Item 1. Business
General Development of Business: Narrative Description of Business
JWH Global Trust (the “Trust”) is a Delaware statutory trust organized on November 12, 1996 under the Delaware Statutory Trust Act. The business of the Trust is the speculative trading of commodity interests, including futures contracts on currencies, interest rates, energy and agricultural products, metals and stock indices, spot and forward contracts on currencies and precious metals and exchanges for physicals (“Commodity Interests”) pursuant to the trading instructions of an independent trading advisor. R.J. O’Brien Fund Management, LLC (“RJOFM” or the “Managing Owner”) acquired the managing owner interest in the Trust from Refco Commodity Management, Inc (“RCMI”) on November 30, 2006. RJOFM was initially organized as an Illinois corporation in November 2006, and became a Delaware limited liability company in July 2007. The Managing Owner is registered as a commodity pool operator under the Commodity Exchange Act, as amended (“CE Act”), and is responsible for administering the business and affairs of the Trust. The Managing Owner is an affiliate of R.J. O’Brien & Associates LLC., the clearing broker for the Trust (“RJO” or the “Clearing Broker”. Trading decisions for the Trust have been delegated to an independent commodity trading advisor, John W. Henry & Company, Inc. (“JWH” or the “Advisor”).
RJO is a “Futures Commission Merchant”, the Managing Owner is a “Commodity Pool Operator” and the trading advisor to the Trust is a “Commodity Trading Advisor”, as those terms are used in the CE Act. As such, they are registered with and subject to regulation by the Commodity Futures Trading Commission (“CFTC”) and are each a member of the National Futures Association (“NFA”). R.J. O’Brien Securities, LLC., an affiliate of RJOFM and the lead selling agent for the Trust as of October 2, 2007, is registered as a broker-dealer with the Financial Industry Regulatory Authority. (“FINRA”).
The initial public offering of the Trust’s units of beneficial interest (“units”) commenced on April 3, 1997. The initial offering price was $100 per unit until the initial closing of the Trust on May 30, 1997, and thereafter the offering price is the current Net Asset Value (“NAV”) per unit of the Trust on the last business day of the prior calendar month. The total amount of the initial offering was $50,000,000. On September 24, 1997, a registration statement was declared effective with the Securities and Exchange Commission (the “SEC”) to register $155,000,000 of additional units. A Post-Effective Amendment was declared effective with the SEC on October 20, 1997 to deregister $3,120,048.99 of units which remained unsold upon the termination of the initial offering of the units. On July 2, 2003 and on November 1, 2004, registration statements were declared effective with the SEC to register $300,000,000 and $500,000,000 of additional units. Due to the bankruptcy of Refco, Inc., the ultimate parent of RCMI (the former managing owner of the Trust), the offering of the units was suspended on October 17, 2005. On December 4, 2007 a registration statement was declared effective with the SEC to register 1,000,000 additional units.
The Managing Owner is responsible for the preparation of monthly and annual reports to the beneficial owners of the Trust (the “Beneficial Owners”), filing reports required by the CFTC, the NFA, the SEC and any other federal or state agencies having jurisdiction over the Trust’s operations; calculation of the NAV (meaning the total assets less total liabilities of the Trust) and directing payment of the management and incentive fees payable to the Advisor under the Advisory Agreement.
The Managing Owner provides suitable facilities and procedures for handling redemptions, transfers, distributions of profits (if any) and, if necessary, the orderly liquidation of the Trust. Although RJO acts as the Trust’s clearing broker, the Managing Owner is responsible for selecting another clearing broker in the event RJO is unable or unwilling to continue in that capacity. The Managing Owner is further authorized, on behalf of the Trust (i) to enter into a brokerage clearing agreement and related customer agreements with other brokers, pursuant to which other brokers will render clearing services to the Trust; and (ii) to cause the Trust to pay brokerage commissions at the rates provided for in the Prospectus; and to pay delivery, insurance, storage, service and other fees and charges incidental to the Trust’s trading. The Managing Owner also advances payment of ongoing offering expenses for which it receives reimbursement, subject to a ceiling of 0.5% of the Trust’s average month-end net assets during any fiscal year. For the year ended December 31, 2007, $351,000 of ongoing offering costs were paid or accrued in connection with filing of the registration statement to renew the offering of units.
The Advisory Agreement between the Trust and JWH provides that JWH has sole discretion in and responsibility for the selection of the Trust’s commodity transactions with respect to that portion of the Trust’s assets allocated to it. As of December 31, 2007, JWH was managing 100% of the Trust’s assets. The Advisory Agreement with JWH commenced on April 3, 1997. The Trust and JWH amended the Advisory Agreement as of September 29, 2000 to extend the term of the Advisory Agreement until June 30, 2002 with automatic renewal for three additional twelve-month terms (beginning January 1 and ending December 31 of each year) through June 2005, unless earlier terminated in accordance with the termination provisions contained therein. On June 27, 2005 the term of the Advisory Agreement was further extended to June 30, 2007, with automatic renewal for additional 12 month periods.
The Advisory Agreement shall terminate automatically in the event that the Trust is terminated in accordance with the Seventh Amended and Restated Declaration and Agreement of Trust. The Advisory Agreement may be terminated by the Trust at any time, upon 60 days’ prior written notice to the Advisor. In addition, the Advisory Agreement may be terminated by the Trust at any time, upon written notice to the Advisor, in the event that (A) the NAV of Trust funds allocated to the Advisor’s management decreases as of the close of trading on any business day by more than 30% from the sum of the NAV of all funds allocated to the Advisor (after adding back all redemptions, distributions and reallocations made to any additional trading advisors in respect of such assets); (B) the Advisor is unable, to any material extent, to use the Trading Programs (as defined in the Advisory Agreement), as the Trading Programs may be refined or modified in the future in accordance with the terms of the Advisory Agreement for the benefit of the Trust; (C) the Advisor’s registration as a commodity trading advisor under the CE Act, or membership as a commodity trading advisor with NFA is revoked, suspended, terminated or not renewed; (D) the Managing Owner determines in good faith that the Advisor has failed to conform to (i) the Trust’s trading policies or limitations, as they may be revised or modified, or (ii) a Trading Program; (E) there is an unauthorized assignment of the Advisory Agreement by the Advisor; (F) the Advisor dissolves, merges or consolidates with another entity or sells a substantial portion of its assets, any portion of the Trading Programs utilized by the Trust or its business goodwill to any person or entity other than one controlled, directly or indirectly, by John W. Henry, in each instance without the consent of the Managing Owner; (G) the Advisor becomes bankrupt or insolvent; (H) John W. Henry ceases to be a principal of the Advisor; or (I) the Managing Owner determines in good faith that such termination is necessary for the protection of the Trust.
The Advisor has the right to terminate the Advisory Agreement at any time, upon written notice to the Trust in the event (i) of the receipt by the Advisor of an opinion of independent counsel that solely by reason of the Advisor’s activities with respect to the Trust, the Advisor is required to register as an investment adviser under the Investment Advisers Act of 1940; (ii) that the registration of the Managing Owner as a commodity pool operator under the CE Act, or its NFA membership as a commodity pool operator is revoked, suspended, terminated or not renewed; (iii) that the Managing Owner elects to have the Advisor use a different trading program in the Advisor’s management of the Trust’s assets from that which the Advisor is then using to manage such assets and the Advisor objects to using such different trading program; (iv) that the Managing Owner overrides a trading instruction of the Advisor for reasons unrelated to a determination by the Managing Owner that the Advisor has violated the Trust’s trading policies or limitations; (v) that the Managing Owner imposes additional trading limitation(s) which the Advisor does not agree to follow in the Advisor’s management of its allocable share of Trust’s assets; (vi) there is an unauthorized assignment of the Advisory Agreement by the Managing Owner of the Trust; or (vii) other good cause is shown to which the written consent of the Managing Owner is obtained. The Advisor may also terminate the Advisory Agreement on 60 days’ written notice to the Managing Owner during any renewal term.
The Advisor and its principals, affiliates and employees are free to trade for their own accounts and manage other commodity accounts during the term of the Advisory Agreement and to use the same information and trading strategy which the Advisor obtains, produces or utilizes in the performance of services for the Trust. To the extent that the Advisor recommends similar or identical trades to the Trust and other accounts, which it manages, the Trust may compete with those accounts for the execution of the same or similar trades.
