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EX-31.02 - EX-31.02 - ML BlueTrend FuturesAccess LLCa11-7503_7ex31d02.htm
EX-10.02 - EX-10.02 - ML BlueTrend FuturesAccess LLCa11-7503_7ex10d02.htm
EX-32.02 - EX-32.02 - ML BlueTrend FuturesAccess LLCa11-7503_7ex32d02.htm
EX-31.01 - EX-31.01 - ML BlueTrend FuturesAccess LLCa11-7503_7ex31d01.htm
EX-13.01 - EX-13.01 - ML BlueTrend FuturesAccess LLCa11-7503_7ex13d01.htm
EX-32.01 - EX-32.01 - ML BlueTrend FuturesAccess LLCa11-7503_7ex32d01.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-K

 

x      Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the fiscal year ended: December 31, 2010

 

or

 

o         Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

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

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

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)

 

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

 

Securities registered pursuant to Section 12(g) of the Act: Units of Limited Liability Company Interest

 

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

 

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

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (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 Act). Yes o No x

 

The Units of the limited liability company interest of the registrant are not publicly traded. Accordingly, there is no aggregate market value for the registrant’s outstanding equity that is readily determinable.

 

As of February 28, 2011 Units of limited liability company interest with an aggregate Net Asset Value of $270,018,072 were outstanding and held by non-affiliates.

 

Documents Incorporated by Reference

 

The registrant’s 2010 Annual Report and Reports of Independent Registered Public Accounting Firms, the annual report to security holders for the year ended December 31, 2010, is incorporated by reference into Part II, Item 8, and Part IV hereof and filed as an Exhibit herewith. Copies of the annual report are available free of charge by contacting Alternative Investments Client Services at 1-866-MER-ALTS.

 

 

 



 

ML BLUETREND FUTURESACCESS LLC

 

ANNUAL REPORT FOR 2010 ON FORM 10-K

 

Table of Contents

 

 

 

PAGE

 

PART I

 

 

 

 

Item 1.

Business

1

 

 

 

Item 1A.

Risk Factors

8

 

 

 

Item 1B.

Unresolved Staff Comments

11

 

 

 

Item 2.

Properties

11

 

 

 

Item 3.

Legal Proceedings

11

 

 

 

Item 4.

(Removed and Reserved)

11

 

 

 

 

PART II

 

 

 

 

Item 5.

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

12

 

 

 

Item 6.

Selected Financial Data

14

 

 

 

Item 7.

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

22

 

 

 

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

30

 

 

 

Item 8.

Financial Statements and Supplementary Data

34

 

 

 

Item 9.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

34

 

 

 

Item 9A.

Controls and Procedures

34

 

 

 

Item 9B.

Other Information

35

 

 

 

 

PART III

 

 

 

 

Item 10.

Directors, Executive Officers and Corporate Governance

36

 

 

 

Item 11.

Executive Compensation

38

 

 

 

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

38

 

 

 

Item 13.

Certain Relationships and Related Transactions and Director Independence

39

 

 

 

Item 14.

Principal Accounting Fees and Services

39

 

 

 

 

PART IV

 

 

 

 

Item 15.

Exhibits and Financial Statement Schedules

41

 



 

PART I

 

Item 1:          Business

 

(a)                                  General Development of Business:

 

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 6 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 LLP (“BlueCrest”) is the Trading Advisor of the Fund (“Trading Advisor”).

 

Merrill Lynch Alternative Investments LLC (“MLAI”) is the sponsor (“Sponsor”) and manager (“Manager”) 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. Merrill Lynch is a wholly-owned subsidiary of Bank of America Corporation.

 

The Program is a group of commodity pools sponsored by MLAI (each pool is a “Program Fund” or “FuturesAccess 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 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.  MLAI is authorized to make all net asset value determinations.

 

As of December 31, 2010, the Net Asset Value of the Fund was $261,333,948. As of December 31, 2010, the Net Asset Value per Unit was $1.1785 for Class A, $1.1639 for Class C, $1.1993 for Class D, $1.1904 for Class I, $1.4128 for Class DS and $1.1650 for Class DT.

 

Since the Fund began trading activities, the highest month-end Net Asset Value per Unit  for Class A was $1.1785 (December 31, 2010) and the lowest was $1.0208 (August 31, 2009).  The highest month-end Net Asset Value per Unit for Class C was $1.1639 (December 31, 2010) and the lowest was $1.0199 (August 31, 2009).  The highest month-end Net Asset Value per Unit for Class D was $1.1993 (December 31, 2010) and the lowest was $1.0221 (August 31, 2009).  The highest month-end Net Asset Value per Unit for Class I was $1.1904 (December 31, 2010) and the lowest was $1.0211 (August 31, 2009). The highest month-end Net Asset Value per Unit for Class DS was $1.4128 (December 31, 2010) and the lowest was $1.0408 (September 30, 2008). The highest month-end Net Asset Value per Unit for Class DT was $1.1650 (December 31, 2010) and the lowest was $1.0350 (February 28, 2010).

 

(b)                                 Financial Information about Segments:

 

The Fund’s business constitutes only one segment for financial reporting purposes, i.e., a speculative “commodity pool”. The Fund does not engage in sales of goods or services.

 

1



 

(c)                                  Narrative Description of Business:

 

Trading Advisor’s Trading Model

 

The Fund trades in the futures and forward markets with the objective of achieving substantial capital appreciation.

 

The Fund and MLAI have entered into an Advisory Agreement with BlueCrest whereby BlueCrest trades the Fund’s assets through a managed account using the BlueTrend Program (the “Trading Program”).  BlueCrest trades in the U.S. and international futures and forwards markets pursuant to the Trading Program.

