Item 1. Business
(a) General development of business
Global Macro Trust (the “Trust”) is a Delaware statutory trust organized 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, with the Securities and Exchange Commission 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 filed additional registration statements with the Securities and Exchange Commission to bring the total dollar amount of Units registered for sale to approximately $1,277,434,000, and a total of $675,727,934 of Units have been sold to the public as of December 31, 2006. The net asset value of a Unit originally sold for $1,000 as of July 1, 2002 was $1,040.10 as of December 31, 2006. As of December 31, 2006, 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, options and forward markets. 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, is the managing owner and the commodity trading advisor for the Trust. 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 $1,912,100 and has redeemed $253,569 as of December 31, 2006. After reflecting a net gain of $1,439,397 and profit share of $192,061 as of December 31, 2006, this investment totaled $5,290,389, as of December 31, 2006.
(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, options on futures, and forward contracts. The Trust’s sole trading advisor is the Managing Owner. The Managing Owner trades the Trust’s assets, pursuant to its Diversified Portfolio, in the agricultural, metals, energy, interest rate and stock indices futures and futures options markets and in the currency markets, trading primarily forward contracts in the interbank market. The objective of the Managing Owner’s trading method is to participate in all major sustained price moves in the markets traded. The Managing Owner’s approach is medium-term to long-term in nature. The Managing Owner makes trading decisions pursuant to its 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 Managing Owner is engaged in an ongoing research effort to improve its trading methods and to apply its quantitative analytic expertise to new financial products.
Successful systematic futures trading depends on two factors; 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, portfolio sectors and individual markets go through periods where systematic trading is very profitable and other periods where no system makes any money.
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 in a targeted range, while allowing exposure to profitable trend opportunities. Over the last 30 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.
Of course, systems can be materially different - better in some periods and worse in others. The main distinguishing features are time-frame over which systems work (intra-day to long-term), the type of data fed into them (granularity [ticks to weeks/months], type [market or economic statistics], source [cash, futures or options markets]), and the objective of the system (profiting from trends, trading-ranges or volatility). No single approach will work all the time. Therefore, the Managing Owner’s objective is to have several approaches operating at all times. Since the early 1980’s, 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 less frequently. The following factors are considered in constructing a universe of markets to trade for each portfolio: 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 portfolio. The current allocation to any market in the portfolio does not exceed 4.5%.
Risk is a function of both price level and price volatility. 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. This system is designed to measure the risk in the portfolio’s position in each market and signals a decrease in position size when risk increases and an increase in position size when risk decreases. The Managing Owner’s volatility overlay maintains overall portfolio risk and distribution of risk across markets within designated ranges. It is applied to the systematic strategies described above. A secondary benefit of the volatility overlay can be timely profit taking. Because markets tend to become more volatile after a profitable trend has been long underway, the volatility overlay 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.
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 Net Assets (a 7.0% annual rate). The Managing Owner charges less than the annual brokerage rate of 7% to those subscribers who either invest in amounts of $100,000 or more in the Units or subscribe without incurring the selling commission paid by the Managing Owner. These reductions have no effect on other investors. The Managing Owner also receives a profit share equal to 20% of any new trading profit as defined, 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 Trust’s organizational and initial offering costs were paid by the Managing Owner without reimbursement from the Trust or its Unitholders. The Trust pays its administrative expenses, including costs incurred in connection with the continuing offering of the Trust’s Units, and any extraordinary expenses which it may incur. The Managing Owner pays all the routine costs of executing and clearing the Trust’s trades and all compensation due to the selling agents.
UBS Financial Services Inc. (“UBS”), Deutsche Bank Securities Inc. (“Deutsche Bank”), Merrill Lynch, Pierce, Fenner & Smith Incorporated (“Merrill Lynch”), Credit Suisse Securities (USA) LLC (“Credit Suisse”) and First International Banque SA (UK Branch) (“Fimat”) act as the futures brokers for the Trust. The Trust executes currency forward trades with several brokers and banks, including Morgan Stanley & Co. Incorporated and clears all such trades with Morgan Stanley & Co. Incorporated, serving as prime broker. 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 is open-ended and may offer Units at net asset value as of the first day of each month. 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. 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 Units are redeemed. 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 Units are redeemed. Redemption charges are reduced, in the case of subscriptions in amounts of $100,000 or more or if the subscriptions are through asset-based or fixed-fee investment programs or by selling agent employees who purchase Units through selling agent sponsored 401(k) and similar plans. These redemption charges are paid to the Managing Owner. 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.
