Exhibit 13.01
Message from the Managing Owner
Dear Unitholder:
The JWH Global Trust posted a loss of 18.7% for 2005. The Net Asset Value at year-end was $120.73*** compared to $148.54 per unit at the beginning of the year.
The majority of the losses were realized in the currency sector coupled with smaller losses in the interest rate, agriculture and metals sectors. Although some markets had strong directional moves, the overall trading environment during the year was unfavorable for long-term trend following as volatility was a major factor in many markets. The combination of reversing market conditions and choppy price action throughout the year caused numerous portfolio shifts as the Trust attempted to find new trends in the market, while minimizing risk exposure.
The Trust’s performance in the first quarter was negative as the bulk of the losses were directly related to the strength of the U.S. dollar against most major currencies. The weak dollar trend, which had dominated during the second half of 2004, began to reverse itself on diminishing expectations of a Yuan revaluation by the Chinese central bank. Demand for the dollar also increased when the Federal Reserve raised interest rates by a quarter percentage point for the seventh time since June 2004. On February 16th Fed Chairman Alan Greenspan’s testimony, stating that the decline in long-term interest rates during the past year “remains a conundrum”, sparked inflationary fears worldwide and added to the Trust’s negative performance in the interest rate sector as the European, Japanese and U.S. bond markets sold-off. The Japanese sell-off was short lived as Japanese bonds rallied amid speculation that exports to the U.S. would drop. The energy sector, the Trust’s best performer during the quarter, benefited from an increase in inflationary fears offset some of the previously discussed losses in the currency and interest rate sectors. Energies rallied as commodity prices surged to a 24-year high on speculation that rising domestic demand may outpace U.S. refinery production during peak summer demand. Overall, the gains made in energies, indices and the agriculture sectors were not enough to offset the losses incurred in the currency, interest rate and metals sectors.
The Trust’s performance was positive during the second quarter as large gains in the currency and interest rate sectors more than offset losses in the Trust’s other sectors. The energy sector, which had been the best performing sector in the first quarter, was the worst performing sector in the second quarter, as trends experienced sudden and strong reversals. In April, energies experienced a sudden turnaround as supplies increased and OPEC boosted output in an effort to lower prices and ensure adequate inventories to meet summer fuel demands. In contrast, the entire energy sector rallied in June as expectations increased that global demand for oil would reach record levels in the fourth quarter. The interest rate sector posted positive returns as the majority of the sector’s gains came from the strength in the German and Japanese fixed-income markets. The benchmark German 10-year bund rose to a record high, as market conjecture grew that the European Central Bank would have to cut interest rates as the European economy slowed. Further supporting the rally in the German bund was the rejection of the European Union Constitution in France. The currency sector was the best performing sector during the quarter as the U.S. dollar posted its largest quarterly gain against the euro since 2001 as the market anticipated a quarter point increase by the Federal Reserve on June 30th. The dollar also benefited from the yield advantage against the Swiss franc and the euro. In the agriculture sector, cotton, corn, wheat, soybeans and N.Y. coffee hindered the Trust’s returns as weather conditions wreaked havoc in the markets. The metals sector was negative for the quarter as volatility in various markets limited the Trust’s ability to achieve returns. Overall, the gains made in the currency and interest rate sectors drove the Trust’s performance for the quarter.
The Trust’s performance was positive for the third quarter, despite volatile market conditions that resulted from terror attacks in London, a surprise devaluation of the Chinese Yuan and Hurricanes Dennis, Emily, Katrina and Rita. Fears, over damage to oil rigs and refineries caused by the hurricanes in the Gulf Coast led to record high energy prices. With positive returns in every market traded, the energy sector led performance during the quarter. The interest rate and currency sectors were the Trust’s most unprofitable sectors during the quarter as volatility in the fixed income market and the U.S. dollar dominated both sectors. The dollar had been weakening over speculation that record high energy prices would slow U.S. economic growth. However, once it became evident that the Federal Reserve would continue to raise interest rates and thus keep its “yield advantage”, both the fixed-income sector and the U.S. dollar reversed their trends; the dollar rallied and fixed-income markets sold off. The hurricanes also helped the metal sector to post positive returns for the quarter as record high energy costs also saw gold reach a 17-year high. The agriculture and indices sectors also posted positive returns, as N.Y. coffee and the Nikkei 225 (Osaka) led performance. The Nikkei rose to a four year high on signs that the Japanese economy would continue to grow and on indications that land prices in Tokyo had risen for the first time in 15-years. Overall, four out of the six sectors were positive for the quarter.