 

The Trading Advisor of the Fund, may exercise discretion in connection with its technical trading program in order to enforce risk parameters, address extraordinary market events or as otherwise determined by the Trading Advisor. Although the Trading Advisor’s trading program is continually evolving, there were no fundamental or material charges to the trading program during the 2010 fiscal year.

 

The Trading Advisor trades the following instruments on U.S. and non-U.S. exchanges and markets: (a) futures, options, options on futures, and forward contracts on currencies, interest rates, interest rate instruments, commodities, individual stocks, stock indices and other indices; and (b) spot currencies, in all cases ((a) and (b)) traded on regulated markets and/or OTC markets.  The Trading Advisor does not, however, currently trade futures, options, options on futures or forward contracts on individual stocks for the Fund.  Over time, the underlying values of futures, options, options on futures and forward contracts traded may also include other economic variables which are now or may hereafter become the subject of organized futures, options or forward trading.  Over time, the instruments that the Trading Advisor trades may also include swaps or other derivative, margined instruments, in each case traded on regulated and/or OTC markets.

 

The applied principles of risk management play a dominant role in the Trading Advisor’s trading methodology.  The Trading Program is designed to pursue capital growth within the limits of a defined risk tolerance.  The Trading Program is entirely based on quantitative analysis of signaled price behavior of outright markets and of intra-market and/or inter-market combinations of the instruments concerned, and therefore not on fundamental analysis.

 

The Trading Program may enter into both long and short positions in any of the instruments involved, or it may have no position.  Long and short positions are likely to be leveraged and unhedged and/or uncovered.  The degree of leverage is implicitly determined by the risk/reward profile selected by the Fund.  The degree of leverage can be expressed as the number of contracts traded or held in position per millions of U.S. dollars under management.  A higher degree of leverage represents a higher degree of risk as it goes hand in hand with a higher number of contracts held in a position for each U.S. dollar under management.  As such, a selected risk profile has a consequence for the number of contracts traded and/or held in a position for each U.S. dollar under management.

 

The Trading Program is systematic by nature and requires a consistent application.  Therefore, discretionary inputs are not essential to the effectiveness of the Trading Program.  Exceptional market circumstances of the observed past, both favorable and unfavorable, are integrally reflected in the presented performance profile of the Trading Program.  While the Trading Advisor generally will not use discretionary inputs in trading client accounts, in the event of exceptional market circumstances the Trading Advisor may use discretion in an attempt to limit risk to a position or an account.  The use of discretion by the Trading Advisor may have a positive or negative impact on performance of the Fund.

 

The portfolio composition and the relative weighting of instruments within each portfolio is defined irrespective of the outcome of historical trades.  The guiding principle is strategic diversification in pursuit of a maximum attainable risk spreading, taking correlation analysis and degrees of profit expectancy into account.

 

As the applied strategies require particular transaction sizes to allow for multiple entry and exit points and because certain minimum transaction sizes may be required or recommendable, the attainable degree of diversification is, among others, a function of the amount under management.  Generally, larger accounts have a higher degree of diversification.

 

Specific risk provisions are computed for each market exposure.  The risk provisions are designed to have a pre-defined reliability.  In all trading systems the assessment of price volatility plays a prominent role.  Risk assessments are determined on the basis of a regular or continuous evaluation of daily price behavior, possibly leading to regular adjustments during the lifetime of exposures.

 

The applied market approach does not forecast markets or price levels but participates in a systematic and dynamic way in signaled price patterns.  The Trading Program exploits directional price movement of outright prices, of time spreads in one or more time frames and of inter-market and -product combinations.

 

2



 

Although the Trading Advisor’s Trading Program is continually evolving, there were no fundamental or material changes to the Trading Program during the 2010 fiscal year.

 

Employees

 

The Fund has no employees.

 

Use of Proceeds and Cash Management Income

 

Subscription Proceeds

 

The Fund’s cash is used as security for and to pay the Fund’s trading losses as well as its expenses and redemptions. The primary use of the proceeds of the sale of the Units is to permit BlueCrest to trade on a speculative basis in a wide range of different futures and forwards markets on behalf of the Fund.  While being used for this purpose, the Fund’s assets are also generally available for cash management, as more fully described below under “Cash Assets”.

 

Market Sectors

 

BlueCrest applies its proprietary systems to a broadly-diversified portfolio of futures and forward markets pursuant to their BlueTrend Program. The BlueTrend Program may trade in the following markets:  CBOT, CME, EUREX, IME, LME, LIFFE, MATIF, ME, MEFF, NYMEX, NZFOE, SFE, SIMEX, TIFFE, TSE and may expand to include trading in other markets.

 

The Fund’s commitments to different types of markets — U.S. and non-U.S., regulated and non-regulated — differ substantially from time to time, as well as over time.  The Fund has no policy restricting its relative commitment to any of these different types of markets.

 

3



 

CONDENSED SCHEDULE OF INVESTMENTS

 

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

 

December 31, 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

 

330

 

$

586,527

 

0.22

%

 

$

 

0.00

%

$

586,527

 

0.22

%

March 11

 

Currencies

 

2,852,187,119

 

6,292,330

 

2.41

%

(1,929,042,262

)

(3,230,067

)

-1.24

%

3,062,263

 

1.17

%

March 11

 

Energy

 

1,501

 

4,746,214

 

1.82

%

 

 

0.00

%

4,746,214

 

1.82

%

January 11 - April 11

 

Interest rates

 

3,883

 

382,086

 

0.15

%

(600

)

(37,834

)

-0.01

%

344,252

 

0.14

%

March 11 - June 13

 

Metals

 

525

 

5,470,493

 

2.09

%

(279

)

(3,554,866

)

-1.36

%

1,915,627

 

0.73

%

January 11 - April 11

 

Stock indices

 

3,492

 

(1,439

)

0.00

%

 

 

0.00

%

(1,439

)

0.00

%

January 11 - March 11

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

$

17,476,211

 

6.69

%

 

 

$

(6,822,767

)

-2.61

%

$

10,653,444

 

4.08

%

 

 

 

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 Member’s Capital as of December 31, 2010 and 2009.

