activities and may trade financial instruments through electronic trading or order routing systems. Electronic trading exposes the Trust to the risk of system or component failure. Should events beyond the Managing Owner’s control cause a disruption in the operation of any technology or equipment, the Trust’s investment program may be severely impaired, causing it to experience substantial losses or other adverse effects.

 

 

Item 1B. Unresolved Staff Comments

 

Not required.

 

Item 2.   Properties

 

The Trust does not own or use any physical properties in the conduct of its business. The Managing Owner or an affiliate perform administrative services for the Trust from their offices.

 

Item 3.   Legal Proceedings

 

The Managing Owner is not aware of any pending legal proceedings to which either the Trust is a party or to which any of its assets are subject. In addition there are no pending material legal proceedings involving the Managing Owner.

 

Item 4.   Mine Safety Disclosures

 

Not required.

 

PART II

 

Item 5.  Market for  Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

(a)   Market Information

 

There is no trading market for the Units, and none is likely to develop. Units may be redeemed upon 10 days’ written notice to the Managing Owner at their Net Asset Value as of the last day of any month, subject to certain early redemption charges for the Series 1 Units.

 

(b)   Holders

 

As of December 31, 2011, there were 21,850 holders of Series 1 Units, 9 holders of Series 2 Units, 959 holders of Series 3 Units and 1 holder of Series 4 Units.

 

(c)   Dividends

 

No distributions or dividends have been made on the Units, and the Managing Owner has no present intention to make any.

 

(d)   Securities Authorized for Issuance Under Equity Compensation Plans

 

None.

 

(e)   Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities

 

There have been no sales of unregistered securities of the Trust during 2009, 2010 or 2011.

 

 

(f)   Purchases of Equity Securities by the Issuer

 

Pursuant to the Trust Agreement, Unitholders may redeem their Units at the end of each calendar month at the then current month-end net asset value per Unit. The redemption of Units has no impact on the value of Units that remain outstanding, and Units are not reissued once redeemed.

 

The following tables summarize the redemptions by Series 1 Unitholders and Series 3 Unitholders during the fourth calendar quarter of 2011. There were no redemptions during the fourth quarter by Series 2 or Series 4 Unitholders.

 

Month		Series 1 Units Redeemed				Redemption Date Series 1 NAV per Unit
October 31, 2011			15,828.155				1,178.56
November 30, 2011			9,313.569				1,172.53
December 31, 2011			13,890.933				1,175.07
Total			39,032.657

 

Month		Series 3 Units Redeemed				Redemption Date Series 3 NAV per Unit
October 31, 2011			204.632				1,260.82
November 30, 2011			2.383				1,259.36
December 31, 2011			1,022.971				1,267.10
Total			1,229.986

  

Item 6.   Selected Financial Data

 

The following is a summary of operations for the fiscal years 2011, 2010, 2009, 2008 and 2007 and total assets of the Trust at December 31, 2011, 2010, 2009, 2008 and 2007.

 

		For the Year Ended December 31, 2011				For the Year Ended December 31, 2010				For the Year Ended December 31, 2009				For the Year Ended December 31, 2008				For the Year Ended December 31, 2007
Revenue:
Total net realized and unrealized gains (losses)*		$	(34,240,083	)		$	130,027,426			$	(64,437,079	)		$	210,229,240			$	78,261,449
Interest income			2,072,015				3,235,502				9,966,151				21,273,709				26,686,249
Expenses:
Profit share			1,385				262,695				43,187				30,185,853				6,459,328
Administrative expenses**			2,323,783				2,393,365				2,863,462				2,750,922				1,963,847
Brokerage fees			54,834,929				57,320,175				63,566,376				54,511,974				38,279,891
Management fees			571,739				143,533				10,864				-				-
Net income (loss) after profit share to Managing Owner		$	(89,899,904	)		$	73,143,160			$	(120,954,817	)		$	144,054,200			$	58,244,632
Total assets		$	782,343,935			$	911,161,872			$	919,457,865			$	1,094,632,891			$	659,394,985
Total Trust capital		$	753,187,394			$	892,925,611			$	879,154,612			$	1,030,381,361			$	624,757,308
Net Asset Value per Series 1 Unit		$	1,175.07			$	1,314.17			$	1,211.97			$	1,371.00			$	1,157.17
Net Asset Value per Series 2 Unit		$	1,261.94			$	1,350.56				-				-				-
Net Asset Value per Series 3 Unit		$	1,267.10			$	1,352.80			$	1,221.44				-				-
Net Asset Value per Series 4 Units		$	1,307.09			$	1,366.01				-				-				-
Increase (decrease) in Net Asset Value per Series 1 Unit		$	(139.10	)		$	102.20			$	(159.03	)		$	213.83			$	117.07
Increase (decrease) in Net Asset Value per Series 2 Unit		$	(88.62	)		$	72.46				-				-				-
Increase (decrease) in Net Asset Value per Series 3 Unit		$	(85.70	)		$	131.36			$	40.53				-				-
Increase (decrease) in Net Asset Value per Series 4 Units		$	(58.92	)		$	50.68

 

 

*From trading of futures, forward and swap contracts, foreign exchange transactions and U.S. Treasury obligations.

 

** Includes custody fees.

 

Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Reference is made to “Item 6. Selected Financial Data” and “Item 8. Financial Statements and Supplementary Data.” The information contained therein is essential to, and should be read in conjunction with, the following analysis.

 

Liquidity and Capital Resources

 

Units may be offered for sale as of the beginning, and may be redeemed as of the end, of each month.

 

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

 

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

 

The Trust trades futures contracts, and may trade swap and options contracts, on interest rates, agricultural commodities, currencies, metals, energy and stock indices and forward contracts on currencies. Risk arises from changes in the value of these contracts (market risk) and the potential inability of counterparties or brokers to perform under the terms of their contracts (credit risk). Market risk is generally to be measured by the face amount of the futures positions acquired and the volatility of the markets traded. The credit risk from counterparty non-performance associated with these instruments is the net unrealized gain, if any, on these positions plus the value of the margin or collateral held by the counterparty. The risks associated with exchange-traded contracts are generally perceived to be less than those associated with over-the-counter transactions, because exchanges typically (but not universally) provide clearinghouse arrangements in which the collective credit (in some cases limited in amount, in some cases not) of the members of the exchange is pledged to support the financial integrity of the exchange. In over-the-counter transactions, on the other hand, traders must rely (typically but not universally) solely on the credit of their respective individual counterparties. Margins which may be subject to loss in the event of a default, are generally required in exchange trading, and counterparties may require margin or collateral in the over-the-counter markets.

 

The Managing Owner has procedures in place to control market risk, although there can be no assurance that they will, in fact, succeed in doing so. These procedures primarily focus on: (1) real time monitoring of open positions; (2) diversifying positions among various markets; (3) limiting the assets committed as margin or collateral, generally within a range of 5% to 35% of an account’s net assets, though the amount may at any time be higher; (4) prohibiting pyramiding – that is, using unrealized profits in a particular market as margin for additional positions in the same market; and (5) changing the equity utilized for trading by an account solely on a controlled periodic basis, not automatically due to an increase in equity from trading profits. The Trust controls credit risk by dealing exclusively with large, well capitalized financial institutions as brokers and counterparties.

 

 

The financial instruments traded by the Trust contain varying degrees of off-balance sheet risk whereby changes in the market values of the futures and forward contracts or the Trust’s satisfaction of the obligations may exceed the amount recognized in the Statement of Financial Condition of the Trust.

 

Due to the nature of the Trust’s business, substantially all its assets are represented by cash, cash equivalents and U.S. government obligations, while the Trust maintains its market exposure through open futures and forward contract positions.

 

The Trust’s futures contracts are settled by offset and are cleared by the exchange clearinghouse function. Open futures positions are marked to market each trading day and the Trust’s trading accounts are debited or credited accordingly. Options on futures contracts are settled either by offset or by exercise. If an option on a future is exercised, the Trust is assigned a position in the underlying future which is then settled by offset. The Trust’s spot and forward currency transactions conducted in the interbank market are settled by netting offsetting positions or payment obligations and by cash payments.

 

The value of the Trust’s cash and financial instruments is not materially affected by inflation. Changes in interest rates, which are often associated with inflation, could cause the value of certain of the Trust’s debt securities to decline, but only to a limited extent. More important, changes in interest rates could cause periods of strong up or down market price trends, during which the Trust’s profit potential generally increases. However, inflation can also give rise to markets which have numerous short price trends followed by rapid reversals, markets in which the Trust is likely to suffer losses.