The Trust was negative for the fourth quarter as the energy, interest rate and agriculture sectors suffered from strong and sudden reversals in trends. The energy sector was the Trust’s worst performer as energy prices retreated from record highs in the third quarter. Not only did natural gas fall from record high levels set in September, but crude oil also fell from record highs set in August on signs that warmer than normal weather in the Northeastern region of the U.S. could reduce energy consumption. The interest rate sector, which had been profiting from downward trending prices in the U.S., Europe and Japan, ended the quarter negative over fears of rising interest rates. The sudden rally in Japanese and U.S. fixed-income markets was a result of Japanese Prime Minister Koizumi and other politicians stating that it was too early for the Bank of Japan to stop fighting deflation and a sudden optimism that inflation in the U.S. was contained as the Federal Reserve removed the term “accommodative” from its statement after raising rates at their December meeting. While the market reversals resulted in losses for both the interest rate and energy sectors for the quarter, the currency sector finished the quarter positive but only after losing most of the gains the sector achieved in October and November. For the most of the quarter the currency sector profited, however, as expectations of further rate hikes from the Fed diminished, the sector gains were limited as the dollar suddenly weakened. The metal sector benefited as gold reached an 18-year high and the prices of LME copper and LME aluminum rallied on increased demand and falling supplies. The agriculture sector was slightly negative for the quarter as N.Y. coffee and cotton were the main contributors to the underperformance in this sector. Overall, the combined gains in the currencies, indices and metals sectors were unable to offset the losses in the rest of the Trust’s sectors.
In conclusion, the Trust finished negative for the year as severe volatility hindered performance. Although some markets did have definitive moves the severity of the sudden reversals that were experienced in many of the same markets hampered the Trust’s systematic trend following approach.
We thank you for your continued support.
Past performance is not indicative of future results.
Jeffrey R. Miceli
Chief Financial Officer
R. J. O’Brien Fund Management, Inc..
*** Please see section “General Information and Summary for explanation of Net Asset Value/unit pursuant to events of October, 2005.
Notes to Financial Statements —
December 31, 2005, 2004, 2003
(1) General Information and Summary
JWH Global Trust (the Trust), a Delaware statutory trust organized on November 12, 1996, was formed to engage in the speculative trading of futures contracts on currencies, interest rates, energy and agricultural products, metals and stock indices, spot and forward contracts on currencies and precious metals, and exchanges for physicals pursuant to the trading instructions of independent trading advisors. On August 31, 2005, Refco Group Ltd., LLC acquired the global brokerage operations of Cargill Investor Services, Inc. (“CIS”). CIS is the owner of CIS Investments, Inc. (“CISI”). The Managing Owner of the Trust changed from CIS Investments Inc. to Refco Commodity Management, Inc (“RCMI”). The clearing broker changed from CIS to Refco, LLC (Clearing Broker or Refco), an affiliate of RCMI. The broker for forward contracts changed from CIS Financial Services, Inc. to Refco Capital Markets, Ltd. (Forwards Currency Broker or RCM), also an affiliate of RCMI. The Clearing Broker and the Forwards Currency Broker collectively will be referred to as the Brokers.
Units of beneficial ownership of the Trust commenced selling on April 3, 1997 and trading began on June 2, 1997. The initial amount offered for investment was $50,000,000. On each of September 24, 1997, July 2, 2003 and on November 1, 2004, the Trust registered an additional $155,000,000, $300,000,000, and $500,000,000, respectively, for further investment and continued the offering. By December 31, 2005, a total of 3,597,413.53 units representing an investment for $464,343,620.43 of beneficial ownership interest had been sold in the combined offerings. In addition, during the offerings, the Managing Owner purchased a total of 27,637.19 units, representing a total investment of $3,658,425.87. Refer to the most current JWH Global Trust prospectus for further details of the offering. Units are not currently being offered.