The Trust’s cash and 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 U.S. Treasury instruments.
The Trust does not engage in lending (other than through permitted securities investments). The Managing Owner does not anticipate making any distributions of Trust profits, if any.
Regulation
Under the Commodity Exchange Act, as amended (the “CEA”), commodity exchanges and futures trading are subject to regulation by the Commodity Futures Trading Commission (the “CFTC”). National Futures Association (“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, such as UBS, Deutsche Bank, Merrill Lynch, Credit Suisse and Fimat to be registered and to comply with various reporting and record keeping requirements. The CFTC may suspend a commodity pool operator’s or 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 position which any person may hold or control in particular commodities. Most exchanges also limit the changes in futures contract prices that may occur during a single trading day. Currency forward contracts are not subject to regulation by any United States Government agency.
(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 United States in foreign currency forward contracts and on foreign futures exchanges), nor is a material portion of its revenues derived from foreign customers.
Item 1A.
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 substantially all of your investment in the Trust.
The Trust has a Limited Performance History
The Trust began trading July 1, 2002 and has a limited performance history. The past performance of the Trust and Managing Owner’s Diversified Portfolio are 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 in the Managing Owner’s Diversified Portfolio have ranged from up 13.44% to down 10.53%. Since it began trading in July 2002, monthly returns for the Trust have ranged from up 9.56% to down 10.29%.
The Trust’s Expenses Will Cause Losses Unless Offset by Profits and Interest Income
The Trust pays annual expenses of up to approximately 7.5% of its average month-end Net Assets. The Trust must earn trading profits and interest income 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 Units through the end of the first eleven months you own them.
Units Redeemed on or Before the End of the First Eleven Months after Purchase will be Assessed a Redemption Charge
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 Units are redeemed. 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 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 Diversified Portfolio 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 Managing Owner’s Diversified Portfolio incurred a loss for the year in 1983, 1986, 1989, 1999, 2001 and, as adjusted to reflect the charges applicable to the Trust, 2003 and 2004. 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.
United States 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 30 years. Consequently, some of the trading systems and combinations of systems currently being used to trade accounts traded pursuant to the Diversified Portfolio, as the Trust is so traded, are not identical to those used 5, 10, 15 or 20 years ago.
Trading on Foreign Exchanges Presents Greater Risk Than Trading on U.S. Exchanges
The Trust will trade on commodity exchanges outside the United States. Trading on foreign exchanges is not regulated by any United States governmental agency and may involve certain risks that do not arise when trading on United States 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 United States 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 United States.
The Managing Owner Anticipates the Trust’s Performance to be Non-Correlated to Stocks and Bonds, not Negatively Correlated
The performance of the Managing Owner’s Diversified Portfolio 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 Lehman Brothers U.S. Long Treasury Bond 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, you will obtain no diversification benefits by investing in the Units and the Trust may have no gains to offset your 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, Profit Shares are ultimately calculated on the basis of the cumulative net trading profits recognized by the Trust 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 be diluted by the admission of new Unitholders.
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 UBS, Deutsche Bank, Merrill Lynch, Credit Suisse and Fimat receive 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, you 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.
You Will be Taxed Each Year on Your Share of Trust Profits
If you are an individual or entity subject to U.S. taxes (e.g., not a tax-exempt entity such as an IRA or pension plan), you will be taxed on your share of Trust income or gain each year, whether or not you redeem Units or receive 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 your 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, 2010). 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 losses, and depending on the tax character of income and loss you receive on other investments in your portfolio, it is possible for you to have a pre-tax economic gain on your investment in the Trust but an after-tax loss.
All performance information included in this report is presented on a pre-tax basis; the investors who experienced such performance had to pay the related taxes from other sources.
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.
You 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 your share of the Trust’s trading (i.e., capital) loss was $10,000 in a given fiscal year and your share of interest income was $5,000, you would incur a net loss in the Net Asset Value of your 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 United States 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 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.