 

The Trust’s assets are generally held as cash or cash equivalents, including short-term U.S. government obligations, which are used to margin the Trust’s futures and forward currency positions and withdrawn, as necessary, to pay redemptions and expenses. Other than potential market-imposed limitations on liquidity, due, for example, to limited open interest in certain futures markets or to daily price fluctuation limits, which are inherent in the Trust’s futures and forward trading, the Trust’s assets are highly liquid and are expected to remain so. During its operations through December 31, 2011, the Trust experienced no meaningful periods of illiquidity in any of the numerous markets traded by the Managing Owner.

 

Critical Accounting Estimates

 

The Trust records its transactions in futures and forward currency contracts, including related income and expenses, on a trade date basis. Open futures contracts traded on an exchange are valued at fair value, which is based on the closing settlement price on the exchange where the futures contract is traded by the Trust on the day with respect to which net assets are being determined. Open forward currency contracts are recorded at fair value, based on pricing models that consider the current market prices (“spot prices”) plus the time value of money (“forward points”) and contractual prices of the underlying financial instruments. The spot prices and forward points for open forward currency contracts are generally based on the 3:00 P.M. New York time prices provided by widely used quotation service providers on the day with respect to which net assets are being determined. The forward points from the quotation service providers are generally in periods of one month, two months, three months and six months forward while the contractual forward delivery dates for the foreign currency contracts traded by the Trust may be in between these periods.

 

The Managing Owner’s policy is to calculate the forward points for each contract being valued by determining the number of days from the date the forward currency contract is being valued to its maturity date and then using straight-line interpolation to calculate the valuation of forward points for the applicable forward currency contract. The Managing Owner will also compare the calculated price to the forward currency prices provided by dealers to determine whether the calculated price is fair and reasonable.

 

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. (“U.S. GAAP”) requires management to make estimates and assumptions, such as accrual of expenses, that affect the amounts and disclosures reported in the financial statements. Based on the nature of the business and operations of the Trust, the Managing Owner believes that the estimates utilized in preparing the Trust’s financial statements are appropriate and reasonable, however actual results could differ from these estimates. The estimates used do not provide a range of possible results that would require the exercise of subjective judgment. The Managing Owner further believes that, based on the nature of the business and operations of the Trust, no other reasonable assumptions relating to the application of the Trust’s critical accounting estimates other than those currently used would likely result in materially different amounts from those reported.

 

 

Results of Operations

 

The Trust’s success depends on the Managing Owner’s ability to recognize and capitalize on trends and other profit opportunities in different sectors of the global capital and commodity markets. The Managing Owner’s investment and trading methods do not predict price movements, nor do they rely on fundamental economic supply or demand analysis or on macroeconomic assessments of the relative strengths of different national economies or economic sectors. Instead, the systems apply proprietary computer models to analyzing past market data, and from this data alone attempt to determine whether market prices are trending. Technical traders such as the Managing Owner base their strategies on the theory that market prices reflect the collective judgment of numerous different traders and are, accordingly, the best and most efficient indication of market movements. However, there are frequent periods during which fundamental factors external to the market dominate prices.

 

If the Managing Owner’s models identify a trend, they signal positions which follow it. When these models identify the trend as having ended or reversed, these positions are either closed out or reversed. Due to their trend-following character, the Managing Owner’s systems do not predict either the commencement or the end of a price movement. Rather, their objective is to identify a trend early enough to profit from it and to detect its end or reversal in time to close out the Trust’s positions while retaining most of the profits made from following the trend.

 

In analyzing the performance of the Managing Owner’s trend-following systems, economic conditions, political events, weather factors, etc., are not directly relevant because the Managing Owner uses only market data in developing its systems. Additionally, in general there is no direct connection between particular market conditions and price trends. There are so many influences on the markets that the same general type of economic event may lead to a price trend in some cases but not in others. Further, even if significant price trends do occur, if these trends are not comprised of the type of price movements which the systems are designed to identify, the Managing Owner may not position the Trust to profit from or avoid losses due to the trend. Moreover, there have been prolonged periods in the futures markets without significant price movements, as well as markets, in which prices appear to be moving in one direction but then quickly reverse. Such periods may recur with considerable frequency, and the Managing Owner would expect it to be very difficult to achieve profitability in such markets.

 

The performance summary set forth below is an outline description of how the Trust performed in the past trading in a wide variety of markets. The Trust’s futures and currency forward contract prices are marked-to-market every trading day, and the Trust’s trading accounts are credited or debited with its daily gains or losses. Accordingly, there is no material economic distinction between realized gains or losses on closed positions and unrealized gains or losses on open positions.

 

Series 1 Units, which were initially issued simply as “Units” beginning in July 2002, were the only Series of Units available prior to 2009. Series 2 Units were first issued on April 1, 2010, Series 3 Units were first issued on September 1, 2009 and Series 4 Units were first issued on November 1, 2010. The Trust’s past performance is not necessarily indicative of how it will perform in the future.

 

2011

 

During 2011, the Trust achieved net realized and unrealized losses of $34,240,083 from its trading operations (including foreign exchange transactions and translations). Brokerage fees of $54,834,929, management fees of $571,739, administrative expenses of $2,158,133 and custody fees of $165,650 were paid or accrued. The Trust allocated $1,385 in profit share to the New Profits Memo Account for the benefit of the Managing Owner. Interest income of $2,072,015 partially offset the Trust expenses resulting in a net loss after profit share to the Managing Owner of $89,899,904.

 

An analysis of the trading gain (loss) by sector is as follows:

Sector		% Gain (Loss)
Currencies			(4.01	)%
Energies			0.76	%
Grains			(1.38	)%
Interest rates			8.99	%
Livestock			(0.46	)%
Metals			(0.11	)%
Softs			(0.28	)%
Stock indices			(7.54	)%
Total			(4.03	)%

 

2011 was a volatile year of “Risk On/Risk Off” trading as market sentiment swung from hope to despair and back again on numerous occasions. The Trust was unprofitable as gains from interest rates, precious metals and energy were outweighed by losses from equities, currencies, industrial metals and soft and agricultural commodities.

 

Market participants were buffeted by a dizzying array of economic growth, economic policy, political and natural disaster-related factors. There were floods in Australia, an earthquake, tsunami and nuclear disaster in Japan, earthquakes in New Zealand and floods in Thailand. Then there were the usual extreme wet and dry weather events that occurred throughout the world as well. On the fiscal front, policy paralysis and a lack of courage kept the U.S. and Europe from dealing in a definitive way with debt and deficit crises that led to ratings downgrades for many countries, endangered the worldwide banking system and led to volatile changes of governments in Greece, Italy and Spain. Throughout 2011, there were periodic developed countries’ monetary policy moves to prop up sagging confidence and prod weakening growth. Persistently low official interest rates and quantitative easing by the Federal Reserve, Bank of England, and the European Central Bank — especially with its late in the year injection of long term lending to banks — aimed to counter despair with some hope. Also, in late November, six central banks, orchestrated by the Federal Reserve, reduced the cost of dollar funding for commercial banks worldwide after the rating’s agencies announced downgrades for many of the largest global banks. By August, even emerging market central banks, including China, Brazil, India and Indonesia, that had been maintaining relatively tight monetary policies in order to contain inflation, began to ease as slowing growth become a bigger worry. Indeed, during the final four months of the year, downward growth revisions peppered the market regularly as the International Monetary Fund, World Bank, Organization for Economic Co-operation and Development, European Central Bank, European Commission, Bank of England, Federal Reserve, Bank of Japan and numerous private financial institutions lowered their GDP forecasts. Exchange rate policy was also far from steady in 2011. Many countries from Switzerland and Japan to Brazil and Chile enacted policies designed to counter and reverse the upward pressure on their currencies that threatened their export industries. Finally from the Middle East, the Arab Spring, Iranian intransigence on seeking nuclear power and the U.S. exit from Iraq added to uncertainty, particularly in the energy sector, prompting the International Energy Agency to release 60 million barrels of oil from strategic reserves in July.

 

In this environment it is hardly surprising that safe haven or risk aversion trades were profitable, even as price activity in most markets was erratic and lacking persistent direction. Long positions in U.S., U.K., German, Australian, Canadian and Japanese note and bond futures were profitable.

 

Safe haven long positions in gold and to a lesser extent in silver were profitable. Meanwhile, trading of industrial metals was unprofitable as prices vacillated with the growth outlook, more than offsetting precious metal gains.

 

Trading of stock indices was very unprofitable and the losses were widespread as prices swung erratically in response to the myriad of issues listed above. Losses were sustained in many cases on both long and short positions. Trading of U.S., European — especially U.K., Asian — especially Japanese, Korean and Australian, and of both emerging and developed countries equity futures produced losses in 2011.