The Trust will be terminated on December 31, 2026, if none of the following occur prior to that date: (1) beneficial owners holding more than 50% of the outstanding units notify the Managing Owner to dissolve the Trust as of a specific date; (2) disassociation of the Managing Owner with the Trust; (3) bankruptcy of the Trust; (4), a decrease in the net asset value to less than $2,500,000; (5) a decline in the net asset value per unit to $50 or less; (6) dissolution of the Trust; or (7) any event that would make it unlawful for the existence of the Trust to be continued or require dissolution of the Trust.
On October 10, 2005, Refco, Inc., the ultimate parent of RCMI, announced that it had discovered through an internal review a receivable owed to Refco, Inc., by an entity controlled by Phillip R. Bennett, the then Chief Executive Officer and Chairman of the Board of Directors of Refco, Inc., in the amount of approximately $430 million. Mr. Bennett has been charged with securities fraud in connection with this matter and various actions have been filed against Refco, Inc. Thereafter, on October 13, 2005, Refco, Inc., announced that the liquidity within Refco Capital Markets, Ltd. (“RCM”) was no longer sufficient to continue operations, and that RCM had imposed a fifteen (15) day moratorium on all of its activities in an attempt to protect the value of that enterprise.
On October 17, 2005, Refco, Inc. and RCM filed for bankruptcy protection in the Southern District of New York. Neither the Trust nor RCMI were covered by the filing.
Although the Trust’s assets were not held directly with Refco, Inc., an affiliated entity, Refco, did serve as the futures commission merchant. Refco, LLC was not covered by the October 17, 2005 bankruptcy filing of Refco, Inc. but filed its own bankruptcy petition on November 25, 2005. In addition, a portion of the Trust’s assets (less than 20%, based net assets as of October 13, 2005) was on deposit with RCM at the time of the bankruptcy filing, exposing a number of the Trust’s foreign currency contracts and cash held at RCM to the risk of non-return of these assets. While RCM has unwound any outstanding foreign currency contracts, the Trust does not expect that in the near future it will be able to access those assets or that its rights and/or claims in connection with RCM’s bankruptcy will be fully resolved. ..
In light of the events outlined herein, RCMI, managing owner of the Trust, moved the majority of the Trust’s assets from Refco to Lehman Brothers, Inc. and its affiliated entities (“Lehman”) to act in the capacity of clearing broker. On or about October 18, 2005, the Trust had transferred the majority of all assets to Lehman. Pending the resolution of the Trust’s rights and/or claims against RCM, the Trust will no longer have assets on deposit with RCM.
RCMI does not believe that the bankruptcy filings of Refco, Inc. and RCM will have a material impact upon the operations of the Trust or its ability to satisfy a request for redemption. In this regard, the operations of the Trust,
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including the trading activities of the underlying asset manager, have continued with minimal interruption. In particular, with respect to redemptions made as of October 31, 2005 and thereafter, the Trust has made payment in an amount that represented the proportionate share of the Trust’s net assets that are held at Lehman, while reserving payment with respect to the Trust’s assets currently held at RCM, plus a cash reserve in connection with expenses in pursuit its rights and/or claims against RCM and other potential third parties. As such, the Trust has reserved payment with respect to approximately 18.2% — 25% of any redemption proceeds until these monies held at RCM are remitted to the Trust or the Trust’s rights and/or claims against RCM and/or such potential third parties are resolved.
Generally, investors in the Trust may redeem units effective as of the last trading day of any month of the Trust based on the Net Asset Value per unit on such date with five business day’s prior written notice to the Managing Owner. Effective October 31, 2005, the Net Asset Value per unit was split into a ‘Trading account” and a “Non-Trading” account, the latter representing the assets held at RCMI plus $1,000,000 in cash in connection with expenses related to the collection of assets held at RCM and potential third party claims. On October 31, 2005, $57,544,206 of equity and 2,273,288.15 in substitute units were transferred to the Non-Trading account. The October 31, 2005 Net Asset Value was $139.11/unit. $113.80/unit (or 81.8% of total) was the amount in the Trading account and was redeemable. $25.31/unit (or 18.2% of total) was the amount in the Non-Trading account All unitholders of record October 1, 2005 reatin their pro-rata right to the assets in the Non-Trading account with the equivalent number of units held in the Trust prior to RCM bankruptcy.