 

4



 

Market Types

 

The Fund trades on a variety of United States and foreign futures exchanges.  Substantially all of the Fund’s off-exchange trading takes place in the highly liquid, institutionally-based currency forward markets.

 

Many of the Fund’s currency trades are executed in the spot and forward foreign exchange markets (the “FX Markets”) where there are no direct execution costs.  Instead, the participants, banks and dealers in the FX Markets take a “spread” between the prices at which they are prepared to buy and sell a particular currency and such spreads are built into the pricing of the spot or forward contracts with the Fund.

 

Custody of Assets

 

Substantially all of the Fund’s assets are currently held in one or more Commodity Futures Trading Commission (“CFTC”) regulated customer accounts at MLPF&S.

 

Cash Assets

 

The Fund will generally earn interest, as described below, on its “Cash Assets”, which can be generally described as the cash actually held by the Fund plus its “open trade equity” (unrealized gain and loss marked to market daily on open positions).   Cash Assets are held primarily in U.S. dollars, and to a lesser extent in foreign currencies, and are comprised of the Fund’s cash balances held in the offset accounts (as described below) — which include “open trade equity” (unrealized gain and loss on open positions) on United States futures contracts, which is paid into or out of the Fund’s account on a daily basis; the Fund’s cash balance in foreign currencies derived from its trading in non-U.S. dollar denominated futures and options contracts, which includes open trade equity on those exchanges which settle gains and losses on open positions in such contracts prior to closing out such positions.  Cash Assets do not include, and the Fund does not earn interest income on the Fund’s gains or losses on its open forward, commodity option and certain foreign futures positions since such gains and losses are not collected or paid until such positions are closed out.

 

The Fund’s Cash Assets may be greater than, less than, or equal to the Fund’s Net Asset Value (on which the redemption value of the Units is based) primarily because Net Asset Value reflects all gains and losses on open positions as well as accrued but unpaid expenses.

 

Interest Earned on the Fund’s U.S. Dollar Cash Assets

 

The Fund’s U.S. dollar Cash Assets are held in cash at MLPF&S, which utilizes offset accounts

 

Certain of the Fund’s U.S. dollar “Cash Assets” are held by MLPF&S in customer segregated accounts and primarily invested in CFTC-eligible investments (including, without limitation, commercial paper, U.S. government and government agency securities, prime non-U.S. government securities, corporate notes and money market funds). Cash Assets may also be maintained in “offset accounts” at major U.S. banks, interest bearing savings accounts maintained with major U.S. banks unaffiliated with Merrill Lynch and/or money market investment funds that are managed by third party managers, including affiliates of Merrill Lynch.

 

Offset accounts are non-interest bearing demand deposit accounts maintained with banks unaffiliated with Merrill Lynch. MLPF&S may in the future elect to maintain accounts of this nature with one or more of its affiliates. Offset account deposits reduce Merrill Lynch’s borrowing costs with such banks. An integral feature of the offset arrangements is that the participating banks specifically acknowledge that the offset accounts are for the benefit of MLPF&S’ customers, not subject to any Merrill Lynch liability.

 

To the extent that Cash Assets are placed with affiliates of Merrill Lynch, Merrill Lynch indirectly receives certain economic benefits and therefore has a conflict of interest in selecting such third parties. For example, Merrill Lynch may invest in money market funds managed by BlackRock, Inc. or its affiliates (“BlackRock”). Merrill Lynch is a stockholder in BlackRock and, therefore, potentially benefits from its economic interest in BlackRock whenever BlackRock receives compensation for managing Cash Assets invested in money market investment funds managed by BlackRock.

 

5



 

Interest Paid by Merrill Lynch on the Fund’s Non-U.S. Dollar Cash Assets

 

The Fund will generally earn interest, as described below, on its Cash Assets, which can be generally described as the cash actually held by the Fund, plus its “open trade equity” (unrealized gain and loss marked to market daily on open positions). Cash Assets are held primarily in U.S. dollars, and to a lesser extent in non-U.S. currencies, and comprise the following: (a) the Fund’s cash balances, plus open trade equity on U.S. futures; and (b) the Fund’s cash balances held in non-U.S. currencies as a result of realized profits and losses derived from its trading in non-U.S. dollar-denominated futures and options contracts, plus open trade equity on those exchanges which settle gains and losses on open positions in such contracts prior to closing out such positions. Cash Assets do not include, and the Fund does not earn interest income on, the Fund’s gains or losses on their open forward, commodity option and certain non-U.S. futures positions as such gains and losses are not collected or paid until such positions are closed out.

 

The Fund’s Cash Assets may be greater than, less than or equal to the Fund’s Net Asset Value (on which the redemption value of the Units is based) primarily because Net Asset Value reflects all gains and losses on open positions as well as accrued but unpaid expenses.

 

MLPF&S intends to pay interest on the Fund’s Cash Assets (irrespective of how such Cash Assets are held or invested) at the most favorable rate payable by MLPF&S to accounts of Merrill Lynch affiliates, from time to time, although the actual rate paid to the Fund may be lower. In no event, however, will the rate so paid on such Cash Assets be less than 75% of such prevailing rate. MLPF&S retains the additional economic benefit derived from possession of the Fund’s Cash Assets.