 

Early in the year short dollar positions against high growth and high yield currencies of emerging market and commodity countries were profitable. However, as the growth outlook deteriorated, as the debt and deficit crises became more pronounced and as a number of countries implemented policies to halt and reverse their currency appreciation, the dollar rebounded, partly due to safe haven purchases, and these short positions produced losses and were reversed. On balance profits from trades versus the Euro and the currencies of Brazil, Canada, India, Korea, Poland, Russia and Switzerland were slightly outweighed by losses from trading the currencies of Australia, Britain, Chile, Columbia, Israel, Japan, New Zealand, South Africa and Sweden.

 

Cross rate currency trading was unprofitable. Trading the Euro/New Zealand dollar cross and the New Zealand dollar/Japanese yen cross resulted on losses from both long and short positions as the interactions of the ebb and flow of the European debt crisis and New Zealand earthquakes and the Japanese tsunami disaster caused erratic price moves. Volatility also brought losses from both long and short trades in the Australian dollar versus the Canadian dollar, Swiss franc and Japanese yen units. Finally, trading of the Swiss franc, Euro and British pound sterling relative to the Scandinavian currencies was unprofitable.

 

Energy trading was profitable. Long positions in RBOB gasoline and London gas oil produced gains as prices rose in the first half of the year. Short natural gas trades were profitable especially as prices fell sharply in the last third of 2011.

 

Softs trading was unprofitable. A short cocoa trade was profitable in the September-December period as weak European demand and a good supply outlook depressed prices. A long cotton trade produced gains early in the year when worldwide growth appeared good. Meanwhile trading sugar generated a loss as prices were volatile and erratic.

 

Trading of agricultural commodities was unprofitable. Livestock prices were volatile and losses were sustained on both long and short trades through the year. The soybean complex produced losses both long and short as prices of beans, bean oil and meal were volatile. Wheat trading was also unprofitable, while shorter term trading of corn registered a small gain.

 

2010

 

During 2010, the Trust achieved net realized and unrealized gains of $130,027,426 from its trading operations (including foreign exchange transactions and translations). Brokerage fees of $57,320,175, management fees of $143,533, administrative expenses of $2,233,354 and custody fees of $160,011 were paid or accrued. The Trust allocated $262,695 in profit share to the New Profits Memo Account for the benefit of the Managing Owner. Interest income of $3,235,502 partially offset the Trust expenses resulting in a net gain after profit share to the Managing Owner of $73,143,160.

 

An analysis of the trading gain (loss) by sector is as follows:

 

Sector		% Gain (Loss)
Currencies			3.19	%
Energies			(0.60	)%
Grains			1.74	%
Interest rates			9.35	%
Livestock			(0.04	)%
Metals			1.65	%
Softs			0.90	%
Stock indices			0.04	%
Total			16.23	%

 

The Trust produced a gain for 2010 as profits in the early spring and from late summer to year end outweighed losses suffered when the EU debt crisis was at its height in the May-July period. Gains from trading interest rate futures led the way, although trading of currencies, metals, grains, and soft commodity futures also generated attractive profits. Meanwhile, energy trading resulted in a modest loss while equity futures trading was essentially flat as gains during the last 6 months offset losses from the first half.

 

One persistent influence on market activity throughout the year was the U.S. Federal Reserve’s easy monetary policy as evidenced by near zero official short term interest rates and continuous liquidity injections via the first round of quantitative easing and the second round of quantitative easing. Against this background, long positions in U.S., U.K. and European bond, note and short-term interest rate futures were highly profitable during the first three quarters of the year. In the October-December period, however, concerns about massive government borrowing requirements in developed economies—underscored by the agonizing spread of the Euro periphery’s debt crisis— and future inflation triggered a substantial uptick in rates that led to widespread losses on long interest rate futures positions. The fact that a number of countries, including China, India and Australia tightened their monetary policies to combat incipient inflation added to upward interest rate pressures.

 

 

Foreign exchange trading was profitable with both U.S. dollar and non-U.S. dollar cross rate components generating gains. In particular, short U.S. dollar positions versus growth-oriented and commodity currencies of countries such as Brazil, Columbia, India, Indonesia, Mexico, South Africa, and Singapore were profitable. In the cross rate component, short Euro positions relative to a variety of currencies registered gains as did a short Euro/long U.S. dollar trade.

 

Long positions in precious metals were profitable as they benefitted from the flight out of paper currencies, from flight to safety demand whenever the Euro crisis flared, and from improving optimism about growth toward year-end. Trading of aluminum, lead and zinc, on the other hand, produced losses as industrial metal prices vacillated on the ebb and flow of growth prospects throughout the year.

 

The weak U.S. dollar, improving growth prospects, particularly in the fourth quarter, and supply concerns caused by a variety of weather conditions—too much or too little rain, too hot or not hot enough—boosted agricultural markets, producing gains from long positions in corn, wheat and the soybean complex. Long coffee and cotton trades were also profitable, while trading of cocoa and sugar produced small losses.

 

Energy trading was unprofitable as prices for crude oil and products oscillated without direction at least until late in the year when they began an advance. Short natural gas positions did produce a modest gain that offset some of these losses.

 

Equity trading was essentially flat, although performance across time and across countries was quite disparate. During the first half of 2010 a number of significant events, including the growing recognition of the European debt crisis, worries about tighter policy from China, the May 6 “flash crash”, the North/South Korea confrontations and the sustainability of incipient global growth produced losses from equity futures trading. During the last 6 months as growth prospects became more solid and as the liquidity from the U.S. Federal Reserve underpinned confidence, gains from equity trading largely offset the earlier losses. By country, long positions in Indian, Thai, Singaporean, Taiwanese, Korean, U.S., German, U.K., Swedish, and Canadian equity futures were profitable. On the other hand, trading the equities of China, Hong Kong, Spain, Italy, Japan, and Australia produced losses.

 

2009

 

During 2009, the Trust achieved net realized and unrealized losses of $64,437,079 from its trading operations (including foreign exchange transactions and translations). Brokerage fees of $63,566,376, management fees of $10,864, administrative expenses of $2,670,335 and custody fees of $193,127 were paid or accrued. The Trust allocated $43,187 in profit share to the New Profits Memo Account for the benefit of the Managing Owner. Interest income of $9,966,151 partially offset the Trust’s expenses resulting in a net loss after profit share to the Managing Owner of $120,954,817.

 

An analysis of the trading gain (loss) by sector is as follows:

 

Sector		% Gain (Loss)
Currencies			(0.67	)%
Energies			(2.28	)%
Grains			(0.71	)%
Interest rates			(2.14	)%
Livestock			0.20	%
Metals			(1.02	)%
Softs			0.05	%
Stock indices			1.23	%
Total			(5.34	)%

 

 

The Trust produced a loss during 2009. Losses from trading energy, interest rate, metal, and grain futures and U.S. dollar currency forwards outweighed gains from trading stock index and livestock futures and non-U.S. dollar currency crosses.

 

From January into early March, in the wake of the subprime crisis and subsequent credit crunch and amidst concern about the leadership of U.S. economic policy following the elections, economic activity was slowing precipitously worldwide. In this environment, stock indices and commodity prices were falling. Also, as risk aversion remained widespread, a flight to safety and quality produced a rising U.S. dollar, declining high yield currencies, and a flood of funds into government fixed income instruments, and highly liquid investments. Broadly speaking, these conditions had persisted from October 2008 into early March 2009. Consequently, the Trusts’ short stock index, short commodity, long U.S. dollar, and long interest rate futures positions were profitable early in 2009.

 

Around March 10, market participants’ attitudes seemed to change abruptly. First, equity prices rose. Then commodity prices moved upward. Also, the U.S. dollar started to fall and longer term interest rates rose. The positions which had been profitable for so long began to generate losses. These positions were reduced gradually as the Managing Owner’s models processed the new data. However, since trend following strategies accounted for over two-thirds of the program models and since the average trade duration of trend strategies is over 6 months, it was not until the summer when the positions were reduced, completely closed and, in many instances, reversed.

 

During the third quarter of 2009, the financial markets led the way to profitable results. Short positions in the U.S. dollar and a number of other currencies versus higher yielding and commodity based currencies were profitable. Long stock index futures positions and long interest rate futures positions added to the gains. The weak U.S. dollar also led to gains from long positions in precious metals. In the agricultural sector, short wheat and long sugar trades were profitable.

 

During the fourth quarter of 2009, improving economic prospects, especially in the U.S. and Asia led to gains from long stock index futures positions in the U.S., South Africa, Norway and Asia-ex Japan. This growth improvement produced profits from long precious and industrial metals positions, but also led to higher interest rates which brought losses from long interest rate futures positions. Long positions in sugar and cotton were profitable, but as grain prices rose, reversing earlier downtrends, long grain positions lost money.