(2) Summary of Significant Accounting Policies
The accounting and reporting policies of the Trust conform to accounting principles generally accepted in the United States of America and to general practices in the commodities industry. The following is a description of the more significant of those policies that the Trust follows in preparing its financial statements.
(a) Revenue Recognition
Commodity futures contracts, forward contracts, physical commodities, and related options are recorded on the trade date. All such transactions are recorded on the identified cost basis and marked to market daily. Unrealized gains on open contracts reflected in the statements of financial condition represent the difference between original contract amount and market value (as determined by exchange settlement prices for futures contracts and related options and cash dealer prices at a predetermined time for forward contracts, physical commodities, and their related options) as of the last business day of the year or as of the last date of the financial statements.
The Trust earned interest on its assets on deposit at the brokers at 100% of the 91-day Treasury bill rate for ervices, Inc. deposits denominated in U.S. dollars, and at the rates agreed between the Trust and CIS and CIS Financial Services for deposits denominated in other currencies. Assets at Lehman Brothers earn 75% of 91—day Treasury bill rate. For deposits denominated in other currencies, the Trust earns interest on Eurodollars, British pound sterling, and Swiss francs at a rate equal to Lehman Clearing House (“LCH”) less 25 basis points. Deposits denominated in Japanese Yen earn 100% of LCH and Australian dollars earn interest at a rate of Sydney Futures Exchange Clearing House (‘SFECH”) less 125 basis points.
(b) Redemptions
A beneficial owner may cause any or all of his or her units to be redeemed by the Trust effective as of the last trading day of any month of the Trust based on the Net Asset Value per unit on such date on five days written notice to the Managing Owner. Payment will be made within ten business days of the effective date of the redemption. Any redemption made during the first eleven months of investment is subject to a 3% redemption penalty. Any redemption made in the twelfth month of investment or later will not be subject to any penalty. The Trust’s Sixth Amended and Restated Declaration and Agreement of Trust contains a full description of redemption and distribution policies. Investors who redeemed on or after October 31, 2005 will receive the Net Asset Value per unit represented by assets held in the trading account.
(c) Ongoing Offering Costs
Ongoing Offering costs subject to a ceiling of 0.50% of the Trust’s average month-end net assets, are paid by the Trust and expensed as incurred. Ongoing offering costs have not been incurred nor paid for the last quarter of 2005.
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(d) Commissions
Commodity brokerage commissions are typically paid for each trade transacted and are referred to as “round-turn commissions”. These commissions cover both the initial purchase (or sale) and the subsequent offsetting sale (or purchase) of a commodity futures contract. The Trust does not pay commodity brokerage commissions on a per-trade basis, but rather pays monthly flat-rate brokerage Fees. Effective July 1, 2003, the clearing broker lowered this fee from the annual rate of 6.5% (or approximately 0.542% per month) to 6.0% (or 0.50% per month) of the Trust’s month-end assets after reduction of the Management Fee. The clearing brokers receive these brokerage fees irrespective of the number of trades executed on the Trust’s behalf. The amount paid to the clearing broker is reduced by exchange fees paid by the Trust. The round-turn equivalent rate for commissions paid by the Trust for the years ended December 31, 2005, 2004, and 2003 was $27, $39, and $38, respectively.
Certain large investors are eligible for a “Special Brokerage Fee Rate” of 4.5% per year. As of December 31, 2005, there were no such eligible investors in the Trust.
The Managing Owner, and/or, affiliates, acts as commodity brokers for the Trust. As such, the Managing Owner and affiliates receive all commossions that are reflected as such in the financial statements.
(e) Foreign Currency Transactions
Trading accounts in foreign currency denominations are susceptible to both movements in the underlying contract markets as well as fluctuation in currency rates. Translation of foreign currencies into U.S. dollars for closed positions are translated at an average exchange rate for the year, while year-end balances are translated at the year-end currency rates. The impact of the translation is reflected in the statements of operations.
(f) Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
(g) Valuation of Assets Held at Refco Capital Markets, Ltd.