The Bankruptcy of a Clearing Broker or Currency Dealer Could Cause Losses
The Managing Owner must assess the credit-worthiness of the clearing brokers and foreign currency counterparties it selects for the Trust. If one of the Trust’s clearing brokers or foreign currency counterparties becomes bankrupt, the Trust will be limited to recovering only its pro rata share of all available customer funds segregated by the clearing broker or counterparty. The Managing Owner attempts to mitigate this risk by selecting only well capitalized, major financial institutions as Clearing Brokers and foreign currency counterparties.
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 reporting requirements and other regulation applicable to public companies in the United States, 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.
The Trust Trades in Unregulated Markets
The Trust will conduct all or substantially all of its currency forward and related options trading in unregulated markets. There is no way to determine fair pricing or prevent trading abuses in such markets. The absence of regulation in such markets could expose the Trust to significant losses.
Various national governments have expressed concern regarding the disruptive effects of speculative trading in the currency markets and the need to regulate the “derivatives” markets in general. Future regulatory changes may limit the Trust’s ability to trade in certain markets.
Item 2.
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.
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.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5.
Item 5. Market for the Registrant’s Common Equity and
Related Stockholder Matters
(a) Market Information.
There is no trading market for the Units, and none is likely to develop. Units may be redeemed upon 10 business 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.
(b) Holders.
As of December 31, 2006, there were 19,182 holders of 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 2004, 2005 or 2006.
(f) Issuer Purchases of Equity Securities.
Pursuant to the Trust’s Declaration of Trust and 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 table summarizes the redemptions by Unitholders during the fourth calendar quarter of 2006:
Item 6.
Item 6. Selected Financial Data
The following is a summary of operations for the fiscal years 2006, 2005, 2004, 2003 and 2002 and total assets of the Trust at December 31, 2006, 2005, 2004, 2003 and 2002. The Trust commenced trading operations on July 1, 2002.
*From trading of futures and forward contracts, foreign exchange transactions and U.S. Treasury obligations.
** Includes custody fees for the years ended December 31, 2006, 2005, 2004 and 2003 and for the period ended December 31, 2002 and net of administrative expenses reimbursed by the Managing Owner for the period ended December 31, 2002.
Item 7.
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.
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, options and forward contracts on interest rates, commodities, currencies, metals, energy and stock indices. 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 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, generally within a range of 12% to 35% of an account’s Net Assets at exchange minimum margins, (including imputed margins on forward positions) although the amount committed to margin at any time may be substantially 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 rather than as an automatic consequence of an increase in equity resulting 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 and United States 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.
Liquidity
The Trust’s assets are generally held as cash or cash equivalents 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, 2006, 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 market, 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 United States of America 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.
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, 2006.
Results of Operations
Performance Summary
The Trust was organized on July 23, 2001 under the Delaware Statutory Trust Act and commenced trading operations July 1, 2002.
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 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. The Trust’s past performance is not necessarily indicative of how it will perform in the future.
During 2006, the Trust achieved net realized and unrealized gains of $40,749,020 from its trading operations (including foreign exchange transactions and translations). Brokerage fees of $30,857,253, administrative expenses of $1,592,624 and custody fees of $71,580 were paid or accrued. The Trust allocated $114,672 in profit share to the New Profits Memo Account for the benefit of the Managing Owner. Interest income of $20,667,947 partially offset the Trust’s expenses resulting in a net gain of $28,780,838 and a 6.34% increase in the Net Asset Value per Unit. An analysis of the trading gain (loss) by sector is as follows:
The Trust generated a moderate gain for the year. Trading of metals and stock index futures produced significant profits, and trading of interest rate and energy futures added small gains. On the other hand, currency trading resulted in a sizable loss, and trading activity in grains, livestock and softs was somewhat negative.
Strong economic conditions worldwide underpinned industrial and precious metal prices. Periodic fears of shortages also buoyed the prices of industrial metals. Concern about inflation, a weaker U.S. dollar, and reserve diversification out of dollars provided an added boost to precious metal prices. In addition, introduction of a silver ETF alongside the existing gold ETFs increased the demand for precious metals. Consequently, long positions in copper, zinc, nickel, tin, aluminum, lead, gold, silver, and platinum were profitable.
Broad based growth, encompassing the emerging markets-led by China and India-the U.S., Europe, and by year-end even Japan encouraged investors worldwide. Hence, long positions in European, Chinese, Hong Kong, and U.S. stock index futures were profitable.
