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EX-32.01 - EX-32.01 - ML BlueTrend FuturesAccess LLCa10-15314_2ex32d01.htm
EX-32.02 - EX-32.02 - ML BlueTrend FuturesAccess LLCa10-15314_2ex32d02.htm
EX-31.02 - EX-31.02 - ML BlueTrend FuturesAccess LLCa10-15314_2ex31d02.htm
EX-31.01 - EX-31.01 - ML BlueTrend FuturesAccess LLCa10-15314_2ex31d01.htm

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2010

 

OR

 

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from              to             

 

Commission File Number 0-53794

 

ML BLUETREND FUTURESACCESS LLC

(Exact Name of Registrant as specified in its charter)

 

Delaware

 

26-2581977

(State or other jurisdiction of

 

(IRS Employer Identification No.)

incorporation or organization)

 

 

 

c/o Merrill Lynch Alternative Investments LLC

Four World Financial Center, 10th Floor

250 Vesey Street

New York, New York 10080

(Address of principal executive offices)

(Zip Code)

 

212-449-3517

(Registrant’s telephone number, including area code)

 

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  o

 

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 o  No o

 

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. (Check one):

 

Large accelerated filer o

 

Accelerated filer o

 

 

 

Non-accelerated filer x

 

Small reporting company o

(Do not check if a smaller reporting company)

 

 

 

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

 

As of June 30, 2010, 202,778,120 units of limited liability company interest were outstanding.

 

 

 

 



 

ML BLUETREND FUTURESACCESS LLC

 

QUARTERLY REPORT FOR JUNE 30, 2010 ON FORM 10-Q

 

Table of Contents

 

 

 

PAGE

 

PART I

 

 

 

 

Item 1.

Financial Statements

1

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

23

 

 

 

Item 4.

Controls and Procedures

27

 

 

 

 

PART II

 

 

 

 

Item 1.

Legal Proceedings

28

 

 

 

Item 1A.

Risk Factors

28

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

29

 

 

 

Item 3.

Defaults Upon Senior Securities

30

 

 

 

Item 4.

(Removed and Reserved)

30

 

 

 

Item 5.

Other Information

30

 

 

 

Item 6.

Exhibits

30

 



 

PART I - FINANCIAL INFORMATION

 

Item 1.    Financial Statements

 

ML BLUETREND FUTURESACCESS LLC

(a Delaware Limited Liability Company)

 

STATEMENTS OF FINANCIAL CONDITION

(unaudited)

 

 

 

June 30,

 

December 31 ,

 

 

 

2010

 

2009

 

ASSETS:

 

 

 

 

 

Equity in commodity futures trading accounts:

 

 

 

 

 

Cash (including restricted cash of $22,404,861 for 2010 and $11,700,317 for 2009)

 

$

239,238,008

 

$

90,971,917

 

Net unrealized profit on open futures contracts

 

6,716,976

 

728,405

 

Net unrealized profit on open forwards contracts

 

1,305,335

 

127,770

 

Cash and cash equivalents

 

191,253

 

76,198

 

Other assets

 

6,838

 

6,080

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

247,458,410

 

$

91,910,370

 

 

 

 

 

 

 

LIABILITIES AND MEMBERS’ CAPITAL:

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

Brokerage commissions payable

 

$

9,993

 

$

27,169

 

Sponsor and Advisory fees payable

 

3,030,870

 

1,017,438

 

Redemptions payable

 

922,333

 

33,400

 

Net unrealized loss on open futures contracts

 

3,140,097

 

1,307,418

 

Net unrealized loss on open forwards contracts

 

2,436,271

 

434,457

 

Other liabilities

 

70,600

 

92,289

 

 

 

 

 

 

 

Total liabilities

 

9,610,164

 

2,912,171

 

 

 

 

 

 

 

MEMBERS’ CAPITAL:

 

 

 

 

 

Members’ Interest (202,778,120 Units and 72,246,182 Units outstanding; unlimited Units authorized)

 

237,848,246

 

88,998,199

 

Total members’ capital

 

237,848,246

 

88,998,199

 

 

 

 

 

 

 

TOTAL LIABILITIES AND MEMBERS’ CAPITAL

 

$

247,458,410

 

$

91,910,370

 

 

 

 

 

 

 

NET ASSET VALUE PER UNIT:

 

 

 

 

 

 

 

 

 

 

 

Class A

 

$

1.0787

 

$

1.0724

 

Class C

 

$

1.0707

 

$

1.0698

 

Class D

 

$

1.0895

 

$

1.0750

 

Class I

 

$

1.0874

 

$

1.0789

 

Class DS

 

$

1.2835

 

$

1.2665

 

Class DT

 

$

1.0543

 

$

 

 

See notes to financial statements.

 

1



 

ML BLUETREND FUTURESACCESS LLC

(a Delaware Limited Liability Company)

 

STATEMENTS OF OPERATIONS

(unaudited)

 

 

 

For the three
months ended

 

For the three
months ended

 

For the six months
ended

 

For the six months
ended

 

 

 

June 30, 2010

 

June 30, 2009

 

June 30, 2010

 

June 30, 2009

 

TRADING PROFIT (LOSS):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Realized, net

 

$

(1,808,394

)

$

(3,195,057

)

$

9,623,872

 

$

(2,472,514

)

Change in unrealized, net

 

(9,877,452

)

1,532,229

 

3,331,643

 

211,229

 

Brokerage commissions

 

(170,321

)

(47,664

)

(367,172

)

(79,461

)

 

 

 

 

 

 

 

 

 

 

Total trading profit (loss)

 

(11,856,167

)

(1,710,492

)

12,588,343

 

(2,340,746

)

 

 

 

 

 

 

 

 

 

 

INVESTMENT INCOME:

 

 

 

 

 

 

 

 

 

Interest

 

(1,003

)

970

 

(1,435

)

7,507

 

 

 

 

 

 

 

 

 

 

 

EXPENSES:

 

 

 

 

 

 

 

 

 

Management fee

 

1,090,219

 

268,337

 

1,932,725

 

526,017

 

Sponsor fee

 

206,232

 

 

341,742

 

 

Performance fee

 

(3,266,425

)

 

2,610,546

 

 

Other

 

119,313

 

49,031

 

213,433

 

90,928

 

Total expenses

 

(1,850,661

)

317,368

 

5,098,446

 

616,945

 

 

 

 

 

 

 

 

 

 

 

NET INVESTMENT LOSS

 

1,849,658

 

(316,398

)

(5,099,881

)

(609,438

)

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS)

 

$

(10,006,509

)

$

(2,026,890

)

$

7,488,462

 

$

(2,950,184

)

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS) PER UNIT:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of Units outstanding

 

 

 

 

 

 

 

 

 

Class A*

 

4,353,327

 

 

3,428,577

 

 

Class C*

 

23,568,403

 

 

19,521,899

 

 

Class D*

 

12,285,319

 

 

11,679,292

 

 

Class I*

 

8,548,940

 

 

7,744,983

 

 

Class DS**

 

98,720,127

 

9,759,506

 

90,697,586

 

44,375,324

 

Class DT***

 

56,388,846

 

 

57,459,390

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per weighted average Unit

 

 

 

 

 

 

 

 

 

Class A*

 

$

(0.0490

)

$

 

$

(0.0095

)

$

 

Class C*

 

$

(0.0512

)

$

 

$

(0.0032

)

$

 

Class D*

 

$

(0.0452

)

$

 

$

0.0171

 

$

 

Class I*

 

$

(0.0483

)

$

 

$

0.0149

 

$

 

Class DS**

 

$

(0.0531

)

$

(0.2965

)

$

0.0440

 

$

(0.0665

)

Class DT***

 

$

(0.0421

)

 

 

$

0.0570

 

$

 

 


*Units issued on August 1, 2009.