 

MLPF&S, in the course of acting as commodity broker for the Fund, lends certain currencies to, and borrows certain currencies from, the Fund. In the course of doing so, MLPF&S both retains certain amounts of interest and receives other economic benefits. In doing so, MLPF&S follows its standard procedures (as such procedures may change over time) for paying interest on the assets of the commodity pools sponsored by MLAI and other MLPF&S affiliates and traded through MLPF&S.

 

Charges

 

The following table summarizes the charges incurred by the Fund for the years ended December 31, 2010, 2009 and 2008.

 

 

 

2010

 

2009

 

2008

 

Charges

 

Dollar
Amount

 

% of Average
Month-End
Net Assets (1)

 

Dollar
Amount

 

% of Average
Month-End
Net Assets (1)

 

Dollar
Amount

 

% of Average
Month-End
Net Assets (1)

 

Other Expenses

 

$

649,724

 

0.28

%

$

293,309

 

0.48

%

$

77,733

 

0.19

%

Sponsor fees

 

751,285

 

0.32

%

76,798

 

0.15

%

 

0.00

%

Management fees

 

4,237,743

 

1.83

%

1,255,634

 

2.06

%

290,672

 

0.70

%

Performance fees

 

10,688,758

 

4.60

%

839,877

 

1.38

%

2,619,030

 

6.26

%

Total

 

$

16,327,510

 

7.03

%

$

2,465,618

 

4.07

%

$

2,987,435

 

7.15

%

 


(1) Not annualized

 

The foregoing table does not reflect the bid-ask spreads paid by the Fund on its forward trading, or the benefits which may be derived by Merrill Lynch from the deposit of certain of the Fund’s U.S. dollar assets maintained at MLPF&S.

 

The Fund’s average month-end Net Asset Values during 2010, 2009 and 2008 equaled $218,928,048, $61,066,568 and $41,805,928, respectively.

 

During 2010, the interest expense of the Fund was $(3,199), or approximately 0.00% of the Fund’s average month-end Net Asset Values. During 2009, the Fund earned $7,933 in interest income, or approximately 0.01% of the Fund’s average month-end Net Asset Values. During 2008, the Fund earned $91,446 in interest income, or approximately 0.22% of the Fund’s average month-end Net Asset Values.

 

6



 

Description of Current Charges

 

Recipient

 

Nature of Payment

 

Amount of Payment

 

 

 

 

 

MLPF&S

 

Brokerage Commissions

 

During 2010, 2009 and 2008 the round-turn (each purchase and sale or sale and purchase of a single futures contract) rate of the Fund’s flat-rate Brokerage Commissions were approximately $5.62, $6.85 and $9.51, respectively.

 

 

 

 

 

MLPF&S

 

Use of assets

 

Merrill Lynch may derive an economic benefit from the deposit of certain of the Fund’s U.S. dollar assets in accounts maintained at MLPF&S.

 

 

 

 

 

MLAI

 

Sponsor Fees

 

A flat-rate monthly charge of 0.125 of 1% (1.50% annual rate) on Class A units, flat-rate monthly charge of 0.2083 of 1% (2.50% annual rate) on Class C units, a flat-rate monthly charge of 0.0917 of 1% (1.10% annual rate) on Class I units (including the monthly interest credit and before reduction for accrued month-end redemptions, distributions, brokerage commissions, sponsor fees, management fees or performance fees, in each case as of the end of the month of determination). Class D, DS and DT do not pay sponsor fees.

 

 

 

 

 

MLPF&S

 

Sales Commissions

 

Class A Units are subject to a sales commission paid to MLPF&S ranging from 1.0% to 2.5%. Class D and Class I Units are subject to sales commissions up to 0.5%. Sales commissions are deducted from proceeds prior to entering the Fund. Shares purchased and reflected in the Fund records are net of any commissions charged by MLPF&S. Class C, Class DS and Class DT Units are not subject to any sales commissions.

 

 

 

 

 

Merrill Lynch International Bank (“MLIB”) (or an affiliate); Other counterparties

 

Bid—ask spreads

 

Bid—ask spreads are not accounted for separately as an accounting item because bid-ask spreads are an integral part of the price paid or received on all contracts for generally accepted accounting principles.

 

 

 

 

 

MLIB (or an affiliate); Other counterparties

 

EFP differentials

 

Certain of the Fund’s currency trades may be executed in the form of “exchange of futures for physical” transactions, in which a counterparty (which may be MLIB or an affiliate) receives an additional “differential” spread for exchanging the Fund’s cash currency positions for equivalent futures positions.

 

 

 

 

 

BLUECREST

 

Annual Performance Fees

 

25% of any New Trading Profits, as defined, generated by the Fund as a whole, as of the end of each calendar year. “New Trading Profits” equal any increase in the Net Asset Value of the Fund, prior to reduction for any accrued performance fee, as of the current performance fee calculation date over the Fund’s “High Water Mark.” The “High Water Mark” attributable to the Fund equals the highest Net Asset Value after reduction for the performance fee then paid, as of any preceding performance fee calculation date. Net Asset Value, solely

 

7



 

 

 

 

 

for purposes of calculating the performance fee, does not include any interest income earned by the Fund.

 

 

 

 

 

BLUECREST and MLAI

 

Management fees

 

All classes pay a flat-rate monthly charge of 0.1667 of 1% of the Fund’s month-end assets (a 2.0% annual rate) except for Class DT which charges 1.50%. MLAI receives 25% of the management fees.

