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Global Macro Trust – ‘10-K’ for 12/31/16

On:  Wednesday, 3/29/17, at 4:29pm ET   ·   For:  12/31/16   ·   Accession #:  1144204-17-17291   ·   File #:  0-50102

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  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

 3/29/17  Global Macro Trust                10-K       12/31/16   58:7.8M                                   Toppan Merrill/FA

Annual Report   —   Form 10-K   —   Sect. 13 / 15(d) – SEA’34
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K        Annual Report                                       HTML    267K 
 2: EX-13.01    Annual or Quarterly Report to Security Holders      HTML    378K 
 3: EX-31.01    Certification -- §302 - SOA'02                      HTML     23K 
 4: EX-31.02    Certification -- §302 - SOA'02                      HTML     23K 
 5: EX-31.03    Certification -- §302 - SOA'02                      HTML     23K 
 6: EX-32.01    Certification -- §906 - SOA'02                      HTML     19K 
 7: EX-32.02    Certification -- §906 - SOA'02                      HTML     19K 
 8: EX-32.03    Certification -- §906 - SOA'02                      HTML     19K 
15: R1          Document And Entity Information                     HTML     45K 
16: R2          Statements Of Financial Condition                   HTML     92K 
17: R3          Statements Of Financial Condition (Parenthetical)   HTML     35K 
18: R4          Condensed Schedule Of Investments (Futures And      HTML     67K 
                Forward Currency Contracts)                                      
19: R5          Condensed Schedule Of Investments (U.S. Treasury    HTML     52K 
                Notes)                                                           
20: R6          Condensed Schedule Of Investments (U.S. Treasury    HTML     46K 
                Notes) (Parenthetical)                                           
21: R7          Statements Of Operations                            HTML     92K 
22: R8          Statements Of Changes In Trust Capital              HTML     91K 
23: R9          Statements of Changes In Trust Capital              HTML     20K 
                (Parenthetical)                                                  
24: R10         Statements Of Financial Highlights                  HTML     78K 
25: R11         Organization                                        HTML     27K 
26: R12         Summary Of Significant Accounting Policies          HTML    201K 
27: R13         Trust Agreement                                     HTML     83K 
28: R14         Due From/To Brokers                                 HTML     22K 
29: R15         Trading Activities                                  HTML     23K 
30: R16         Derivative Instruments                              HTML    620K 
31: R17         Financial Highlights                                HTML     44K 
32: R18         Redemption Payable To Managing Owner                HTML     22K 
33: R19         Subsequent Events                                   HTML     22K 
34: R20         Summary Of Significant Accounting Policies          HTML    226K 
                (Policy)                                                         
35: R21         Summary Of Significant Accounting Policies          HTML    180K 
                (Tables)                                                         
36: R22         Trust Agreement (Tables)                            HTML     71K 
37: R23         Derivative Instruments (Tables)                     HTML    589K 
38: R24         Financial Highlights (Tables)                       HTML     42K 
39: R25         Organization (Narrative) (Details)                  HTML     29K 
40: R26         Summary Of Significant Accounting Policies          HTML     25K 
                (Narrative) (Details)                                            
41: R27         Summary Of Significant Accounting Policies          HTML     81K 
                (Schedule Of Financial Assets And Liabilities At                 
                Fair Value) (Details)                                            
42: R28         Trust Agreement (Narrative) (Details)               HTML     35K 
43: R29         Trust Agreement (Schedule Of Brokerage Rates Based  HTML     37K 
                On Net Capital Investment Levels Or Investments In               
                Asset-based Fee Or Fixed Fee Investment Programs)                
                (Details)                                                        
44: R30         Trust Agreement (Schedule Of Brokerage And          HTML     25K 
                Custodial Fees) (Details)                                        
45: R31         Trust Agreement (Schedule Of Redemption Charges     HTML     44K 
                Based On Redeemed Units' Net Asset Value)                        
                (Details)                                                        
46: R32         Derivative Instruments (Narrative) (Details)        HTML     25K 
47: R33         Derivative Instruments (Schedule Of Net Unrealized  HTML     59K 
                Appreciation (Depreciation) On Futures And Forward               
                Currency Contracts By Settlement Currency Type)                  
                (Details)                                                        
48: R34         Derivative Instruments (Fair Value Of Futures And   HTML     86K 
                Forward Currency Contracts) (Details)                            
49: R35         Derivative Instruments (Schedule Of Trading Gains   HTML     44K 
                (Losses) Of Futures And Forward Currency                         
                Contracts) (Details)                                             
50: R36         Derivative Instruments (Schedule Of Average         HTML     56K 
                Notional Value By Sector Of Futures And Forward                  
                Currency Contracts) (Details)                                    
51: R37         Derivative Instruments (Offsetting Derivative       HTML     66K 
                Assets) (Details)                                                
52: R38         Derivative Instruments (Offsetting Derivative       HTML     47K 
                Liabilities) (Details)                                           
53: R39         Financial Highlights (Schedule Of Weighted Average  HTML     35K 
                Number Of Units For Each Series) (Details)                       
54: R40         Redemption Payable To Managing Owner (Narrative)    HTML     21K 
                (Details)                                                        
55: R41         Subsequent Events (Narrative) (Details)             HTML     27K 
57: XML         IDEA XML File -- Filing Summary                      XML     99K 
56: EXCEL       IDEA Workbook of Financial Reports                  XLSX     66K 
 9: EX-101.INS  XBRL Instance -- millgmt-20161231                    XML   3.25M 
11: EX-101.CAL  XBRL Calculations -- millgmt-20161231_cal            XML    102K 
12: EX-101.DEF  XBRL Definitions -- millgmt-20161231_def             XML    458K 
13: EX-101.LAB  XBRL Labels -- millgmt-20161231_lab                  XML    680K 
14: EX-101.PRE  XBRL Presentations -- millgmt-20161231_pre           XML    615K 
10: EX-101.SCH  XBRL Schema -- millgmt-20161231                      XSD    143K 
58: ZIP         XBRL Zipped Folder -- 0001144204-17-017291-xbrl      Zip    140K 


‘10-K’   —   Annual Report


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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

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

of the Securities Exchange Act of 1934

For the Fiscal Year Ended: December 31, 2016

or

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

of the Securities Exchange Act of 1934

 

Commission File Number: 000-50102

 

GLOBAL MACRO TRUST

(Exact name of registrant as specified in its charter)

 

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

 

c/o MILLBURN RIDGEFIELD CORPORATION

411 West Putnam Avenue

Greenwich, Connecticut  06830

(Address of principal executive offices) (Zip Code)

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Not applicable.

 

Documents Incorporated by Reference

 

Registrant’s Financial Statements for the years ended December 31, 2016, 2015 and 2014 and Report of Independent Registered Public Accounting Firm, the annual report to security holders for the fiscal year ended December 31, 2016, is incorporated by reference into Part II Item 8 and Part IV hereof and filed as an exhibit herewith.

 

 C: 

 

 

 

PART I

 

Item 1.    Business

 

(a)    General development of business

 

Global Macro Trust (the “Trust”) is a Delaware statutory trust organized on July 23, 2001 pursuant to a Declaration of Trust and Trust Agreement (the “Trust Agreement”), under the Delaware Statutory Trust Act. The Trust originally filed a registration statement, under the Securities Act of 1933, as amended (the “Securities Act”), with the Securities and Exchange Commission (“SEC”) to register units of beneficial interest (the “Units”), which registration statement became effective March 26, 2002. Between April 1, 2002 and June 30, 2002, the Units were publicly offered at an initial price of $1,000 per Unit. The Trust commenced operations on July 1, 2002. The Trust has subsequently registered additional Units with the SEC. The net asset value of a Series 1 Unit that originally sold for $1,000 as of July 1, 2002 was $1,196.11 as of December 31, 2016. The net asset value of a Series 2 Unit that originally sold for $1,278.10 as of April 1, 2010 was $1,522.28 as of December 31, 2016. The net asset value of a Series 3 Unit that originally sold for $1,180.91 as of September 1, 2009 was $1,545.19 as of December 31, 2016. The net asset value of a Series 4 Unit that originally sold for $1,315.33 as of November 1, 2010 was $1,838.98 as of December 31, 2016. As of December 31, 2016, 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, forward and spot currency markets and may trade options thereon as well as swap contracts. The amount of capital raised for the Trust should not have a significant impact on its operations, as the Trust has no significant capital expenditure or working capital requirements other than to pay trading losses, brokerage fees and charges.

 

Millburn Ridgefield Corporation (the “Managing Owner”), a Delaware corporation operating in Greenwich, Connecticut, organized in May 1982, is the managing owner and the commodity trading advisor (“CTA”) for the Trust. It and its principals have been trading in the futures and forwards markets pursuant to systematic quantitative, trading and risk management methods since 1971. The Managing Owner has been registered with the Commodity Futures Trading Commission (the “CFTC”) as a commodity pool operator (“CPO”) since July 1, 1982, as a CTA since September 13, 1984 and has been a member of the National Futures Association (the “NFA”) since July 1, 1982. The General Partner has been an approved swaps firm with the NFA since December 26, 2012. The Millburn Corporation is an affiliate of the Managing Owner and performs certain research, trading, technology, operations, marketing, accounting, tax, legal, compliance, human resources, and other administrative functions for the Trust and other commodity pools and investment partnerships managed by the Managing Owner.

 

The Managing Owner invested $400 in the Trust as an initial capital contribution to the Trust and $2,000,000 in the Trust at the outset of trading and subsequently has contributed an additional $3,812,100 and has redeemed $46,772,751 as of December 31, 2016. After reflecting net income of $7,286,060 and profit share of $38,044,045 from inception up to and including December 31, 2016, this investment totaled $4,369,854, as of December 31, 2016.

 

(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, forward and spot currency contracts and may trade options thereon as well as swap contracts. The Trust’s sole trading advisor is the Managing Owner. The Managing Owner trades the Trust’s assets in the agricultural, metals, energy, interest rate and stock indices futures markets and in the currency markets, trading primarily forward contracts in the interbank market. The Managing Owner makes its systematically-based trading decisions pursuant to its investment and trading methods, which may include technical trend analysis, certain non-traditional technical systems (i.e., systems falling outside of traditional technical trend analysis), and money management principles, each of which may be revised from time to time. The objective of the Managing Owner’s investment and trading methods is to consider multiple data inputs, or “factors,” in order to arrive at relatively near-term return forecasts for each traded instrument and take appropriate risk-managed positions. These factors include price data, but also a range of price derivative and non-price data. The Managing Owner’s approach employs models that analyze data inputs over a time spectrum from several minutes to multiple years.

 

A majority of trades generated by quantitative models may be unprofitable. Their objective is to make fewer but larger profits, more than offsetting possibly more numerous but smaller losses. Consequently, during periods in which market behavior differs significantly from that analyzed to build models, substantial losses are possible, and even likely.

 

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

 

 C: 
  C: 1 

 

  

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

 

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

 

The goal of the Managing Owner’s research has been to develop and select a mix of systems in each market and to allocate risk across a wide array of markets, so as to contain overall portfolio risk within a targeted range, while allowing exposure to profitable opportunities.