**Units issued on September 1, 2008.

***Units issued on February 1, 2010.

See notes to financial statements.

 

2



 

ML BLUETREND FUTURESACCESS LLC

(a Delaware Limited Liability Company)

 

STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL

For the six months ended June 30, 2010 and 2009

(unaudited) (in Units)

 

 

 

Members’ Capital
December 31, 2008

 

Subscriptions

 

Redemptions

 

Members’ Capital June
30, 2009

 

Members’ Capital
December 31, 2009

 

Subscriptions

 

Redemptions

 

Members’ Capital
June 30, 2010

 

Class A*

 

 

 

 

 

1,510,078

 

2,843,249

 

 

4,353,327

 

Class C*

 

 

 

 

 

9,725,362

 

14,066,831

 

(474,368

)

23,317,825

 

Class D*

 

 

 

 

 

10,234,679

 

2,050,640

 

 

12,285,319

 

Class I*

 

 

 

 

 

4,622,411

 

3,948,545

 

(22,016

)

8,548,940

 

Class DS**

 

40,064,174

 

7,348,919

 

(812,573

)

46,600,520

 

48,153,652

 

53,563,465

 

(2,003,187

)

99,713,930

 

Class DT***

 

 

 

 

 

 

59,852,165

 

(5,293,386

)

54,558,779

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Members’ Units

 

40,064,174

 

7,348,919

 

(812,573

)

46,600,520

 

74,246,182

 

136,324,895

 

(7,792,957

)

202,778,120

 

 


*Units issued on August 1, 2009.

**Units issued on September 1, 2008.

***Units issued on February 1, 2010.

See notes to financial statements.

 

3



 

ML BLUETREND FUTURESACCESS LLC

(a Delaware Limited Liability Company)

 

STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL

For the six months ended June 30, 2010 and 2009

(unaudited)

 

 

 

Members’ Capital
December 31, 2008

 

Subscriptions

 

Redemptions

 

Net Income
(Loss)

 

Members’ Capital
June 30, 2009

 

Members’ Capital
December 31, 2009

 

Subscriptions

 

Redemptions

 

Net Income
(Loss)

 

Members’ Capital June
30, 2010

 

Class A*

 

$

 

$

 

$

 

$

 

$

 

$

1,619,480

 

$

3,109,070

 

$

 

$

(32,581

)

$

4,695,969

 

Class C*

 

 

 

 

 

 

10,404,329

 

15,150,516

 

(525,529

)

(62,801

)

24,966,515

 

Class D*

 

 

 

 

 

 

11,002,450

 

2,182,138

 

 

199,921

 

13,384,509

 

Class I*

 

 

 

 

 

 

4,987,007

 

4,217,095

 

(23,647

)

115,631

 

9,296,086

 

Class DS**

 

48,986,858

 

8,708,225

 

(2,947,850

)

(958,128

)

53,789,105

 

60,984,933

 

65,571,617

 

(2,568,206

)

3,992,967

 

127,981,311

 

Class DT***

 

 

 

 

 

 

 

59,852,165

 

(5,603,634

)

3,275,325

 

57,523,856

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Members’ Capital

 

$

48,986,858

 

$

8,708,225

 

$

(2,947,850

)

$

(958,128

)

$

53,789,105

 

$

88,998,199

 

$

150,082,601

 

$

(8,721,016

)

$

7,488,462

 

$

237,848,246

 

 


*Units issued on August 1, 2009.

**Units issued on September 1, 2008.

***Units issued on February 1, 2010.

See notes to financial statements.

 

4



 

ML BLUETREND FUTURESACCESS LLC

(A Delaware Limited Liability Company)

 

FINANCIAL DATA HIGHLIGHTS

FOR THE THREE MONTHS ENDED JUNE 30, 2010 (unaudited)

 

The following per Unit data and ratios have been derived from information provided in the financial statements.

 

 

 

Class A*

 

Class C*

 

Class D*

 

Class I*

 

Class DS

 

Class DT**

 

Per Unit Operating Performance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, beginning of period

 

$

1.1277

 

$

1.1222

 

$

1.1347

 

$

1.1357

 

$

1.3368

 

$

1.0960

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net realized and net change in unrealized trading profit(loss)

 

(0.0529

)

(0.0525

)

(0.0533

)

(0.0533

)

(0.0628

)

(0.0516

)

Brokerage commissions

 

(0.0008

)

(0.0008

)

(0.0008

)

(0.0008

)

(0.0009

)

(0.0008

)

Interest income

 

(0.0000

)

(0.0000

)

(0.0000

)

(0.0000

)

(0.0000

)

(0.0000

)

Expenses

 

0.0047

 

0.0018

 

0.0089

 

0.0058

 

0.0104

 

0.0107

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, end of period

 

$

1.0787

 

$

1.0707

 

$

1.0895

 

$

1.0874

 

$

1.2835

 

$

1.0543

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return: (a) (b)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total return before Performance fees

 

-5.76

%

-6.00

%

-5.41

%

-5.67

%

-5.41

%

-5.16

%

Performance fees

 

1.24

%

1.24

%

1.24

%

1.24

%

1.24

%

1.18

%

Total return after Performance fees

 

-4.52

%

-4.76

%

-4.17

%

-4.43

%

-4.17

%

-3.98

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios to Average Member’s Capital: (a)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses (excluding Performance fees)

 

0.93

%

1.18

%

0.55

%

0.83

%

0.55

%

0.30

%

Performance fees

 

-1.36

%

-1.36

%

-1.36

%

-1.36

%

-1.36

%

-1.29

%

Expenses (including Performance fees)

 

-0.43

%

-0.18

%

-0.81

%

-0.53

%

-0.81

%

-0.99

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income (loss)

 

0.43

%

0.18

%

0.80

%

0.53

%

0.80

%

0.99

%

 


(a) The ratios to average members’ capital have been annualized. The total return ratios are not annualized.

(b) The total return calculations are based on compounded monthly returns and is calculated for each class taken as a whole. An individual members’ return may vary from these returns based on timing of capital transactions.

 

*Units issued on August 1, 2009.

**Units issued on February 1, 2010.

See notes to financial statements.

 

5



 

ML BLUETREND FUTURESACCESS LLC

(A Delaware Limited Liability Company)

 

FINANCIAL DATA HIGHLIGHTS

FOR THE SIX MONTHS ENDED JUNE 30, 2010 (unaudited)

 

The following per Unit data and ratios have been derived from information provided in the financial statements.

 

 

 

Class A*

 

Class C*

 

Class D*

 

Class I*

 

Class DS

 

Class DT**

 

Per Unit Operating Performance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, beginning of period

 

$

1.0724

 

$

1.0698

 

$

1.0750

 

$

1.0789

 

$

1.2665

 

$

1.0000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net realized and net change in unrealized trading profit(loss)

 

0.0408

 

0.0407

 

0.0408

 

0.0410

 

0.0481

 

0.0742

 

Brokerage commissions

 

(0.0018

)

(0.0018

)

(0.0018

)

(0.0018

)

(0.0021

)

(0.0016

)

Interest income

 

(0.0000

)

(0.0000

)

(0.0000

)

(0.0000

)

(0.0000

)

(0.0000

)

Expenses

 

(0.0327

)

(0.0380

)

(0.0245

)

(0.0307

)

(0.0290

)

(0.0183

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, end of period

 

$

1.0787

 

$

1.0707

 

$

1.0895

 

$

1.0874

 

$

1.2835

 

$

1.0543

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return: (a) (b)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total return before Performance fees

 

1.53

%

1.03

%

2.30

%

1.74

%

2.30

%

6.54

%

Performance fees

 

-1.35

%

-1.35

%

-1.35

%

-1.35

%

-1.35

%

-1.46

%

Total return after Performance fees

 

0.18

%

-0.32

%

0.95

%

0.39

%

0.95

%

5.08

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios to Average Member’s Capital: (a)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses (excluding Performance fees)

 

1.88

%

2.38

%

1.13

%

1.68

%

1.13

%

0.50

%

Performance fees

 

1.15

%

1.15

%

1.15

%

1.15

%

1.15

%

1.26

%

Expenses (including Performance fees)

 

3.03

%

3.53

%

2.28

%

2.83

%

2.28

%

1.76

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income (loss)

 

-3.03

%

-3.53

%

-2.28

%

-2.83

%

-2.28

%

-1.76

%

 


(a) The ratios to average members’ capital have been annualized. The total return ratios are not annualized.