 

 

 

 

 

Others

 

Operating expense of Fund including audit, legal and tax services

 

Actual payments to third parties.

 

 

 

 

 

MLAI; Others

 

Initial Offering Costs reimbursed

 

Actual costs incurred.

 

Regulation

 

The CFTC has delegated to the National Futures Association responsibility for the registration of “commodity trading advisors,” “commodity pool operators,” “futures commission merchants,” “introducing brokers” and their respective associated persons, and “floor brokers” and “floor traders.”  The Commodity Exchange Act requires commodity pool operators such as MLAI, commodity trading advisors such as the Trading Advisor and commodity brokers or futures commission merchants (“FCMs”) such as MLPF&S to be registered and to comply with various reporting and record keeping requirements.  CFTC regulations also require FCMs to maintain a minimum level of net capital.  In addition, the CFTC and certain commodities exchanges have established limits referred to as “speculative position limits” on the maximum net long or net short speculative positions that any person may hold or control in any particular futures or options contracts traded on U.S. commodities exchanges.  All accounts owned or managed by the Trading Advisor will be combined for position limit purposes.  The Trading Advisor could be required to liquidate positions in order to comply with such limits.  Any such liquidation could result in substantial costs to the Fund.  In addition, many futures exchanges impose limits beyond which the price of a futures contract may not trade during the course of a trading day, and there is a potential for a futures contract to reach its daily price limit for several days in a row, making it impossible for the Trading Advisor to liquidate a position and thereby experiencing dramatic losses.  Currency forward contracts currently are not subject to regulation by any U.S. government agency.

 

Other than in respect of the registration requirements pertaining to the Fund’s securities under Section 12(g) of the Securities Exchange Act of 1934, the Fund is generally not subject to regulation by the Securities and Exchange Commission (the “SEC”).  However, MLAI is registered as an “investment adviser” under the Investment Advisers Act of 1940.  MLPF&S is also regulated by the SEC and the Financial Industry Regulatory Authority (“FINRA”).

 

(d)                                 Financial Information about Geographic Areas

 

The Fund does not engage in material operations in foreign countries, nor is a material portion of the Fund’s revenue derived from customers in foreign countries.

 

The Fund trades on a number of foreign commodity exchanges.  The Fund does not engage in the sales of goods or services.

 

Item 1A:  Risk Factors

 

Past Performance Not Necessarily Indicative of Future Results

 

Past performance is not necessarily indicative of future results.  The trading advisor’s past performance may not be representative of how it may trade in the future for the Fund.

 

8



 

Volatile Markets; Highly Leveraged Trading

 

Futures and forward trading is highly leveraged, and market price levels are volatile and materially affected by unpredictable factors such as weather and governmental intervention.  The combination of leverage and volatility creates a high degree of risk.

 

Importance of General Market Conditions

 

Overall market or economic conditions — which neither MLAI nor the trading advisor can predict or control — have a material effect on the performance of any managed futures strategy.

 

Possibility of Additional Government or Market Regulation.

 

Market disruptions and the dramatic increase in the capital allocated to alternative investment strategies during recent years have led to increased governmental as well as self-regulatory scrutiny of the alternative investment funds industry in general.  In addition, certain legislation proposing greater regulation of the industry periodically is considered by the U.S. Congress, as well as the governing bodies of foreign jurisdictions. It is impossible to predict what, if any, changes in the regulations applicable to the Fund, its Manager (MLAI), the markets in which they trade and invest or the counterparties with which they do business may be instituted in the future. Any such regulation could have a material adverse impact on the profit potential of the Fund, as well as require increased transparency as to the identity of the Fund’s members.

 

Forward Trading

 

The Fund will trade in the forward markets, in addition to trading in the futures markets.  None of the Commodity Futures Trading Commission, the National Futures Association, futures exchanges or banking authorities currently regulates the forward markets, and accordingly such markets are not subject to the breadth of regulation applicable to the futures markets. The forward markets are over-the-counter, non- exchange,  traded markets, and in trading in these forward markets, the Fund will be dependent on the credit standing of the counterparties with which they trade, without the financial support of any clearinghouse system, as well as on the continued operation of the counterparties. This results in the risk that a counterparty may not settle a transaction with the Fund in accordance with its terms, because the counterparty is either unwilling or unable to do so, for example, because of a credit or liquidity problem affecting the counterparty, potentially resulting in significant lossIn addition, the prices offered for the same forward contract may vary significantly among different forward market participants.  Forward markets counterparties are under no obligation to enter into forward transactions with the Fund, including transactions through which the Fund is attempting to liquidate open positions.

 

Effects of Speculative Position Limits

 

The CFTC and the U.S. commodities exchanges have established limits referred to asspeculative position limitson the maximum net long or net short speculative positions that any person may hold or control in any particular futures or options contracts traded on U.S. commodities exchanges.  For example, the CFTC currently imposes speculative position limits on a number of agricultural commodities (e.g., corn, oats, wheat, soybeans and cotton). All commodity accounts controlled by the Trading Advisor and its principals and their affiliates are combined for speculative position limit purposes.  The Trading Advisor could be required to liquidate positions held for the Fund, or may not be able to fully implement trading instructions generated by its trading models, in order to comply with such limits.  Any such liquidation or limited implementation could result in substantial costs to the Fund.