During the first half of 2006, short positions in short-term and long-term interest rate futures were widely profitable as interest rates rose on the back of strong growth, inflation worries, and Fed Funds rate increases. By July, however, there was growing concern that tighter Central Bank monetary policies throughout the world might induce a growth slowdown. As a result, interest rates, particularly long-term interest rates, came down and losses on short positions offset most of the earlier gains. The downward pressure on long-term interest rates was augmented by OPEC and Bank of China purchases of longer term government bonds for reserve management purposes. On balance, there was still a modest profit for the year from interest rate trading.
Currency trading was unprofitable throughout the year. Significant volatility without sustained trends characterized most currency markets. Market participants continued to discuss the likelihood of a weaker dollar, but with the Bank of China tightly controlling the movements of the Yuan, fluctuations in most major currencies were restrained and no sustained dollar move occurred.
Elsewhere, trading of grains, softs, and livestock was somewhat unprofitable, while energy trading produced a fractional gain.
During 2005, the Trust achieved net realized and unrealized gains of $27,495,406 from its trading operations (including foreign exchange transactions and translations). Brokerage fees of $26,641,625, administrative expenses of $1,417,680 and custody fees of $59,425 were paid or accrued. The Trust allocated no profit share to the New Profits Memo Account for the benefit of the Managing Owner. Interest income of $11,150,930 partially offset the Trust’s expenses resulting in a net gain of $10,527,606 and a 2.43% increase in the Net Asset Value per Unit. An analysis of the trading gain (loss) by sector is as follows:
The Trust produced a modest gain for the year. Stock indices were strongly profitable, and to a lesser extent so were cross rate currency positions, metals, energy and interest rates. On the other hand, sizable losses resulted from trading dollar currency positions, and lesser shortfalls came from trading grains, softs, and livestock.
International stock indices were highly profitable in 2005. Following some consolidation early in the year, non-U.S. equity indexes moved broadly higher through year end. There were gains from long positions in Asian, European, and South African equity indices. Solid growth worldwide propelled equities forward despite the headwinds that came from high energy prices and rising interest rates. Trading of U.S. stock indices, which were range-bound for most of 2005, was not profitable, however.
Strong growth of industrial production, especially in China, underpinned demand for metals, and long positions in copper, zinc and platinum generated gains. Continuing expansion of money supply worldwide fueled demand for precious metals, and long gold and silver positions were also profitable.
Energy prices were volatile, but still moved somewhat higher on balance for the year, and long positions in crude, heating oil, London gas oil, unleaded gasoline, and kerosene were slightly profitable. By the end of 2005, however, position sizes had been reduced significantly.
Interest rates were quite volatile during 2005. Early in the year, markets expected continuing declines in non-U.S. interest rates, and further advances in short term U.S. rates. Later on, however, interest rates rose rather broadly as the European Central Bank joined the Federal Reserve in raising official rates, as growth in emerging economies remained strong, as Japan showed evidence of exiting from its protracted slump, and as high prices for energy and other commodities induced inflation fears that periodically roiled markets. In this environment, profits from long non-U.S. interest rate positions during the first half of 2005 were largely offset by losses from these positions in the second half. Indeed, by year end, the portfolio’s interest rate positions had been reduced or reversed from long to short, anticipating higher interest rates.
Turning to currencies, cross rate trades based on selling low yield currencies and buying high interest rate currencies were profitable. In particular, selling Yen and buying the Australian Dollar, Canadian Dollar and British Pound was profitable, as was selling the Euro and buying Polish Zlotys and Canadian Dollars.
Dollar trading, however, was unprofitable throughout the year. The U.S. currency was not able to sustain a trend and exhibited significant volatility, especially during the second half of 2005. As a result, 14 of the 17 currencies traded versus the dollar registered losses or no appreciable gain for the year.
Trading of agricultural commodities and livestock generated losses. Prices of corn, wheat and elements of the soybean complex experienced wide swings in 2005, and modest losses were sustained across the grain sector of the portfolio. A long sugar position was quite profitable as weather related crop shortages in Brazil and Asia increased demand for the commodity and prompted short covering as well. However, losses from trading coffee, cotton, and cocoa were more than offsetting. Livestock trading was marginally unprofitable.