(b) The total return calculations are based on compounded monthly returns and is calculated for each class taken as a whole. An individual members’ return may vary from these returns based on timing of capital transactions.

 

*Units issued on August 1, 2009.

**Units issued on February 1, 2010.

See notes to financial statements.

 

6



 

ML BLUETREND FUTURESACCESS LLC

(A Delaware Limited Liability Company)

 

FINANCIAL DATA HIGHLIGHTS

FOR THE THREE MONTHS ENDED JUNE 30, 2009 (unaudited)

 

The following per Unit data and ratios have been derived from information provided in the financial statements.

 

 

 

Class DS

 

Per Unit Operating Performance:

 

 

 

 

 

 

 

Net asset value, beginning of year

 

$

1.2009

 

 

 

 

 

Net realized and net change in unrealized trading profit

 

(0.0388

)

Brokerage commissions

 

(0.0010

)

Interest income

 

0.0000

 

Expenses

 

(0.0068

)

 

 

 

 

Net asset value, end of year

 

$

1.1543

 

 

 

 

 

Total Return: (a) (b)

 

 

 

 

 

 

 

Total return before Performance fees

 

-3.89

%

Performance fees

 

0.00

%

Total return after Performance fees

 

-3.89

%

 

 

 

 

Ratios to Average Member’s Capital: (a)

 

 

 

 

 

 

 

Expenses (excluding Performance fees)

 

0.58

%

Performance fees

 

0.00

%

Expenses (including Performance fees)

 

0.58

%

 

 

 

 

Net investment income (loss)

 

0.58

%

 


(a) The ratios to average members’ capital have been annualized. The total return ratios are not annualized.

(b) The total return calculations are based on compounded monthly returns and is calculated for each class taken as a whole.

An individual members’ return may vary from these returns based on timing of capital transactions.

 

See notes to financial statements.

 

7



 

ML BLUETREND FUTURESACCESS LLC

(A Delaware Limited Liability Company)

 

FINANCIAL DATA HIGHLIGHTS

FOR THE SIX MONTHS ENDED JUNE 30, 2009 (unaudited)

 

The following per Unit data and ratios have been derived from information provided in the financial statements.

 

 

 

Class DS

 

Per Unit Operating Performance:

 

 

 

 

 

 

 

Net asset value, beginning of year

 

$

1.2227

 

 

 

 

 

Net realized and net change in unrealized trading profit

 

(0.0531

)

Brokerage commissions

 

(0.0018

)

Interest income

 

0.0002

 

Expenses

 

(0.0137

)

 

 

 

 

Net asset value, end of year

 

$

1.1543

 

 

 

 

 

Total Return: (a) (b)

 

 

 

 

 

 

 

Total return before Performance fees

 

-5.60

%

Performance fees

 

0.00

%

Total return after Performance fees

 

-5.60

%

 

 

 

 

Ratios to Average Member’s Capital: (a)

 

 

 

 

 

 

 

Expenses (excluding Performance fees)

 

1.16

%

Performance fees

 

0.00

%

Expenses (including Performance fees)

 

1.16

%

 

 

 

 

Net investment income (loss)

 

1.15

%

 


(a) The ratios to average members’ capital have been annualized. The total return ratios are not annualized.

(b) The total return calculations are based on compounded monthly returns and is calculated for each class taken as a whole.

An individual members’ return may vary from these returns based on timing of capital transactions.

 

See notes to financial statements.

 

8



 

ML BLUETREND FUTURESACCESS LLC

(a Delaware Limited Liability Company)

 

NOTES TO FINANCIAL STATEMENTS

(unaudited)

 

1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

ML BlueTrend FuturesAccess LLC (the “Fund”), a Merrill Lynch FuturesAccess Program (the “Program”) fund, was organized under the Delaware Limited Liability Company Act on April 30, 2008 and commenced trading activities on September 1, 2008. The Fund issues new units of limited liability company interest (“Units”) at Net Asset Value per Unit (see Item 2 for discussion of net asset value and net asset value per unit for subscriptions and redemptions purposes hereinafter referred to as Net Asset Value and Net Asset Value per Unit) as of the beginning of each calendar month. The Fund engages in the speculative trading of futures, options on futures and forward contracts on a wide range of commodities. BlueCrest Capital Management L.P. (“BlueCrest” or “trading advisor”) is the trading advisor of the Fund.

 

Merrill Lynch Alternative Investments LLC (“MLAI” or the “Sponsor”) is the Sponsor of the Fund. MLAI is an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. (“Merrill Lynch”). Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S”), a wholly-owned subsidiary of Merrill Lynch, is the Fund’s commodity broker.

 

On September 15, 2008, Merrill Lynch entered into an Agreement and Plan of Merger (as amended by Amendment No. 1 dated as of October 21, 2008, the “Merger Agreement”) with Bank of America Corporation (“Bank of America”). Pursuant to the Merger Agreement, on January 1, 2009, a wholly-owned subsidiary of Bank of America merged with and into Merrill Lynch, with Merrill Lynch continuing as the surviving corporation and a subsidiary of Bank of America.

 

The Program is a group of commodity pools sponsored by MLAI (each pool is a “Program Fund” or collectively, “Program Funds”) each of which places substantially all of its assets in a managed futures or forward trading account managed by a single or multiple commodity trading advisors. Each Program Fund is generally similar in terms of fees, Classes of Units and redemption rights.  Each of the Program Funds implements a different trading strategy.

 

The Fund offers five Classes of Units:  Class A, Class C, Class D, Class DS and Class I.  Each Class of Units was offered at $1.00 per Unit during the initial offering period and subsequently is offered at Net Asset Value per Unit.  The five Classes of Units are subject to different sponsor fees.

 

Interests in the Fund are not insured or otherwise protected by the Federal Deposit Insurance Corporation or any other government authority.  Interests are not deposits or other obligations of, and are not guaranteed by, Bank of America Corporation or any of its affiliates or by any bank.  Interests are subject to investment risks, including the possible loss of the full amount invested.

 

In the opinion of management, these interim financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the financial position of the Fund as of June 30, 2010 and the results of its operations for the three and six months ended June 30, 2010 and 2009. However, the operating results for the interim periods may not be indicative of the results for the full year.

 

9



 

Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been omitted.  These financial statements should be read in conjunction with the financial statements and notes thereto included in the Fund’s Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2009. Certain prior year items have been reclassified to conform to the current year presentation.