Other trading advisors who are not affiliated with the Trust may utilize trading methods that are similar in some respects to those methods used by the Trust’s Advisor. These other trading advisors could also be competing with the Trust for the same or similar trades as requested by the Trust’s Advisor.
Pursuant to the Advisory Agreement between the Trust and JWH, prior to October 1, 2000, the Trust paid JWH a monthly management fee of 0.33% of the month-end net assets under its management and a quarterly incentive fee of 15% of the Trust’s new trading profits, if any, attributable to assets under its management (both fees are calculated after deduction of a portion of the brokerage commissions at a 1.25% annual rate, rather than the full brokerage commission). Effective October 1, 2000, the management fee was reduced to 0.167% (a 2% annual rate) and the incentive fee was increased to 20%. Trading profits are calculated on the basis of the overall performance of the Trust, not the performance of each Trading Program utilized by JWH, considered individually. The Trust trades in the global futures and forward markets pursuant to the Advisor’s proprietary trading strategies. From the commencement of trading on June 2, 1997 until October 1998, the Trust allocated its assets 50% to the Original Investment Program and 50% to the Financial and Metals Portfolio. For the period beginning October 5, 1998 and ending December 31, 1999, the Trust allocated its assets 40% to the Original Investment Program, 35% to the Financial and Metals Portfolio and 25% to the G-7 Currency Portfolio. On January 1, 2000, the Trust substituted the JWH GlobalAnalytics® Family of Programs for the Original Investment Program and reallocated trust assets 40% to the Financial and Metals Portfolio, 30% to the G-7 Currency Portfolio and 30% to the JWH GlobalAnalytics® Family of Programs. For the period beginning August 1, 2005, the Trust allocated 30% of it’s assets to Financial and Metals Portfolio, 30% to GlobalAnalytics, 20% to International Foreign Exchange and 20% to Global Financial and Energy. For the period beginning July 1, 2006 the Trust substituted the Global Diversified program for the Global Financial & Energy program. Beginning on March 1, 2008, the Trust allocated 20% of its assets to the Financial and Metals Portfolio, 40% to GlobalAnalytics, and 40% to JWH Diversified Plus. JWH continues to rebalance the Trust’s assets at the end of each quarter among these three trading programs in accordance with the proceeding percentages.
The Trust’s net assets are deposited in the Trust’s accounts with RJO, the Trust’s clearing broker and currency dealer. The Trust is paid interest on 100% of the Trust’s average daily balances on deposit with RJO during each month at the average of 75% of the 91-day Treasury bill rate for that month in respect of deposits denominated in U.S. dollars. With respect to non-U.S.dollar deposits, interest is paid to the Trust at a rate of LIBOR less 100 basis points (which may be zero in some cases).
The Trust currently has no salaried employees and all administrative services performed for the Trust were performed by the Managing Owner until June 30, 2007. As of July 1, 2007 accounting services for the Trust are provided by SS&C Technologies and Transfer Agency services are provided by Bank of New York Mellon Corp. The Managing Owner has no employees other than their officers and directors, all of whom are employees of the affiliated companies of the Managing Owner.
Recent Events
In 2005, certain assets held by the Trust’s prior clearing broker, Refco Capital markets, LTD (“RCM”), were determined to be illiquid. On October 31, 2005, $57,544,206 of equity was moved to a separate Non-Trading Account and 2,273,288 in substitute units were issued to the unitholders at that time, prorata to their share in the Trust. At December 31, 2005, the illiquid assets were determined to be impaired and were reduced by $39,580,944 for impairment, based on management’s estimate at that time.
Through 2006, the Trust received $10,319,317 from the prior clearing broker in bankruptcy court and distributed $9,335,669 to unitholders in the manner as described in (a) and (b) below.
Effective January 1, 2007, JWH Special Circumstance LLC (the “LLC”), a limited liability company, was established to pursue additional claims against RCM, and all Non-Trading Accounts were transferred to the LLC. Any new funds received from RCM by the LLC, will be distributed to unitholders who were investors in the Trust at the time of the bankruptcy of RCM and Refco, Inc. U.S. Bank National Association (“US Bank”) is the manager of the LLC. US Bank may make distributions to the unitholders, as defined above, upon collection, sale, settlement or other disposition of the bankruptcy claim and after payment of all fees and expenses pro rata to the unitholders, as explained above, as follows:
(a)
Any unitholder who had redeemed their entire interest in the Trust prior to distribution shall receive cash (“Non Participating Owners”).
(b)
Any unitholder who had continued to own units in the Trus shall receive additional units in the Trust at the then Net Asset Value of the Trust ("Participating Owners").
The unitholders have no rights to request redemptions from the LLC.
The LLC has agreed to compensate US Bank, as manager, the following: (1) An initial acceptance fee of $120,000, (2) An annual fee of $25,000, (3) A distribution fee of $25,000 per distribution, (4) Out-of-pocket expenses, and (5) An hourly fee for all personnel at the then expected hourly rate ($350 per hour at execution of agreement).
On April 20, 2007, the LLC received a second partial recovery from RCM in the amount of $2,787,629.
On June 7, 2007, the LLC received a third partial recovery from RCM in the amount of $265,758.
On June 28, 2007, the LLC received a fourth partial recovery from RCM in the amount of $4,783,640. This recovery, along with the previous recoveries, resulted in reducing the balance of the amount due from former brokers to zero and recording a Non-Trading gain of $1,193,083, which is reflected as “collections in excess of impaired value” on the Consolidated Statement of Operations, as the recoveries have exceeded management’s original estimate of impairment reflected in 2005. All future recoveries will be reflected as collections in excess of impaired value on the consolidated statement of operations.
On July 3, 2007, the LLC received a fifth partial recovery from RCM in the amount of $5,655.
On August 29, 2007, US Bank, National Association distributed $4,546,573 (or approximately $2.00/unit). Unitholders who had redeemed units in the Trust as of August 31, 2007 received cash in the amount of $2,787,947. Unitholders who had not previously redeemed received 23,182.53 units of the Trust in exchange for $1,758,626 which represented their share of the total distribution of $4,546,573.
On September 19, 2007 the LLC received a sixth partial recovery from RCM in the amount of $2,584,070.
On December 31, 2007 the LLC recovered a seventh partial recovery from RCM is the amount of $2,708,467. As of December 31, 2007, the cumulative amount recorded as a Non-Trading gain and reflected as “collections in excess of impaired value” on the Consolidated Statement of Operations was $6,491,275.
Financial Information about Segments
The Trust’s business constitutes only one segment for financial reporting purposes; it is a Delaware statutory trust whose purpose is to trade, buy, sell, spread or otherwise acquire, hold or dispose of commodity interests including futures contracts on currencies, interest rates, energy and agricultural products, metals and stock indices, spot and forward contracts on currencies and precious metals and exchanges for physicals. The Trust does not engage in the production or sale of any goods or services. The objective of the Trust business is appreciation of its assets through speculative trading in such commodity interests. Financial information about the Trust’s business, as of December 31, 2007, is set forth under Items 6, 7, and 8 herein.
Financial Information about Geographic Areas
Although the Trust trades in the global futures and forward markets, it does not have operations outside of the United States.
Available Information
The Trust files an annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to these reports with the Securities and Exchange Commission. You may read and copy any document filed by the Trust at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for information on the Public Reference Room. The Trust does not maintain an internet website, however, the SEC maintains a website that contains annual, quarterly, and current reports, proxy statements, and other information that issuers (including the Trust) file electronically with the SEC. The SEC’s website address is http://www.sec.gov.
The Trust will also provide paper copies of such reports and amendments to its investors free of charge upon written request.
Item 1A.
Item 1A. Risk Factors
The Trust is in the business of the speculative trading of futures, forwards, and options. For a detailed description of the risks that may affect the Trust or the units offered by the Trust, see the Risk Factors set forth in the Trust’s prospectus dated December 4, 2007, and filed with the Securities and Exchange Commission on December 5, 2007 (Registration Number 333-146177), and incorporated herein by reference.