During 2004, the Trust achieved net realized and unrealized gains of $5,648,733 from its trading operations (including foreign exchange transactions and translations). Brokerage fees of $22,046,061, administrative expenses of $1,565,227 and custody fees of $50,048 were paid or accrued. The Trust allocated no profit share to the New Profits Memo Account for the benefit of the Managing Owner. Interest income of $4,131,334 partially offset the Trust’s expenses resulting in a net loss (inclusive of administrative expenses) of $13,881,269 and a 5.33% decrease in the Net Asset Value per Unit. An analysis of the trading gain (loss) by sector is as follows:
The year 2004 was distinguished by dramatic transitions in the underlying character of market trading dynamics. Profitable trends in January and February gave way to a six month period of trendless, turbulent action across a broad swath of markets that produced significant losses. Beginning in September, trends reappeared and the Trust chalked up a sharp recovery in the year’s final four months. Interest rate and energy trading were profitable and to a lesser extent so was trading of agricultural commodities. These gains were partially offset by losses from currency, stock index and metals trading. The Trust generated a small trading gain for the year.
At the start of the year, long positions in note and bond futures, particularly for the U.S. and Europe, were quite profitable as sluggish European growth, concerns about a “jobless” U.S. recovery and central bank buying of treasuries drove interest rates down. Rising energy prices benefited long energy positions, and equity and metals trading were profitable. Currency trading was very unprofitable, however, as a dollar decline halted and reversed during the quarter.
From March through August, a number of uncertainties plagued market participants including: the June Iraqi elections, the U.S. Presidential elections in November, the strength of the American economy and thrust of Federal Reserve policy, and China’s foreign exchange, industrial and monetary policy directions. As a result, markets across the board displayed unprofitable, directionless price action. Trading of currencies, interest rates, stock indices, metals and agricultural commodities produced losses. Energy trading was the only profitable sector for this period.
As the aforementioned uncertainties began to clarify, market participants became more confident of their opinions and a number of profitable trend opportunities emerged. In particular, a sharp dollar decline led to profits from a series of short dollar positions, particularly versus the Euro and Korean Won. This dollar sell off was prompted by worries about persistent U. S. current account and budget deficits, as well as the rising probability that foreign central banks would begin to diversify their international reserve holdings away from the American currency. Trading of interest rate, stock index, and metal futures was also profitable over the last four months of the year.
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. 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). 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, 2006 and 2005. During fiscal year 2006 and 2005, the Trust’s average total capitalization was approximately $450.7 million and $389.1 million, respectively.
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 year 2006. Dollar amounts represent millions of dollars.
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 year 2005. 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 (over 80%) 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 10%) of its assets in cash in interest-bearing bank accounts. 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 Securities 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, 2006, 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 the United States and other major industrialized, or Group of Seven (Canada, France, Germany, Italy, Japan, United Kingdom and United States, collectively, “G-7”) countries. However, the Trust also may take positions in futures contracts on the government debt of other nations. The Managing Owner anticipates that G-7 interest rates, both long-term and short-term, will remain the primary 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. As of December 31, 2006, the Trust’s currency exposures were in the U.S. dollar versus the Euro, Swiss Franc, Czech Krone, Polish Zloty, Norwegian Krone, Hungarian Forint, Swedish Krona, Canadian Dollar, South African Rand, New Zealand Dollar, Australian Dollar, Japanese Yen, Korean Won, Singapore Dollar, Mexican Peso, Turkish Lira, Indian Rupee and British Pound. The exposure in currency crosses were in the Japanese Yen versus the Canadian Dollar, Australian Dollar, Swiss Franc, Euro, Mexican Peso, New Zealand Dollar and British Pound and in the Euro versus the Japanese Yen, British Pound, Swiss Franc, Polish Zloty, Norwegian Krone, Hungarian Forint, Mexican Peso, New Zealand Dollar, Swedish Krona, Turkish Lira and Canadian Dollar.
Stock Indices. The Trust’s equity exposure, through stock index futures, is to equity price risk in the G-7 countries as well as other countries. As of December 31, 2006, the Trust’s exposures in the G-7 countries were in the: E-Mini Nasdaq 100, E-Mini S&P 500, E-Mini Russell 2000 and E-Mini Dow (United States); FTSE 100 (United Kingdom); TOPIX and Nikkei (Japan); TSE 60 (Canada); DAX (Germany); and CAC-40 (France) stock indices. The Trust’s exposure to stock index futures of other countries at December 31, 2006 were in the: Simex Taiwan Index (Taiwan), Simex (Singapore), ALL Shares (South Africa), SPI 200 (Australia), IBEX 35 (Spain), Hang Seng and H-Shares (Hong Kong), Amsterdam (Netherlands), MIB 30 (Italy), OMX (Sweden) and the DJ Euro Stoxx 50 (Euro Zone) stock indices.