 

Off-Balance Sheet Arrangements

 

The Trust does not engage in off-balance sheet arrangements with other entities.

 

Contractual Obligations

 

The Trust does not enter into any contractual obligations or commercial commitments to make future payments of a type that would be typical for an operating company or that would affect its liquidity or capital resources. The Trust’s sole business is trading futures and forward currency contracts, both long (contracts to buy) and short (contracts to sell). All such contracts are settled by offset, not delivery. Substantially all such contacts are for settlement within four months of the trade date and substantially all such contracts are held by the Trust for less than four months before being offset or rolled over into new contracts with similar maturities. The Trust’s Financial Statements, included as Exhibit 13.01 to this report, present a Condensed Schedule of Investments setting forth net unrealized appreciation (depreciation) of the Trust’s open future and forward currency contracts, both long and short, at December 31, 2011.

 

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

 

Introduction

 

Past Results Are Not Necessarily Indicative of Future Performance

 

The Trust is a speculative commodity pool. Unlike an operating company, the risk of market sensitive instruments is integral, not incidental, to the Trust’s main line of business.

 

Market movements result in frequent changes in the fair market value of the Trust’s open positions and, consequently, in its earnings and cash flow. The Trust’s market risk is influenced by a wide variety of factors, including the level and volatility of interest rates, exchange rates, equity price levels, the market value of financial instruments and contracts, the diversification effects among the Trust’s open positions and the liquidity of the markets in which it trades.

 

The Trust can rapidly acquire and/or liquidate both long and short positions in a wide range of different markets. Consequently, it is not possible to predict how a particular future market scenario will affect performance, and the Trust’s past performance is not necessarily indicative of its future results.

 

Value at Risk is a measure of the maximum amount which the Trust could reasonably be expected to lose in a given market sector. However, the inherent uncertainty of the Trust’s speculative trading and the recurrence in the markets traded by the Trust of market movements far exceeding expectations could result in actual trading or non-trading losses far beyond the indicated Value at Risk or the Trust’s experience to date (i.e., “risk of ruin”). In light of the foregoing as well as the risks and uncertainties intrinsic to all future projections, the inclusion of the quantification included in this section should not be considered to constitute any assurance or representation that the Trust’s losses in any market sector will be limited to Value at Risk or by the Trust’s attempts to manage its market risk.

 

Materiality, as used in this section “Quantitative and Qualitative Disclosures About Market Risk,” is based on an assessment of reasonably possible market movements and the potential losses caused by such movements, taking into account the leverage, optionality and multiplier features of the Trust’s market sensitive instruments.

 

Quantifying the Trust’s Trading Value at Risk

 

Quantitative Forward-Looking Statements

 

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

 

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

 

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

 

 

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

 

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

 

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

 

The following tables indicate the average, highest and lowest amounts of trading Value at Risk associated with the Trust’s open positions by market category for the fiscal years ended December 31, 2011 and 2010. During fiscal year 2011 and 2010, the Trust’s average total capitalization was approximately $850.7 million and $865.9 million, respectively.

 

Fiscal Year 2011
Market Sector		Average Value at Risk				% of Average Capitalization				Highest Value At Risk				Lowest Value At Risk
Currencies		$	41.5				4.9	%		$	61.6			$	19.9
Energies		$	7.5				0.9	%		$	9.7			$	6.1
Grains		$	4.8				0.5	%		$	5.4			$	3.4
Interest rates		$	22.7				2.7	%		$	27.0			$	15.0
Livestock		$	0.5				0.1	%		$	0.7			$	0.3
Metals		$	8.8				1.0	%		$	10.5			$	7.0
Softs		$	2.4				0.3	%		$	3.4			$	1.1
Stock indices		$	20.5				2.4	%		$	33.7			$	8.5
Total		$	108.7				12.8	%

 

Fiscal Year 2010
Market Sector		Average Value at Risk				% of Average Capitalization				Highest Value At Risk				Lowest Value At Risk
Currencies		$	45.5				5.2	%		$	59.6			$	19.6
Energies		$	8.2				0.9	%		$	9.8			$	5.2
Grains		$	5.7				0.7	%		$	6.3			$	4.4
Interest rates		$	24.7				2.9	%		$	33.0			$	13.0
Livestock		$	0.7				0.1	%		$	0.8			$	0.5
Metals		$	8.8				1.0	%		$	9.4			$	8.1
Softs		$	2.6				0.3	%		$	3.1			$	2.1
Stock indices		$	39.3				4.5	%		$	52.4			$	22.8
Total		$	135.5				15.6	%

 

 

 

Average, highest and lowest Value at Risk amounts relate to the quarter-end amounts during the fiscal year. Average Capitalization is the average of the Trust’s capitalization at the end of each month during the fiscal years 2011 and 2010. Dollar amounts represent millions of dollars.

 

Material Limitations on Value at Risk as an Assessment of Market Risk

 

The face value of the market sector instruments held by the Trust is typically many times the applicable maintenance margin requirement (maintenance margin requirements generally range between approximately 1% and 10% of contract face value) as well as many times the capitalization of the Trust. The magnitude of the Trust’s open positions creates a “risk of ruin” not typically found in most other investment vehicles. Because of the size of its positions, certain market conditions — unusual, but historically recurring from time to time — could cause the Trust to incur severe losses over a short period of time. The foregoing Value at Risk table — as well as the past performance of the Trust — give no indication of this “risk of ruin.”

 

Non-Trading Risk

 

The Trust has non-trading market risk on its foreign cash balances not needed for margin. However, these balances (as well as any market risk they represent) are immaterial.

 

The Trust also has non-trading cash flow risk as a result of holding a substantial portion (approximately 90%) of its assets in U.S. Treasury notes and other short-term debt instruments (as well as any market risk they represent) for margin and cash management purposes. Although the Managing Owner does not anticipate that, even in the case of major interest rate movements, the Trust would sustain a material mark-to-market loss on its securities positions, if short-term interest rates decline so will the Trust’s cash management income. The Trust also maintains a portion (over 5%) of its assets in cash and in a U.S. government securities and related instruments money market fund. These cash balances are also subject (as well as any market risk they represent) to cash flow risk, which is not material.

 

Qualitative Disclosures Regarding Primary Trading Risk Exposures

 

The following qualitative disclosures regarding the Trust’s market risk exposures — except for (i) those disclosures that are statements of historical fact and (ii) the descriptions of how the Managing Owner manages the Trust’s primary market risk exposures — constitute forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. The Trust’s primary market risk exposures as well as the strategies used and to be used by the Managing Owner for managing such exposures are subject to numerous uncertainties, contingencies and risks, any one of which could cause the actual results of the Trust’s risk controls to differ materially from the objectives of such strategies. Government interventions, defaults and expropriations, illiquid markets, the emergence of dominant fundamental factors, political upheavals, changes in historical price relationships, an influx of new market participants, increased regulation and many other factors could result in material losses as well as in material changes to the risk exposures and the risk management strategies of the Trust. There can be no assurance that the Trust’s current market exposure and/or risk management strategies will not change materially or that any such strategies will be effective in either the short- or long-term. Investors must be prepared to lose all or substantially all of their investment in the Trust.

 

 

The following were the primary trading risk exposures of the Trust as of December 31, 2011, by market sector.

 

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

 

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

 

Stock Indices. The Trust’s equity exposure, through stock index futures, is to equity price risk in the major industrialized countries as well as other countries.

 

Metals. The Trust’s metals market exposure is to fluctuations in the price of aluminum, copper, gold, lead, nickel, palladium, platinum, silver, tin and zinc.

 

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

 

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

 

Qualitative Disclosures Regarding Non-Trading Risk Exposure

 

The following were the only non-trading risk exposures of the Trust as of December 31, 2011.

 

Foreign Currency Balances. The Trust’s primary foreign currency balances are in Australian Dollars, British Pounds, Canadian Dollars, Euros, Japanese Yen and Swiss Francs. The Trust controls the non-trading risk of these balances by regularly converting these balances back into U.S. dollars (no less frequently than twice a month).

 

Securities Positions. The Trust’s only market exposure in instruments held other than for trading is in its securities portfolio. The Trust holds only cash or interest-bearing, credit risk-free, short-term paper — typically U.S. Treasury instruments with durations no longer than 1 year. Violent fluctuations in prevailing interest rates could cause immaterial mark-to-market losses on the Trust’s securities, although substantially all of these short-term instruments are held to maturity.