 

Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

 

10



 

2.               CONDENSED SCHEDULE OF INVESTMENTS

 

The Fund’s investments, defined as Net unrealized profit (loss) on open contracts on the Statements of Financial Condition, as of June 30, 2010 and December 31, 2009 are as follows:

 

June 30, 2010

 

 

 

Long Positions

 

Short Positions

 

Net Unrealized

 

 

 

 

 

Commodity Industry

 

Number of

 

Unrealized

 

Percent of

 

Number of

 

Unrealized

 

Percent of

 

Profit (Loss)

 

Percent of

 

 

 

Sector

 

Contracts

 

Profit (Loss)

 

Members’ Capital

 

Contracts

 

Profit (Loss)

 

Members’ Capital

 

on Open Positions

 

Members’ Capital

 

Maturity Dates

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agriculture

 

66

 

$

(30,405

)

-0.01

%

(472

)

$

89,289

 

0.04

%

$

58,884

 

0.03

%

September 2010 - December 2010

 

Currencies

 

1,609,172,031

 

1,305,335

 

0.55

%

(573,951,304

)

(2,436,271

)

-1.02

%

(1,130,936

)

-0.47

%

March 2011

 

Energy

 

786

 

(2,097,952

)

-0.88

%

 

 

0.00

%

(2,097,952

)

-0.88

%

July 2010 - October 2010

 

Interest rates

 

11,935

 

9,120,175

 

3.83

%

 

 

0.00

%

9,120,175

 

3.83

%

September 2010 - June 2012

 

Metals

 

243

 

(1,395,242

)

-0.59

%

(231

)

954,822

 

0.40

%

(440,420

)

-0.19

%

July 2010 - September 2010

 

Stock indices

 

1,377

 

(3,336,573

)

-1.40

%

(125

)

272,765

 

0.11

%

(3,063,808

)

-1.29

%

July 2010 - September 2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

$

3,565,338

 

1.50

%

 

 

$

(1,119,395

)

-0.47

%

$

2,445,943

 

1.03

%

 

 

 

December 31, 2009

 

 

 

Long Positions

 

Short Positions

 

Net Unrealized

 

 

 

 

 

Commodity Industry

 

Number of

 

Unrealized

 

Percent of

 

Number of

 

Unrealized

 

Percent of

 

Profit (Loss)

 

Percent of

 

 

 

Sector

 

Contracts

 

Profit (Loss)

 

Members’ Capital

 

Contracts

 

Profit (Loss)

 

Members’ Capital

 

on Open Positions

 

Members’ Capital

 

Maturity Dates

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agriculture

 

37

 

$

18,635

 

0.02

%

(44

)

$

(17,718

)

-0.02

%

$

917

 

0.00

%

March 10

 

Currencies

 

47,800,234

 

(66,336

)

-0.07

%

(42,482,119

)

(240,350

)

-0.27

%

(306,686

)

-0.34

%

March 10

 

Energy

 

379

 

481,139

 

0.54

%

 

 

0.00

%

481,139

 

0.54

%

January 10 - April 10

 

Interest rates

 

3,437

 

(2,232,094

)

-2.51

%

 

 

0.00

%

(2,232,094

)

-2.51

%

March 10 - December 10

 

Metals

 

89

 

73,051

 

0.08

%

(24

)

(163,255

)

-0.18

%

(90,204

)

-0.10

%

January 10 - March 10

 

Stock indices

 

1,249

 

1,261,228

 

1.42

%

 

 

 

0.00

%

1,261,228

 

1.42

%

January 10 - March 10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

$

(464,377

)

-0.52

%

 

 

$

(421,323

)

-0.47

%

$

(885,700

)

-0.99

%

 

 

 

No individual contract’s unrealized profit or loss comprised greater than 5% of the Members’ Capital as of June 30, 2010 and December 31, 2009.

 

11



 

3.               FAIR VALUE OF INVESTMENTS

 

The Financial Accounting Standards Board (“FASB”) issued the Accounting Standards Codification (“ASC”) which provides authoritative guidance on fair value measurement. This guidance defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.

 

Fair value of an investment is the amount that would be received to sell the investment in an orderly transaction between market participants at the measurement date (i.e. the exit price). All investments (including derivative financial instruments and derivative commodity instruments) are held for trading purposes.  The investments are recorded on trade date and open contracts are recorded at fair value (described below) at the measurement date. Investments denominated in foreign currencies are translated into U.S. dollars at the exchange rates prevailing at the measurement date.  Gains or losses are realized when contracts are liquidated.  Unrealized gains or losses on open contracts are included in Equity in commodity futures trading account.  Any change in net unrealized gain or loss from the preceding period is reported in the Statements of Operations.

 

The fair value measurement guidance established a hierarchal disclosure framework which prioritizes and ranks the level of market price observability used in measuring investments at fair value. Market price observability is impacted by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

 

Investments measured and reported at fair value are classified and disclosed in one of the following categories:

 

Level I — Quoted prices are available in active markets for identical investments as of the reporting date. The type of investments included in Level I are publicly traded investments. As required by the fair market value measurement guidance, the Fund does not adjust the quoted price for these investments even in situations where the Fund holds a large position and a sale could reasonably impact the quoted price.

 

Level II — Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of generally accepted and understood models or other valuation methodologies. Investments which are generally included in this category are investments valued using market data.

 

Level III — Pricing inputs are unobservable and include situations where there is little, if any, market activity for the investment. Fair value for these investments is determined using valuation methodologies that consider a range of factors, including but not limited to the nature of the investment, local market conditions, trading values on public exchanges for comparable securities, current and projected operating performance and financing transactions subsequent to the acquisition of the investment. The inputs into the determination of fair value require significant management judgment. Due to the inherent uncertainty of these estimates, these values may differ materially from the values that would have been used had a ready market for these investments existed.

 

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the Fair Value Measurement. MLAI’s assessment of the significance of a particular input to the Fair Value Measurement in its entirety requires judgment, and considers factors specific to the investment.

 

12



 

Following is a description of the valuation methodologies used for investments, as well as the general classification of such investments pursuant to the valuation hierarchy.

 

Exchange traded investments are fair valued by the Fund by using the reported closing price on the primary exchange where it trades such investments.  These closing prices are observed through the clearing broker and third party pricing services. For non-exchange traded investments, quoted values and other data provided by nationally recognized independent pricing sources are used as inputs into its process for determining fair values.

 

The independent pricing sources obtain market quotations and actual transaction prices for securities that have quoted prices in active markets. Each source has its own proprietary method for determining the fair value of securities that are not actively traded. In general, these methods involve the use of “matrix pricing” in which the independent pricing source uses observable market inputs including, but not limited to, investment yields, credit risks and spreads, benchmarking of like securities, broker-dealer quotes, reported trades and sector groupings to determine a reasonable fair market value.

 

The Fund has determined that Level I securities would include all of its futures and options contracts where it believes that quoted prices are available in an active market.

 

Where the Fund believes that quoted market prices are not available or that the market is not active, fair values are estimated by using quoted prices of securities with similar characteristics, pricing models or matrix pricing and these are generally classified as Level II securities. The Fund determined that Level II securities would include its forward contracts.