Item 1B.
Item 1B. Unresolved Staff Comments
None
Item 2.
Item 2. Properties
The Trust does not utilize any physical properties in the conduct of its business. The Managing Owner uses the offices of RJO at no additional charge to the Trust, to perform its administration functions, and the Trust uses the offices of RJO at no additional charge to the Trust, as its principal administrative offices.
Item 3.
Item 3. Legal Proceedings
On October 10, 2005, Refco Inc., the parent company of RCMI announced that it had discovered through an internal review a receivable owed to the Company by an entity controlled by Phillip R. Bennett, Chief Executive Officer and Chairman of the Board of Directors of the Company, in the amount of approximately $430 million. Mr. Bennett repaid the receivable in cash, including all accrued interest, on October 10, 2005. Based upon the results of the review to date, Refco Inc. believes that the receivable was the result of the assumption by an entity controlled by Mr. Bennett of certain historical obligations owed by unrelated third parties to Refco, Inc., which may have been uncollectible. Independent counsel and forensic auditors have been retained to assist Refco, Inc.’s Audit Committee in the investigation of these matters.
On October 12, 2005, Mr. Bennett was initially charged with one count of securities fraud. On November 10, 2005, he was indicted on eight counts of conspiracy, fraud, and other charges by a federal grand jury. The indictment was delivered in the United States District Court for the Southern District of New York. Prosecutors charge in the indictment that Mr. Bennett hid customer and company losses from Refco, Inc. auditors and investors from as early as the late 1990s. Those losses, according to the indictment, were then transferred to a company controlled by Mr. Bennett and hidden through a series of transactions.
Refco, Inc. and other affiliated entities, including RCMI, have subsequently filed for bankruptcy.
Since the announcement of these matters at Refco, Inc., the Informal Committee of RCMI (Mr. Richard C. Butt and Ms. Annette A. Cazenave) undertook its own review into RCM and the Trust to ensure none of these matters had any material impact on the results of operations of either RCMI as the former managing owner or the Trust. Based upon the results of that review, the Informal Committee has no reason to believe that the actions of Mr. Bennett had any impact on the operations or financial results of the Trust.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
None
Part II
Item 5.
Item 5. Market for the Registrant’s Units and Related Security Holder Matters and Issuer Purchases of Equity Securities
(a)
(i) There is no established public market for the units and none is expected to develop.
(ii) As of December 31, 2007, there were 831,874 units held in the Trading Account by Beneficial Owners for an investment of $70,450,079 and 20,218 units held in the Trading Account by the Managing Owner for an investment of $1,712,262. A total of 474,881 units had been redeemed by Beneficial Owners and 0 units by the Managing Owner during the period of January 1, 2007 to December 31, 2007. The Trust’s Seventh Amended and Restated Declaration and Agreement of Trust contains a full description of redemption and distribution procedures. 1,000,0000 units ($84,690,000) (SEC Registration Number 333-146177) remain unsold as of December 31, 2007.
(iii) To date no distributions have been made to owners of beneficial interest in the Trading Account of the Trust. The Seventh Amended and Restated Declaration and Agreement of Trust does not provide for regular or periodic cash distributions, but gives the Managing Owner sole discretion of determining what distributions, if any, the Trust will make to its owners of beneficial interest. The Managing Owner has not declared any such distributions to date, and does not currently intend to declare such distribution.
(iv) The Trust does not authorize the issuance of units under any employee compensation plan (including any individual compensation arrangements).
(b) The Trust did not repurchase any units registered pursuant to Section 12 of the Securities Exchange Act during the period January 1, 2007 through December 31, 2007.
Item 6.
Item 6. Selected Financial Data
The following Selected Financial Data is presented for the years ended December 31, 2003, 2004, 2005, 2006 and 2007 and is derived from the financial statements for such fiscal years.
Item 7.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
(a) Capital Resources
The Trust’s capital resources fluctuate based upon the purchase and redemption of units and the gains and losses of the Trust’s trading activities. During 2007, no units were purchased by the Beneficial Owners. The Managing Owner purchased 0 units during this time. For the fiscal year ended December 31, 2007, the Beneficial Owners redeemed a total of 474,881 units for $39,549,143. The Managing Owner redeemed a total of 0 units. For the fiscal year ended December 31, 2006, the Beneficial Owners redeemed a total of 511,449 units for $52,435,526 and the Managing Owner redeemed a total of 0 units.
The Trust’s involvement in the futures and forward markets exposes the Trust to both market risk - the risk arising from changes in the market value of the futures and forward contracts held by the Trust - and credit risk - the risk that another party to a contract will fail to perform its obligations according to the terms of the contract. The Trust is exposed to a market risk equal to the value of the futures and forward contracts purchased and theoretically unlimited risk of loss on contracts sold short. The Trading Advisor monitors the Trust’s trading activities and attempts to control the Trust’s exposure to market risk by, among other things, refining its trading strategies, adjusting position sizes of the Trust’s futures and forward contacts and re-allocating Trust assets to different market sectors. The Trust’s primary exposure to credit risk is its exposure to the non-performance of the Trust’s Forward Currency Broker. The Forward Currency Broker generally enters into forward contracts with large, well-capitalized institutions and then enters into a back-to-back contract with the Trust. The Trust also may trade on exchanges that do not have associated clearing houses whose credit supports the obligations of its members and operate as principals markets, in which case the Trust will be exposed to the credit risk of the other party to such trades.
The Trust’s trading activities involve varying degrees of off-balance sheet risk whereby changes in the market values of the futures and forward contracts underlying the financial instruments or the Trust’s satisfaction of the obligations may exceed the amount recognized in the statement of financial condition of the Trust.
The amount of assets invested in the Trust generally does not affect its performance, as typically this amount is not a limiting factor on the positions acquired by JWH, and the Trust’s expenses are primarily charged as a fixed percentage of its asset base, however large.
The Trust borrows only to a limited extent and only on a strictly short-term basis in order to finance losses on non-U.S. dollar denominated trading positions pending the conversion of the Trust’s dollar deposits. These borrowings are at a prevailing short-term rate in the relevant currency. They have been immaterial to the Trust’s operation to date and are expected to continue to be so.
During the fiscal year-ended December 31, 2007, the Trust had no credit exposure to a counterparty which is a foreign commodities exchange which was material.
There are no known material trends, favorable or unfavorable, that would affect, nor any expected material changes, to the Trust’s capital resource arrangements at the present time.
(b) Liquidity
The Trust’s net assets are held in brokerage accounts with RJO. Such assets are used as margin to engage in trading and may be used as margin solely for the Trust’s trading. Except in very unusual circumstances, the Trust should be able to close out any or all of its open trading positions and liquidate any or all of its securities holdings quickly and at market prices. This should permit the Advisor to limit losses as well as reduce market exposure on short notice should its programs indicate reducing market exposure.
The Trust earns interest on 100% of the Trust’s average daily balances on deposit with RJO during each month at 75% of the average 91-day Treasury bill rate for that month in respect of deposits denominated in dollars. For deposits denominated in other currencies, the Trust earns interest at a rate of LIBOR less 100 basis points. For the calendar year ended December 31, 2007, RJO had paid or accrued to pay interest of $3,076,787 to the Trust. For the calendar year ended December 31, 2006, the clearing broker paid or accrued to pay interest of $6,848,952 to the Trust.
Most United States commodity exchanges limit the amount of fluctuation in commodity futures contract prices during a single trading day by regulations. These regulations specify what are referred to as “daily price fluctuation limits” or “daily limits”. The daily limits establish the maximum amount the price of a futures contract may vary either up or down from the previous day’s settlement price at the end of a trading session. Once the daily limit has been reached in a particular commodity, no trades may be made at a price beyond the limit. Positions in the commodity could then be taken or liquidated only if traders are willing to effect trades at or within the limit during the period for trading on such day. Because the “daily limit” rule only governs price movement for a particular trading day, it does not limit losses. In the past, futures prices have moved the daily limit for numerous consecutive trading days and thereby prevented prompt liquidation of futures positions on one side of the market, subjecting commodity futures traders holding such positions to substantial losses for those days.
It is also possible for an exchange or the CFTC to suspend trading in a particular contract, order immediate settlement of a particular contract, or direct that trading in a particular contract be for liquidation only.