 

Qualitative Disclosures Regarding Means of Managing Risk Exposure

 

The Managing Owner attempts to control risk through the systematic application of its trading method, which includes a multi-system approach to price trend recognition, an analysis of market volatility, the application of certain money management principles, which may be revised from time to time, and adjusting leverage or portfolio size. In addition, the Managing Owner limits its trading to markets which it believes are sufficiently liquid in respect of the amount of trading it contemplates conducting.

 

 

The goal of the Managing Owner’s research has been to develop and select a mix of systems in each market and to allocate risk across a wide array of markets, so as to contain overall portfolio risk within a targeted range, while allowing exposure to profitable opportunities. Over more than 40 years, the Managing Owner has developed hundreds of trading systems. These trading systems generate buy or sell decisions in a particular market based on the direction of price movements in the market, some non-price information or combination of both.

 

Of course, systems can be materially different — better in some periods and worse in others. The main distinguishing features are: the time-frame over which systems work (intra-day to long-term); the granularity of data fed into them (tick data to daily, weekly or monthly frequencies); type (market or economic statistics); source (cash-, futures- or option markets-generated data or government and industry generated statistical information), and the objective of the system (profiting from trends, mean reversion, trading-ranges or volatility). No single approach will work all the time. Therefore, the Managing Owner’s objective is to have several approaches operating simultaneously. Since the early 1980s, the Managing Owner has selected multiple systems for each market.

 

When arriving at the portfolio allocation, the Managing Owner seeks maximum diversification subject to liquidity constraints. The markets traded and allocations are reviewed monthly, although changes may occur more or less frequently. The following factors are considered in constructing a universe of markets to trade for the Trust: profitability, correlation of market performance, liquidity of markets, professional judgment, desired diversification and transaction costs. Once the universe of markets is established, the Managing Owner’s simulation and optimization techniques help determine which markets to include in the Trust’s portfolio. The current allocation to any market in the portfolio does not exceed 2.5% of total market exposure.

 

In attempting to assess market volatility as a means of monitoring and evaluating risk, the Managing Owner uses its volatility overlay as a part of individual market risk management.

 

Risk is a function of both price level and price volatility. For example, a 100,000 barrel crude oil position is worth more and is, therefore, probably more risky with oil at $90 per barrel than with oil at $50 per barrel. Similarly, oil would be more risky if prices are moving in a 5% daily range than if prices are moving in a 1% daily range. The Managing Owner sizes the position in each market taking into account its measurement of risk based on price level and volatility in that market. Market exposure is then managed by the position-sizing models which measure the risk in the portfolio’s position in each market. In the event the model determines that the risk has changed beyond an acceptable threshold, it will signal a change in the position — a decrease in position size when risk increases and an increase in position size when risk decreases. The Managing Owner’s position-sizing models maintain overall portfolio risk and distribution of risk across markets within designated ranges. The position-sizing model manages the position traded by each of the directional trading systems discussed above. A secondary benefit of the position-sizing model can be timely profit taking. Because markets tend to become more volatile after a profitable trend has been long underway, the position-sizing model often signals position reductions before trend reversals.

 

In addition to the volatility overlay, the Managing Owner’s risk management focuses on money management principles applicable to the portfolio as a whole such as portfolio diversification and control of leverage and portfolio size. There are, however, no restrictions on the amount of leverage the Managing Owner may use at any time.

 

Additional money management principles applicable to the portfolio as a whole include: (1) limiting the assets committed as margin or collateral, generally within a range of 5% to 35% of an account’s net assets though the amount may at any time be higher or lower; (2) prohibiting pyramiding — that is, using unrealized profits in a particular market as margin for additional positions solely in the same market; and (3) changing the equity used for trading by an account solely on a controlled periodic basis, not automatically due to an increase in equity from trading profits.

 

Another important risk management function is the careful control of leverage or total portfolio exposure. Leverage levels are determined by simulating the entire portfolio — all markets, all systems, all risk control models, the exact weightings of the markets in the portfolio and the proposed level of leverage — over the past five or ten years to determine the portfolio’s simulated risk and return characteristics as well as the worst case experienced by the portfolio in the simulation period. The worst case, or peak-to-trough drawdown, is measured from a daily high in portfolio assets to the subsequent daily low whether that occurs days, weeks or months after the daily high. If the Managing Owner considers the drawdown too severe or the portfolio’s simulated volatility too high, it reduces the leverage or total portfolio exposure. There are, however, no restrictions on the amount of leverage the Trust may use at any given time.

 

 

Item 8.   Financial Statements and Supplementary Data

 

Financial statements required by this item, including the report of Deloitte & Touche LLP for the fiscal years ended December 31, 2011, 2010 and 2009, are included as Exhibit 13.01 to this report.

 

The following summarized quarterly financial information presents the results of operations for the three month periods ended March 31, June 30, September 30 and December 31, 2011 and 2010. This information has not been audited.

 

		Fourth Quarter 2011				Third Quarter 2011				Second Quarter 2011				First Quarter 2011
Interest Income:		$	356,127			$	448,040			$	575,608			$	692,240
Net Realized and Unrealized Gains (Losses):			(16,653,534	)			8,155,864				(19,140,566	)			(6,601,847	)
Expenses*:			13,108,009				14,335,180				15,066,886				15,221,761
Net Loss:			(29,405,416	)			(5,731,276	)			(33,631,844	)			(21,131,368	)
Decrease in Net Asset Value per Series 1 Unit			(45.39	)			(10.19	)			(51.19	)			(32.33	)
Increase (Decrease) in Net Asset Value per Series 2 Unit			(33.96	)			3.86				(39.72	)			(18.80	)
Increase (Decrease) in Net Asset Value per Series 3 Unit			(33.29	)			4.69				(39.05	)			(18.05	)
Increase (Decrease) in Net Asset Value per Series 4 Unit			(27.64	)			11.45				(31.82	)			(10.91	)

 

 

		Fourth Quarter 2010				Third Quarter 2010				Second Quarter 2010				First Quarter 2010
Interest Income:		$	673,323			$	769,816			$	859,890			$	932,473
Net Realized and Unrealized Gains (Losses):			61,338,397				61,165,422				(47,148,630	)			54,672,237
Expenses*:			15,217,528				14,651,364				15,015,371				15,235,505
Net Income (Loss):			46,794,192				47,283,874				(61,304,111	)			40,369,205
Increase (Decrease) in Net Asset Value per Series 1 Unit			67.07				67.00				(87.86	)			55.99
Increase (Decrease) in Net Asset Value per Series 2 Unit			68.14				69.83				(65.51	)			-
Increase (Decrease) in Net Asset Value per Series 3 Unit			68.90				70.57				(64.77	)			56.66
Increase in Net Asset Value per Series 4 Unit			50.68				-				-				-

  

* Expenses are inclusive of accruals and reversals of accruals of profit share to the Managing Owner.

 

There were no extraordinary, unusual or infrequently occurring items recognized in any quarter within the two most recent fiscal years, and the Trust has not disposed of any segments of its business. There have been no year-end adjustments that are material to the results of any fiscal quarter reported above.

 

Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

None.

 

 

Item 9A.   Controls and Procedures

 

The Managing Owner, with the participation of the Managing Owner’s principal executive officers and principal financial officer, has evaluated the effectiveness of the design and operation of its disclosure controls and procedures with respect to the Trust as of the end of the fiscal year for which this Annual Report on Form 10-K is being filed, and, based on their evaluation, have concluded that these disclosure controls and procedures are effective. There were no significant changes in the Managing Owner’s internal controls with respect to the Trust or in other factors applicable to the Trust that could significantly affect these controls subsequent to the date of their evaluation.

 

Management’s Annual Report on Internal Control over Financial Reporting

 

The Managing Owner is responsible for establishing and maintaining adequate internal control over the Trust’s financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act as a process designed by, or under the supervision of, a company’s principal executive and principal financial officers and effected by a company’s board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. The Managing Owner’s internal control over financial reporting includes those policies and procedures that:

 

 •   pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Trust’s assets; 

 

 •   provide reasonable assurance that transactions are recorded as necessary to permit preparation of the Trust’s financial statements in accordance with U.S. GAAP, and that the Trust’s receipts and expenditures are being made only in accordance with authorizations of the Managing Owner’s management and directors; and 

 

 •   provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Trust’s assets that could have a material effect on the Trust’s financial statements. 

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

The Managing Owner assessed the effectiveness of its internal control over financial reporting with respect to the Trust as of December 31, 2011. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework.  Based on its assessment, management has concluded that, as of December 31, 2011, the Managing Owner’s internal control over financial reporting with respect to the Trust is effective based on those criteria.