 

The Fund’s net unrealized profit (loss) on open forward and futures contracts by the above fair value hierarchy levels as of June 30, 2010 and December 31, 2009 are as follows:

 

Net unrealized profit (loss)

 

 

 

 

 

 

 

 

 

on open contracts

 

Total

 

Level I

 

Level II

 

Level III

 

 

 

 

 

 

 

 

 

 

 

Futures

 

 

 

 

 

 

 

 

 

Long

 

$

2,260,003

 

3,910,755

 

(1,650,752

)

 

Short

 

$

1,316,876

 

399,592

 

917,284

 

 

 

 

$

3,576,879

 

$

4,310,347

 

$

(733,468

)

$

 

 

 

 

 

 

 

 

 

 

 

Forwards

 

 

 

 

 

 

 

 

 

Long

 

$

1,305,335

 

 

1,305,335

 

 

Short

 

$

(2,436,271

)

 

(2,436,271

)

 

 

 

$

(1,130,936

)

$

 

$

(1,130,936

)

$

 

 

 

 

 

 

 

 

 

 

 

June 30, 2010

 

$

2,445,943

 

$

4,310,347

 

$

(1,864,404

)

$

 

 

13



 

Net unrealized profit (loss)

 

 

 

 

 

 

 

 

 

on open contracts

 

Total

 

Level I

 

Level II

 

Level III

 

 

 

 

 

 

 

 

 

 

 

Futures

 

 

 

 

 

 

 

 

 

Long

 

$

(398,041

)

(669,113

)

271,072

 

 

Short

 

$

(180,972

)

(17,717

)

(163,255

)

 

 

 

$

(579,013

)

$

(686,830

)

$

107,817

 

$

 

 

 

 

 

 

 

 

 

 

 

Forwards

 

 

 

 

 

 

 

 

 

Long

 

$

(66,336

)

 

(66,336

)

 

Short

 

$

(240,351

)

 

(240,351

)

 

 

 

$

(306,687

)

$

 

$

(306,687

)

$

 

 

 

 

 

 

 

 

 

 

 

December 31, 2009

 

$

(885,700

)

$

(686,830

)

$

(198,870

)

$

 

 

The Fund’s volume of trading forwards and futures as of the period and year ended June 30, 2010 and December 31, 2009, respectively, are representative of the activity throughout these periods.

 

There were no significant transfers to or from Level I or II during the quarter and period ended June 30, 2010.

 

The Fund engages in the speculative trading of futures, options on futures and forward contracts on a wide range of commodities. Such contracts meet the definition of a derivative as noted in the guidance for accounting for derivative and hedging activities. The fair value amounts of and the gains and losses on derivative instruments is disclosed in the Statements of Financial Condition and Statements of Operations respectively. There are no credit related contingent features embedded in these derivative contracts.

 

The following table indicates the trading gains and losses, by commodity industry sector, on derivative instruments for each of the three month and six month periods ended June 30, 2010 and 2009:

 

 

 

For the three months ended

 

For the six months ended

 

 

 

June 30, 2010

 

June 30, 2010

 

Commodity Industry Sector

 

Gain (loss) from trading

 

Gain (loss) from trading

 

 

 

 

 

 

 

Agriculture

 

$

(733,371

)

$

(660,691

)

Currencies

 

(1,649,543

)

567,525

 

Energy

 

(14,927,637

)

(11,648,381

)

Interest rates

 

23,797,914

 

34,919,814

 

Metals

 

(416,072

)

(656,830

)

Stock indices

 

(17,757,137

)

(9,565,922

)

 

 

 

 

 

 

Total

 

$

(11,685,846

)

$

12,955,515

 

 

14



 

 

 

For the three months ended

 

For the six months ended

 

 

 

June 30, 2009

 

June 30, 2009

 

Commodity Industry Sector

 

Gain (loss) from trading

 

Gain (loss) from trading

 

 

 

 

 

 

 

Agriculture

 

$

222,689

 

$

130,361

 

Currencies

 

(751,201

)

(1,680,019

)

Energy

 

1,084,011

 

515,507

 

Interest rates

 

(2,067,806

)

(1,396,613

)

Metals

 

(305,208

)

(478,800

)

Stock indices

 

154,687

 

648,279

 

 

 

 

 

 

 

Total

 

$

(1,662,828

)

$

(2,261,285

)

 

The Fund is subject to the risk of insolvency of a counterparty, an exchange, a clearinghouse or MLPF&S.  Fund assets could be lost or impounded during lengthy bankruptcy proceedings.  Were a substantial portion of the Fund’s capital tied up in a bankruptcy or other similar types of proceedings, MLAI might suspend or limit trading, perhaps causing the Fund to miss significant profit opportunities.  There are increased risks in dealing with unregulated trading counterparties including the risk that assets may not benefit from the protection afforded to “customer funds” deposited with regulated dealers and brokers.

 

4.               MARKET AND CREDIT RISKS

 

The nature of this Fund has certain risks, which cannot be presented on the financial statements.  The following summarizes some of those risks.

 

Market Risk

 

Derivative instruments involve varying degrees of market risk.  Changes in the level or volatility of interest rates, foreign currency exchange rates or the market values of the financial instruments or commodities underlying such derivative instruments frequently result in changes in the Fund’s Net unrealized profit (loss) on such derivative instruments as reflected in the Statements of Financial Condition.  The Fund’s exposure to market risk is influenced by a number of factors, including the relationships among the derivative instruments held by the Fund as well as the volatility and liquidity of the markets in which the derivative instruments are traded. Investments in foreign markets may also entail legal and political risks.

 

MLAI has procedures in place intended to control market risk exposure, although there can be no assurance that they will, in fact, succeed in doing so.  These procedures focus primarily on monitoring the trading of BlueCrest, calculating the Net Asset Value of the Fund as of the close of business on each day and reviewing outstanding positions for over-concentrations.  While MLAI does not intervene in the markets to hedge or diversify the Fund’s market exposure, MLAI may urge BlueCrest to reallocate positions in an attempt to avoid over-concentrations.  However, such interventions are expected to be unusual.  It is expected that MLAI’s basic risk control procedures consist of the ongoing process of advisor monitoring, with the market risk controls being applied by BlueCrest.

 

15



 

Credit Risk

 

The risks associated with exchange-traded contracts are typically perceived to be less than those associated with over-the-counter (non-exchange-traded) transactions, because exchanges typically provide clearinghouse arrangements in which the collective credit (in some cases limited in amount, in some cases not) of the members of the exchange is pledged to support the financial integrity of the exchange.  In over-the-counter transactions, on the other hand, traders must rely solely on the credit of their respective individual counterparties. Margins, which may be subject to loss in the event of a default, are generally required in exchange trading, and counterparties may also require margin in the over-the-counter markets.

 

The credit risk associated with these instruments from counterparty nonperformance is the net unrealized profit on open contracts, if any, included in the Statements of Financial Condition. The Fund attempts to mitigate this risk by dealing exclusively with Merrill Lynch entities as clearing brokers.

 

The Fund, in its normal course of business, enters into various contracts, with MLPF&S acting as its commodity broker.  Pursuant to the brokerage arrangement with MLPF&S (which includes a netting arrangement), to the extent that such trading results in receivables from and payables to MLPF&S, these receivables and payables are offset and reported as a net receivable or payable and included in Equity in commodity futures trading accounts in the Statements of Financial Condition.

 

Indemnifications

 

In the normal course of business, the Fund has entered, or may in the future enter into agreements that obligate the Fund to indemnify third parties, including affiliates of the Fund, for breach of certain representations and warranties made by the Fund. No claims have actually been made with respect to such indemnities and any quantification would involve hypothetical claims that have not been made. Based on the Fund’s experience, MLAI expected the risk of loss to be remote and, therefore, no provision has been recorded.

 

5.               RECENT ACCOUNTING PRONOUNCEMENTS

 

In January 2010, the FASB issued an update to the fair value measurements disclosure. Pursuant to this update, additional disclosures in the financial statements relating to transfers in and out of Levels 1 and 2 fair value measurements and separate disclosure of purchases, sales, issuances, and settlements in Level 3 roll forward, will be required. In addition, this update provides clarifications on i) the level of aggregation of classes of assets and liabilities disclosed in the fair value measurement disclosures and ii) disclosures relating to the inputs and valuation techniques for Level 2 and Level 3 fair value measurements. The new disclosures and clarifications of existing disclosures are effective for annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the Level 3 roll forward which are effective for fiscal years beginning after December 15, 2010. This update further enhances the fair value disclosures and the Sponsor has determined that the adoption of this update on January 1, 2010 did not have a material impact to the Fund’s financial statements.