There are no known material trends, demands, commitments, events or uncertainties at the present time that are reasonably likely to result in the Trust’s liquidity increasing or decreasing in any material way.
(c)
Results of Operations
The Trust’s success depends on the Advisor’s ability to recognize and capitalize on major price movements and other profit opportunities in different sectors of the world economy. Because of the speculative nature of its trading, operational or economic trends have little relevance to the Trust’s results, and its past performance is not necessarily indicative of its future results. The Managing Owner believes, however, that there are certain market conditions - for example, markets with major price movements - in which the Trust has a better opportunity of being profitable than in others.
The Advisor’s programs do not predict price movements. No fundamental economic supply or demand analysis is used in attempting to identify mispricings in the market, and no macroeconomic assessments of the relative strengths of different national economies or economic sectors is made. Instead, the programs apply proprietary computer models to analyze past market data, and from this data alone attempt to determine whether market prices are trending. Technical traders such as the Advisor 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 Advisor’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 Advisor programs 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.
The performance summaries set forth below outline certain major price trends which the Advisor’s programs have identified for the Trust during the last three fiscal years. The fact that certain trends were captured does not imply that others, perhaps larger and potentially more profitable trends, were not missed or that the Advisor will be able to capture similar trends in the future. Moreover, the fact that the programs were profitable in certain market sectors in the past does not mean that they will be so in the future.
The performance summaries are an outline description of how the Trust performed in the past, not necessarily any indication of how it will perform in the future. Furthermore, the general causes to which certain trends are attributed may or may not in fact have caused such trends, as opposed to simply having occurred at about the same time. While there can be no assurance that the Advisor will be profitable even in trending markets, markets in which substantial and sustained price movements occur offer the best profit potential for the Trust.
The JWH Global Trust posted a loss of 9.77% for 2007. The Net Asset Value per Unit at year-end was $84.69 (please see Note (1) and Note (7) in the notes to the financial statements for more information with respect to the calculation of Net Asset Value) compared to $93.86 per unit at the beginning of the year. There were no contributions to the Trust during 2007.
The Trust’s performance was negative for the first quarter of 2007. The interest rate sector was the Trust’s best performing sector early in the quarter, only for gains to be given back. On high volatility, the European 10-year bond yields, U.K. two-year gilt, German debt, Japanese government bonds and U.S.Treasuries fell, rallied and fell again during the quarter. The currency sector was the Trust’s worst performing sector during the quarter as currency markets whip-sawed with extreme volatility. The largest losses occurred in the British Pound and the yen with slight gains produced in the euro and Australian dollar. The energy sector was positive for the quarter despite changing weather conditions and predictions which caused extreme volatility within the sector. Crude oil and London gas oil were the best performers while natural gas was the worst performer. The metals sector was negative for the quarter as precious metal prices reacted to fluctuations in the U.S. dollar and the equity markets. The sector started the quarter with negative results, moving to slightly positive performance mid-quarter before reversing back with negative results. The equity indices sector was negative for the quarter. Intra-month volatility early in the quarter hurt the sector’s performance. The plunge in the Chinese equity market sparked a global sell-off and drop in equity prices which continued through the quarter. The agriculture sector was negative for the quarter even with a mid-quarter rally. As global equity markets plunged, investors took profits out of commodities. Slight gains were achieved in corn and New York coffee and sugar.
The Trust’s performance was positive for the second quarter. Global financial markets recovered from the explosion in volatility that occurred at the end of February and continued into March. The currency, interest rate and indices sectors were the best performers for the quarter. The euro reached a historical high against both the U.S. dollar and the Japanese yen and the British pound reached a 25-year high against the dollar. The global stock indices sector were positive for the quarter driven by stronger-than-expected earnings, an increase in mergers and acquisitions, economic growth in Europe, and benign inflation in the U.S. Global interest rates sustained their steady rise as economic growth continued in Europe and as the U.S. housing market began to stabilize. The European government bonds led performance in this sector. U.S. Treasuries also bolstered performance. The energy sector was negative for the quarter with slight gains achieved in June. Prices across this sector were range-bound earlier in the quarter until increased terrorism fears combined with lower supplies in Petroleum-based products provided direction. The metals sector started the quarter on a positive note, moved negatively mid-quarter to flat at quarter-end. Volatility and whip-saw prices were most pronounced in Copper, Gold and Silver and affected over-all sector performance. The agriculture sector was negative for the quarter. Like the metals sector, the agriculture sector started on a positive note and moved to negative and then to flat at quarter-end. Most losses, at different intervals, were in CBOT wheat, corn, New York coffee and corn.
The Trust’s performance was negative for the third quarter. Many of the trends which contributed to second quarter gains were either disrupted or ended. The U.S sub-prime crisis spread globally and financial markets were negatively impacted by rising volatility and trend reversals. Gains in agriculture, energy and metals were not enough to offset losses in currencies, interest rates and indices during the middle of the quarter. Indices and currencies recovered into positive territory at the end of the quarter while interest rates did not. This sector was the only unprofitable sector by quarter-end.
The Trust’s performance was positive for the fourth quarter. Apprehension regarding the sub-prime crisis spilled into the last quarter of the year. The Federal Reserve cut rates mid-quarter, and most markets were directionless by the end of the quarter.
4 of the 6 sectors traded by the Trust were profitable for most of the quarter, with metals, energy and agriculture sectors contributing the most.
The JWH Global Trust posted a loss of 16.9% for 2006. The Net Asset Value at year-end was $93.86 (please see Note (1) and Note (7) in the notes to the financial statements for more information with respect to the calculation of Net Asset Value) compared to $112.96 per unit at the beginning of the year. There were no contributions to the Trust during 2006.
The Trust’s performance in the first quarter was negative. The currency sector led the Trust’s losses as the sharp reversal in the U.S. dollar’s strength continued into January. The U.S. dollar dropped 2.3% and 1.25% against the euro and the British pound, respectively. The energy sector suffered losses as geopolitical events and changing weather forecasts induced volatility. The agriculture sector was slightly negative as sugar prices rose to their highest levels since 1989. Metals led the positive performing sectors, along with gains achieved in the indices and interest rate sectors. Metals benefited as silver gained 31% for the quarter and gold reached a 25-year high. The indices sector also gained as Asian stocks approached a 16-year high. The interest rate sector benefited as Japanese, German and U.S. government debt sold off on stronger-than-expected economic data. Yields on the German benchmark two-year bonds rose to their highest point in more than 3 years, while Japanese 10-year government bonds (JGBs) fell after the Bank of Japan (BOJ) ended its 5-year policy of flooding the Japanese economy with cash.
The Trust’s performance was negative during the second quarter. The German benchmark 10-year bund yield touched 4% for the first time since October 2004. The metal and currency sectors also added to performance in April as both precious and base metals continued to trend higher due to inflationary fears and increased demand. Currencies benefited as the U.S. dollar continued to weaken. Gold climbed above $650/oz for the first time in 25 years while the U.S. dollar fell 4.1% against the euro. In mid-quarter, the interest rate, metal, agriculture and indices sectors suffered from large market corrections. Increased inflationary fears and concerns over the global economy led investors to take profits and reduce risk exposure. The Dow Jones Industrial Average closed on May 9th within 84 points of a new record high; however later weakened, ending May with their worst monthly decline in almost two years. This caused a “contagion effect” in the metal and currency sectors. Gold fell 12% after reaching a 26-year high of $732 an ounce on May 12th. The dollar fell to an eight-month low of 109 yen /dollar on May 17th and reached a one-year low of $1.297 per euro. In June, all of April’s gains were erased as all six sectors were negative, with the currency, metals and interest rate sectors responsible for the majority of the Trust’s losses. The possibility of a larger-than-expected interest rate move sent the U.S. dollar and U.S. treasury yields higher. However the markets suffered another reversal after the Fed raised rates by only 25 basis points. The dollar ended the quarter 5.3% lower against the euro and 2.8% lower versus the yen- the greatest percentage decrease since the last quarter of 2004.