 

Over more than 40 years, the Managing Owner and its predecessor entities have developed hundreds of trading systems. These trading systems generate buy or sell decisions in a particular market based on the analysis of price movements in the market, some non-price information or a combination of both.

 

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

  

When arriving at the portfolio allocation, the Managing Owner generally seeks maximum diversification, subject to liquidity and sector concentration constraints, and each market is traded using a diversified set of trading systems, which may be optimized for groups of markets, sectors or specific markets. The markets traded and allocations are reviewed at least monthly, although changes may occur more or less frequently. The following factors, among others, are considered in constructing a universe of markets to trade for the Trust: profitability, liquidity of markets, professional judgment, desired diversification, transaction costs, exchange regulations and depth of markets. The current allocation to any market in the Trust’s portfolio does not exceed 3% of total market exposure, measured by risk allocation.

 

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

 

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

 

Additional money management principles applicable to the portfolio as a whole include: (1) limiting the assets committed as margin or collateral, generally within a range of 5% to 35% of an account’s net assets, though the amount may at any time be substantially higher or lower and (2) prohibiting pyramiding — that is, using unrealized profits in a particular market as margin for additional positions solely in the same market.

 

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

 

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

 

 C: 
 2 

 

  

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

 

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

  

Pursuant to the Trust Agreement, the Managing Owner receives a flat-rate monthly brokerage fee equal to 0.583% of the month-end Series 1 net assets (a 7.0% annual rate). The Managing Owner charges less than the annual brokerage rate of 7% to those subscribers who invest in amounts of $100,000 or more in the Series 1 Units or subscribed without incurring the selling commissions paid by the Managing Owner. These reductions have no effect on other investors. From this amount, the Managing Owner pays approximately 0.30% to the Trust’s executing and clearing brokers, and up to 4% to the selling agents. For Series 1 Units sold after June 4, 2009, the amount paid to selling agents shall not, however, exceed 9.5% of the gross offering proceeds. Once the 9.5% threshold is reached with respect to a Series 1 Unit, the selling agent will receive no future compensation and the up to 4% amount that would otherwise be paid to the selling agent for that Series 1 Unit will instead be rebated to the Trust for the benefit of all holders of Series 1 Units. The Managing Owner also receives a profit share equal to 20% of any new trading profit of Series 1 Units, determined as of the end of each calendar year. The annual profit share is calculated net of brokerage fees and administrative expenses and excluding interest income. The Managing Owner pays all the routine costs of executing and clearing the Trust’s trades and all compensation due to the selling agents with respect to the Series 1 Units.

 

The Trust pays the Managing Owner an annual management fee equal to 2% of the average month-end net assets attributable to the Series 2 Units and Series 3 Units after reduction for expenses but before reduction for any accrued but unpaid management fees, custodial fees or Series 2/3 Profit Shares (as defined below). The Trust will pay the Managing Owner a custodial fee equal to 0.25% of the average month-end net assets attributable to the Series 2 Units, after reduction for expenses but before reduction for any accrued but unpaid management fees, custodial fees or Series 2/3 Profit Shares, which the Managing Owner will pay on to brokers acting as custodian of Series 2 Units for the benefit of investors in Series 2 Units. Series 2 and Series 3 Units are also charged for their pro rata share of the Trust’s actual trade execution and clearing costs, including electronic platform trading costs, estimated at approximately 0.30% of the Trust’s average month-end net assets per year attributable to the Series 2 and Series 3 Units. The Trust pays the Managing Owner a profit share attributed to the Series 2 and Series 3 Units equal to 20% of any cumulative new trading profit of the Series 2 and Series 3 Units in the aggregate (the “Series 2/3 Profit Share”), determined as of the end of each calendar year. The annual Series 2/3 Profit Share is calculated net of management fees, execution and clearing costs, custodial fees, and ongoing offering and administrative expenses and excluding interest income.

 

Series 4 Units are charged for their pro rata share of the Trust’s actual trade execution and clearing costs, including electronic platform trading costs, estimated at approximately 0.30% of the Trust’s average month-end net assets per year attributable to the Series 4 Units. Series 4 Units are not charged a management fee or profit share.

 

The Trust’s organizational and initial offering costs were paid by the Managing Owner without reimbursement from the Trust or the Unitholders. The Trust pays all of its expenses incurred in the ordinary course of its business and any extraordinary expenses, if applicable.

  

SG Americas Securities, LLC (“SG Americas”) and Deutsche Bank Securities Inc. (“Deutsche Bank”) act as the futures brokers for the Trust. The Trust also currently executes currency forward trades with Deutsche Bank AG which serves as the Trust’s prime broker for such transactions. At this time, the Trust clears its currency forward trades with Deutsche Bank AG and Morgan Stanley & Co. LLC (“Morgan Stanley”). The Trust pays “bid ask” spreads on its forward trades, as such spreads are incorporated into the pricing of forward contracts. The Managing Owner monitors the Trust’s trades to ensure that the prices it receives are competitive.

 

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

 

 C: 
 3 

 

  

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

 

Regulation

 

Under the Commodity Exchange Act, as amended (the “CEA”), commodity exchanges and futures trading are subject to regulation by the CFTC. NFA, a “registered futures association” under the CEA, is the only non-exchange self-regulatory organization for futures industry professionals. The CFTC has delegated to NFA responsibility for the registration of CTAs, CPOs, “futures commission merchants,” “introducing brokers,” “swap dealers” and their respective associated persons and “floor brokers” and “floor traders.” The CEA requires CPOs and CTAs, such as the Managing Owner, and commodity brokers or futures commission merchants (“FCMs”) and swap dealers, such as SG Americas, Deutsche Bank, Deutsche Bank AG and Morgan Stanley to be registered and to comply with various reporting and record keeping requirements. The CFTC may suspend a CPO’s or CTA’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 CPO or a CTA were terminated or suspended, the Managing Owner would be unable to continue to manage the business of the Trust. Should the Managing Owner’s registration be suspended, termination of the Trust might result.

 

In addition to such registration requirements, the CFTC and certain commodity exchanges have established limits on the maximum net long or net short positions which any person may hold or control in certain futures contracts. Most exchanges also limit the changes in futures contract prices that may occur during a single trading day. In October 2011, the CFTC adopted a new position limits regime for 28 so-called “exempt” (i.e., metals and energy) and agricultural commodity derivatives, futures and options contracts and their economically equivalent swap contracts. On September 28, 2012, the U.S. District Court for the District of Columbia vacated these rules. In November 2013, however, the CFTC proposed substantially similar rules to its prior position limits regime, and in response to comments to such proposal, reproposed similar rules on December 5, 2016. This new set of speculative position limit rules are not yet finalized (or effective). All accounts controlled by the Managing Owner are combined for speculative position limit purposes. The Managing Owner could be required to liquidate positions it holds for the Trust in order to comply with the new position limits regime. Any such liquidation or limited implementation could result in substantial costs to the Trust. It is as yet unclear whether the rules will have an adverse effect on the Trust.

 

In response to the financial crises of 2008-2009, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Reform Act”) was enacted in July 2010. The Reform Act includes provisions that comprehensively regulate the over-the-counter (“OTC”) derivatives markets for the first time. The Reform Act will ultimately mandate that a substantial portion of OTC derivatives must be executed in regulated markets and be submitted for clearing to regulated clearinghouses. The mandates imposed by the Reform Act may result in the Trust bearing higher upfront and mark-to-market margin, less favorable trade pricing, and the imposition of new or increased fees, including clearing account maintenance fees, with respect to the Trust’s trading currently undertaken in the OTC markets.

 

The Trust may also trade forward contracts in the inter-bank currency market. Such forward contracts are not currently traded on exchanges; rather, banks and dealers act as principals in these markets. As a result of the Reform Act, the CFTC now regulates non-deliverable forwards (including many deliverable forwards where the parties do not take delivery), although currency forward contracts are generally not otherwise subject to regulation by any other U.S. government agency. Changes in the forward markets may entail increased costs and result in burdensome reporting requirements. There is currently no limitation on the daily price movements of forward contracts. Principals in the forward markets have no obligation to continue to make markets in the forward contracts traded. The imposition of credit controls by governmental authorities or the implementation of regulations pursuant to the Reform Act might limit such forward trading to less than that which the Managing Owner would otherwise recommend, to the possible detriment of the Trust.

 

(i)   through (xii) - not applicable.

 

(xiii)   the Trust has no employees.

 

(d)    Financial information about geographic areas

 

The Trust does not engage in material operations in foreign countries (although it does trade from the U.S. in foreign currency forward contracts and on foreign futures exchanges), and a material portion of its revenues is not derived from foreign customers.

 

Item 1A.    Risk Factors

 

You Could Lose Your Entire Investment in the Trust

 

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

 

 C: 
 4 

 

  

Past Performance Is Not Necessarily Indicative of Future Results

 

The Trust began trading July 1, 2002 and has traded in both rising and falling markets. Nevertheless, the past performance of the Trust is not necessarily indicative of the Trust’s future results, and the Trust may sustain losses in the future under market conditions in which it achieved gains in the past.

 

The Trust Is a Highly Leveraged Investment

 

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

 

The Performance of the Trust Will be Volatile

 

The Managing Owner expects that the performance of the Trust will be volatile. The Trust may suffer sudden and substantial losses from time to time and the day-to-day value of the Units will be variable and uncertain. The net asset value per Unit may change materially between the date on which you subscribe for Units and the date the Units are issued or the date you request a redemption and the month-end redemption date. In the last five years, monthly returns for the Series 1 Units, which are the highest fee paying Units, have ranged from up 7.51% to down 8.40%.

 

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

 

The Trust pays annual expenses of up to approximately 7.60%, 3.15%, 2.90% and 0.90% of its average month-end net assets attributable to the Series 1 Units, Series 2 Units, Series 3 Units and Series 4 Units, respectively. The Trust must earn trading profits and interest income allocable to each Series at least equal to these expenses to avoid losses. To the extent the Trust’s Net Assets decline, fixed costs of the Trust will constitute a greater percentage of the Trust’s Net Assets.

 

An Investment in the Trust Is Not Liquid

 

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

  

Series 1 Units Redeemed on or Before the End of the First Eleven Months After Purchase Will Be Assessed a Redemption Charge

 

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

 

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

 

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

 

The Managing Owner Alone Directs the Trust’s Trading

 

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

 

The Managing Owner Is Primarily a Technical Trader and May Not Always Analyze Economic Factors External to Market Price

 

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

 

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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 May Cause Losses; There Have Been Sustained Periods With Insufficient Price Trends That Prevented the Trust From Trading Profitably. The Managing Owner Expects That There May be Similar Periods in the Future

 

The Trust is less likely to trade profitably when there are no 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. The Managing Owner expects that there may be similar periods in the future.