 

Changes in Internal Control over Financial Reporting

 

Section 404 of the Sarbanes-Oxley Act of 2002 requires the Managing Owner to evaluate annually the effectiveness of its internal controls over financial reporting as of the end of each fiscal year, and to include a management report assessing the effectiveness of its internal control over financial reporting in all annual reports. There were no changes in the Trust’s internal control over financial reporting during the quarter ended December 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Item 9B. Other Information

 

None.

 

 

PART III

 

Item 10.   Directors, Executive Officers and Corporate Governance

 

(a, b) Identification of Directors and Executive Officers

 

The Trust has no directors or executive officers. The Trust is controlled and managed by the Managing Owner under a delegation of authority by the Trustee.

 

Millburn Ridgefield Corporation, the Managing Owner, is a Delaware corporation operating in Greenwich, Connecticut, organized in May 1982 to manage discretionary accounts in futures and forward markets. It is the corporate successor to a futures trading and advisory organization which has been continuously managing assets in the currency and futures markets using quantitative, systematic techniques since 1971.

 

The principals and senior officers of the Managing Owner as of December 31, 2011 are as follows:

 

Harvey Beker, age 58. Mr. Beker is Co-Chief Executive Officer and Co-Chairman of the Managing Owner and Chief Executive Officer and Chairman of The Millburn Corporation, and serves as a member of the Managing Owner’s Investment Committee. He received a Bachelor of Arts degree in economics from New York University (“NYU”) in 1974 and a Master of Business Administration degree in finance from NYU in 1975. From June 1975 to July 1977, Mr. Beker was employed by the investment bank Loeb Rhoades, Inc. where he developed and traded silver arbitrage strategies. From July 1977 to June 1978, Mr. Beker was a futures trader at the commodities and securities brokerage firm of Clayton Brokerage Co. of St. Louis. Mr. Beker has been employed by The Millburn Corporation since June 1978 and initially served as the Director of Operations for its affiliate, Millburn Partners. During his tenure at the Managing Owner (including its affiliates, Millburn Partners and CommInVest Research Limited Partnership (“CommInVest”)), he has been instrumental in the development of the research, trading and operations areas. Mr. Beker became a principal of the firm in June 1982, and a partner in the predecessor to ShareInVest Research L.P. (“ShareInVest”) in April 1982. Mr. Beker became registered as an Associated Person of the Managing Owner effective November 25, 1986. Additionally, he became listed as a Principal and registered as an Associated Person of The Millburn Corporation effective February 8, 1984 and May 23, 1989, respectively. He was also listed as a Principal and registered as an Associated Person of ShareInVest effective February 20, 1986 until February 25, 2007. Mr. Beker has also served as Co-Chairman of Millburn International, LLC (“Millburn International”) since its inception.

 

Gregg R. Buckbinder, age 53. Mr. Buckbinder is Senior Vice-President and Chief Operating Officer of the Managing Owner and The Millburn Corporation. He joined the Managing Owner and The Millburn Corporation in January 1998 from Odyssey Partners, L.P., an investment management firm, where he was responsible for the operation, administration and accounting of the firm’s merchant banking and managed account businesses from July 1990 through December 1997. Mr. Buckbinder was employed by Tucker Anthony, a securities broker and dealer, from June 1985 to July 1990 where he was First Vice President and Controller, and from August 1983 to June 1984 where he designed and implemented various operations and accounting systems. He was with the public accounting firm of Ernst & Whinney from June 1984 to June 1985 as a manager in the tax department and from September 1980 to August 1983 as a senior auditor, with an emphasis on clients in the financial services business. Mr. Buckbinder graduated cum laude from Pace University (“Pace”) in 1980 with a B.B.A. in accounting and received an M.S. in taxation from Pace in 1988. He is a Certified Public Accountant and a member of the American Institute of Certified Public Accountants. Mr. Buckbinder has also served as Senior Vice President, Chief Operating Officer and a Director of Millburn International since its inception. Mr. Buckbinder became listed as a Principal of the Managing Owner effective February 5, 1999. He became listed as a Principal of The Millburn Corporation effective March 23, 1998. Mr. Buckbinder became a partner in ShareInVest in January 2000. He was also listed as a Principal of ShareInVest effective February 28, 2001 until February 25, 2007.

 

 

George E. Crapple, age 67. Mr. Crapple is Co-Chief Executive Officer and Co-Chairman of the Managing Owner and served in the same capacities at The Millburn Corporation through May 31, 2011, and serves as a member of the Managing Owner’s Investment Committee. In 1966, he graduated with honors from the University of Wisconsin where his field of concentration was economics and he was elected to Phi Beta Kappa. In 1969, he graduated from Harvard Law School, magna cum laude, where he was an editor of the Harvard Law Review. He was a lawyer with the law firm of Sidley Austin, Chicago, Illinois, from June 1969 until April 1, 1983, as a partner since July 1975, specializing in commodities, securities, corporate and tax law. He was first associated with the Managing Owner in June 1976 and joined the Managing Owner and The Millburn Corporation (including its affiliates, Millburn Partners and CommInVest) on April 1, 1983 on a full-time basis. Mr. Crapple ceased his employment with The Millburn Corporation effective May 31, 2011. He became a partner in ShareInVest in April 1984. Mr. Crapple is a Director, Member of the Executive Committee, Chairman of the Appeals Committee and a former Chairman of the Eastern Regional Business Conduct Committee of the NFA, past Chairman of the Managed Funds Association (“MFA”), a member of the Global Markets Advisory Committee of the CFTC and a member of the board of directors of the Futures Industry Association (FIA). Mr. Crapple has also served as Co-Chairman of Millburn International since its inception. Mr. Crapple became listed as a Principal and registered as an Associated Person of the Managing Owner effective September 13, 1984 and April 2, 1988, respectively. Additionally, he was listed as a Principal and registered as an Associated Person of The Millburn Corporation effective April 9, 1981 and May 23, 1989, respectively, until May 31, 2011. He was also listed as a Principal and registered as an Associated Person of ShareInVest effective February 20, 1986 until February 25, 2007.

 

Steven M. Felsenthal, age 42. Mr. Felsenthal is General Counsel and Chief Compliance Officer of the Managing Owner and The Millburn Corporation. Prior to joining the Managing Owner and its affiliates in January 2004, Mr. Felsenthal was a senior associate in the investment management group at the law firm of Schulte Roth & Zabel LLP (September 1999 - January 2004), where he represented and advised hedge funds, registered investment companies, investment advisers, broker-dealers and banks in connection with all facets of their asset management businesses, and a member of the tax department of the law firm of Kramer, Levin, Naftalis & Frankel LLP (October 1996 - September 1999). He graduated cum laude from Yeshiva University in 1991 with a B.A. in political science, and order of the coif from Fordham University School of Law in 1996, where he also served as an editor of the Fordham Environmental Law Journal. Mr. Felsenthal received an LL.M degree in taxation from NYU School of Law in 2001 and has written and been quoted in numerous published articles, and frequently speaks at conferences, on various topics related to investment management. Mr. Felsenthal is a member of the New York State Bar (since August 1997), former Chairman of the hedge fund industry group MFA CPO/CTA Advisory Committee (November 2006 to June 2010) and is currently Co-Chairman of the Steering Committee of MFA’s CPO/CTA Forum (since June 2010), a member of the Editorial Board of the Journal of Securities Law, Regulation and Compliance (since February 2007) and a faculty member of the Regulatory Compliance Association’s Chief Compliance Officer University (since May 2009). Mr. Felsenthal has also served as General Counsel, Chief Compliance Officer and Secretary of Millburn International since its inception. Mr. Felsenthal became listed as a Principal of the Managing Owner and The Millburn Corporation effective June 24, 2004. Mr. Felsenthal also served as General Counsel and Chief Compliance Officer of ShareInVest.