Assets held by the Fund at RCM are reported at fair value as determined in good faith by the Managing Owner after consideration of all factors, data and information, including information from financial institutions with no affiliation to RCM, analysis of the current market which has developed to purchase RCM creditor claims, the current demand and willingness of third parties to purchase RCM claims and financial information received by the Managing Owner from RCM. The value assigned to this asset is based upon available information and does not necessarily represent amounts which might ultimately be realized. Furthermore, this value assumes that the Managing Owner would recommend selling these claims to a third party as opposed to holding RCM assets until the RCM estate makes a distribution to RCM customers and creditors which may or may not be the case. Because of the inherent uncertainty of valuation due to the inability to estimate recoverable RCM assets necessary to remit payment to customers and creditors as well as the uncertainty as the standing of the Fund vis-a vis other customers / creditors, the estimated fair value could be significantly higher or lower than the fair value assigned by the Investment Manager. Based upon this fair value methodology, the assets held by the Fund at RCM had a total value of $16,963,261.62 or 30 % of the net asset value at December 31, 2005.
(3) Fees
Management fees are accrued and paid monthly. Incentive fees are accrued monthly and paid quarterly. Trading decisions for the period of these financial statements were made by John W. Henry & Company, Inc. (JWH) utilizing four of its trading programs, JWH GlobalAnalytics®, the Financial and Metals Portfolio, the International Foreign Exchange program and the Global Financial & Energy program.
Under signed agreement JWH receives a monthly management fee at the rate of 0.167% (a 2% annual rate) of the Trust’s month-end net assets calculated after deduction of a portion of the Brokerage Fee at an annual rate of
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1.25% of month-end Trust net assets, but before reduction for any incentive fee or other costs and before inclusion of purchases and redemptions for the month.
Also, under signed agreement the Trust pays to JWH a quarterly incentive fee equal to 20% of the new trading profits, if any, of the Trust. The incentive fee is based on the overall performance of the Trust, not individually in respect of the performance of the individual programs utilized by the Trust. This fee is also calculated by deducting a portion of the Brokerage Fees at an annual rate of 1.25%.
Given the uncertainty of the outcome of RCM Bankruptcy case, for the month of October 2005, JWH management fees and selling commissions paid to brokers were charged to the Trust at 70% of the assets held at RCM. The Managing Owner, RCMI paid JWH and the brokers the difference in fees based on the other 30% of the assets held at RCM.
(4) Income Taxes
No provision for Federal income taxes has been made in the accompanying financial statements as each beneficial owner is responsible for reporting income (loss) based on the pro rata share of the profits or losses of the Trust. Generally, for both federal and state tax purposes, trusts, such as the JWH Global Trust, are treated as partnerships.
(5) Trading Activities and Related Risks
The Trust engages in the speculative trading of U.S. and foreign futures contracts, and forward contracts (collectively derivatives). These derivatives include both financial and non-financial contracts held as part of a diversified trading strategy. The Trust is exposed to both market risk, the risk arising from changes in the market value of the contracts, and credit risk, the risk of failure by another party to perform according to the terms of a contract.
The purchase and sale of futures requires margin deposits with a Futures Commission Merchant (FCM). Additional deposits may be necessary for any loss on contract value. The Commodity Exchange Act (CEAct) requires an FCM to segregate all customer transactions and assets from the FCM’s proprietary activities. A customer’s cash and other property, such as U.S. Treasury Bills, deposited with an FCM are considered commingled with all other customer funds subject to the FCM’s segregation requirements. In the event of an FCM’s insolvency, recovery may be limited to a pro rata share of segregated funds available. It is possible that the recovered amount could be less than the total of cash and other property deposited.
The Trust has cash on deposit with an affiliate interbank market maker in connection with its trading of forward contracts. In the normal course of business, the Trust does not require collateral from such interbank market maker. Due to forward contracts being traded in unregulated markets between principals, the Trust also assumes a credit risk, the risk of loss from counterparty non-performance.
For derivatives, risks arise from changes in the market value of the contracts. Theoretically, the Trust is exposed to a market risk equal to the value of futures and forward contracts purchased and unlimited liability on such contracts sold short.
Net trading results from derivatives for the years ended December 31, 2005, 2004, and 2003, are reflected in the statements of operations and equal gain from trading less brokerage commissions. Such trading results reflect the net gain arising from the Trust’s speculative trading of futures contracts and forward contracts.