 

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

   

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

 

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

 

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

 

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

 

Speculative Position Limits May Alter Investment Decisions for the Trust

 

The CFTC has established limits on the maximum net long or net short positions which any person may hold or control in certain futures contracts. Exchanges also have established such limits. In October 2011, the CFTC adopted position limits for 28 so-called “exempt” (e.g., metal and energy contracts) and agricultural commodity derivatives, futures and option contracts and their economically equivalent swaps. On September 28, 2012, the U.S. District Court for the District of Columbia issued an opinion that vacated these rules. In November 2013, however, the CFTC proposed substantially similar rules to its prior position limits regime, and in response to comments to such proposal, reproposed similar rules on December 5, 2016. All accounts controlled by the Managing Owner, including the account of the Trust, are likely to be combined for speculative position limit purposes. These position limits are not yet effective and there is uncertainty surrounding their application. If position limits are exceeded by the Managing Owner in the opinion of the CFTC or any other regulatory body, exchange or board, the Managing Owner could be required to liquidate the Trust’s positions to the extent necessary to comply with applicable position limits. Any such liquidation or limited implementation could result in substantial costs to the Trust.

 

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

 

In executing its trading method, the Managing Owner uses combinations of trading systems to generate buy and sell signals in the various markets traded. The Managing Owner has developed, modified, retained and discarded numerous systems over more than 40 years. Consequently, some of the trading systems and combinations of systems currently being used to trade accounts pursuant to the Managing Owner’s diversified portfolio as the Trust is so traded, are not identical to those used 1, 5, 10, 15, 20 or more years ago.

 

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

 

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

 

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

 

The Managing Owner Anticipates the Trust’s Performance To Be Non-Correlated to Stocks and Bonds, Not Negatively Correlated

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

A substantial number of CTAs use technical trading systems, particularly trend-following systems, that may be similar to a portion of 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.

 

Further, the “Volcker Rule” component of the Reform Act has materially restricted proprietary speculative trading by banks, “bank holding companies” and other regulated entities. As a result, there has been a significant influx of new portfolio managers into private investment funds who had previously traded institutional proprietary accounts. Such influx can only increase the competition for the Trust from other talented portfolio managers trading in the Trust’s investment sector.

 

The Trust Is Subject to Conflicts of Interest

 

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

   

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The Managing Owner Has Not Established Formal Procedures to Resolve Conflicts of Interest

 

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

 

Each Investor Will Be Taxed Each Year on Its Share of Trust Profits

 

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

 

A 3.8% tax is imposed on some or all of the net investment income of certain individuals with modified adjusted gross income of over $200,000 ($250,000 in the case of joint filers) and the undistributed net investment income of certain estates and trusts. For these purposes, it is expected that all or a substantial portion of the Unitholder’s share of Trust income will be net investment income. In addition, certain Trust expenses may not be deducted in calculating a Unitholder’s net investment income.

 

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

 

40% of any trading profits on certain U.S. exchange-traded futures contracts and certain foreign currency forward contracts are taxed as short-term capital gains at ordinary income rates (unless offset by capital losses), while 60% of any such trading profits are taxed as long-term capital gains at a lower maximum rate for individuals. 100% of any trading profits from certain bank forward contracts or foreign currency futures contracts traded on a non-U.S. exchange are “marked-to-market” at the end of each year and taxed as short-term capital gains at ordinary income rates (unless offset by capital losses). These rates apply regardless of how long the Trust holds a contract, or an investor his or her Units.

 

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

 

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

 

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

 

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

 

Limitations on the Deductibility of “Investment Advisory Fees”

 

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

   

The IRS Could Audit Both the Trust and Individual Unitholders

 

The Internal Revenue Service (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.

 

Generally, for taxable years beginning after December 31, 2017, new IRS audit procedures will apply to the Trust. Absent an election by the Trust under rules to be established by the IRS, these new audit procedures will require the Trust to determine and pay any underpayment of tax (including interest and penalties) resulting from an adjustment of the Trust’s items of income, gain, loss, deduction or credit at the Trust level without the benefit of Unitholder-level tax items that could otherwise reduce tax due on any adjustment and, where the adjustment reallocates any such item from one Unitholder to another, without the benefit of any decrease in any item of income or gain (or increase in any item of deduction, loss or credit). The cost of such underpayment will be borne by Unitholders in the year of adjustment, without any Trust or Unitholder-level tax deduction or credit for the Trust’s payments, rather than by those who were Unitholders in the taxable year to which the adjustment relates.

 

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Accounting for Uncertain Tax Positions

 

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

 

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 none or only its pro rata share, of all available customer funds segregated by the clearing broker or counterparty. In some jurisdictions, the Trust may only be an unsecured creditor of its brokers in the event of bankruptcy or administration of such brokers. The Managing Owner attempts to mitigate this risk by selecting only well-capitalized, major financial institutions as clearing brokers and foreign currency counterparties, but there can be no assurance that even a well-capitalized, major institution will not become bankrupt, and recent events have demonstrated that even major financial institutions of the type with which the Trust may deal in the financial markets can and do fail.

 

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

 

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

 

Certain Special Considerations Related to Forward and Spot Trading

 

The Trust will conduct all or substantially all of its currency forward and related options trading in lightly regulated markets rather than on futures exchanges or through “retail” foreign exchange markets that are subject to more rigorous regulation of the CFTC or other regulatory bodies. In such markets, a counterparty may not settle a transaction with the Trust in accordance with its terms because the counterparty is either unwilling or unable to do so (for example, because of a credit or liquidity problem affecting the counterparty), potentially resulting in significant loss. In addition, counterparties generally have the right to terminate trades under a number of circumstances, including, for example, declines in the Trust’s net assets and certain “key person” events. Any premature termination of the Trust’s currency forward trades could result in material losses for the Trust, as the Trust may be unable to quickly re-establish those trades and may only be able to do so at disadvantageous prices.

 

Trust funds on deposit with the currency forward and spot counterparties with which the Trust trades are not protected by the same segregation requirements imposed on CFTC-regulated commodity brokers in respect of customer funds deposited with them. Although the Trust deals only with major financial institutions as currency forward and spot counterparties, the insolvency or bankruptcy of a currency forward or spot counterparty could subject the Trust to the loss of its entire deposit with such counterparty. The forward and spot markets are well established. However, it is impossible to predict how, given certain unusual market scenarios, the evolving regulatory environment for these markets might affect the Trust, and the events underlying the bankruptcies of various counterparties have underscored, among other things, the risks of maintaining capital at unregulated entities. Further, as demonstrated by the insolvency and liquidation of MF Global Inc., customer funds held by a broker in bankruptcy may not be distributed promptly and may be subject to a lengthy claims process. Commodity broker bankruptcies are not insured by any governmental agency, and investors would not have the benefit of any protection such as that afforded customers of bankrupt securities broker-dealers by the Securities Investors Protection Corporation. 

 

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. Furthermore, the inter-bank currency markets may in the future become subject to increased regulation under the Reform Act, a development which may entail increased costs and result in burdensome reporting requirements. The imposition of credit controls by governmental authorities or the implementation of regulations pursuant to the Reform Act might limit such forward trading to less than that which the Managing Owner would otherwise recommend, to the possible detriment of the Trust.

 

Regulation of Swap Trading is Evolving and May Involve Counterparty Risk

 

The Trust may engage in trading commodity swaps.  Swaps involve many of the same risks as those described above with respect to forward contracts.  Many swap contracts are not currently required to be cleared by a centralized clearinghouse; rather, banks and dealers act as principals in much of the swap market.  As a result, the Trust may be subject to the risk of the inability or refusal to perform with respect to such contracts on the part of the counterparties with which the Trust trades.  The Managing Owner intends to enter into swaps on behalf of the Trust only with highly creditworthy banks and dealers, but there can be no assurance that even highly creditworthy banks and dealers will have the ability to, or will not refuse to, perform with respect to such contracts. Regulation of the swap market is evolving, both in the U.S. and internationally. The CFTC has, for example, adopted various regulations which may restrict the Trust’s ability to utilize swaps or may make swap contracts more costly to trade with respect to certain non-security based swaps.  Finally, swaps may be illiquid and participants in the swap market are not required to make continuous markets in the swap contracts they trade.

 

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Forwards, Swaps and Other Derivatives are Subject to Varying CFTC Regulation

 

Enacted in July 2010, the Reform Act includes provisions that comprehensively regulate the OTC derivatives markets for the first time. The Reform Act will ultimately mandate that a substantial portion of OTC derivatives must be executed in regulated markets and be submitted for clearing to regulated clearinghouses. OTC trades submitted for clearing are subject to minimum initial and variation margin requirements set by the relevant clearinghouse, as well as margin requirements mandated by the CFTC, SEC and/or federal prudential regulators. The regulators also have broad discretion to impose margin requirements on non-cleared OTC derivatives.

 

OTC derivative dealers also are required to post margin to the clearinghouses through which they clear their customers’ trades instead of using such margin in their operations, as was widely permitted before the Reform Act. This has increased and will continue to increase the dealers’ costs, which costs are generally passed through to other market participants in the form of new and higher fees, including clearing account maintenance fees, and less favorable dealer marks.

 

The CFTC also now requires certain derivative transactions that were previously executed on a bi-lateral basis in the OTC markets to be executed through a regulated futures or swap exchange or execution facility. Such requirements may make it more difficult and costly for investment funds, including the Trust, to enter into highly tailored or customized transactions. They may also render certain strategies in which the Trust might otherwise engage impossible or so costly that they will no longer be economical to implement. If the Trust decides to execute derivatives transactions through such exchanges or execution facilities — and especially if it decides to become a direct member of one or more of these exchanges or execution facilities — the Trust would be subject to the rules of the exchange or execution facility, which would bring additional risks and liabilities, and potential requirements under applicable regulations and under rules of the relevant exchange or execution facility.

 

OTC derivative dealers are now required to register with the CFTC and will ultimately be required to register with the SEC. Registered swap dealers will also be subject to new minimum capital and margin requirements and are subject to business conduct standards, disclosure requirements, reporting and recordkeeping requirements, transparency requirements, position limits, limitations on conflicts of interest, and other regulatory burdens. These requirements further increase the overall costs for OTC derivative dealers, which may be passed along to market participants as market changes continue to be implemented. The overall impact of the Reform Act on the Trust remains uncertain and it is unclear how the OTC derivatives markets will continue to adapt to this new regulatory regime, along with additional, sometimes overlapping, regulatory requirements imposed by non-U.S. regulators.

 

Although the Reform Act will require many OTC derivative transactions previously entered into on a principal-to-principal basis to be submitted for clearing by a regulated clearinghouse, certain of the derivatives that may be traded by the Trust may remain principal-to-principal or OTC contracts between the Trust and third parties entered into privately. The risk of counterparty nonperformance can be significant in the case of these OTC instruments, and “bid-ask” spreads may be unusually wide in these heretofore substantially unregulated markets. While the Reform Act is intended in part to reduce these risks, its success in this respect may not be evident for some time after the Reform Act is fully implemented. To the extent not mitigated by implementation of the Reform Act, if at all, the risks posed by such instruments and techniques, which can be extremely complex and may involve leveraging of the Trust’s assets, include: (1) credit risks (the exposure to the possibility of loss resulting from a counterparty’s failure to meet its financial obligations); (2) market risk (adverse movements in the price of a financial asset or commodity); (3) legal risks (the characterization of a transaction or a party’s legal capacity to enter into it could render the financial contract unenforceable, and the insolvency or bankruptcy of a counterparty could preempt otherwise enforceable contract rights); (4) operational risk (inadequate controls, deficient procedures, human error, system failure or fraud); (5) documentation risk (exposure to losses resulting from inadequate documentation); (6) liquidity risk (exposure to losses created by inability to prematurely terminate the derivative); (7) systemic risk (the risk that financial difficulties in one institution or a major market disruption will cause uncontrollable financial harm to the financial system); (8) concentration risk (exposure to losses from the concentration of closely related risks such as exposure to a particular industry or exposure linked to a particular entity); and (9) settlement risk (the risk faced when one party to a transaction has performed its obligations under a contract but has not yet received value from its counterparty). 