Metals. The Diversified Portfolio used for the Trust trades precious and base metals. As of December 31, 2006, the Trust’s metals market exposure was in gold, silver, platinum, aluminum, copper, lead, nickel, 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 of December 31, 2006, the Trust had exposure to agricultural commodities including coffee, sugar, cocoa, cotton, wheat, corn, the soybean complex as well as live cattle and hogs.
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, 2006.
Foreign Currency Balances. The Trust’s primary foreign currency balances are in Japanese Yen, Euros, British Pounds, Australian Dollars, Canadian Dollars, Swiss Francs, Swedish Krona, South African Rand and Hong Kong Dollars. The Trust controls the non-trading risk of these balances by regularly converting these balances back into 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 trend opportunities. Over the last 30 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.
Of course, systems can be materially different - better in some periods and worse in others. The main distinguishing features are time-frame over which systems work (intra-day to long-term), the type of data fed into them (granularity [ticks to weeks/months], type [market or economic statistics], source [cash, futures or options markets]), and the objective of the system (profiting from trends, trading-ranges or volatility). No single approach will work all the time. Therefore, the Managing Owner’s objective is to have several approaches operating at all times. Since the early 1980’s, 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 less frequently. The following factors are considered in constructing a universe of markets to trade for each portfolio: 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 portfolio. The current allocation to any market in the portfolio does not exceed 4.5%.
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. This system is designed to measure the risk in the portfolio’s position in each market and signals a decrease in position size when risk increases and an increase in position size when risk decreases. The Managing Owner’s volatility overlay maintains overall portfolio risk and distribution of risk across markets within designated ranges. It is applied to the systematic strategies described above. A secondary benefit of the volatility overlay can be timely profit taking. Because markets tend to become more volatile after a profitable trend has been long underway, the volatility overlay 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 rather than to individual markets. One such 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 12% to 35% of an account’s net assets, though the amount may at any time be substantially higher; (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 portfolio size. Leverage levels are determined by simulating the entire portfolio-all markets, all systems, all risk control overlays, 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 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, it reduces the leverage or portfolio size. There are, however, no restrictions on the amount of leverage the Managing Owner may use at any given time.
Item 8.
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, 2006, 2005 and 2004, 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, 2006 and 2005. This information has not been audited.
* 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.
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
None.
Item 9A.
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.
Item 9B.
Item 9B. Other Information
None.
PART III
Item 10.
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 Trust’s Trustee, Wilmington Trust Company.
Millburn Ridgefield Corporation, the Managing Owner, is a Delaware corporation 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, 2006 are as follows:
Harvey Beker, age 53. Mr. Beker is Co-Chief Executive Officer and Co-Chairman of the Managing Owner and The Millburn Corporation, and a partner of their affiliate, ShareInVest Research L.P. 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 Loeb Rhoades, Inc. where he developed and traded silver arbitrage strategies. From July 1977 to June 1978, Mr. Beker was a futures trader at 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 Millburn (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 ShareInVest, the predecessor of ShareInVest Research L.P. (“ShareInVest”), in April 1982.
Gregg R. Buckbinder, age 48. Mr. Buckbinder is Senior Vice-President and Chief Operating Officer of the Managing Owner and The Millburn Corporation and a partner, since January 2000, of ShareInVest. He 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 joined the Managing Owner and The Millburn Corporation in January 1998 from Odyssey Partners, L.P. 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. He is a Certified Public Accountant and a member of the American Institute of Certified Public Accountants.
George E. Crapple, age 62. Mr. Crapple is Co-Chief Executive Officer and Co-Chairman of the Managing Owner and The Millburn Corporation and a partner of ShareInVest. 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 a member of the Harvard Law Review. He was a lawyer with Sidley & Austin, Chicago, Illinois, from 1969 until April 1, 1983, as a partner since 1975, specializing in commodities, securities, corporate and tax law. He was first associated with the Managing Owner in 1976 and joined Managing Owner and The Millburn Corporation (including its affiliates, Millburn Partners and CommInVest) on April 1, 1983 on a full-time basis. 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, 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”).