 

6.               SUBSEQUENT EVENTS

 

Management has evaluated the impact of subsequent events on the Fund and has determined that there were no subsequent events that require adjustments to, or disclosure in, the financial statements.

 

16



 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

MONTH-END NET ASSET VALUE PER UNIT

 

MLAI believes that the Net Asset Value used to calculate subscription and redemption value and to    report performance to investors throughout the period is a useful performance measure for the investors of the Fund. Therefore, the charts below referencing Net Asset Value and performance measurements are based on the Net Asset Value for financial reporting.

 

The Fund calculates the Net Asset Value per unit of each class of units as of the close of business on the last business day of each calendar month and such other dates as MLAI may determine in its discretion. The Fund’s “Net Asset Value” as of any calculation date will generally equal the value of the Fund’s account under the management of its trading advisor as of such date, plus any other assets held by the Fund, minus accrued brokerage commissions, sponsor’s, management and performance fees, organizational expense amortization and any operating costs and other liabilities of the Fund.

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS A

 

 

 

Jan.

 

Feb.

 

Mar.

 

Apr.

 

May

 

June

 

2009

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

2010

 

$

1.0328

 

$

1.0669

 

$

1.1277

 

$

1.1575

 

$

1.0771

 

$

1.0787

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS C

 

 

 

Jan.

 

Feb.

 

Mar.

 

Apr.

 

May

 

June

 

2009

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

2010

 

$

1.0294

 

$

1.0625

 

$

1.1222

 

$

1.1508

 

$

1.0700

 

$

1.0707

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS D

 

 

 

Jan.

 

Feb.

 

Mar.

 

Apr.

 

May

 

June

 

2009

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

2010

 

$

1.0366

 

$

1.0722

 

$

1.1347

 

$

1.1661

 

$

1.0864

 

$

1.0895

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS I

 

 

 

Jan.

 

Feb.

 

Mar.

 

Apr.

 

May

 

June

 

2009

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

2010

 

$

1.0394

 

$

1.0741

 

$

1.1357

 

$

1.1660

 

$

1.0854

 

$

1.0874

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS DS

 

 

 

Jan.

 

Feb.

 

Mar.

 

Apr.

 

May

 

June

 

2009

 

$

1.2096

 

$

1.2138

 

$

1.2009

 

$

1.1446

 

$

1.1820

 

$

1.1543

 

2010

 

$

1.2212

 

$

1.2631

 

$

1.3368

 

$

1.3738

 

$

1.2799

 

$

1.2835

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS DT

 

 

 

Jan.

 

Feb.

 

Mar.

 

Apr.

 

May

 

June

 

2009

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

2010

 

n/a

 

$

1.0350

 

$

1.0960

 

$

1.1271

 

$

1.0508

 

$

1.0543

 

 

17



 

Liquidity and Capital Resources

 

The Fund does not engage in the sale of goods or services.  The Fund’s assets are its (i) equity in its trading account, consisting of cash and cash equivalents and (ii) interest receivable. Because of the low margin deposits normally required in commodity futures trading relatively small price movements may result in substantial losses to the Fund.  While substantial losses could lead to a material decrease in liquidity, no such material losses occurred during the second quarter of 2010 and there was no impact on the Fund’s liquidity.

 

The Fund’s capital consists of the capital contributions of the members as increased or decreased by gains or losses on trading, expenses, interest income, redemptions of Redeemable Units and distributions of profits, if any.

 

For the six months ended June 30, 2010, Fund capital increased 167.25% from $88,998,199 to $237,848,246.  This increase was attributable to the net gain from operations of $7,488,462, coupled with the redemption of 7,792,957 Redeemable Units resulting in an outflow of $8,721,016.  The cash outflow was offset with cash inflow of $150,082,601 due to subscription of 136,324,895 units.  Future redemptions could impact the amount of funds available for investment in commodity contract positions in subsequent months.

 

Critical Accounting Policies

 

Statement of Cash Flows

 

The Fund is not required to provide a Statement of Cash Flows.

 

Investments

 

All investments (including derivatives) are held for trading purposes.  Investments are recorded on trade date and open contracts are recorded at fair value (as described below) at the measurement date.  Investments denominated in foreign currencies are translated into U.S. dollars at the exchange rates prevailing at the measurement date.  Gains or losses are realized when contracts are liquidated.  Unrealized gains or losses on open contracts are included as a component of equity in trading account on the Statements of Financial Condition.  Realized gains or losses and any change in net unrealized gains or losses from the preceding period are reported in the Statements of Operations and Statements of Changes in Members’ Capital.

 

Cash Equivalents

 

The Fund considers all highly liquid investments, with a maturity of three months or less when acquired, to be cash equivalents. Cash equivalents were recorded at amortized cost which approximated fair value (Level II see Note 3).  Cash was held at a nationally recognized financial institution.

 

Fair Value Measurements

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. For more information on our fair value, see Note 3, Fair Value of Investments.

 

18



 

Futures Contracts

 

The Fund trades futures contracts.  A futures contract is a firm commitment to buy or sell a specified quantity of investments, currency or a standardized amount of a deliverable grade commodity, at a specified price on a specified future date, unless the contract is closed before the delivery date or if the delivery quantity is something where physical delivery cannot occur (such as S&P 500 Index), whereby such contract is settled in cash.  Payments (“variation margin”) may be made or received by the Fund each business day, depending on the daily fluctuations in the value of the underlying contracts, and are recorded as unrealized gains or losses by the Fund.  When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed.  Because transactions in futures contracts require participants to make both initial margin deposits of cash or other assets and variation margin deposits, through the futures broker, directly with the exchange on which the contracts are traded, credit exposure is limited.  Realized gains (losses) and changes in unrealized gains (losses) on futures contracts are included in the Statements of Operations and Statements of Changes in Members’ Capital.

 

Forward Foreign Currency Contracts

 

Foreign currency contracts are those contracts where the Fund agrees to receive or deliver a fixed quantity of foreign currency for an agreed-upon price on an agreed future date.  Foreign currency contracts are valued daily, and the Fund’s net equity therein, representing unrealized gain or loss on the contracts as measured by the difference between the forward foreign exchange rates at the dates of entry into the contracts and the forward rates at the reporting date, is included in the Statements of Financial Condition.  Realized gains (losses) and changes in unrealized gains (losses) on foreign currency contracts are recognized in the period in which the contract is closed or the changes occur, respectively and are included in the Statements of Operations and Statements of Changes in Members’ Capital.

 

Interest Rates and Income

 

The Fund currently earns interest based on the prevailing Fed Funds rate plus a spread for short cash positions and minus a spread for long cash positions. The current short term interest rates have remained extremely low when compared with historical rates and thus has contributed negligible amounts to overall Fund performance.

 

Income Taxes

 

No provision for income taxes has been made in the accompanying financial statements as the Member is individually responsible for reporting income or loss based on such Member’s share of the Fund’s income and expenses as reported for income tax purposes.

 

The Fund follows the ASC guidance on accounting for uncertainty in income taxes.  This guidance provides how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements.  This guidance also requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Fund’s financial statements to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority.  Tax positions with respect to tax at the Fund level not deemed to meet the “more-likely-than-not” threshold would be recorded as a tax benefit or expense in the current year.  MLAI has analyzed the Fund’s tax positions and has concluded that no provision for income tax is required in the Fund’s financial statements. The following are the major tax jurisdictions for the Fund and the earliest tax year subject to examination: United States — 2008.