 

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

 

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

   

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

 

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

 

Additionally, the computer systems, networks and devices used by the Managing Owner, the Trust and service providers that carry out routine business operations employ a variety of protections designed to prevent damage or interruption from computer viruses, network failures, computer and telecommunication failures, infiltration by unauthorized persons and security breaches. Cybersecurity breaches can include unauthorized access to systems, networks or devices; infection from computer viruses or other malicious software code; and attacks that shut down, disable, slow or otherwise disrupt operations, business processes or website access and/or functionality.

 

Despite the various protections utilized to protect against cybersecurity threats, systems, networks and/or devices potentially can be breached. Such cybersecurity breaches may cause disruptions and impact business operations, potentially resulting in financial losses to the Trust and Unitholders; interference with the Managing Owner’s ability to calculate the value of an investment; impediments to trading; the inability of the Trust and its service providers to transact business; violations of applicable privacy and other laws; regulatory fines, penalties, reputational damage, reimbursement or other compensation costs or additional compliance costs; as well as the inadvertent release of confidential information.

 

Similar adverse consequences could result from cybersecurity breaches affecting counterparties with which the Trust engages in transactions; governmental and other regulatory authorities; exchange and other financial market operators, banks, brokers, dealers, insurance companies and other financial institutions; and other parties. In addition, substantial costs may be incurred by these entities in order to prevent any cybersecurity breaches in the future.

 

Item 1B. Unresolved Staff Comments

 

Not required.

 

Item 2.    Properties

 

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

 

Item 3.    Legal Proceedings

 

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

 

Item 4.    Mine Safety Disclosures

 

Not required.

PART II

 

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

 

(a)    Market Information

 

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

 

(b)    Holders

 

As of December 31, 2016, there were 6,068 holders of Series 1 Units, 1 holder of Series 2 Units, 325 holders of Series 3 Units and 1 holder of Series 4 Units.

 

(c)    Dividends

 

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

 

(d)    Securities Authorized for Issuance Under Equity Compensation Plans

 

None.

 

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

 

There have been no sales of unregistered securities of the Trust during 2014, 2015 or 2016. 

 

(f)    Purchases of Equity Securities by the Issuer

 

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

 

The following table summarizes the redemptions by Series 1 and Series 3 Unitholders during the fourth calendar quarter of 2016. There were no redemptions by Series 2 or Series 4 during the fourth calendar quarter of 2016.

 

   Series 1 Units   Series 1   Series 3 Units   Series 3 
Redemption Date  Redeemed   Unit NAV   Redeemed   Unit NAV 
October 31, 2016   (2,123.520)   1,200.85    0.000    1,540.61 
November 30, 2016   (2,187.861)   1,183.37    (705.889)   1,527.01 
December 31, 2016   (1,891.899)   1,196.11    (88.304)   1,545.19 
    (6,203.280)        (794.193)     

 

Item 6.    Selected Financial Data

 

The following is a summary of operations for the fiscal years 2016, 2015, 2014, 2013, and 2012 and total assets of the Trust at December 31, 2016, 2015, 2014, 2013, and 2012.

 

   For the Year
Ended
   For the Year
Ended
   For the Year
Ended
   For the Year
Ended
   For the Year
Ended
 
   December 31,
2016
   December 31,
2015
   December 31,
2014
   December 31,
2013
   December 31,
2012
 
Revenue:                         
Total net realized and unrealized gains (losses)*  $34,647,535   $19,785,166   $48,665,853   $(14,244,192)  $(23,977,401)
Interest income   941,571    477,084    289,332    640,996    870,824 
                          
Expenses:                         
Profit share   551,582    228,356    119,598    0    0 
Administrative expenses**   1,232,905    1,190,361    1,301,056    1,777,809    2,096,014 
Brokerage fees***   12,411,325    12,748,918    15,348,327    23,947,630    37,951,734 
Management fees   460,718    385,131    405,490    574,919    651,848 
                          
Net income (loss) after profit share to Managing Owner  $20,932,576   $5,709,484   $31,780,714   $(39,903,554)  $(63,806,173)
                          
Total assets  $230,758,101   $214,222,832   $246,891,692   $306,334,381   $499,260,401 
Total Trust capital  $223,164,728   $208,845,956   $240,589,206   $288,237,729   $473,660,034 
Net Asset Value per Series 1 Unit  $1,196.11   $1,091.87   $1,071.85   $953.24   $1,061.34 
Net Asset Value per Series 2 Unit  $1,522.28   $1,365.30   $1,300.38   $1,116.03    1,191.38 
Net Asset Value per Series 3 Unit  $1,545.19   $1,383.72   $1,315.44   $1,126.21   $1,199.25 
Net Asset Value per Series 4 Units  $1,838.98   $1,574.68   $1,450.17   $1,209.21    1,262.11 
Increase (decrease) in Net Asset Value per Series 1 Unit  $104.24   $20.02   $118.61   $(108.10)  $(113.73)
Increase (decrease) in Net Asset Value per Series 2 Unit  $156.98   $64.92   $184.35   $(75.35)   (70.56)
Increase (decrease) in Net Asset Value per Series 3 Unit  $161.47   $68.28   $189.23   $(73.04)  $(67.85)
Increase (decrease) in Net Asset Value per Series 4 Units  $264.30   $124.51   $240.96   $(52.90)  $(44.98)

 

 C: 
 12 

 

  

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

 

** Includes custody fees and other expenses.

 

*** Net of Managing Owner commission rebate to Unitholders for the years ended December 31, 2016 ($777,662), 2015 ($817,820) and 2014 ($454,987).

 

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

 

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

 

Liquidity and Capital Resources

 

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

 

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

 

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

  

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

 

The Managing Owner has procedures in place to control market risk, although there can be no assurance that they will, in fact, succeed in doing so. These procedures primarily focus on: (1) real time monitoring of open positions; (2) diversifying positions among various markets; (3) limiting the assets committed as margin or collateral, generally within a range of 5% to 35% of an account’s net assets at exchange, though the amount may at any time be substantially higher; and (4) prohibiting pyramiding – that is, using unrealized profits in a particular market as margin for additional positions in the same market. 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, forward and spot contracts or the Trust’s satisfaction of the obligations may exceed the amount recognized in the Statements of Financial Condition of the Trust.

 

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

 

 C: 
 13 

 

  

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

 

The Trust’s assets are generally held as cash or cash equivalents, including short-term U.S. government obligations, which are used to margin the Trust’s futures, forward and spot 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, forward and spot trading, the Trust’s assets are highly liquid and are expected to remain so. During its operations through December 31, 2016, 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, forward and spot contracts, including related income and expenses, on a trade date basis. Open futures contracts traded on an exchange are valued at fair value, which is based on the closing settlement price on the exchange where the futures contract is traded by the Trust on the day with respect to which net assets are being determined. Open spot contracts are recorded at fair value based on current market prices (“spot prices”). Open forward currency contracts are recorded at fair value, based on pricing models that consider the current market prices plus the time value of money (“forward points”) and contractual prices of the underlying financial instruments. The spot prices and forward points for open forward currency contracts are generally based on the 3:00 P.M. New York time prices provided by widely used quotation service providers on the day with respect to which net assets are being determined. The forward points from the quotation service providers are generally in periods of one month, two months, three months and six months forward while the contractual forward delivery dates for the foreign currency contracts traded by the Trust may be in between these periods.

 

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

 

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

 

Results of Operations

 

The Trust’s success depends on the Managing Owner’s ability to recognize and capitalize on trends and other profit opportunities in different sectors of the global capital and commodity markets. The Managing Owner’s investment and trading methods are confidential, so that substantially the only information that can be furnished regarding the Trust’s results of operations is its performance record. Unlike most operating businesses, general economic or seasonal conditions have no direct effect on the profit potential of the Trust, while, at the same time, its past performance is not necessarily indicative of future results. Because of the speculative nature of its trading, operational or economic trends have little relevance to the Trust’s results. The Managing Owner believes, however, that there are certain market conditions — for example, markets with strong price trends — in which the Trust has a better opportunity of being profitable than in others.

  

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

 

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

 

2016

 

During 2016, the Trust achieved net realized and unrealized gains of $34,647,535 from its trading operations (including foreign exchange transactions and translations). Brokerage and custodial fees of $13,188,987, management fees of $460,718, administrative expenses of $1,192,572 and custody fees of $40,333 were paid or accrued. The Trust allocated $551,582 in profit share to the New Profits Memo Account for the benefit of the Managing Owner. Interest income of $941,571 and Managing Owner commission rebate to Unitholders of $777,662 partially offset the Trust expenses resulting in a net income after profit share to the Managing Owner of $20,932,576.

 

 C: 
 14 

 

  

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

 

Sector  % Gain (Loss) 
Currencies   4.00%
Energies   (2.86)%
Grains   1.41%
Interest rates   7.54%
Livestock   0.11%
Metals   (0.45)%
Softs   (0.32)%
Stock indices   7.99%
      
Total   17.42%

 

The Trust was profitable for the year due to gains from trading financial markets—equity futures, interest rate futures, and currency forwards. Trading of commodity futures—especially energy— was unprofitable.

 

Recurring concerns about global growth that International Monetary Fund Managing Director Christine Lagarde described early in the year as ‘…too low, too fragile and facing increased risks to its durability…”; persistently low inflation; accommodative monetary policy worldwide, especially during the first three quarters of the year that saw easing moves by the Bank of Japan, European Central Bank, People’s Bank of China, and Bank of England; and periodic flight to safety demand due to political developments and/or terrorist related events in China, Brazil, the U.K., Turkey, Belgium, France, Germany, Italy, the Middle East and the U.S. among others generated strong demand for government securities for much of 2016. Later, evidence that global growth and inflation were picking up; the prospect that the Trump administration’s fiscal, regulatory, trade and immigration initiatives could lead to bigger deficits, more growth and more inflation; and the Federal Reserve’s (the “Fed”) ¼% interest rate increase in December—after a year of on again-off again rhetoric—pushed interest rates up sharply from their summer lows. On balance, long positions in German, French, British, and Japanese note, bond and short-term interest rate futures were highly profitable. U.S. interest rate futures’ trading was fractionally profitable overall, although gains on long positions through July were largely offset by losses over the last five months of the year. Losses on long positions in Italian bond futures during the Banca Monte dei Paschi de Siena crisis late in the year outdistanced gains that had accrued earlier.