 

Regulatory Change Could Restrict the Fund’s Operations

 

The Fund implements speculative, highly leveraged strategies.  From time to time there is governmental scrutiny of these types of strategies and political pressure to regulate their activities.  The CFTC and the exchanges are authorized to take extraordinary actions in the event of a market emergency, including, for example, the retroactive implementation of speculative position limits or higher margin requirements, the establishment of daily price limits and the suspension of trading. The regulation of futures, forward and option transactions in the United States is a rapidly changing area of law and is subject to modification by government and judicial action.  In addition, several U.S. legislators and the CFTC have expressed the concern that speculative futures traders, and commodity funds in particular, may be responsible for unwarranted and dramatic swings in the prices of commodities.  Non-U.S. governments have from time to time blamed the declines of their currencies on speculative currency trading and imposed restrictions on speculative trading in certain markets.

 

9



 

Regulatory changes could adversely affect the Fund by restricting its markets, limiting its trading and/or increasing the taxes to which investors are subject.  Adverse regulatory initiatives could develop suddenly and without notice.

 

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Reform Act”) was enacted in July 2010.  The Reform Act includes provisions that comprehensively regulate the over-the-counter derivatives markets for the first time.  The Reform Act requires that a substantial portion of over-the-counter derivatives be executed in regulated markets and submitted for clearing to regulated clearinghouses.  Those over-the-counter derivatives may include over-the-counter foreign exchange forwards and swaps which are traded by the Fund, although the U.S. Treasury has the discretion to exclude foreign exchange forwards and swaps from certain of the regulatory requirements. If these forwards and swaps are not so excluded, the Reform Act may require them to be cleared and may subject the Fund, the Trading Advisor, the Sponsor and/or the Fund’s counterparties to additional regulatory requirements including minimum initial and variation margin requirements, minimum capital requirements, registration with the SEC and/or the CFTC, new business conduct standards, disclosure requirements, reporting and recordkeeping requirements, transparency requirements, position limits, limitations on conflicts of interest and other regulatory burdens.  Some or all of these requirements may apply even if forwards and swaps are excluded by the U.S. Treasury.  These new regulatory burdens would further increase the dealers’ costs, which costs are expected to be passed through to other market participants such as the Fund in the form of higher fees and less favorable dealer marks.  They may also render certain strategies in which the Trading Advisor might otherwise engage impossible, or so costly that they will no longer be economical, to implement.

 

Additionally, the Reform Act, under what is commonly referred to as the “Volcker Rule,” may restrict banking entities or their affiliates, such as MLAI and certain other financial entities, from (i) purchasing units or other ownership interests in, or sponsoring, hedge funds or private equity funds (such as the Fund), with the exception of maintaining a de minimis investment, subject to certain other conditions and/or exceptions, (ii) engaging in proprietary trading and (iii) certain transactions involving conflicts of interest.  The regulations and interpretations with respect to the Reform Act have yet to be issued, and the full import of the Reform Act is not yet clear.  Once such regulations are issued and become effective, MLAI may take certain actions that it determines, in its sole discretion, to be necessary or advisable to comply with the Reform Act.  Such changes may include, but are not limited to, the complete or partial redemption or transfer of any Units held by MLAI and/or the compulsory redemption of U.S. persons from the Fund.  These actions may have a material adverse effect on the Fund and investors.

 

Increased Assets Under Management

 

There appears to be a tendency for the rates of return achieved by managed futures advisors to decline as assets under management increase.  The Trading Advisor has not agreed to limit the amount of additional equity which it may manage.

 

Trading Advisor Risk

 

The Fund is subject to the risk of the bad judgment, negligence or misconduct of its Trading Advisor.  There have been a number of instances in recent years in which private investment funds have incurred substantial losses due to Trading Advisor misconduct.

 

Changes in Trading Strategy

 

The trading advisor may make material changes in its trading strategies without the knowledge or seeking approval of MLAI.

 

Illiquid Markets

 

Certain positions held by the Fund may become illiquid, preventing the Fund’s Trading Advisor from acquiring positions otherwise indicated by its strategy or making it impossible for the trading advisor to close out positions against which the market is moving.

 

Certain futures markets are subject to “daily price limits,” restricting the maximum amount by which the price of a particular contract can change during any given trading day.  Once a contract’s price has moved “the limit,” it may be impossible or economically non-viable to execute trades in such contract.  From time to time, prices have moved “the limit” for a number of consecutive days, making it impossible for traders against whose positions the market was moving to prevent large losses.

 

10



 

Trading on Non-U.S. Exchanges

 

The Trading Advisor may trade extensively on non-U.S. exchanges.  These exchanges are not regulated by any United States governmental agency.  The Fund could incur substantial losses trading on foreign exchanges to which it would not have been subject had its Trading Advisor limited its trading to U.S. markets.

 

The profits and losses derived from trading foreign futures and forwards will generally be denominated in foreign currencies; consequently, the Fund will be subject to a certain degree of exchange-rate risk in trading such contracts.

 

Risk of Loss Due to the Bankruptcy or Failure of Counterparties, Brokers and Exchanges

 

The Fund is subject to the risk of the insolvency of its counterparties (such as broker-dealers, futures commission merchants, exchanges, clearinghouses, banks or other financial institutions, including MLPF&S).  Consequently, losses to the Fund could develop and substantially affect performance if insolvency of any of these counterparties occurs.  The Fund’s assets could be lost or impounded during a counterparty’s bankruptcy or insolvency proceedings and a substantial portion or all of the Fund’s assets may become unavailable to it either permanently or for a matter of years.  Were any such bankruptcy or insolvency to occur or were the threat of such bankruptcy or insolvency here to occur, MLAI might decide to liquidate the Fund or suspend limit or otherwise alter trading, perhaps causing the Fund to miss significant profit opportunities. In connection with offshore futures and over-the-counter forward trading, there are increased risks in dealing with offshore brokers and unregulated trading counterparties, including the risk that assets may not benefit from the protection afforded to “customer funds” deposited with regulated brokers and dealers.