Steven M. Felsenthal, age 37. Mr. Felsenthal is General Counsel and Chief Compliance Officer of the Managing Owner, The Millburn Corporation and ShareInVest. Prior to joining Millburn in January 2004, Mr. Felsenthal was a senior associate in the investment management group at 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 Kramer, Levin, Naftalis & Frankel LLP (October 1996- September 1999). He graduated cum laude from Yeshiva University in 1991 with a bachelor of arts degree 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 New York University School of Law in 2001 and has written and been quoted in numerous published articles, and spoken at conferences, on various topics related to investment management. Mr. Felsenthal is a member of the New York State Bar and Co-Chairman of the Managed Funds Association CPO/CTA Advisory Committee.
Mark B. Fitzsimmons, age 59. Mr. Fitzsimmons is a Senior Vice-President of the Managing Owner and The Millburn Corporation and a partner, since January 2000, of ShareInVest. His responsibilities include both business development and investment strategy. He joined the Managing Owner and its affiliates in January 1990 from Morgan Stanley & Co. Incorporated 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 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. 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.
Barry Goodman, age 49. Mr. Goodman is Executive Vice-President, Director of Trading and Co-Director of Research of the Managing Owner and The Millburn Corporation and a partner of ShareInVest. His responsibilities include overseeing the firm’s trading operation and managing its trading relationships, as well as the design and implementation of trading systems. He graduated magna cum laude from Harpur College of the State University of New York in 1979 with a B.A. in economics. From September 1980 through October 1982 he was a commodity trader for 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. He joined the Managing Owner and The Millburn Corporation (including its affiliate, Millburn Partners) in November 1982 as Assistant Director of Trading. He became a partner in ShareInVest in January 1994.
Dennis B. Newton, age 55. Mr. Newton is a Senior Vice-President of the Managing Owner and The Millburn Corporation. 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. (“Phoenix”), a registered commodity pool operator from April 1990 to August 1991 and President of its affiliated introducing broker, Phoenix Futures Inc., from March 1990 to June 1991. Prior to his employment with Phoenix, Mr. Newton was a Director of Managed Futures with 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. 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.
Grant N. Smith, age 55. Mr. Smith is Executive Vice-President and Co-Director of Research of the Managing Owner and The Millburn Corporation and a partner of ShareInVest. 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 (“M.I.T.”) in 1974 and an M.S. degree from M.I.T. in 1975. While at M.I.T. 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.
Tod A. Tanis, age 52. Mr. Tanis is a Vice President, Principal Accounting Officer and Director of Operations 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 of 1983. Prior to joining Millburn, he was with 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 Manager at E.F. Hutton, he was responsible for all internal and external commodity reporting. Mr. Tanis also served as a Junior Accountant and then International Staff Accountant with Merrill Lynch & Company from September 1976 to May 1978.
(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) 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).
(h) 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.
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 trading decisions on behalf of the Trust. The Managing Owner receives monthly brokerage commissions of 0.583 of 1% of the Trust’s Net Assets (which is reduced to 0.541 of 1%, 0.5 of 1% or 0.458 of 1% of Net Assets for 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% for Unitholders who invest through selling agent fee-based accounts) and an annual profit share of 20% of any new trading profit as defined.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners
The Trust knows of no person who owns beneficially more than 5% of the Units. 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 $5,290,389 as of December 31, 2006, 1.09% of the Trusts’ total capital.
(c) Changes in Control
None.
(d) Securities Authorized for Issuance Under Equity Compensation Plans
None.
Item 13.
Item 13. Certain Relationships and Related Transactions
See “Item 11. Executive Compensation” and “Item 12. Security Ownership of Certain Beneficial Owners and Management.” The Trust allocated to the Managing Owner $30,857,253 in brokerage fees and allocated $114,672 in profit share to the New Profits Memo Account for the year ended December 31, 2006. The Managing Owner’s managing owner interest showed an allocation of income of $643,770 for the year ended December 31, 2006. 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, 2006, the Trust owed the Managing Owner $108,586 in connection with expenses paid on the Trust’s behalf. The Trust is prohibited from making any loans.
Item 14.
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, 2006 and 2005 were approximately $93,000 and $52,200, respectively.
(2) Audit-Related Fees
There were no fees for assurance and related services rendered by Deloitte & Touche LLP for the years ended December 31, 2006 and 2005.