 

Against the background of broadly accommodative monetary policy worldwide; with actual growth improving modestly beginning in late summer; and with expected growth boosted by a surge in “animal spirits” due to the Trump administration’s plans, equity markets generally advanced during the year. Thus, despite some sharp broad based selloffs—in January-February on China and oil price concerns, in June around Brexit, and in October-November around the U.S. election—long positions in U.S., U.K., Canadian, Australian, German, French and Taiwanese equity futures were profitable, especially late in the year. A short vix trade was also quite profitable. Short positions in Chinese, Hong Kong, Singaporean and Korean futures were profitable during the January decline. Short positions in Japanese equity futures registered gains in February and long positions were profitable at yearend. Finally, short positions in Spanish equity futures were profitable during the January and June selloffs, and a long trade posted a gain during the fourth quarter.

 

Foreign exchange rates were volatile during the year. The U.S. dollar opened 2016 on a strong note given a search for safety, declining oil prices and the Fed’s “relatively hawkish” policy position. Thereafter, through mid-year, the U.S. dollar weakened in volatile trading reflecting the Fed’s feckless delays in raising official interest rates that were underscored in June when Fed Chair Janet Yellen cited real concerns that the “temporary headwinds” that had blunted the Fed’s rate rise program might actually reflect Larry Summer’s “secular stagnation” rather than just passing concerns. However, following the surprise decision of the British electorate to leave the European Union, a flight to safety and quality prompted an upward U-turn for the U.S. dollar. After trading sideways for the remainder of the summer, the U.S. dollar moved higher from late September through yearend to a 14 year high as U.S. economic data improved, as the Trump triumph boosted sentiment and as the Fed finally decided to raise rates after a one year hiatus. A long U.S. dollar trade against the British pound was profitable, particularly given the surprise “Brexit” vote. A long U.S. position versus the Mexican peso was profitable in spite of several interest rate hikes by the Bank of Mexico. Long U.S. dollar positions relative to the currencies of Canada, Switzerland, the Czech Republic, Sweden, the Euro, Japan, Korea and Singapore posted gains, especially late in the year. The ousting of the Rousseff government in Brazil led to gains on a long real position against the U.S. dollar. Rising metal prices and high interest rates led to profits on long New Zealand dollar and South African rand trades against the U.S. unit. Trading versus the Turkish lira and Russian ruble was also profitable. On the other hand, trading the U.S. dollar against the currencies of Australia, Chile, Israel, Norway and Poland was unprofitable, as was Euro non-U.S. dollar cross rate trading.

 

 C: 
 15 

 

  

With the International Energy Agency suggesting that the “…world could drown in [oil] oversupply…” ; with crude oil production at or near record levels in many countries—e.g. Saudi Arabia, Russia, the U.S., Iraq; with Iranian exports ramping up; and with global demand still sluggish, crude prices slumped to about $27 per barrel in January. Then, reports that Saudi Arabia, Russia and a number of other producers were discussing plans for a production freeze and would meet in Doha in April sparked an oil price rebound to about $40/barrel. Subsequently, WTI crude traded in a wide range between $40 and $50 per barrel until early December, with prices dropping whenever the reality of excess production and high inventories dominated the discussion, and prices spiking higher whenever the Organization of the Petroleum Exporting Countries (“OPEC”) threat reemerged. Then, on November 30, OPEC announced an agreement to cut group production by a larger than expected 1.2 million barrels a day and non- OPEC producers, led by Russia, followed in early December with a 600,000 barrel per day reduction. As a result crude prices, which had fallen sharply from early October to late November, spiked upward by 9-10%. In this environment, trading of Brent and WTI crude oil, RBOB gasoline, London gas oil, heating oil and natural gas were each unprofitable.

 

Industrial metals price volatility during the year reflected uncertain economic developments, especially in China, as well as U.S. dollar and energy prices volatility. Trading of copper, aluminum, lead, nickel, palladium, platinum and silver were each marginally unprofitable. One the other hand, a long gold trade in February, a short gold trade in May, and a long zinc position produced partially offsetting gains.

 

Long positions in soybeans and soybean meal were profitable during the second quarter as bad weather in Brazil and Argentina underpinned prices for most of the period. With corn inventories at 30 year highs and with worldwide grain production expected to increase 10% this year, short corn and wheat positions were profitable, particularly in June, July and August. Trading of soybean oil was slightly unprofitable.

 

Trading of soft and tropical commodities was fractionally unprofitable.

 

2015

 

During 2015, the Trust achieved net realized and unrealized gains of $19,785,166 from its trading operations (including foreign exchange transactions and translations). Brokerage and custodial fees of $13,566,738, management fees of $385,131, administrative expenses of $1,140,008 and custody fees of $50,353 were paid or accrued. The Trust allocated $228,356 in profit share to the New Profits Memo Account for the benefit of the Managing Owner. Interest income of $477,084 and Managing Owner commission rebate to Unitholders of $817,820 partially offset the Trust expenses resulting in a net income after profit share to the Managing Owner of $5,709,484.

 

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

 

Sector  % Gain (Loss) 
Currencies   0.08%
Energies   4.62%
Grains   (1.16)%
Interest rates   3.41%
Livestock   0.05%
Metals   2.57%
Softs   0.36%
Stock indices   (0.47)%
      
Total   9.46%

 

The Trust was profitable for the year largely due to gains from long interest rate futures positions, and short energy and metal future trades. Trading of stock index and agricultural commodity futures were unprofitable, while currency trading was flat as gains from trading the U.S. dollar were offset by losses from non-dollar cross rate trading.

 

Vacillating growth, inflation, monetary policy and political prospects worldwide led to volatile trading conditions in most markets throughout 2015. Uneven growth against the background of stubborn, below target price and wage inflation in the U.S. produced on again-off again Federal Reserve rate hike discussions that were only resolved in December. The ECB’s QE program—started in the first quarter—seemed to put a floor under European growth, although the recovery has been sluggish and targeted inflation remains a distant hope. China’s policy makers continued to struggle with the transition away from export and manufacturing led growth to expansion driven by consumption and domestic demand; and from controlled to market based equity, foreign exchange and fixed income prices. Hence, even as the PBOC instituted numerous easing actions—including 6 official interest rate cuts in the past year—growth continued to ratchet lower. Finally, in Japan both growth and inflation continue to straddle the zero line. These large country problems spilled into smaller developed countries and into emerging markets as shrinking global trade hurt growth and as capital outflows pressured exchange rates and commodity producers. Throughout the year, markets were unsettled periodically by elections, politicking and political corruption that threatened the prevailing political structures in countries such as: Europe (Greece, Turkey, Spain, Portugal, France, U.K., and Poland), South America (Brazil, Argentina, and Venezuela), South Africa, Asia (China, Malaysia, Thailand, Indonesia, Taiwan, Singapore, and Australia), Canada and the U.S. Moreover, markets participants had to price in geopolitical ructions and terrorism that involved Syria, Iran, Iraq, Saudi Arabia, Yemen, Russia, Turkey, Ukraine, France and the U.S.

 

 C: 
 16 

 

  

Although energy prices were supported during the first half of 2015 by some apparent stabilization of the worldwide growth outlook amid aggressive easing of monetary policy from the ECB, PBOC and Bank of Japan, energy prices plunged again during the July-December period. The unrelenting production emanating especially from Saudi Arabia, Russia, the U.S., Iraq, and prospectively from Iran, and historically high inventories drove crude prices to 11 year lows. U.S. natural gas prices plunged to 17 year lows in response to ample supplies and to especially warm Fall and Winter weather. As a result, short positions in Brent crude, WTI crude, heating oil and London gas oil and natural gas were highly profitable.

 

Industrial metals prices followed a similar path to energy prices, stabilizing or rising early in the year before falling sharply thereafter. A lack of growth acceleration in the developed world; the persistent slowdown in China’s manufacturing and real estate sectors; and constrained growth in emerging markets, especially weighed down by the Russian and Brazilian recessions, crimped demand for metals. Also, supplies of industrial metals were abundant, although there were some successful efforts by International companies and China to close some mines and reduce production that did restrain the price declines. Short positions in copper, aluminum, nickel, zinc and palladium were profitable.

 

Long positions in U.S. note, bond and short term interest rate futures were profitable, especially early in the year when growth disappointed and the Fed dragged its feet on raising official rates, and again during late summer when Chinese stocks collapsed and the Fed delayed once more. At other times, particularly in the fourth quarter when the Fed finally did raise official rates, long positions were unprofitable and the gains for 2015 were reduced. A long position in Canadian bonds was profitable as the energy collapse and lack of inflation underpinned demand. Long positions in Japanese bonds and British note and short-rate futures were fractionally profitable as well. For much of the year, long positions in Continental—German, French and Italian—interest rate futures were profitable as the ECB’s implementation of QE spurred demand. However, interest rates, after reaching extraordinarily low levels, spiked higher in late Spring amid signs that growth was accelerating and that the Greek crisis was deteriorating, leading to losses on long positions. Again in December, after the ECB’s extension of QE was viewed by market participants as inadequate, interest rates spiked higher, bringing losses. Overall, therefore, trading of Continental interest rate futures was only slightly profitable for 2015.

 

Against an uncertain economic and political background, trading of equity futures produced a fractional loss overall and was volatile throughout the year, especially during the Chinese stock collapse in June through August. Long positions in U.S. and Canadian stock index futures, and trading of Korean, Japanese, Taiwanese and South African equity futures registered losses. On the other hand, long positions in European equity futures were profitable in the wake of the ECB’s QE program. Also, long positions in Chinese and Hong Kong futures were profitable in the first half of the year, while short trades showed gains in the second half. A short vix trade was profitable too.

 

The U.S. dollar, which was buffeted by a multitude of economic and political concerns, strengthened during the year although the path was uneven. Long dollar positions versus the euro and yen were profitable as the ECB introduced QE in the first quarter and as the Bank of Japan added to its accommodation. Later in the year, as emerging economies and commodity producing countries came under pressure, long dollar trades against the currencies of Canada, Russia, Mexico, Brazil, Colombia, Turkey and New Zealand generated gains. On the other hand, a long dollar/short Swiss franc trade sustained a large loss when the Swiss National Bank unexpectedly ended the franc’s peg to the euro and the franc soared by 15% on January 15. Trading the dollar against the currencies of Australia, Chile, Korea, India, Poland, the Czech Republic, Sweden and South Africa also produced losses. Finally, non-dollar cross rate trading was unprofitable largely due to trading the euro against a variety of currencies.

 

Trading of agricultural commodities was fractionally unprofitable. Trading of corn and wheat produced losses, especially during June and July when prices, after having drifted lower under the weight of large inventories and solid crop reports, spiked higher on spurious reports that China was aggressively buying grains and on a revised USDA forecast suggesting a less favorable crop outlook. Prices subsequently receded but positions had swung from short to long and losses were sustained on both sides. Trading of cotton was fractionally unprofitable. A short coffee trade was profitable as large supplies weighed on prices and a long sugar trade produced a gain late in the year, as did short livestock trades.

 

2014 

During 2014, the Trust achieved net realized and unrealized gains of $48,665,853 from its trading operations (including foreign exchange transactions and translations). Brokerage and custodial fees of $15,803,314, management fees of $405,490, administrative expenses of $1,239,830 and custody fees of $61,226 were paid or accrued. The Trust allocated $119,598 in profit share to the New Profits Memo Account for the benefit of the Managing Owner. Interest income of $289,332 and Managing Owner commission rebate to Unitholders of $454,987 partially offset the Trust expenses resulting in a net income after profit share to the Managing Owner of $31,780,714.