The Trust’s performance was positive for the third quarter. The interest rate sector was positive as U.S. treasuries had their biggest quarterly gain in 4 years, and European 10-year bonds posted their first quarterly gain since June 2005. The U.S. 10-year note touched a seven-month low of 4.53% on September 25th, down from 5.14% on June 30th . JGBs also helped performance as investors speculated that the BOJ would keep interest rates at their current level for the remainder of the year. The energy sector was also positive albeit with increased volatility. Natural gas and crude oil prices tumbled in September as mild weather in the Midwestern United States cut demand and inventories climbed toward an all-time high. Meanwhile, crude oil prices fell 20 % after touching a record high of $78.40 a barrel on July 14th as fuel stockpiles increased and tensions in the Middle East eased. Currencies were negative for a third consecutive quarter. Currency markets continued to experience reversals with speculation about the health of the U.S. economy and global inflation. The metals sector suffered as commodities as an asset class had its biggest quarterly decline in at least 50 years. The Commodity Research Bureau index ended the third quarter down 12%, its largest decline since 1956. Gold prices fell 18% from a 26-year high of $732 an ounce in May. The indices and agriculture sectors were also negative for the quarter as sugar prices plunged, while the indices sector suffered as fears over slower growth in the U.S. and Japan kept equity markets lower for the majority of the quarter.
The Trust’s performance was negative for the fourth quarter. In the fixed income sector, German and U.S. government bonds fell, experiencing reversing trends while the JGBs oscillated due to market speculation. The metals sector was also negative for the quarter as precious metals fell. The currency sector added to the Trust’s losses in December as the U.S. dollar’s weakening trend suffered a reversal. The agriculture and indices sectors offset losses as corn prices had their biggest annual gain ever, reaching a 10-year high.
The JWH Global Trust posted a loss of 10.3% for 2005. The Net Asset Value at year-end was $112.96 (please see Note (1) and Note (7) in the notes to the financial statements for more information with respect to the calculation of Net Asset Value) compared to $148.54 per unit at the beginning of the year. During 2005, total contributions to the Trust were $38,804,726.
The Trust’s performance in the first quarter was negative as the bulk of the losses were directly related to the strength of the U.S. dollar against most major currencies. The weak dollar trend, which had dominated during the second half of 2004, began to reverse itself on diminishing expectations of a Yuan revaluation by the Chinese central bank. Demand for the dollar also increased when the Federal Reserve raised interest rates by a quarter percentage point for the seventh time since June 2004. On February 16th Fed Chairman Alan Greenspan’s testimony, stating that the decline in long-term interest rates during the past year “remains a conundrum”, sparked inflationary fears worldwide and added to the Trust’s negative performance in the interest rate sector as the European, Japanese and U.S. bond markets sold-off. The Japanese sell-off was short lived as Japanese bonds rallied amid speculation that exports to the U.S. would drop. The energy sector, the Trust’s best performer during the quarter, benefited from an increase in inflationary fears offset some of the previously discussed losses in the currency and interest rate sectors. Energies rallied as commodity prices surged to a 24-year high on speculation that rising domestic demand may outpace U.S. refinery production during peak summer demand. Overall, the gains made in energies, indices and the agriculture sectors were not enough to offset the losses incurred in the currency, interest rate and metals sectors.
The Trust’s performance was positive during the second quarter as large gains in the currency and interest rate sectors more than offset losses in the Trust’s other sectors. The energy sector, which had been the best performing sector in the first quarter, was the worst performing sector in the second quarter, as trends experienced sudden and strong reversals. In April, energies experienced a sudden turnaround as supplies increased and OPEC boosted output in an effort to lower prices and ensure adequate inventories to meet summer fuel demands. In contrast, the entire energy sector rallied in June as expectations increased that global demand for oil would reach record levels in the fourth quarter. The interest rate sector posted positive returns as the majority of the sector’s gains came from the strength in the German and Japanese fixed-income markets. The benchmark German 10-year bund rose to a record high, as market conjecture grew that the European Central Bank would have to cut interest rates as the European economy slowed. Further supporting the rally in the German bund was the rejection of the European Union Constitution in France. The currency sector was the best performing sector during the quarter as the U.S. dollar posted its largest quarterly gain against the euro since 2001 as the market anticipated a quarter point increase by the Federal Reserve on June 30th. The dollar also benefited from the yield advantage against the Swiss franc and the euro. In the agriculture sector, cotton, corn, wheat, soybeans and N.Y. coffee hindered the Trust’s returns as weather conditions wreaked havoc in the markets. The metals sector was negative for the quarter as volatility in various markets limited the Trust’s ability to achieve returns. Overall, the gains made in the currency and interest rate sectors drove the Trust’s performance for the quarter.
The Trust’s performance was positive for the third quarter, despite volatile market conditions that resulted from terror attacks in London, a surprise devaluation of the Chinese Yuan and Hurricanes Dennis, Emily, Katrina and Rita. Fears, over damage to oil rigs and refineries caused by the hurricanes in the Gulf Coast led to record high energy prices. With positive returns in every market traded, the energy sector led performance during the quarter. The interest rate and currency sectors were the Trust’s most unprofitable sectors during the quarter as volatility in the fixed income market and the U.S. dollar dominated both sectors. The dollar had been weakening over speculation that record high energy prices would slow U.S. economic growth. However, once it became evident that the Federal Reserve would continue to raise interest rates and thus keep its “yield advantage”, both the fixed-income sector and the U.S. dollar reversed their trends; the dollar rallied and fixed-income markets sold off. The hurricanes also helped the metal sector to post positive returns for the quarter as record high energy costs also saw gold reach a 17-year high. The agriculture and indices sectors also posted positive returns, as N.Y. coffee and the Nikkei 225 (Osaka) led performance. The Nikkei rose to a four year high on signs that the Japanese economy would continue to grow and on indications that land prices in Tokyo had risen for the first time in 15 years. Overall, four out of the six sectors were positive for the quarter.
The Trust was negative for the fourth quarter as the energy, interest rate and agriculture sectors suffered from strong and sudden reversals in trends. The energy sector was the Trust’s worst performer as energy prices retreated from record highs in the third quarter. Not only did natural gas fall from record high levels set in September, but crude oil also fell from record highs set in August on signs that warmer than normal weather in the Northeastern region of the U.S. could reduce energy consumption. The interest rate sector, which had been profiting from downward trending prices in the U.S., Europe and Japan, ended the quarter negative over fears of rising interest rates. The sudden rally in Japanese and U.S. fixed-income markets was a result of Japanese Prime Minister Koizumi and other politicians stating that it was too early for the Bank of Japan to stop fighting deflation and a sudden optimism that inflation in the U.S. was contained as the Federal Reserve removed the term “accommodative” from its statement after raising rates at their December meeting. While the market reversals resulted in losses for both the interest rate and energy sectors for the quarter, the currency sector finished the quarter positive but only after losing most of the gains the sector achieved in October and November. For the most of the quarter the currency sector profited, however, as expectations of further rate hikes from the Fed diminished, the sector gains were limited as the dollar suddenly weakened. The metal sector benefited as gold reached an 18-year high and the prices of LME copper and LME aluminum rallied on increased demand and falling supplies. The agriculture sector was slightly negative for the quarter as N.Y. coffee and cotton were the main contributors to the underperformance in this sector. Overall, the combined gains in the currencies, indices and metals sectors were unable to offset the losses in the rest of the Trust’s sectors.
(d)
Inflation
Inflation does have an effect on commodity prices and the volatility of commodity markets; however, continued inflation is not expected to have a material adverse effect on the Trust’s operations or assets.
(e)
Off-Balance-Sheet Arrangements
The Trust does not have any off-balance-sheet arrangements (as defined in Regulation S-K 303(a)(4)(ii)) that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
(f)
Tabular Disclosure of Contractual Obligations
The business of the Trust is the speculative trading of commodity interests, including futures contracts on currencies, interest rates, energy and agricultural products, metals and stock indices, spot and forward contracts on currencies and precious metals and exchanges for physicals. The majority of the Trust’s futures and forward positions, which may be categorized as “purchase obligations” under Item 303 of Regulation S-K, are short-term. That is, they are held for less than one year. Because the Trust does not enter into other long-term debt obligations, capital lease obligations, operating lease obligations or other long-term liabilities that would otherwise be reflected on the Trust’s Statement of Financial Condition, a table of contractual obligations has not been presented.