 

19



 

Results of Operations

 

January 1, 2010 to March 31, 2010

 

The Fund experienced a net trading profit before brokerage commissions and related fees of $24,641,361 in the first quarter of 2010.  Profits were primarily attributable to the interest rates, stock indices, energy, currencies and agriculture sectors posting gains. The metals sector posted losses.

 

The interest rate sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the quarter. Fixed income benefitted from the risk off theme and fears that the pace of the global recovery may not be as fast as previously thought. Short interest rates were the first to react with the three major strips all printing contract highs. As the month and equity weakness progressed, the rally further out the curve gathered momentum culminating in U.S. Ten Year Treasury Note trading at a one and a half month high on the final day of January. Profits continued to be posted to the Fund in the middle of the quarter. Of the Fixed Income block, the highlight contributors were the program’s long positions in the short rate contracts (Euribor, Eurodollar and Short Sterling). The underperformance in the bonds sector was predominantly due to exposure to the U.S. Ten Year Treasury Note and long positions in U.S. bonds where stronger than expected resulting in losses being posted to the Fund at the end of the quarter.

 

The stock indices posted profits to the Fund. Losses were initially posted to the Fund due to continued rumors of the Chinese tightening lending and comments from the Obama administration about risks and banking practices. The S&P500 Index fell to trade at a two and a half month low while Eurostoxx and the Nikkei also fell in January. Losses were posted to the Fund in the middle of the quarter as equities continued to post losses. Equity strength was sustained through the month of March as the S&P500 broke key upper resistance levels amid more upbeat language from the Federal Open Market Committee, stating on March 16th that the labor market is “stabilizing”. The quarter ended with profits being posted to the Fund.

 

The energy sector posted profits to the Fund. Losses were posted to the Fund at the beginning of the quarter. Energies started the month of January strongly with pent up demand spilling over from the holiday period. However, the rally in energies that began in the second half of December started to look increasingly out of step with fundamentals, West Texas Intermediate crude oil ended January down from the previous month. Profits were posted to the Fund in the middle through the end of the quarter. Risk levels in the program remain above average with the margin to equity ratio increasing concordant with an expanding opportunity set. With a significant component of the portfolio’s VaR in energies, the volatile path of oil as it approached year-to-date highs has been responsible for this risk.

 

The currency sector posted profits to the Fund. Losses were posted to the Fund at the beginning of the quarter. Trend went into the month long high beta currencies. Despite the Fund largely reducing its long positions in the New Zealand dollar versus the U.S. dollar, the pair still ended the month of January posting losses to the Fund. The Fund held short conviction in the euro and the British pound as the region suffered with the Greek sovereign debt situation aggravating an already bleak economic outlook resulting in profits being posted to the Fund. The focus of broad macroeconomic concern remains the consequences of a cross the curve and the consequences of a strong U.S. dollar on commodities positioning and the market reversal triggered by monetary policy “exit strategy”.  The quarter ended with profits being posted to the Fund.

 

20



 

The agriculture sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the quarter due to the fall in corn after a very bearish United States Department of Agriculture report and extended a short bias across all agricultural products as South American production continued to put pressure on U.S. crops. Losses were posted to the Fund in the middle of the quarter due to volatility in global markets. The commodity markets experienced a variety of different trends with cattle prices increasing while the grain markets weakened. Through this mixture of trends and their diversifying character, the agriculture sector posted profits to the Fund at the end of the quarter.

 

April 1, 2010 to June 30, 2010

 

The Fund experienced a net trading loss of $11,685,846 before brokerage commissions and related fees in the second quarter of 2010. The Fund’s profits were primarily attributable to the interest rate sector posting profits. The agriculture, stock indices, metals, currency and energy sectors posted losses.

 

The interest rate sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the quarter as the burgeoning European debt crisis increased demand for fixed income in all parts of the curve. Profits were also posted to the Fund as a bid for ex-region debt also accrued profit from the Japanese Government bond positions. The trading program’s short positions also posted profits to the Fund due to a flattening of the Euribor curve. Profits continued to be posted to the Fund in the middle of the quarter due to the trading program’s stable bid in the bonds sector. Sovereign debt issues in Europe focused market sentiment into a wave of risk aversion which saw the Chicago Board Options Exchange Volatility Index spike to a 13 month high on May 5th.   Profits continued to be posted to the Fund due to the trading program’s fixed income allocation yielding positive returns in the bonds sectors and short positions in interest rates. Profits were posted to the Fund at the end of the quarter as sovereign debt fears in Europe added to persistent volatility as governments began to consolidate fiscal policies, with the G20 talks doing little to coordinate strategy.

 

The agriculture sector posted losses to the Fund. Losses were posted to the Fund at the beginning and end of the quarter due to volatility in global markets. Profits were posted to the Fund in the middle of the quarter as grains continued its slide from the previous month.

 

The stock indices posted losses to the Fund. Losses were posted to the Fund throughout the quarter. Losses were posted to the Fund at the beginning of the quarter with the losses hedged in part by the trading programs bid in the short end of the fixed income curve. Losses continued to be posted to the Fund in the middle of the quarter as returns had been adversely affected by a period of high volatility as global macroeconomic uncertainty dominated the financial markets. In addition, the “flash-crash” event of May 6th added further to market volatility as the S&P500 dropped significantly in one session. The Dow Jones Industrial Average and the Dow Jones Eurostoxx dropped over the month of May due to considerable volatility causing losses in the equities sector. Losses were posted to the Fund at the end of the quarter as macroeconomic data through June was generally weak due to a bearish non farm payroll figure on June 4th setting the tone for the month of June. Equities were equally range bound, with the Dow Jones Eurostoxx trading up and ending the month down which adversely affected the trading program’s predominantly long exposure to equity indices.

 

The metals sector posted overall losses to the Fund throughout the quarter due to volatility in global markets.

 

21



 

The currency sector posted losses to the Fund. Profits were posted to the Fund at the beginning of the quarter amidst considerable macroeconomic instability. Losses were posted to the Fund in the middle of the quarter as the euro was heavily sold against the U.S. dollar as market participants reduced exposure to the PIGS crisis (Portugal, Ireland, Greece and Spain).  Losses continued to be posted to the Fund at the end of the quarter due to the effect of a sharp market reversal caused by abrupt shifts in monetary policy and the effect of a stronger U.S. dollar on the trading program’s long positioning in dollar denominated risky assets.

 

The energy sector posted losses to the Fund. Profits were posted to the Fund at the beginning of the quarter as bullish non-farm-payroll data sent oil to an18 month high and the West Texas Intermediate crude oil at more than $87 per barrel. Losses were posted to the Fund in the middle of the quarter due to the West Texas Intermediate crude oil dropping to $22 per barrel through to May 25th and all other energies were similarly affected, causing a drop in the energies sector.  Losses were posted to the Fund at the end of the quarter as risk levels steadily increased through the month of June most notably in the Energies sector.  West Texas Intermediate crude oil traded within a $10 range as the BP oil spill and Hurricane Alex sparked rallies to retest the $80 per barrel level but ultimately ended the month where it began, around $76 per barrel and other energies followed a similar path, culminating in a loss in this sector.

 

January 1, 2009 to March 31, 2009

 

The Fund experienced a net trading loss before brokerage commissions and related fees from January 1, 2009 to March 31, 2009 of $598,456.  Profits were primarily attributable to the Fund’s interest rates and stock indices and losses were attributable to agriculture, metals, energy and currencies sectors.

 

The Fund posted an overall loss in January 2009.  The Fund’s fixed income related positions were the major detractor from performance as bond yields rose against the Fund’s long positions.  The Fund’s currency positions posted overall gains due to the Fund’s long U.S. dollar positions versus the British pound and the Australian dollar.  The commodities and equities sectors contributed marginally to the Fund’s return for the month.