 

 C: 
 17 

 

  

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

  

Sector  % Gain (Loss) 
Currencies   0.64%
Energies   1.31%
Grains   1.46%
Interest rates   15.65%
Livestock   0.43%
Metals   (0.74)%
Softs   0.91%
Stock indices   1.26%
      
Total   20.92%

 

The Trust was profitable for the year largely due to gains from long interest rate futures positions, although profits from trading currency forwards, and stock index, energy and agricultural commodity futures augmented the advance. On the other hand, trading of metal futures was unprofitable.

 

The environment for trading these markets was favorable due to the differential growth, inflation and policy paths that were followed by the world’s major economies and central banks—Federal Reserve, ECB, Bank of Japan, People’s Bank of China, and Bank of England. Furthermore, within most major regions of the world — such as North America, Latin and South America, Europe, and non-Japan Asia — there were also varying trajectories for growth, inflation and policy among the constituent countries. While the worldwide growth outlook at the start of 2014 was optimistic, the results were somewhat disappointing due to several events including: the Russian incursions in Crimea and the Ukraine and subsequent sanctions that dented European growth; the collapse of oil and industrial commodity prices that weakened growth in commodity producing nations; and the greater than expected slowdown in China. Then, on the inflation front, an anticipated acceleration never materialized as prices for oil, industrial commodities and many foodstuffs fell sharply. Moreover, wages and core prices failed to accelerate even where growth remained solid, i.e. the U.S. and U.K. The mosaic for the trading environment was also influenced by numerous political and social events during 2014 such as: the coup in Thailand, Modi’s election in India, Jokowi’s victory in Indonesia, the Erdogan election in Turkey, Abe’s re-election in Japan, the Republican Congressional win in the U.S., the Scottish independence vote, the Hong Kong democracy protests and the liberalization of Shanghai equity markets. Finally, the persistent and escalating turmoil in the Middle East encompassing ISIL, Syria, Iran, Iraq and Libya and the terrorism it spawns shadowed market events throughout the year.

 

With inflation absent, growth somewhat disappointing and the social and political background unsettled, it should come as no surprise that long positions in interest rate futures across the maturity spectrum would be profitable. Thus, long trades in U.S., U.K., Australian, Canadian, Japanese, German, French and Italian note, bond and short term futures were profitable.

 

Equity market performances were mixed around the globe with several serious corrections throughout the year adding to trader anxiety. Long positions in U.S., Canadian, Japanese, Taiwanese, Indian, and South African stock index futures were profitable. These gains were partially offset by losses from long positions in Dutch, British, Euro stoxx, Korean and Australian futures. A short vix trade also registered a loss as volatility rose, particularly in the second half of the year.

 

Solid growth, the end of QE and prospects for interest rate increases underpinned the U.S. dollar, while sluggish growth, anemic inflation and increased ease in monetary policies undermined the euro and yen. Hence, long dollar trades versus the euro and yen were profitable, as were long dollar positions against the Czech, Swedish, Chilean and Israeli currencies. A long pound sterling trade relative to the dollar was also profitable, and so too were a long New Zealand Dollar/short Canadian dollar trade and trading of the euro versus the Swedish and South African units. On the other hand, short dollar trades against Korea, Mexico and Canada posted losses, as did trading of the U.S. unit against South Africa, Singapore and Turkey. Trading the euro versus Eastern Europe and Norway, and the Aussie dollar against the yen and pound were also unprofitable.

 

Short positions in corn, wheat and soybeans were profitable as record grain crops weighed on prices. A long soybean meal trade and spread trading of grains added to the gains. Trading of Kansas City wheat was slightly unprofitable. A short sugar trade benefitted from persistent oversupply and large inventories. A short cotton trade was profitable as Chinese demand softened and supplies remained plentiful. A long cattle trade produced a fractional gain.

 

Energy trading produced a gain. Long positions in crude oil, RBOB gasoline and London gas oil were profitable early in the year when growth was expected to improve and Middle-East turmoil underpinned prices. During the second half of 2014, as prices first fell and then collapsed as demand plunged and supply from the U.S. continued to advance, short trades in the same markets also registered small gains. The second half profits were tempered somewhat as short-term, non-trend factors caused us to exit our trend determined short positions, and at times take long positions even as energy prices fell. Energy spread trading was slightly profitable.

 

 C: 
 18 

 

  

Metal prices were volatile in 2014 in the wake of changing outlooks on growth, inflation, and the U.S. dollar. Losses from trading copper, aluminum and lead outpaced the gain from a long nickel position that benefitted from export restrictions imposed by Indonesia, and from long platinum and short silver trades.

 

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, forward and spot contracts, both long (contracts to buy) and short (contracts to sell). The Trust may also trade swaps. All such contracts are settled by offset, not delivery. Substantially all such contacts are for settlement within four months of the trade date and 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, 2016 and December 31, 2015.

 

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, as amended (the “Exchange Act”)). All quantitative disclosures in this section are deemed to be forward-looking statements for purposes of the safe harbor, except for statements of historical fact.

 

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

 

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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 dealers and exchanges using historical price studies as well as an assessment of current market volatility (including the implied volatility of the options on a given futures contract) and economic fundamentals to provide a probabilistic estimate of the maximum expected near-term one day price fluctuation.

 

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, 2016 and 2015. During fiscal years 2016 and 2015, the Trust’s average total capitalization was approximately $226 million and $226 million, respectively.

 

Fiscal Year 2016
   Average   % of Average   Highest   Lowest 
Market Sector  Value at Risk   Capitalization   Value At Risk   Value At Risk 
Currencies  $6.9    3.1%  $8.9   $5.8 
Energies  $1.3    0.6%  $1.7   $1.2 
Grains  $1.2    0.5%  $1.6   $0.6 
Interest rates  $6.2    2.7%  $8.9   $4.2 
Livestock  $0.1    0.0%  $0.2   $0.0 
Metals  $1.6    0.7%  $2.3   $1.0 
Softs  $0.2    0.1%  $0.3   $0.2 
Stock indices  $9.4    4.2%  $13.2   $6.4 
Total  $26.9    11.9%          

 

Fiscal Year 2015
   Average   % of Average   Highest   Lowest 
Market Sector  Value at Risk   Capitalization   Value At Risk   Value At Risk 
Currencies  $6.1    2.7%  $7.4   $5.0 
Energies  $2    0.9%  $3.7   $0.7 
Grains  $1    0.4%  $1.5   $0.7 
Interest rates  $6.7    3.0%  $7.8   $5.3 
Livestock  $0.1    0.0%  $0.1   $0.1 
Metals  $2.5    1.1%  $2.8   $2.1 
Softs  $0.4    0.2%  $0.5   $0.3 
Stock indices  $8.6    3.8%  $12.2   $5.9 
Total  $27.4    12.1%          

 

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 approximate capitalization at the end of each month during the fiscal years 2016 and 2015. Dollar amounts represent millions of dollars. 

 

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

 

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

 

Non-Trading Risk

 

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

 

The Trust also has non-trading cash flow risk as a result of holding a substantial portion (approximately 90%) of its assets in U.S. Treasury notes and other short-term debt instruments (as well as any market risk they represent) for margin and cash management purposes. Although the Managing Owner does not anticipate that, even in the case of major interest rate movements, the Trust would sustain a material mark-to-market loss on its securities positions, if short-term interest rates decline so will the Trust’s cash management income. The Trust also maintains a portion (approximately between 5% and 10%) of its assets in cash and in a U.S. government securities and related instruments money market fund. These cash balances are also subject (as well as any market risk they represent) to cash flow risk, which is not material.

  

Qualitative Disclosures Regarding Primary Trading Risk Exposures

 

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

 

The following were the primary trading risk exposures of the Trust as of December 31, 2016, by market sector.

 

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

 

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

 

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

 

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

 

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

 

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

 

Qualitative Disclosures Regarding Non-Trading Risk Exposure

 

The following were the only non-trading risk exposures of the Trust as of December 31, 2016.

 

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

 

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

 

Qualitative Disclosures Regarding Means of Managing Risk Exposure

 

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

 

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

 

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

 

When arriving at the portfolio allocation, the Managing Owner generally seeks maximum diversification subject to liquidity and sector concentration constraints, and each market is traded using a diversified (but generally not optimized for each particular market) set of trading systems. The markets traded and allocations are reviewed at least monthly, although changes may occur more or less frequently. The following factors, among others, are considered in constructing a universe of markets to trade for the Trust: profitability, liquidity of markets, professional judgment, desired diversification, transaction costs, exchange regulations and depth of market. Once the universe of markets is established, the Managing Owner’s simulation and optimization techniques help determine which markets to include in the Trust’s portfolio. The current allocation to any market in the Trust’s portfolio does not exceed 3% of total market exposure, measured by risk allocation.

 

Risk is a function of both price level and price volatility. The Managing Owner sizes the position in each market taking into account its measurement of risk based on price level and volatility in that market. Market exposure is then managed by the position-sizing models which measure the risk in the portfolio’s position in each market. In the event the model determines that the risk has changed beyond an acceptable threshold, it will signal a change in the position — a decrease in position size when risk increases and an increase in position size when risk decreases. The Managing Owner’s position-sizing models maintain overall portfolio risk and distribution of risk across markets within designated ranges. The position-sizing model manages the position traded by each of the (directional) trading systems discussed above. A secondary benefit of the position-sizing model can be timely profit taking. Because markets tend to become more volatile after a profitable trend has been long underway, the position-sizing model often signals position reductions before trend reversals.

 

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

  

Additional money management principles applicable to the portfolio as a whole include: (1) limiting the assets committed as margin or collateral, generally within a range of 5% to 35% of an account’s net assets at exchange, though the amount may at any time be substantially higher or lower and (2) prohibiting pyramiding — that is, using unrealized profits in a particular market as margin for additional positions solely in the same market.

 

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

 

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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, 2016, 2015 and 2014, 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, 2016 and 2015. This information has not been audited.

 

   Fourth Quarter   Third Quarter   Second Quarter   First Quarter 
   2016   2016   2016   2016 
Interest Income:  $310,094   $268,884   $194,382   $168,211 
Net Realized and Unrealized Gains (Losses):   (5,901,959)   3,740,409    15,259,938    21,549,147 
                     
Expenses*:   3,344,116    3,703,243    3,712,798    3,896,373 
                     
Net Income (Loss):   (8,935,981)   306,050    11,741,522    17,820,985 
Increase (Decrease) in Net Asset Value per Series 1 Unit   (50.92)   (0.59)   63.25    92.50 
Increase (Decrease) in Net Asset Value per Series 2 Unit   (38.98)   13.39    77.21    105.36 
Increase (Decrease) in Net Asset Value per Series 3 Unit   (38.86)   14.03    79.07    107.23 
Increase (Decrease) in Net Asset Value per Series 4 Unit   (47.70)   29.08    112.04    160.88 

 

   Fourth Quarter   Third Quarter   Second Quarter   First Quarter 
   2015   2015   2015   2015 
Interest Income:  $164,034   $129,442   $110,796   $72,812 
Net Realized and Unrealized Gains (Losses):   5,290,386    13,949,008    (16,710,449)   17,256,221 
                     
Expenses*:   3,388,631    3,665,003    3,354,559    4,144,573 
                     
Net Income (Loss):   2,065,789    10,413,447    (19,954,212)   13,184,460 
Increase (Decrease) in Net Asset Value per Series 1 Unit   8.83    49.09    (97.10)   59.20 
Increase (Decrease) in Net Asset Value per Series 2 Unit   20.75    64.06    (88.77)   68.88 
Increase (Decrease) in Net Asset Value per Series 3 Unit   21.42    65.62    (89.10)   70.34 
Increase (Decrease) in Net Asset Value per Series 4 Unit   37.54    93.00    (110.62)   104.59 

  

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

 

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

 

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

 

None.