 

Item 1B: Unresolved Staff Comments

 

Not applicable.

 

Item 2:          Properties

 

The Fund does not use any physical properties in the conduct of its business.

 

The Fund’s sponsor offices are the administrative offices of MLAI (Merrill Lynch Alternative Investments LLC, Four World Financial Center, 10th Floor, 250 Vesey Street New York, New York 10080).  MLAI performs administrative services for the Fund from MLAI’s offices.

 

Item 3:          Legal Proceedings

 

None.

 

Item 4: (Removed and Reserved)

 

11



 

PART II

 

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

 

Item 5(a)

 

(a)                                  Market Information:

 

There is no established public trading market for the Units, and none is likely to develop.  Members may redeem Units on ten days written notice to MLAI as of the last day of each month at their Net Asset Value, subject to certain early redemption charges.

 

(b)                                 Holders:

 

As of December 31, 2010, there were 524 holders of Units including MLAI, none of whom owned 5% or more of the Fund’s Units.

 

(c)                                  Dividends:

 

MLAI has not made and does not contemplate making any distributions on the Units.

 

(d)                                 Securities Authorized for Issuance Under Equity Compensation Plans:

 

Not applicable.

 

(e)                                  Performance Graph:

 

Not applicable.

 

12



 

(f)                                    Recent Sales of Unregistered Securities:

 

Issuance to accredited investors pursuant to Regulation D and Section 4(6) under the Securities Act.  The selling agent of the following Class of Units was MLPF&S.

 

CLASS A

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

Jan-10

 

$

611,375

 

570,100

 

$

1.0724

 

Feb-10

 

446,318

 

432,144

 

1.0328

 

Mar-10

 

433,867

 

406,661

 

1.0669

 

Apr-10

 

1,617,510

 

1,434,344

 

1.1277

 

May-10

 

 

 

1.1575

 

Jun-10

 

 

 

1.0771

 

Jul-10

 

 

 

1.0787

 

Aug-10

 

 

 

1.0816

 

Sep-10

 

 

 

1.0775

 

Oct-10

 

 

 

1.1152

 

Nov-10

 

 

 

1.1493

 

Dec-10

 

 

 

1.1128

 

Jan-11

 

 

 

1.1785

 

Feb-11

 

 

 

1.1843

 

 

CLASS C

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

Jan-10

 

$

2,800,138

 

2,617,441

 

$

1.0698

 

Feb-10

 

2,434,944

 

2,365,401

 

1.0294

 

Mar-10

 

4,958,659

 

4,666,973

 

1.0625

 

Apr-10

 

4,956,775

 

4,417,016

 

1.1222

 

May-10

 

 

 

1.1508

 

Jun-10

 

 

 

1.0700

 

Jul-10

 

 

 

1.0707

 

Aug-10

 

 

 

1.0727

 

Sep-10

 

 

 

1.0677

 

Oct-10

 

 

 

1.1041

 

Nov-10

 

 

 

1.1369

 

Dec-10

 

 

 

1.1000

 

Jan-11

 

 

 

1.1639

 

Feb-11

 

 

 

1.1687

 

 

CLASS D

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

Jan-10

 

$

 

 

$

1.0750

 

Feb-10

 

482,139

 

465,116

 

1.0366

 

Mar-10

 

1,699,999

 

1,585,524

 

1.0722

 

Apr-10

 

 

 

1.1347

 

May-10

 

 

 

1.1661

 

Jun-10

 

 

 

1.0864

 

Jul-10

 

 

 

1.0895

 

Aug-10

 

 

 

1.0938

 

Sep-10

 

 

 

1.0910

 

Oct-10

 

 

 

1.1306

 

Nov-10

 

 

 

1.1666

 

Dec-10

 

 

 

1.1310

 

Jan-11

 

 

 

1.1993

 

Feb-11

 

 

 

1.2067

 

 

CLASS I

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

Jan-10

 

$

1,026,564

 

951,491

 

$

1.0789

 

Feb-10

 

1,575,618

 

1,515,892

 

1.0394

 

Mar-10

 

1,172,493

 

1,091,605

 

1.0741

 

Apr-10

 

442,420

 

389,557

 

1.1357

 

May-10

 

 

 

1.1660

 

Jun-10

 

 

 

1.0854

 

Jul-10

 

 

 

1.0874

 

Aug-10

 

 

 

1.0907

 

Sep-10

 

 

 

1.0869

 

Oct-10

 

 

 

1.1253

 

Nov-10

 

 

 

1.1601

 

Dec-10

 

621,174

 

552,843

 

1.1236

 

Jan-11

 

 

 

1.1904

 

Feb-11

 

 

 

1.1967

 

 

CLASS DS

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

Jan-10

 

$

1,383,609

 

1,092,467

 

$

1.2665

 

Feb-10

 

62,143,584

 

50,887,311

 

1.2212

 

Mar-10

 

 

 

1.2631

 

Apr-10

 

 

 

1.3368

 

May-10

 

255,479

 

185,965

 

1.3738

 

Jun-10

 

1,788,945

 

1,397,722

 

1.2799

 

Jul-10

 

922,332

 

718,607

 

1.2835

 

Aug-10

 

13,152,619

 

10,207,698

 

1.2885

 

Sep-10

 

 

 

1.2852

 

Oct-10

 

2,747,005

 

1,951,275

 

1.3319

 

Nov-10

 

1,198,193

 

871,857

 

1.3743

 

Dec-10

 

1,105,699

 

829,855

 

1.3324

 

Jan-11

 

1,259,955

 

891,814

 

1.4128

 

Feb-11

 

1,567,614

 