(3) Tax Fees
The aggregate fees for professional services rendered by Deloitte & Touche LLP for tax compliance, advice or planning services rendered by Deloitte & Touche LLP for the benefit of the Trust for the years ended December 31, 2006 and 2005 was approximately $44,720 and 45,000, respectively.
(4) All Other Fees
None
(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.
Item 15. Exhibits and Financial Statement Schedules
(a)(1) Financial Statements
The following are included with the 2006 Report of Independent Registered Public Accounting Firm, 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 2006 Report of Independent Registered Public Accounting Firm
31.1 Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
31.2 Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
31.3 Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer
32.1 Section 1350 Certification of Principal Executive Officer
32.2 Section 1350 Certification of Principal Executive Officer
32.3 Section 1350 Certification of Principal Financial Officer
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 exhibits of the same number and description filed with Amendment No. 1 to the Trust’s Registration Statement (File No. 333-67072) filed on January 11, 2002 on Form S-1 under the Securities Act of 1933.
1.01 Form of Selling Agreement among the Trust, the Managing Owner and the Amended Selling Agent (including the form of Additional Selling Agent Agreement).
10.02 Form of Customer Agreement among the Trust, the Managing Owner and UBS PaineWebber Inc. Selling Agent in its capacity as a futures commission merchant.
The following exhibits are incorporated by reference from the exhibits of the same number and description filed with Post-Effective Amendment No. 1 to the Trust’s Registration Statement (File No. 333-67072) filed December 16, 2002 on Form S-1 under the Securities Act of 1933.
10.01 Form of Subscription Agreement and Power of Attorney
10.03 Form of Wholesaling Agreement
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 Securities Exchange Act of 1934.
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 exhibit is incorporated by reference from the exhibit of the same number and description filed with Registrant’s Registration Statement (File No. 333-109122) filed September 25, 2003 on Form S-1 under the Securities Act of 1933.
3.03 Form of Third Amended and Restated Declaration and Agreement of Trust of Registrant.
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, 2007.
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 in the capacities and on the date indicated.
Signature
Title with
Managing Owner
Date
/s/ Harvey Beker
Co-Chief
March 30, 2007
Harvey Beker
Executive Officer and Director
(Principal Executive Officer)
/s/ George E. Crapple
Co-Chief Executive
March 30, 2007
George E. Crapple
Officer and Director
(Principal Executive Officer)
/s/ Gregg Buckbinder
Chief Financial and Operating Officer
March 30, 2007
Gregg Buckbinder
(Principal Financial Officer)
/s/ Tod A. Tanis
Vice President
March 30, 2007
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)
Millburn Ridgefield Corporation
Managing Owner of Registrant
March 30, 2007
By /s/ Harvey Beker
Harvey Beker
Co-Chief Executive Officer
EXHIBIT INDEX
The following exhibits are included herewith.
Designation
Description
13.01
2006 Report of Independent Registered Public Accounting Firm
31.1
Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
31.2
Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
31.3
Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer
32.1
Section 1350 Certification of Principal Executive Officer
32.2
Section 1350 Certification of Principal Executive Officer
32.3
Section 1350 Certification of Principal Financial Officer
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 exhibits of the same number and description filed with Amendment No. 1 to the Trust’s Registration Statement (File No. 333-67072) filed on January 11, 2002 on Form S-1 under the Securities Act of 1933.
1.01
Amended
Form of Selling Agreement among the Trust, the Managing Owner and the Selling Agent (including the form of Additional Selling Agent Agreement).
10.02
Form of Customer Agreement among the Trust, the Managing Owner and UBS PaineWebber Inc. Selling Agent in its capacity as a futures commission merchant.
The following exhibits are incorporated by reference from the exhibits of the same number and description filed with Post-Effective Amendment No. 1 to the Trust’s Registration Statement (File No. 333-67072) filed December 16, 2002 on Form S-1 under the Securities Act of 1933.
10.01
Form of Subscription Agreement and Power of Attorney
10.03
Form of Wholesaling Agreement
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 Securities Exchange Act of 1934.
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 exhibit is incorporated by reference from the exhibit of the same number and description filed with Registrant’s Registration Statement (File No. 333-109122) filed September 25, 2003 on Form S-1 under the Securities Act of 1933.
3.03
Form of Third Amended and Restated Declaration and Agreement of Trust of Registrant.