 

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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 its evaluation, has concluded that these disclosure controls and procedures are effective. There were no significant changes in the Managing Owner’s internal controls with respect to the Trust or in other factors applicable to the Trust that could significantly affect these controls subsequent to the date of their evaluation.

 

Management’s Annual Report on Internal Control over Financial Reporting

 

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

 

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

 

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

 

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

 

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

  

The Managing Owner assessed the effectiveness of its internal control over financial reporting with respect to the Trust as of December 31, 2016. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control — Integrated Framework (2013). Based on its assessment, management has concluded that, as of December 31, 2016, the Managing Owner’s internal control over financial reporting with respect to the Trust is effective based on those criteria.

 

Changes in Internal Control over Financial Reporting

 

Section 404 of the Sarbanes-Oxley Act of 2002 requires the Managing Owner to evaluate annually the effectiveness of its internal controls over financial reporting as of the end of each fiscal year, and to include a management report assessing the effectiveness of its internal control over financial reporting in all annual reports. There were no changes in the Trust’s internal control over financial reporting during the quarter ended December 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Item 9B.   Other Information

 

None.

 PART III

 

Item 10.    Directors, Executive Officers and Corporate Governance

 

(a, b) Identification of Directors and Executive Officers

 

The Trust has no directors or executive officers. The Trust is controlled and managed by the Managing Owner under a delegation of authority by Wilmington Trust Company (the “Trustee”).

 

Millburn Ridgefield Corporation, the Managing Owner, is a Delaware corporation operating in Greenwich, Connecticut, organized in May 1982 to manage discretionary accounts primarily in futures, forward and spot 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.

 

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The principals and senior officers of the Managing Owner as of December 31, 2016 are as follows:

 

Harvey Beker, age 63. Mr. Beker is Co-Chairman of the Managing Owner and serves as a member of the Managing Owner’s Investment Committee. He received a Bachelor of Arts degree in economics from New York University (“NYU”) in 1974 and a Master of Business Administration degree in finance from NYU in 1975. From June 1975 to July 1977, Mr. Beker was employed by the investment bank Loeb Rhoades, Inc. where he developed and traded silver arbitrage strategies. From July 1977 to June 1978, Mr. Beker was a futures trader at the commodities and securities brokerage firm of Clayton Brokerage Co. of St. Louis. Mr. Beker has been employed by The Millburn Corporation since June 1978. He initially served as the Director of Operations for its affiliate, Millburn Partners, and most recently thereafter served as Co-Chief Executive Officer of the Managing Owner and Chairman and Chief Executive Officer of The Millburn Corporation until November 1, 2015. During his tenure at the Managing Owner (including its affiliates, Millburn Partners and CommInVest Research Limited Partnership (“CommInVest”)), he has been instrumental in the development of the research, trading and operations areas. Mr. Beker became a principal of the firm in June 1982, and a partner in the predecessor to ShareInVest Research L.P. (“ShareInVest”) in April 1982. Mr. Beker became registered as an Associated Person and a Swap Associated Person of the Managing Owner effective November 25, 1986 and March 8, 2013, respectively. Additionally, he was listed as a Principal and registered as an Associated Person and Swap Associated Person of The Millburn Corporation effective February 8, 1984, May 23, 1989 and March 8, 2013, respectively, until November 1, 2015. He was also listed as a Principal and registered as an Associated Person of ShareInVest effective February 20, 1986 until February 25, 2007. Mr. Beker has also served as Co-Chairman of Millburn Asia, LLC and Millburn International, LLC (collectively, “Millburn International Group”) since each entity’s inception.

 

Gregg R. Buckbinder, age 58. Mr. Buckbinder is President and Chief Operating Officer of the Managing Owner and The Millburn Corporation and also serves as Chief Financial Officer of the Managing Owner. He joined the Managing Owner and The Millburn Corporation in January 1998 from Odyssey Partners, L.P., an investment management firm, where he was responsible for the operation, administration and accounting of the firm’s merchant banking and managed account businesses from July 1990 through December 1997. Mr. Buckbinder was employed by Tucker Anthony, a securities broker and dealer, from June 1985 to July 1990 where he was First Vice President and Controller, and from August 1983 to June 1984 where he designed and implemented various operations and accounting systems. He was with the public accounting firm of Ernst & Whinney from June 1984 to June 1985 as a manager in the tax department and from September 1980 to August 1983 as a senior auditor, with an emphasis on clients in the financial services business. Mr. Buckbinder graduated cum laude from Pace University (“Pace”) in 1980 with a B.B.A. in accounting and received an M.S. in taxation from Pace in 1988. He is a Certified Public Accountant and a member of the American Institute of Certified Public Accountants. Mr. Buckbinder served as Senior Vice-President of the Managing Owner and The Millburn Corporation until November 1, 2015, and has also served as Senior Vice President, Chief Operating Officer and a Director of each entity in Millburn International Group since inception. Mr. Buckbinder became listed as a Principal of the Managing Owner effective February 5, 1999. He became listed as a Principal of The Millburn Corporation effective March 23, 1998. Mr. Buckbinder became a partner in ShareInVest in January 2000. He was also listed as a Principal of ShareInVest effective February 28, 2001 until February 25, 2007.

 

George E. Crapple, age 72. Mr. Crapple is Co-Chairman of the Managing Owner and serves as a member of the Managing Owner’s Investment Committee. In 1966, he graduated with honors from the University of Wisconsin where his field of concentration was economics and he was elected to Phi Beta Kappa. In 1969, he graduated from Harvard Law School, magna cum laude , where he was an editor of the Harvard Law Review. He was a lawyer with the law firm of Sidley Austin LLP, Chicago, Illinois, from June 1969 until April 1, 1983, as a partner since July 1975, specializing in commodities, securities, corporate and tax law. He was first associated with the Managing Owner in June 1976 and joined the Managing Owner and The Millburn Corporation (including its affiliates, Millburn Partners and CommInVest) on April 1, 1983 on a full-time basis. Mr. Crapple ceased his employment with The Millburn Corporation effective May 31, 2011 and his position as Co-Chief Executive Officer of the Managing Owner as of November 1, 2015. He became a partner in ShareInVest in April 1984. Mr. Crapple is a past 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 hedge fund industry group, the Managed Funds Association (the “MFA”), a former member of the Global Markets Advisory Committee of the CFTC and a former member of the board of directors of the Futures Industry Association. Mr. Crapple has also served as the Co-Chairman of each entity in Millburn International Group since inception. Mr. Crapple became listed as a Principal and registered as an Associated Person and Swap Associated Person of the Managing Owner effective September 13, 1984, April 2, 1988 and December 26, 2012, respectively. Additionally, he was listed as a Principal and registered as an Associated Person of The Millburn Corporation effective April 9, 1981 and May 23, 1989, respectively, until May 31, 2011. He was also listed as a Principal and registered as an Associated Person of ShareInVest effective February 20, 1986 until February 25, 2007.

 

Steven M. Felsenthal, age 47. Mr. Felsenthal is General Counsel and Chief Compliance Officer of the Managing Owner and The Millburn Corporation. Prior to joining the Managing Owner and its affiliates in January 2004, Mr. Felsenthal was a senior associate in the investment management group at the law firm of Schulte Roth & Zabel LLP (September 1999 to January 2004), where he represented and advised hedge funds, registered investment companies, investment advisers, broker-dealers and banks in connection with all facets of their asset management businesses, and a member of the tax department of the law firm of Kramer, Levin, Naftalis & Frankel LLP (October 1996 to September 1999). He graduated cum laude from Yeshiva University in 1991 with a B.A. in political science, and order of the coif from Fordham University School of Law in 1996, where he also served as an editor of the Fordham Environmental Law Journal. Mr. Felsenthal received an LL.M degree in taxation from NYU School of Law in 2001 and has written and been quoted in numerous published articles, and frequently speaks at conferences, on various topics related to investment management. Mr. Felsenthal is a member of the New York State Bar (since August 1997), a member of the NFA’s Compliance and Risk Committee (since May 2014), Vice Chair of MFA’s CTA, CPO and Futures Committee (since February 2017), a former member of the Steering Committee of the MFA’s Chief Compliance Officer Forum (June 2014 to December 2015), former Chairman of the MFA’s CPO/CTA Advisory Committee (November 2006 to June 2010), former Co-Chairman of the Steering Committee of MFA’s CPO/CTA Forum (June 2010 to January 2013), is currently a member of the Editorial Board of the Journal of Operations & Custody (formerly known as the Journal of Securities Law, Regulation and Compliance) (since February 2007) and a regular lecturer for the Regulatory Compliance Association’s Chief Compliance Officer University (since May 2009). Mr. Felsenthal has also served as General Counsel, Chief Compliance Officer and Secretary of each entity in Millburn International Group since inception. Mr. Felsenthal became listed as a Principal of the Managing Owner and The Millburn Corporation effective June 24, 2004. Mr. Felsenthal also served as General Counsel and Chief Compliance Officer of ShareInVest.

 

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Mark B. Fitzsimmons, age 69. Mr. Fitzsimmons is a Senior Vice President of the Managing Owner and served in the same capacity at The Millburn Corporation until December 31, 2011. His responsibilities mainly involve business development. He joined the Managing Owner and its affiliates in January 1990 from the brokerage firm of Morgan Stanley & Co. Incorporated, a global financial services firm, where he was a Principal and Manager of institutional foreign exchange sales and was involved in strategic trading for the firm from October 1987 until January 1990. From September 1977 to October 1987, he was with the financial institution Chemical Bank New York Corporation (“Chemical”), first as a Senior Economist in Chemical’s Foreign Exchange Advisory Service and later as a Vice President and Manager of Chemical’s Corporate Trading Group. While at Chemical he also traded both foreign exchange and fixed income products. From September 1973 to September 1977, Mr. Fitzsimmons was employed by the Federal Reserve Bank of New York, dividing his time between the International Research Department and the Foreign Exchange Department. He graduated summa cum laude from the University of Bridgeport, Connecticut in 1970 with a B.S. degree in economics. His graduate work was done at the University of Virginia, where he received a certificate of candidacy for a Ph.D. in economics in 1973. Mr. Fitzsimmons became listed as a Principal and registered as an Associated Person and a Swap Associated Person of the Managing Owner effective July 2, 1993, April 15, 2009, and March 8, 2013, respectively. Mr. Fitzsimmons was a listed Principal and registered Associated Person of The Millburn Corporation effective June 20, 1995 until December 31, 2011 and October 12, 1992 until December 31, 2011, respectively. Mr. Fitzsimmons was a partner in ShareInVest beginning in January 2000. He was also a listed Principal of ShareInVest effective May 19, 1999 until February 25, 2007.