The notional amounts of open contracts at December 31, 2005, as disclosed in the Condensed Schedule of Investments, do not represent the Trust’s risk of loss due to market and credit risk, but rather represent the Trust’s extent of involvement in derivatives at the date of the statement of financial condition.
The Beneficial Owners bear the risk of loss only to the extent of the market value of their respective investments.
(6) Financial Highlights
The following financial highlights show the Trust’s financial performance for the period ended December 31, 2005. Total return is calculated as the change in a theoretical beneficial owner’s investment over the entire period — a percentage change in the net asset value from December 31, 2004 to December 31, 2005. Total return is calculated based on the aggregate return of the Trust taken as a whole.
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| | 2005 | | 2004 | | 2003 | |
| | | | | | | |
Net Asset Value per unit at beginning of year | | $ | 148.54 | | 149.12 | | 139.53 | |
Loss per unit | | (27.81 | ) | (0.58 | ) | 9.59 | |
Net Asset Value per unit at end of year | | $ | 120.73 | | 148.54 | | 149.12 | |
| | | | | | | |
Total return: | | | | | | | |
Total return before incentive fee | | (18.68 | )% | 1.44 | % | 9.57 | % |
Less incentive fee allocation | | 0.04 | % | 1.83 | % | 2.70 | % |
Total return | | (18.72 | )% | (0.39 | )% | 6.87 | % |
| | | | | | | |
Ratios to average net assets: | | | | | | | |
| | | | | | | |
Net income: | | (20.79 | )% | 3.41 | % | 3.09 | % |
| | | | | | | |
Expenses: | | | | | | | |
Expenses less incentive fees | | 21.97 | % | 8.56 | % | 8.53 | % |
Incentive fees | | 0.05 | % | 2.09 | % | 1.83 | % |
Total expenses | | 22.02 | % | 10.65 | % | 10.36 | % |
The net income and expense ratios are computed based upon the weighted average net assets for the Trust for the period ended December 31, 2005, 2004 and 2003.
(7) Subsequent events
On October 12, 2006, RCMI, R.J. O’Brien & Associates, Inc. (“RJO”), and RJO’s acquisition subsidiary, R.J. O’Brien Fund Management, Inc. (“RJOFM”) entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) that provides for, among other things, RJOFM to purchase RCMI’s managing owner interest in the Trust. The Asset Purchase Agreement also provided for RCMI to commence a proceeding under chapter 11 of the Bankruptcy Code and to obtain the Bankruptcy Court’s approval of the Asset Purchase Agreement and the transactions set forth therein.
RCMI filed a voluntary petition (the “RCMI Bankruptcy Petition”) in the United States Bankruptcy Court for the Southern District of New York on October 16, 2006, for relief under chapter 11 of title 11 of the United States Code. Contemporaneously with the filing of the RCMI Bankruptcy Petition, RCMI filed, a motion requesting that the Bankruptcy Court authorize RCMI to sell and assign substantially all of its assets, including its interest as managing owner of the Trust, pursuant to the terms of the Asset Purchase Agreement. Pursuant to the terms of the Asset Purchase Agreement, as of October 13, 2006, all clearing functions have been moved from Lehman to RJO. Additionally, RJOFM is the managing owner of the Trust.
On December 29, 2006 the Trust received a partial recovery from RCM in the amount of $10,319,317.48. Unitholders who have not redeemed trading assets will be issued additional units in the Trust as of December 31, 2006. Unitholders who redeem or who have redeemed will be paid their portion of the proceeds.
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As of January 1, 2007, a special circumstances limited liability company was established to pursue additional claims against RCM. Any funds obtained by the special circumstances limited liability company will be distributed to investors in the Trust prior to the bankruptcy of RCM and Refco, Inc. Units are not currently being offered in the Trust.
Acknowledgment
To the best of my knowledge and belief, the information contained herein is accurate and complete. |
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By: | /s/ Jeffrey R. Miceli | |
| Jeffrey R. Miceli |
| Chief Financial Officer |
| R. J. O’Brien Fund Management, Inc |
| The Managing Owner and Commodity Pool Operator of |
| JWH Global Trust |
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