Item 7A.
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. The market sensitive instruments held by it are acquired for speculative trading purposes, and all or substantially all of the Trust’s assets are subject to the risk of trading loss. 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 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.
Standard of Materiality
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
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.
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). 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 JWH 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 the maximum losses reasonably expected to be incurred in the fair value of any given contract in 95% - 99% of any one-day intervals. The maintenance margin levels are established by dealers and exchanges using historical price studies as well as an assessment of current market volatility (including the implied volatility of the options on a given futures contract) and economic fundamentals to provide a probabilistic estimate of the maximum expected near-term one-day price fluctuation.
Maintenance margin has been used rather than the more generally available initial margin, because initial margin includes a credit risk component, which is not relevant to Value at Risk.
In the case of market sensitive instruments, which are not exchange traded (almost exclusively currencies in the case of the Trust), the margin requirements for the equivalent futures positions have been used as Value at Risk. In those rare cases in which a futures-equivalent margin is not available, dealers’ margins have been used.
The fair value of the Trust’s futures and forward positions does not have any optionality component.
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 fiscal years 2007 and 2006. All open position trading risk exposures of the Trust have been included in calculating the figures set forth below. During fiscal year 2007, the Trust’s average total capitalization was approximately $89.9 million, and during fiscal year 2006, the Trust’s average total capitalization was approximately $156 million.
Fiscal Year 2007
Fiscal Year 2006
* Average, highest and lowest Value at Risk amounts relate to the month-end amounts for each calendar month-end during the fiscal year. All amounts represent millions of dollars committed to margin.
** Average Capitalization is the average of the Trust’s capitalization at the end of each fiscal month during the relevant fiscal year.
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, gives 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 holds substantially all of its assets in cash on deposit with RJO. The Trust has cash flow risk on these cash deposits because if interest rates decline, so will the interest paid out by RJO at 75% of the 91-day Treasury bill rate. As of December 31, 2007 and December 31, 2006, the Trust had approximately $72.9 million and $119.3 million, respectively, in cash on deposit with RJO.
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 Trust and JWH manage 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 Securities Exchange Act. The Trust’s primary market risk exposures as well as the strategies used and to be used by JWH 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, 2007, by market sector.
Currencies. The Trust’s currency exposure is to exchange rate fluctuations. These fluctuations are influenced by interest rate changes as well as political and general economic conditions. The Trust trades in a number of currencies, including cross-rates (i.e., positions between two currencies other than the U.S. dollar). The Trust’s major exposures have typically been in the dollar/yen, dollar/euro, dollar/Swiss franc and dollar/pound positions exposure to cross-rates positions such as euro/yen, and more recently have also included aud/yen and pound/yen positions and emerging markets like Singapore dollar.
Interest Rates. Interest rate risk is a major market exposure of the Trust. Interest rate movements directly affect the price of the sovereign bond 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 materially impact the Trust’s profitability. The Trust’s primary interest rate exposure is to interest rate fluctuations in the United States and the other G-7 countries. However, the Trust also takes positions in the government debt of smaller nations - e.g., Australia. The Managing Owner anticipates that G-7 interest rates will remain the primary market exposure of the Trust in this sector for the foreseeable future.
Stock Indices. The Trust’s primary equity exposure is to equity price risk in the G-7 countries including the U.S. The stock index futures traded by the Trust are by law limited to futures on broadly based indices. As of December 31, 2007, the Trust’s primary exposure was in the Osaka Nikkei (Japan) and SFE (Sydney Futures Exchange - Australia) SPI 200. As of December 31, 2006, the Trust’s primary exposure was in the E-Mini NASDAQ, Eurostoxx 50, Osaka Nikkei (Japan), and SFE SPI 200 (Australia). The Trust is primarily exposed to the risk of adverse price trends or trendless markets in the major U.S., European and Japanese indices. (Trendless markets would not cause major market changes but could make it difficult for the Trust to avoid being “whipsawed” into numerous small losses.)
Metals. The JWH programs currently used for the Trust trade mainly precious and base metals. The Trust’s primary metals market exposure is to price fluctuations.
Agricultural. The Trust’s primary commodities exposure is to agricultural price movements, which are often directly affected by severe or unexpected weather conditions. Coffee, corn, wheat, beans, soybean oil, cotton, cocoa and sugar accounted for the substantial bulk of the Trust’s agricultural exposure as of December 31, 2007 and December 31, 2006. In the past, the Trust has had market exposure to live cattle, and the soybean complex and may do so again in the future.
Energy. The Trust’s primary energy market exposure is to gas and oil price movements, which sometimes result from political developments in the Middle East. Oil prices can be volatile and substantial profits and losses have been and may 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, 2007 and December 31, 2006.
Foreign Currency Balances. The Trust’s primary foreign currency balances are in Japanese yen, British pounds and Swiss francs.
Cash Position. The Trust held substantially all its assets in cash at R.J. O’Brien & Associates, earning interest at 75% of the average 91-day Treasury bill rate (calculated daily).
Qualitative Disclosures Regarding Means of Managing Risk Exposure
The Manager Owner monitors the Trust’s performance and the concentration of its open positions, and consults with JWH concerning the Trust’s overall risk profile. If the Managing Owner felt it necessary to do so, the Managing Owner could require JWH to close out individual positions as well as entire programs traded on behalf of the Trust. However, any such intervention would be a highly unusual event. The Managing Owner primarily relies on JWH’s own risk control policies while maintaining a general supervisory overview of the Trust’s market risk exposures.
Risk Management
Given the volatility of prices (see “Trend Detection”), JWH does not expect that all trend signals will lead to profitable trades. Stop-losses are used in some models and managed in a proprietary manner to balance the potential loss on any trade versus the opportunity for maximum profit. Stop losses may not necessarily limit losses, since they become market orders upon execution; as a result, a stop-loss order may not be executed at the stop-loss price. Other models do not have any stop-loss methodology but rely on market diversification and a change in directional signals to offset risk. Risk in some programs may also be managed by varying position size or risk levels for a market, based in part on assessment of market volatility, while other programs will maintain position sizes in markets regardless of changes in volatility. There are no systematic constraints on portfolio volatility or the maximum drawdown for any program. Volatility will not cause systematic adjustments to be made to existing positions. Some programs consider volatility in determining the size of positions initiated. Other programs do not consider volatility in determining the size of positions initiated.
Modern portfolio techniques are used in an effort to construct an overall diversified portfolio for each JWH trading program. However, some programs will have limited diversification because of their sector focus. These techniques will attempt to take into account the volatility and correlation of the markets that are included in the program. However, no assurances can be made that historical market correlations and diversification will occur or persist in all market conditions. In an attempt to maintain diversification, portfolio adjustments will be made to account for systematic changes identified by JWH’s research in the relationships across markets. Consistent with JWH’s view of markets, portfolios are managed to meet longer-term risk and volatility tolerances, rather than trading on the basis of short-term trends or short-term volatility. JWH at its sole discretion may override computer-generated signals and may at times use discretion in applying its quantitative models, which may affect performance positively or negatively. This could occur, for example, when JWH determines that markets are illiquid or erratic, such as may occur cyclically during holiday seasons, or on the basis of irregularly occurring market events. Subjective aspects in JWH’s application of its quantitative models also include the determination of position size in relation to account equity, timing of commencement of trading an account, the investment of assets associated with additions, redemptions, and reallocations, future contracts used and contract months traded, and effective trade execution.
The basic philosophy underlying the firm’s investment methodology has remained intact throughout its history and most investment programs maintain a consistent portfolio composition to allow profit opportunities in as many major market trends as possible, in accordance with the investment objectives of each program.
Proprietary research may be conducted to refine the JWH investment strategies. The potential benefits to a program of employing more than one investment methodology, applying investment methodologies in varying combinations, and the possible substitution of alternative investment methodologies with respect to particular contracts may be assessed through the testing of different methodologies, along with the possible benefits of such modifications to improve program performance over historical levels. In addition, risk management research and investment program analysis may suggest modifications regarding the relative weighting among various contracts, modifying the style and/or timing used by an investment program to trade a particular contract, the addition or deletion of a contract traded by an investment program, or a change in position size in relation to account equity. JWH’s research on these and other issues has resulted in investment program modifications from time to time in the past, and are expected to do so in the future.