 

Mark B. Fitzsimmons, age 64. Mr. Fitzsimmons is a Senior Vice-President of the Managing Owner and served in the same capacity at The Millburn Corporation until December 31, 2011. His responsibilities include both business development and investment strategy. He joined the Managing Owner and its affiliates in January 1990 from the brokerage firm of Morgan Stanley & Co. Incorporated, a global financial services firm, where he was a Principal and Manager of institutional foreign exchange sales and was involved in strategic trading for the firm from October 1987 until January 1990. From September 1977 to October 1987, he was with the financial institution Chemical Bank New York Corporation (“Chemical”), first as a Senior Economist in Chemical’s Foreign Exchange Advisory Service and later as a Vice-President and Manager of Chemical’s Corporate Trading Group. While at Chemical he also traded both foreign exchange and fixed income products. From September 1973 to September 1977, Mr. Fitzsimmons was employed by the Federal Reserve Bank of New York, dividing his time between the International Research Department and the Foreign Exchange Department. He graduated summa cum laude from the University of Bridgeport, Connecticut in 1970 with a B.S. degree in economics. His graduate work was done at the University of Virginia, where he received a certificate of candidacy for a Ph.D. in economics in 1973. Mr. Fitzsimmons became listed as a Principal and registered as an Associated Person of the Managing Owner effective July 2, 1993, and April 15, 2009, respectively. Mr. Fitzsimmons was a listed Principal and registered Associated Person of The Millburn Corporation effective June 20, 1995 and October 12, 1992, respectively, each until December 31, 2011. Mr. Fitzsimmons was a partner in ShareInVest beginning in January 2000. He was also a listed Principal of ShareInVest effective May 19, 1999 until February 25, 2007.

 

 

Barry Goodman, age 54. Mr. Goodman is Executive Vice-President and Director of Trading for the Managing Owner and The Millburn Corporation, and serves as a member of the Managing Owner’s Investment Committee. As Executive Vice President, Mr. Goodman also plays an integral role in business and product development, and in the strategic direction of the firm as a whole. Mr. Goodman joined the Managing Owner and The Millburn Corporation (including its affiliate, Millburn Partners) in November 1982 as Assistant Director of Trading. From September 1980 through October 1982, he was a commodity trader at the brokerage firm of E. F. Hutton & Co., Inc. (“E.F. Hutton”). At E.F. Hutton, he also designed and maintained various technical indicators and coordinated research projects pertaining to the futures markets. Mr. Goodman graduated magna cum laude from Harpur College of the State University of New York in 1979 with a B.A. in economics. He has been a featured speaker at industry events in the U.S., Europe and Asia. Mr. Goodman has also served as President, Chief Executive Officer and a Director of Millburn International since its inception. Mr. Goodman became listed as a Principal and registered as an Associated Person of the Managing Owner effective December 19, 1991 and May 23, 1989, respectively. He also became listed as a Principal and registered as an Associated Person of The Millburn Corporation effective June 20, 1995 and April 5, 1989, respectively. He became a partner in ShareInVest in January 1994. Mr. Goodman was a listed Principal of ShareInVest, effective May 19, 1999 until February 25, 2007.

 

Dennis B. Newton, age 60. Mr. Newton is a Senior Vice-President of the Managing Owner and served in the same capacity at The Millburn Corporation through July 1, 2011. His primary responsibilities are in administration and business development. Prior to joining the Managing Owner and The Millburn Corporation in September 1991, Mr. Newton was President of Phoenix Asset Management, Inc., a registered commodity pool operator from April 1990 to August 1991 and President of its affiliated introducing broker, Phoenix Futures Inc. (“Phoenix”), from March 1990 to June 1991. Mr. Newton was listed as a Principal of Phoenix Asset Management, Inc. and Phoenix beginning in June 1990 and April 1990, respectively, and, although he left the firms in August 1991 and June 1991, respectively, his registration as a Principal was not withdrawn until January 1992 and November 1992, respectively. Mr. Newton was registered as an Associated Person of Phoenix from May 1990 until June 1991 and of Phoenix Asset Management, Inc. from May 1990 until January 1992 (although he left the firm prior to that date, in August 1991). Prior to his employment with Phoenix, Mr. Newton was a Director of Managed Futures with the brokerage firm of Prudential-Bache Securities Inc. (“Prudential-Bache”) from October 1987 to March 1990 and was associated with its affiliated futures commission merchant entity, Prudential Securities Futures Management, Inc. Until March 1990, he was registered as an Associated Person with Prudential Equity Group LLC (beginning in October 1987), and was listed as a Principal of the commodity pool operator Seaport Futures Management, Inc. (“Seaport”) (beginning in January 1989) and Prudential Securities Futures Management, Inc. (beginning in June 1989). Mr. Newton was a Director of Seaport, and his responsibilities at Seaport, Prudential-Bache, Prudential Securities Futures Management, Inc. and Prudential Equity Group LLC included the organization and marketing of public commodity pools. Mr. Newton joined Prudential-Bache from Heinold Asset Management, Inc. (“Heinold”), and its affiliated futures commission merchant, Heinold Commodities Inc., where he was a member of the senior management team from October 1974 to October 1987. Heinold was a pioneer and one of the largest sponsors of funds utilizing futures and currency forward trading. Mr. Newton was registered as an Associated Person (March 1981 — October 1987) of Heinold Commodities Inc. Mr. Newton was registered as an Associated Person of Heinold beginning in January 1986 and was listed as a Principal of Heinold beginning in February 1986. Although Mr. Newton left Heinold in October 1987, his registration as an Associated Person and his listing as a Principal were not withdrawn until November 1987. Mr. Newton joined the Managing Owner as an Associated Person in May 1991, and then joined the Managing Owner and its affiliates on a full-time basis in September 1991. Mr. Newton became listed as a Principal and registered as an Associated Person and branch office manager of the Managing Owner effective May 14, 1997, May 30, 1991 and December 16, 1991, respectively. He also became listed as Principal of The Millburn Corporation effective May 5, 2004 until July 1, 2011.

 

  

Grant N. Smith, age 60. Mr. Smith is Executive Vice-President and Director of Research of the Managing Owner and The Millburn Corporation, and serves as a member of the Managing Owner’s Investment Committee. He is responsible for the design, testing and implementation of quantitative trading strategies, as well as for planning and overseeing the computerized decision-support systems of the firm. He received a B.S. degree from the Massachusetts Institute of Technology (“MIT”) in 1974 and an M.S. degree from MIT in 1975. While at MIT, he held several teaching and research positions in the computer science field and participated in various projects relating to database management. He joined the predecessor entity to The Millburn Corporation in June 1975, and has been continuously associated with the Managing Owner, The Millburn Corporation and their affiliates since that time. Mr. Smith became a partner in ShareInVest in January 1994. Mr. Smith has also served as a Director of Millburn International since its inception, where he, along with the other Directors of Millburn International, is responsible for its overall management. Mr. Smith became listed as a Principal and registered as an Associated Person of the Managing Owner, effective December 19, 1991 and April 15, 2009, respectively. He became listed as a Principal and registered as an Associated Person of The Millburn Corporation effective June 20, 1995 and May 21, 1992, respectively. Mr. Smith also became a partner in ShareInVest in January 1994. He also was listed as a Principal of ShareInVest, effective May 19, 1999 until February 25, 2007.

 

Tod A. Tanis, age 57. Mr. Tanis is a Vice President and Principal Accounting Officer of the Managing Owner and The Millburn Corporation. He is responsible for overseeing operations and accounting for the firm’s commodity pools. He graduated from Grove City College in May 1976 with a B.A. in accounting and joined the Managing Owner and The Millburn Corporation in May 1983. Prior to joining the Managing Owner and its affiliates, he was with the brokerage firm of E.F. Hutton, where he was a Manager from December 1982 to April 1983; a Supervisor from August 1982 to December 1982; an International Accountant from April 1979 to August 1982; and a staff accountant from June 1978 to April 1979. As a Supervisor at E.F. Hutton, he was responsible for supervising internal and external reporting for the futures division. In December of 1982, he was promoted to Manager and continued his role in supervising internal and external reporting. Mr. Tanis also served as a Junior Accountant and then International Staff Accountant with the brokerage firm of Merrill Lynch & Company from September 1976 to May 1978. Mr. Tanis became listed as a Principal of the Managing Owner and The Millburn Corporation effective July 14, 2004.

 

None of the individuals listed above currently serves as a director of a public company.

 

(c) Identification of Certain Significant Employees

 

None.

 

(d)   Family Relationships

 

None.

 

(e)   Business Experience

 

See Item 10 (a, b) above.

 

(f)   Involvement in Certain Legal Proceedings

 

None.

 

(g)  Promoters and Control Persons

 

The Managing Owner, as the organizer of the Trust, is a promoter within the meaning of 1(i) of the definition of “promoter” set forth in Regulation 12b-2 of the Exchange Act.  The Managing Owner has not received, and is not entitled to receive, anything of value from the Trust in connection therewith.

 

(h)   Code of Ethics

 

The Trust has no employees, officers or directors and is managed by the Managing Owner.  The Managing Owner has adopted an Executive Code of Ethics that applies to its principal executive officers, principal financial officer and principal accounting officer.  A copy of this Executive Code of Ethics may be obtained at no charge by written request to Millburn Ridgefield Corporation, 411 West Putnam Avenue, Greenwich, Connecticut 06830 or by calling 203-625-7554 (ask for Client Services).