 

Barry Goodman, age 59. Mr. Goodman is Co-Chief Executive Officer and Executive Director of Trading of the Managing Owner and The Millburn Corporation, and serves as a member of the Managing Owner’s Investment Committee. Mr. Goodman plays an integral role in business and product development, and in the strategic direction of the firm as a whole. Mr. Goodman joined the Managing Owner and The Millburn Corporation (including its affiliate, Millburn Partners) in November 1982 as Assistant Director of Trading and most recently thereafter served as Executive Vice President of the Managing Owner and The Millburn Corporation until November 1, 2015. His responsibilities include overseeing the firm’s trading operations and managing its trading relationships, as well as the design and implementation of trading systems. From September 1980 through October 1982, he was a commodity trader at the brokerage firm of E. F. Hutton & Co., Inc. (“E.F. Hutton”). At E.F. Hutton, he also designed and maintained various technical indicators and coordinated research projects pertaining to the futures markets. Mr. Goodman graduated magna cum laude from Harpur College of the State University of New York in 1979 with a B.A. in economics. Mr. Goodman has also served as President and a Director of each entity in Millburn International Group since inception. Mr. Goodman became listed as a Principal and registered as an Associated Person and a Swap Associated Person of the Managing Owner effective December 19, 1991, May 23, 1989 and January 14, 2013, respectively. He also became listed as a Principal and registered as an Associated Person and a Swap Associated Person of The Millburn Corporation effective June 20, 1995, April 5, 1989, and March 8, 2013, respectively. He became a partner in ShareInVest in January 1994. Mr. Goodman was a listed Principal of ShareInVest, effective May 19, 1999 until February 25, 2007.

 

Grant N. Smith, age 65. Mr. Smith is Co-Chief Executive Officer and Chief Investment Officer of the Managing Owner and The Millburn Corporation, and serves as a member of the Managing Owner’s Investment Committee. He is responsible for the design, testing and implementation of quantitative trading strategies, as well as for planning and overseeing the computerized decision-support systems of the firm. He received a B.S. degree from the Massachusetts Institute of Technology (“MIT”) in 1974 and an M.S. degree from MIT in 1975. While at MIT, he held several teaching and research positions in the computer science field and participated in various projects relating to database management. He joined the predecessor entity to The Millburn Corporation in June 1975, and has been continuously associated with the Managing Owner, The Millburn Corporation and their affiliates since that time. Mr. Smith served as the Executive Vice President of the Managing Owner and The Millburn Corporation until November 1, 2015 and as the Director of Research of both entities until May 31, 2016. He has also served as a Director of each entity in Millburn International Group since inception, where he, along with the other Directors of each of those entities, is responsible for its overall management. Mr. Smith became listed as a Principal and registered as an Associated Person and Swap Associated Person of the Managing Owner, effective December 19, 1991, April 15, 2009 and March 8, 2013, respectively. He became listed as a Principal and registered as an Associated Person and a Swap Associated Person of The Millburn Corporation effective June 20, 1995, May 21, 1992, and March 8, 2013, respectively. Mr. Smith also became a partner in ShareInVest in January 1994. He also was listed as a Principal of ShareInVest, effective May 19, 1999 until February 25, 2007.

 

Michael W. Carter, age 47. Mr. Carter is a Vice President, Director of Operations of The Millburn Corporation and Principal Accounting Officer of the Managing Owner. He is responsible for overseeing operations and accounting for the firm’s commodity pools. Prior to his promotion to Director of Operations in January 2011 and Principal Accounting Officer effective May 2014, Mr. Carter held the positions of Fund Controller (February 2001 until February 2011) and Senior Accountant (March 2000 until February 2001) with The Millburn Corporation. He graduated from Rutgers, The State University of New Jersey – Newark in May 1997 with a B.S. in Accounting. Prior to joining the Managing Owner and its affiliates, he was employed with the accounting firm Rothstein Kass & Company, P.C., as a fund accountant from March 1997 until September 1997 and as a staff auditor from September 1997 until June 1999, and then an equity analyst covering restaurants with the brokerage firm of Sidoti & Company, LLC, which conducts independent small-cap equity research for institutional investors, from June 1999 until February 2000. He is a Certified Public Accountant. Mr. Carter became listed as Principal of the Managing Owner and The Millburn Corporation effective April 22, 2014 and July 1, 2014, respectively.

 

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

 

(c) Identification of Certain Significant Employees

 

None.

 

(d)    Family Relationships

 

None.

  

(e)    Business Experience

 

See Item 10 (a, b) above.

  

(f)    Involvement in Certain Legal Proceedings

 

None.

  

(g)    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. Executive Compensation

 

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

 

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

 

(a)    Security Ownership of Certain Beneficial Owners

 

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

 

(b)    Security Ownership of Management

 

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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 $4,369,854 as of December 31, 2016, 1.96% of the Trust’s total capital.

 

(c)    Changes in Control

 

None.

  

(d)    Securities Authorized for Issuance Under Equity Compensation Plans

 

None.

 

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

 

See “Item 11.   Executive Compensation ” and “Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ”  The Trust allocated to the Managing Owner $12,411,325 (net of $777,662 Managing Owner commission rebate to Unitholders) in brokerage and custodial fees, $460,718 in management fees and $551,582 in profit share for the year ended December 31, 2016.  The Managing Owner’s capital interest was allocated net income of $902,362 for the year ended December 31, 2016.  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. The Trust is prohibited from making any loans.

 

Item 14.    Principal Accountant Fees and Services

 

(1)           Audit Fees

 

The aggregate fees for professional services rendered by Deloitte & Touche LLP in connection with their audit of the Trust’s financial statements and reviews of the financial statements included in the quarterly reports on Form 10-Q and in connection with the statutory and regulatory filings for the years ended December 31, 2016 and 2015 were approximately $199,000 and $196,500, respectively.

 

(2)           Audit-Related Fees

 

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

 

(3)           Tax Fees

 

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

 

(4)           All Other Fees

 

There were no other fees for the years ended December 31, 2016 and 2015.

 

(5)           Pre-Approval Policies

 

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

 

PART IV

Item 15.    Exhibits and Financial Statement Schedules

 

(a)(1)    Financial Statements

 

The following are included with the 2016 Annual Report to Security Holders, a copy of which is filed herewith as Exhibit 13.01.

 

Affirmation of Millburn Ridgefield Corporation

Report of Independent Registered Public Accounting Firm

Statements of Financial Condition

Condensed Schedules of Investments

Statements of Operations

Statements of Changes in Trust Capital

Statements of Financial Highlights

Notes to Financial Statements

 

 C: 
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(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   2016 Annual Report to Security Holders
     
31.01   Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
     
31.02   Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
     
31.03   Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer
     
32.01   Section 1350 Certification of Principal Executive Officer
     
32.02   Section 1350 Certification of Principal Executive Officer
     
32.03   Section 1350 Certification of Principal Financial Officer
     
101.INS   XBRL Instance Document
     
101.SCH   XBRL Taxonomy Extension Schema Document
     
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
     
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document
     
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
     
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document

   

 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. 333-209445) filed on April 28, 2016 on Form S-1 under the Securities Act of 1933.

 

  3.01    Certificate of Trust of Registrant (included as Schedule A to Exhibit A to the Prospectus).  
     
  3.03 Fourth Amended and Restated Declaration of Trust and Trust Agreement of Registrant (included in Exhibit A to the Prospectus).
     
  10.01 Form of Subscription Agreement (included as Exhibit C to the Prospectus).

  

The following exhibits are incorporated by reference from the exhibits of the same number and description filed with the Trust’s Registration Statement (File. No. 333-209445) filed on February 9, 2016 on Form S-1 under the Securities Act of 1933.

 

  1.01 Form of Selling Agreement.
     
  10.02 Form of Services Agreement.

 

Item 16.    Form 10-K Summary

 

None.

 

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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 29th day of March, 2017.

 

  GLOBAL MACRO TRUST  
     
  By:   Millburn Ridgefield Corporation,  
    Managing Owner  
     
  By:   /s/ Harvey Beker  
    Harvey Beker  
    Co-Chairman (Director)  

  

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

 

    Title with    
Signature   General Partner   Date
         
/s/ Harvey Beker   Co-Chairman   March 29, 2017
Harvey Beker   (Director)    
         
/s/ George E. Crapple   Co-Chairman   March 29, 2017
George E. Crapple   (Director)    
         
/s/ Barry Goodman   Co-Chief Executive Officer   March 29, 2017
Barry Goodman   (Principal Executive Officer)    
         
/s/ Grant N. Smith   Co-Chief Executive Officer   March 29, 2017
Grant N. Smith   (Principal Executive Officer)    
         
/s/ Gregg Buckbinder   President and Chief Financial Officer   March 29, 2017
Gregg Buckbinder   (Principal Financial Officer)    
         
/s/ Michael W. Carter   Vice President   March 29, 2017
Michael W. Carter   (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)

 

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EXHIBIT INDEX

 

The following exhibits are included herewith 

 

Designation   Description
     
13.01   2016 Annual Report to Security Holders
     
31.01   Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
     
31.02   Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
     
31.03   Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer
     
32.01   Section 1350 Certification of Principal Executive Officer
     
32.02   Section 1350 Certification of Principal Executive Officer
     
32.03   Section 1350 Certification of Principal Financial Officer
     
101.INS   XBRL Instance Document
     
101.SCH   XBRL Taxonomy Extension Schema Document
     
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
     
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document
     
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
     
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document

 

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. 333-209445) filed on April 28, 2016 on Form S-1 under the Securities Act of 1933.

 

  3.01    Certificate of Trust of Registrant (included as Schedule A to Exhibit A to the Prospectus).  
     
  3.03 Fourth Amended and Restated Declaration of Trust and Trust Agreement of Registrant (included in Exhibit A to the Prospectus).
     
  10.01 Form of Subscription Agreement (included as Exhibit C to the Prospectus).

  

The following exhibits are incorporated by reference from the exhibits of the same number and description filed with the Trust’s Registration Statement (File. No. 333-209445) filed on February 9, 2016 on Form S-1 under the Securities Act of 1933.

 

  1.01 Form of Selling Agreement.
     
  10.02 Form of Services Agreement.

 

 C: 

 

  


Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘10-K’ Filing    Date    Other Filings
12/31/1710-K
Filed on:3/29/17
For Period end:12/31/16
12/5/16
11/30/16
10/31/16
5/31/16
4/28/16S-1/A
2/9/16S-1
12/31/1510-K
11/1/158-K
12/31/1410-K,  10-K/A,  5
7/1/14
4/22/14
12/31/1310-K
3/8/13
1/14/13
12/31/1210-K
12/26/12
9/28/12
12/31/1110-K
5/31/11
11/1/104
4/1/10
9/1/09
6/4/09S-1/A
4/15/09
2/25/07
6/24/04
7/1/02
6/30/0210-Q
4/1/02
3/26/02
7/23/01
2/28/01
5/19/99
2/5/99
3/23/98
6/20/95
7/2/93
10/12/92
5/21/92
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