Position size adjustments relative to account equity are an integral part of JWH’s investment strategy and historically have been made in a systematic manner as the equity in the account from trading profits increases. JWH may override indicated systematic position size adjustments when, in its discretion, it deems that is warranted by its assessment of market conditions.
In the case of declines in equity, position sizes are generally maintained in spite of any trading losses. Systematic methods for maintaining or adjusting the trade size to equity in an account may affect performance and will alter the risk exposure of the account, with leverage increasing in down markets until losses are offset, and decreasing in profitable market conditions until systematic adjustments are made.
JWH may also use discretion to adjust the size of a position in relation to equity in the account for markets or for entire investment programs. Such adjustments may not be made for all JWH programs. Factors that may affect decisions to adjust the size of a position in relation to account equity include ongoing research, program volatility, current market volatility, risk exposure, subjective judgment, and evaluation of these and other general market conditions.
Decisions to change the size of a position may positively or negatively affect performance and will alter risk exposure for an account, since such adjustments will also alter the volatility of JWH programs. Adjustments in position size relative to account equity may lead to greater profits or losses, more frequent and larger margin calls, and greater brokerage expense. No assurance is given that such adjustments will result in increased program profitability. JWH reserves the right to alter, at its sole discretion and without notification, its policy regarding adjustments in position size relative to account equity.
Item 8.
Item 8. Financial Statements and Supplementary Data
Reference is made to the financial statements and the notes thereto filed as Exhibit 13.01 to this report.
The following summarized (unaudited) quarterly financial information presents the results of operations and other data for three-month periods ended March 31, June 30, September 30 and December 31, 2007 and 2006.
The Trust has not disposed of any segments of its business. In 2007, the Trust recorded income of $1,193,083, $2,589,725 and $2,708,467 on collections from the RCM bankruptcy in excess of impaired value in the quarters ended June 30, September 30, and December 31, 2007, respectively.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
Item 9A(T).
Item 9A(T). Controls and Procedures
Evaluation of Disclosure Controls and Procedures: Under the supervision and with the participation of the management of R.J. O’Brien Fund Management, LLC, the managing owner of the Trust at the time this annual report was filed, including the managing owner’s President and Chief Financial Officer, has evaluated the effectiveness of the design and operation of the Trust’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2007. The Trust’s disclosure controls and procedures are designed to provide reasonable assurance that information the Trust is required to disclose in the reports that the Trust files or submits under the Exchange Act are recorded, processed and summarized and reported within the time period specified in the applicable rules and forms. Based on this evaluation, the President and Chief Financial Officer of the managing owner have concluded that the disclosure controls and procedures of the Trust were effective at December 31, 2007.
Management's Report on Internal Control Over Financial Reporting. The Managing Owner of the Trust is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). The Managing Owner has assessed the effectiveness of the Trust's internal control over financial reporting as of December 31, 2007. In making this assessment, the Managing Owner used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission, known as COSO, in Internal Control-Integrated Framework. The Managing Owner has concluded that, as of December 31, 2007, the Trust's internal control over financial reporting is effective based on these criteria. This report shall not be deemed to be filed for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section. This annual report does not include an attestation report of the Trust's independent registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Trust's independent registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Trust to provide only management's report in this annual report.
Changes in Internal Control Over Financial Reporting: There were no changes in the Trust’s internal control over financial reporting, during the quarter ended December 31, 2007, that have materially affected, or are reasonably likely to materially affect, the Trust’s internal control over financial reporting.
Limitations on the Effectiveness of Controls: Any control system, no matter how well designed and operated, can provide reasonable (not absolute) assurance that its objectives will be met. Furthermore, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.
Item 9B.
Item 9B. Other Information
None.
Part III
Item 10.
Item 10. Directors, Executive Officers of the Registrant and Corporate Governance
There are no directors or executive officers of the Trust. As of December 31, 2007, the Trust was managed by its Managing Owner, R.J. O’Brien Fund Management, LLC. The officers and directors of the Managing Owner as of December 31, 2007 were as follows:
R.J. O’Brien Fund Management, LLC
Gerald Corcoran is Chief Executive Officer and Director of RJOFM: Gerry Corcoran was appointed Chief Executive Officer of RJO in June 2000 and was appointed as Chief Executive Officer of RJOFM in November of 2006. He joined the RJO family in 1987 as Chief Financial Officer and served as Chief Operating Officer, a position he was promoted to in 1992. He is also a member of the Board of Directors. Prior to joining RJO, Mr. Corcoran served as controller for the Chicago Sun-Times, the nation’s 7th largest daily newspaper. He is a former member of the Chicago Mercantile Exchange where he served on the Clearing House Committee. Mr. Corcoran also serves on the Board of Governors of the Chicago Board of Trade Clearing Corporation, the only AAA rated clearing organization in the world. Mr. Corcoran has a Bachelor of Business Administration from Loyola University and is a Certified Public Accountant.
Colleen Mitchell is President and Director of RJOFM: Colleen Mitchell was promoted to President of R.J.O’Brien in June 2000. Prior to this position, she served as vice president for the futures commission merchant. Ms. Mitchell was responsible for marketing, clearing, and execution services to commodity trading advisors, hedge fund managers, and introducing brokers. Formerly, Ms. Mitchell served as senior vice president for Terra Nova Trading in Chicago, where she launched and brokered for a NASD broker-dealer and NFA introducing brokerage firm. She has a Bachelor of Arts from Saint Mary’s College in South Bend, Indiana.
Jeffrey R. Miceli was Chief Financial Officer and Director of RJOFM: Mr. Miceli served as Chief Financial Officer of R.J. O’Brien Alternative Asset Management, Inc. until April 2007. Prior to joining R.J. O’Brien, he was a senior manager in the Investment Services practice of KPMG LLP. He is a Certified Public Accountant and graduated from Northern Illinois University with a B. S. in Accounting in 1988. He is a member of the AICPA and the Illinois CPA Society. As of April 30, 2007, the Board of Directors of RJOFM voted to remove Mr. Miceli from his position as Vice President and Chief Financial Officer of RJOFM in order to reassign Mr. Miceli to another position within the larger R.J. O’Brien & Associates family.
Helen D. McCarthy is Chief Financial Officer and Director of RJOFM:. Ms. McCarthy was named CFO of RJOFM on April 30, 2007. Prior to joining R.J. O’Brien, Ms. McCarthy was VP of Finance/Controller at ACNielsen, a global marketing information company. Before ACNielsen, she served as Vice President of Finance at the Sun-Times Media Group, a newspaper conglomerate with over 100 publications. Ms. McCarthy was responsible for all financial management and Controllership duties. Ms. McCarthy also spent 7 years with Ernst & Young auditing both Public and Private companies. Ms. McCarthy began serving as Chief Financial Officer in April 2007.
Annette A. Cazenave is Senior Vice President and Director of RJOFM: With RJOFM’s purchase of RCMI in December of 2006, Ms. Cazenave joined RJOFM with over twenty-five years of comprehensive experience in alternative asset management (futures, derivatives and hedge funds) marketing and business management. Ms Cazenave joined Cargill in March of 2004. Previously, Ms. Cazenave was VP, Marketing and Product Development, for Horizon Cash Management, LLC (2002-2004). Prior to this, she was President and Principal of Skylark Partners, Inc., in New York, a financial services consulting firm. Additionally, Ms. Cazenave held senior level positions with ED&F Man Funds Division (now Man Investments) in New York (1986-1993). Ms. Cazenave began her career in 1979 as a Sugar trader and holds a B.A. from Drew University and an M.B.A. from Thunderbird, The American Graduate School of International Management.
Each officer and director holds such office until the election and qualification of his or her successor or until his or her earlier death, resignation or removal.
Section 16(a) Beneficial Ownership Reporting Compliance
The Trust does not have any directors or officers of its own and no person is known to the Trust to beneficially own more than 10% or the outstanding units.