 

 

(i)   Audit Committee Financial Expert

 

Because the Trust has no employees, officers or directors, the Trust has no audit committee. The Trust is managed by the Managing Owner. Gregg Buckbinder serves as the Managing Owner’s “audit committee financial expert.” Mr. Buckbinder is not independent of the management of the Managing Owner. The Managing Owner is a privately owned corporation managed by its shareholders. It has no independent directors.

 

Item 11. Executive Compensation

 

The Trust has no directors, officers or employees. None of the directors, officers or employees of the Managing Owner receive compensation from the Trust. The Managing Owner makes all investment decisions on behalf of the Trust. The Managing Owner receives monthly brokerage commissions of 0.583 of 1% of the Trust’s net assets attributable to Series 1 Units (which is reduced to 0.541 of 1%, 0.5 of 1% or 0.458 of 1% of net assets for Series 1 Unitholders who invest amounts of $100,000, $500,000 or $1,000,000 or more, respectively, in the Trust and to 0.33 of 1% of Unitholders who invested through selling agent fee based accounts) and an annual profit share of 20% of any new trading profits (net of brokerage commissions and administrative expenses and excluding interest income). The Managing Owner receives a monthly management fee of 0.083 of 2% of the Trust’s net assets attributable to Series 2 and Series 3 Units. The Managing Owner also receives a Series 2/3 profit share equal to 20% of any cumulative new trading profit of the Series 2 and Series 3 Units in the aggregate, determined as of the end of each calendar year. The annual Series 2/3 profit share is calculated net of management fees, execution and clearing costs, custodial fees, and ongoing offering and administrative expenses and excluding interest income.

 

Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

(a)   Security Ownership of Certain Beneficial Owners

 

All of the Trust’s managing owner interest is held by the Managing Owner.

 

(b)   Security Ownership of Management

 

Under the terms of the Trust Agreement, the Trust’s affairs are managed by the Managing Owner, which has discretionary authority over the Trust’s trading. The Managing Owner’s managing owner interest was valued at $9,644,943 as of December 31, 2011, 1.28% of the Trust’s total capital.

 

(c)   Changes in Control

 

None.

 

(d)   Securities Authorized for Issuance Under Equity Compensation Plans

 

None.

 

Item 13.   Certain Relationships and Related Transactions, and Director Independence

 

See “Item 11.  Executive Compensation” and “Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”  The Trust allocated to the Managing Owner $54,834,929 in brokerage fees, $571,739 in management fees and $1,385 in profit share for the year ended  December 31, 2011.  The Managing Owner’s capital interest was allocated net loss of $477,911 for the year ended December 31, 2011.  The Managing Owner has paid certain administrative expenses to third-parties on behalf of the Trust, related to legal, accounting, auditing, printing, postage and similar administrative expenses, and has been or will be reimbursed without interest by the Trust.  At December 31, 2011, the Trust owed the Managing Owner redemption penalty payable of $801.  The Trust is prohibited from making any loans.

 

 

 

Item 14.   Principal Accountant Fees and Services

  

(1)         Audit Fees

 

The aggregate fees for professional services rendered by Deloitte & Touche LLP in connection with their audit of the Trust’s financial statements and reviews of the financial statements included in the quarterly reports on Form 10-Q and in connection with the statutory and regulatory filings for the years ended December 31, 2011 and 2010 were approximately $150,000 and $147,000, respectively.

 

(2)         Audit-Related Fees

 

The Trust did not engage Deloitte & Touche LLP for internal control consulting services.

 

(3)         Tax Fees

 

The Trust did not engage Deloitte & Touche LLP for professional services for tax compliance, advice or planning services.

 

(4)         All Other Fees

 

There were no other fees for the years ended December 31, 2011 and 2010.

 

(5)         Pre-Approval Policies

 

The board of directors of the Managing Owner pre-approves the engagement of the Trust’s auditor for all services to be provided by the auditor.

 

PART IV

 

Item 15.   Exhibits and Financial Statement Schedules 

 

(a)(1)   Financial Statements

 

The following are included with the 2011 Annual Report to Security Holders, a copy of which is filed herewith as Exhibit 13.01.

 

Affirmation of Millburn Ridgefield Corporation

Report of Independent Registered Public Accounting Firm

Statements of Financial Condition

Condensed Schedules of Investments

Statements of Operations

Statements of Changes in Trust Capital

Statements of Financial Highlights

Notes to Financial Statements

 

(a)(2)   Financial Statement Schedules

 

All Schedules are omitted for the reason that they are not required or are not applicable because equivalent information has been included in the financial statements or the notes thereto.

 

 

(a)(3)   Exhibits as required by Item 601 of Regulation S-K

 

The following exhibits are included herewith.

 

Designation		Description
13.01		2011 Annual Report to Security Holders
31.01		Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
31.02		Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
31.03		Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer
32.01		Section 1350 Certification of Principal Executive Officer
32.02		Section 1350 Certification of Principal Executive Officer
32.03		Section 1350 Certification of Principal Financial Officer
100.01		Interactive Data File

 

The following exhibit is incorporated by reference from the exhibit of the same number and description filed with the Trust’s Registration Statement (File No. 333-67072) filed on August 8, 2001 on Form S-1 under the Securities Act of 1933.

 

3.01

Certificate of Trust of Registrant.

 

The following exhibits are incorporated by reference from the exhibit of the same number and description filed with the Trust’s Annual Report on March 31, 2003 on Form 10-K under the Exchange Act.

 

10.01		Form of Customer Agreement with Deutsche Bank Securities Inc.
10.02		Form of Foreign Exchange and Options Master Agreements with Morgan Stanley & Co. Incorporated and Morgan Stanley Capital Group Inc. (with schedules).

 

The following exhibits are incorporated by reference from the exhibits of the same number and description filed with Amendment No.1 to the Trust’s Registration Statement (File No. 333-155651) filed June 4, 2009 on Form S-1 under the Securities Act of 1933.

 

3.03		Form of Fourth Amended and Restated Declaration of Trust and Trust Agreement of Registrant
10.01		Form of Subscription Agreement and Power of Attorney
10.02		Form of Services Agreement

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 30th day of March, 2012.

 

	GLOBAL MACRO TRUST
	By:	Millburn Ridgefield Corporation,
		Managing Owner
	By:	/s/ Harvey Beker
		Harvey Beker
		Co-Chief Executive Officer

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Managing Owner of the Registrant and in the capacities and on the date indicated.

 

		Title with
Signature		Managing Owner		Date
/s/ Harvey Beker		Co-Chief Executive		March 30, 2012
Harvey Beker		Officer and Director
		(Principal Executive Officer)
/s/ George E. Crapple		Co-Chief Executive		March 30, 2012
George E. Crapple		Officer and Director
		(Principal Executive Officer)
/s/ Gregg Buckbinder		Chief Financial and Operating Officer		March 30, 2012
Gregg Buckbinder		(Principal Financial Officer)
/s/ Tod A. Tanis		Vice President		March 30, 2012
Tod A. Tanis		(Principal Accounting Officer)

 

(Being the principal executive officers, the principal financial officer and principal accounting officer, and a majority of the directors of Millburn Ridgefield Corporation)

 

  

EXHIBIT INDEX

 

The following exhibits are included herewith.

 

Designation		Description
13.01		2011 Annual Report to Security Holders
31.01		Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
31.02		Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
31.03		Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer
32.01		Section 1350 Certification of Principal Executive Officer
32.02		Section 1350 Certification of Principal Executive Officer
32.03		Section 1350 Certification of Principal Financial Officer
100.01		Interactive Data File

 

The following exhibit is incorporated by reference from the exhibit of the same number and description filed with the Trust’s Registration Statement (File No. 333-67072) filed on August 8, 2001 on Form S-1 under the Securities Act of 1933.

 

3.01

Certificate of Trust of Registrant.

 

The following exhibits are incorporated by reference from the exhibit of the same number and description filed with the Trust’s Annual Report on March 31, 2003 on Form 10-K under the Exchange Act.

 

10.01		Form of Customer Agreement with Deutsche Bank Securities Inc.
10.02		Form of Foreign Exchange and Options Master Agreements with Morgan Stanley & Co. Incorporated and Morgan Stanley Capital Group Inc. (with schedules).

 

The following exhibits are incorporated by reference from the exhibits of the same number and description filed with Amendment No.1 to the Trust’s Registration Statement (File No. 333-155651) filed June 4, 2009 on Form S-1 under the Securities Act of 1933.

 

3.03		Form of Fourth Amended and Restated Declaration of Trust and Trust Agreement of Registrant
10.01		Form of Subscription Agreement and Power of Attorney
10.02		Form of Services Agreement