 

The Fund posted an overall loss in February 2009.  During this month, equity-index related positions were the best performing sector for the Fund.  While the Fund’s total equity exposure was a small net short position, the recent fall in equity markets was large enough to produce some small gains for the Fund.  All other sectors posted losses for the Fund.  The Fund had been concentrating its exposure in the last three months in fixed income as the Fund’s overall long exposure produced mixed results with overall losses to the Fund.  The Fund’s currency sector positions also posted losses, primarily due to the Fund’s long positions in the Euro and short positions in the Australian dollar.

 

In March 2009, the Fund posted an overall loss.  The Fund had long fixed-income related positions going into March and the choppiness in the markets did not change its positioning significantly.  With yields ending the month lower across the board, the Fund was able to generate strong profits in fixed income, which were not enough to offset losses from the Fund’s positions in currencies and short position in commodities.  The Fund’s biggest losses came from its currency positions.  The Fund was correctly positioned with respect to long positions in the Euro and short positions in the British pound, however the Fund was incorrectly positioned with respect to short positions in the Australian dollar, which experienced the largest price movement over the period.  The Fund’s commodity short positions posted losses as most commodities ended the month higher.

 

22



 

April 1, 2009 to June 30, 2009

 

The Fund posted an overall loss from April 1, 2009 through June 30, 2009.

 

The Fund posted an overall loss in April 2009.  The Fund’s losses in equity indices, currencies and commodities were muted due to the reduction of its positions in these sectors.  Fixed income was the worst performing sector, followed by currencies.  Having begun the month on a slightly bearish tone, the commodity markets were volatile as the change in economic sentiment took effect.  Despite higher than expected U.S. oil inventory numbers, energies were generally buoyed by the improved outlook, the volatility in the markets led to a reduction in the Fund’s exposure, resulting in losses for the Fund.  The Fund posted losses in the metals and agricultural markets due to their volatility.

 

The Fund posted a profit in May 2009.  The Fund posted profits in all sectors with the exception of currencies.  Investors became increasingly convinced that the worst of the crisis was behind them and the Fund was well positioned as equities moved higher, energies rose and short rates rallied.  The U.S. dollar was sold off as investors sold their ‘safe’ U.S. assets and chased yield.  The Fund posted profits from long positions in the New Zealand dollar versus the U.S. dollar and short positions in the U.S. dollar versus the South African rand. However, these positions could not offset the losses from the Fund’s short positions in the British pound and Swedish krona.  The improvement in sentiment and the weak United States dollar pushed energies higher as oil traded up to $66 per barrel, a level not seen since the beginning of November 2008.  The Fund posted profits in the metals sector due to its long positions in gold and silver.  The Fund also posted profits in the agricultural sector due to a rally in soymeal and soybeans.

 

The Fund posted an overall loss in June 2009.  Short term rates suffered a sharp reversal during the first week of June and the U.S. dollar had a similar reversal, gaining against most currencies.  Then, mid-month, the up trends in equities and commodities reversed, as sentiment became risk averse again, resulting in losses for the Fund.  Declines in non-farm payrolls caused relentless liquidation of long positions in the rates markets, erasing virtually all of the market’s 2009 gains in one session.  Bonds also suffered a sell off due to inflation fears.  The Fund posted profits in energies as oil traded above $73 a barrel to hit a seven month high, due to the improved growth prospects and a drawdown in Department of Energy inventory numbers.  The Fund posted profits in agricultural despite a 20% fall in corn.  The Fund posted losses in metals due to it not being positioned to benefit from the falls in precious metals, particularly the 13% slump in silver.

 

The Fund has no applicable off-balance sheet arrangements or tabular disclosure of contractual obligations of the type described in Items 303(a)(4) and 303(a)(5) of Regulation S-K.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Introduction

 

The Fund is a speculative commodity pool. The market sensitive instruments held by it are acquired for speculative trading purposes and all or substantially all of the Fund’s assets are subject to the risk of trading loss.  Unlike an operating company, the risk of market sensitive instruments is integral, not incidental, to the Fund’s main line of business.

 

23



 

Market movements result in frequent changes in the fair market value of the Fund’s open positions and, consequently, in its earnings and cash flow. The Fund’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 Fund’s open positions and the liquidity of the markets in which it trades.

 

The Fund, under the direction of BlueCrest, rapidly acquires and liquidates 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 Fund’s past performance is not necessarily indicative of its future results.

 

Value at Risk is a measure of the maximum amount which the Fund could reasonably be expected to lose in a given market sector. However, the inherent uncertainty of the Fund’s speculative trading and the recurrence in the markets traded by the Fund of market movements far exceeding expectations could result in actual trading or non-trading losses far beyond the indicated Value at Risk or the Fund’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 quantifications included in this section should not be considered to constitute any assurance or representation that the Fund’s losses in any market sector will be limited to Value at Risk or by the Fund’s attempts to manage its market risk.

 

Quantifying The Fund’s Trading Value At Risk

 

Quantitative Forward-Looking Statements

 

The following quantitative disclosures regarding the Fund’s market risk exposures contain “forward-looking statement” 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 of 1933 and Section 21E of the Securities Exchange Act of 1934).  All quantitative disclosures in this section are deemed to be forward-looking statements for purposes of the safe harbor, except for statements of historical fact.

 

The Fund’s risk exposure in the various market sectors traded by BlueCrest is quantified below in terms of Value at Risk.  Due to the Fund’s fair value accounting, any loss in the fair value of the Fund’s open positions is directly reflected in the Fund’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).

 

Maintenance margin requirements have been used by the Fund as the measure of its Value at Risk.  Maintenance margin requirements are set by exchanges to equal or exceed the maximum loss in the fair value of any given contract incurred in 95%-99% of the one-day time periods included in the historical sample (generally approximately one year) 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.

 

In the case of market sensitive instruments which are not exchange-traded (almost exclusively currencies in the case of the Fund), the margin requirements for the equivalent futures positions have been used as Value at Risk.  In those rare cases in which a futures-equivalent margin is not available, dealers’ margins have been used.

 

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 been aggregated to determine each trading category’s aggregate Value at Risk.  The diversification effects resulting from the fact that the Fund’s positions are rarely, if ever, 100% positively correlated have not been reflected.

 

24



 

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

 

The following table indicates the average, highest and lowest trading Value at Risk associated with the Fund’s open positions by market category for the fiscal period. For the six months ended June 30, 2010 and 2009 the Fund’s average Month-end Net Asset Value was $196,288,346 and $51,873,248 respectively.

 

June 30, 2010

 

 

 

Average Value

 

% of Average

 

Highest Value

 

Lowest Value

 

Market Sector

 

at Risk

 

Capitalization

 

at Risk

 

at Risk

 

 

 

 

 

 

 

 

 

 

 

Agricultural Commodities

 

808,600

 

0.41

%

1,471,254

 

373,259

 

Currencies

 

673,017

 

0.34

%

1,461,915

 

147,501

 

Energy

 

8,324,230

 

4.24

%

12,600,870

 

4,370,752

 

Interest Rates

 

6,503,740

 

3.31

%

10,459,661

 

3,628,050

 

Metals

 

948,371

 

0.48

%

1,400,337

 

432,204

 

Stock Indices

 

5,268,396

 

2.68

%

8,371,615

 

2,199,496

 

Total

 

22,526,354

 

11.46

%

35,765,652

 

11,151,262

 

 

June 30, 2009

 

 

 

Average

 

% of Average

 

Highest Value

 

Lowest Value

 

Market Sector

 

Value at Risk

 

Capitalization

 

At Risk