Audit Committee
The Managing Owner has not created an audit committee of its board of directors; therefore, the entire board of directors of the Managing Owner acts as the audit committee with respect to the Trust. None of the directors are considered to be independent as that term is used in Item 7(d)(3)(iv) of Schedule 14A under the Securities Exchange Act of 1934, as amended. Therefore, there is no Audit Committee Financial Expert.
Code of Ethics
The Trust does not have any officers; therefore, it has not adopted a code of ethics applicable to the Trust’s principal executive officer, principal financial officer, principal accounting officer and persons performing similar functions. The Managing Owner operates the Trust and has adopted a code of ethics that applies to its principal executive officer, principal financial officer, principal accounting officer and persons performing similar functions. This code of ethics is included by reference in Exhibit 14.01 to this annual report.
Item 11.
Item 11. Executive Compensation
The Trust has no officers or directors. The Managing Owner administers the business and affairs of the Trust (exclusive of Trust trading decisions which are made by an independent commodity trading advisor). The officers and directors of the Managing Owner receive no compensation from the Trust for acting in their respective capacities with the Managing Owner.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Unitholder Matters
(a)
As of December 31, 2007, no person was known to the Trust to own beneficially more than 5% of the outstanding units.
(b)
As of December 31, 2007, the Managing Owner beneficially held an ownership of $1,712,262 (which is the equivalent of 20,218 units) or approximately 2.1% of the ownership of the Trust as of that date.
(c)
As of December 31, 2007, no arrangements were known to the registrant, including any pledges by any person of units of the Trust or shares of its Managing Owner or the parent of the Managing Owner, such that a change in control of the Trust may occur at a subsequent date.
Item 13.
Item 13. Certain Relationships and Related Transactions and Director Independence
None. The Trust does not have any directors.
Item 14.
Item 14. Principal Accounting Fees and Services
(a) Audit Fees
The Trust paid CF & Co., L.L.P, the Trust’s independent registered public accounting firm, $140,000 and $174,823 respectively for the 2007 and 2006 audits and for professional services rendered in connection with the audit of the Trust’s annual financial statements filed with the Trust’s Form 10-Ks, the review of financial statements included in the Trust’s Form 10-Q filings and review of other SEC filings.
(b) Audit-Related Fees
The Trust did not pay CF & Co., L.L.P any amount in 2007 or 2006 for assurance reviews and related professional services rendered in connection with the audit or review of the Trust’s financial statements that are not covered by Item 14(a) above.
(c) Tax Fees
The Trust did not pay CF & Co., L.L.P any amount in 2007 or 2006 for professional services in connection with tax compliance, tax advice and tax planning. The Trust engaged Deloitte & Touche LLP, which does not provide audit services to the Trust, to provide professional services in connection with tax compliance, tax advice and tax planning and paid Deloitte & Touche LLP $120,000 for such services for 2007 and $65,000 for 2006. These fees consisted primarily of services rendered in connection with the preparation of a Schedule K-1 to IRS Form 1065 for each unitholder.
(d) All Other Fees
None.
(e) Audit Committee Pre-Approval Policies and Procedures
(i)
The board of directors of the Managing Owner acts as the audit committee with respect to the Trust. The directors of the Managing Owner have not developed pre-approval policies as of the date of this report. Consequently, all audit and non-audit services provided by CF & Co., L.L.P must be approved by the directors of the Managing Owner.
(ii)
None of the services described in Item 9(e)(2) through 9(e)(4) of Schedule 14A of the Securities Exchange Act of 1934 were provided by CF & Co., L.L.P therefore, no services were required to be approved by the board of directors of the Managing Owner on behalf of the Trust.
(f)
Less than 50% of the hours expended on CF & Co., L.L.P’s audit of the Trust’s financial statements were attributable to the work of persons who were not full-time, permanent employees of CF & Co L.L.P.
Part IV
Item 15.
Item 15. Exhibits, Financial Statements and Schedules
(a)
The following documents are included herein:
(1)
Financial Statements:
a.
Report of Independent Registered Public Accounting Firm - CF & Co., L.L.P.
b.
Consolidated Statements of Financial Condition as of December 31, 2007 and 2006.
c.
Condensed Consolidated Schedule of Investments as of December 31, 2007 and 2006.
d.
Consolidated Statements of Operations, Years ended December 31, 2007, 2006 and 2005.
e.
Consolidated Statements of Changes in Unitholders’ Capital for the years ended December 31, 2007, 2006 and 2005.
f.
Notes to Consolidated Financial Statements.
(2)
All financial statement schedules have been omitted either because the information required by the schedules is not applicable, or because the information required is contained in the financial statements herein or the notes hereto.
(3)
Exhibits:
Index to Exhibits
Exhibit
Number
Description of Document
1.01
Amended and Restated Selling Agreement among R.J. O’Brien Securities, LLC (the “Lead Selling Agent”), JWH Global Trust (the “Registrant”), R.J. O’Brien Fund Management LLC (the “Managing Owner”), and R.J. O'Brien & Associates, LLC.
1.02
Form of Amended and Restated Additional Selling Agreement.(1)
3.01
Seventh Amended and Restated Declaration and Agreement of Trust of the Registrant.(2)
3.02
Certificate of Amendment of Certificate of Trust of the Registrant.(3)
10.01
Form of Subscription Agreement and Power of Attorney.(4)
10.02
Subscription and Transfer Agent Agreement, dated as of April 2, 2007, by and among The Bank of New York, the Managing Owner, and the Registrant.(5)
10.03
Form of Trading Advisory Agreement among the Registrant, the Managing Owner, RJO and JWH, as assigned to R.J.O’Brien Fund Management, LLC.(3)
10.04
First Amendment to the Trading Advisory Agreement, dated as of September 29, 2000, by and among JWH Global Trust, CIS Investments, Inc., and John W. Henry & Company, Inc.(5)
10.05
Second Amendment to the Trading Advisory Agreement, dated as of June 23, 2005, by and among JWH Global Trust, CIS Investments, Inc., and John W. Henry & Company, Inc.(5)
10.06
Third Amendment to the Trading Advisory Agreement, dated as of June 27, 2006, between JWH Global Trust, Refco Commodity Management, Inc., and John W. Henry & Company.(5)
10.07
Customer Agreement between the Registrant and R.J. O’Brien & Associates, Inc., dated as of September 27, 2006. (6)
13.01
Annual Report to Unitholders for Fiscal Year 2007.
14.01
R.J. O’Brien Fund Management, LLC. Code of Ethics.
31.01
Rule 13a-14(a)/13d-14(a) Certifications of Principal Executive Officer.
31.02
Rule 13a-14(a)/13d-14(a) Certifications of Principal Financial Officer.
32.01
Section 1350 Certification of Chief Executive Officer.
32.02
Section 1350 Certification of Chief Financial Officer.
(1) Incorporated by reference from the exhibit of the same description filed on November 29, 2007 with Pre-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-1 (Reg No. 333-146177).
(2) Incorporated by reference from the exhibit of the same description filed on March 4, 2008 on the Registrant's Form 8-K.
(3) Incorporated by reference from the exhibit of the same description filed on February 10, 1997 with Post-Effective Amendment No. 1 to the Registrant's Registration Statement on Form S-1 (Reg. No. 333-16825; declared effective April 3, 1997).
(4) Incorporated by reference from the exhibit of the same description filed on December 5, 2007 with the Registrant's Prospectus on Form 424B3.
(5) Incorporated by reference from the exhibit of the same description filed on September 19, 2007 with the Registrant's Registration Statement on Form S-1 (Reg. No. 333-146177; declared effective December 4, 2007).
(6) Incorporated by reference from the exhibit of the same description filed on July 5, 2007 on the Registrant's Form 10-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Form 10-K has been signed below by the following persons on behalf of the Registrant on March 20, 2008, and in the capacities indicated:
R.J. O’Brien Fund Management, LLC.
Signatures
Title
/s/ Gerald Corcoran
Chief Executive Officer and Director
Gerald Corcoran
(principal executive officer)
/s/ Helen D. McCarthy
Chief Financial Officer and Director
Helen D. McCarthy
(principal financial and accounting officer)
/s/ Colleen Mitchell
President and Director
Colleen Mitchell
/s/ Annette Cazenave
Senior Vice President and Director
Annette Cazenave