1,102,711

 

1.4216

 

 

CLASS DT

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

Jan-10

 

$

 

 

$

 

Feb-10

 

59,852,165

 

59,852,165

 

1.0000

 

Mar-10

 

 

 

1.0350

 

Apr-10

 

 

 

1.0960

 

May-10

 

 

 

1.1271

 

Jun-10

 

 

 

1.0508

 

Jul-10

 

 

 

1.0543

 

Aug-10

 

 

 

1.0592

 

Sep-10

 

1,056,507

 

999,439

 

1.0571

 

Oct-10

 

 

 

1.0962

 

Nov-10

 

 

 

1.1318

 

Dec-10

 

 

 

1.0980

 

Jan-11

 

 

 

1.1650

 

Feb-11

 

 

 

$

1.1730

 

 


(1) Beginning of the month Net Asset Value

 

13



 

Class A Units are subject to sales commission paid to MLPF&S ranging from 1.0% to 2.5%. Class D and Class I Units are subject to sales commissions up to 0.50%. The rate assessed to a given subscription is based upon the subscription amount. Sales commissions are directly deducted from subscription amount. Class C, Class DS and Class DT Units are not subject to any sales commissions.

 

Item 5(b)

 

Not applicable.

 

Item 5(c)

 

Not applicable.

 

Item 6:          Selected Financial Data

 

The following selected financial data has been derived from the financial statements of the Fund.

 

Statements of Operations

 

For the year
ended
December 31,
2010

 

For the period ended
December 31, 2009

 

For the period
ended
December 31, 2008

 

 

 

 

 

 

 

 

 

Trading profit (loss)

 

 

 

 

 

 

 

Realized, net

 

$

36,984,257

 

$

6,853,155

 

$

10,029,274

 

Change in unrealized, net

 

11,539,144

 

(1,740,277

)

854,577

 

Brokerage commissions

 

(880,901

)

(230,560

)

(41,658

)

Total trading profit (loss)

 

47,642,500

 

4,882,318

 

10,842,193

 

 

 

 

 

 

 

 

 

INVESTMENT INCOME (EXPENSE):

 

 

 

 

 

 

 

Interest

 

(3,199

)

7,933

 

91,446

 

 

 

 

 

 

 

 

 

EXPENSES:

 

 

 

 

 

 

 

Management fees

 

4,237,743

 

1,255,634

 

290,672

 

Performance fees

 

10,688,758

 

839,877

 

2,619,030

 

Sponsor fees

 

751,285

 

76,798

 

 

Other

 

649,724

 

293,309

 

77,733

 

Total Expenses

 

16,327,510

 

2,465,618

 

2,987,435

 

 

 

 

 

 

 

 

 

NET INVESTMENT INCOME (LOSS)

 

(16,330,709

)

(2,457,685

)

(2,895,989

)

 

 

 

 

 

 

 

 

NET INCOME (LOSS)

 

$

31,311,791

 

$

2,424,633

 

$

7,946,204

 

 

Balance Sheet Data

 

December 31,
2010

 

December 31, 2009

 

December 31, 2008

 

 

 

 

 

 

 

 

 

Members’ Capital

 

$

261,333,948

 

$

88,998,199

 

$

48,986,858

 

Net Asset Value per Series A Unit*

 

1.1785

 

1.0724

 

 

Net Asset Value per Series C Unit*

 

1.1639

 

1.0698

 

 

Net Asset Value per Series D Unit*

 

1.1993

 

1.0750

 

 

Net Asset Value per Series I Unit*

 

1.1904

 

1.0789

 

 

Net Asset Value per Series DS Unit**

 

1.4128

 

1.2665

 

1.2227

 

Net Asset Value per Series DT Unit***

 

1.1650

 

 

 

 


*Units issued on August 1, 2009.

**Units issued on September 1, 2008.

***Units issued on February 1, 2010.

 

14



 

MLAI believes that the Net Asset Value used to calculate subscription and redemption value and report performance to investors throughout the year is useful financial information for the Members of the Fund.

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jan.

 

Feb.

 

Mar.

 

Apr.

 

May

 

June

 

July

 

Aug.

 

Sept.

 

Oct.

 

Nov.

 

Dec.

 

2009

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

$

1.0208

 

$

1.0666

 

$

1.0683

 

$

1.1338

 

$

1.0724

 

2010

 

$

1.0328

 

$

1.0669

 

$

1.1277

 

$

1.1575

 

$

1.0771

 

$

1.0787

 

$

1.0816

 

$

1.0775

 

$

1.1152

 

$

1.1493

 

$

1.1128

 

$

1.1785

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS C

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jan.

 

Feb.

 

Mar.

 

Apr.

 

May

 

June

 

July

 

Aug.

 

Sept.

 

Oct.

 

Nov.

 

Dec.

 

2009

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

$

1.0199

 

$

1.0648

 

$

1.0656

 

$

1.1301

 

$

1.0698

 

2010

 

$

1.0294

 

$

1.0625

 

$

1.1222

 

$

1.1508

 

$

1.0700

 

$

1.0707

 

$

1.0727

 

$

1.0677

 

$

1.1041

 

$

1.1369

 

$

1.1000

 

$

1.1639

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS D

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jan.

 

Feb.

 

Mar.

 

Apr.

 

May

 

June

 

July

 

Aug.

 

Sept.

 

Oct.

 

Nov.

 

Dec.

 

2009

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

$

1.0221

 

$

1.0693

 

$

1.0723

 

$

1.1395

 

$

1.0750

 

2010

 

$

1.0366

 

$

1.0722

 

$

1.1347

 

$

1.1661

 

$

1.0864

 

$

1.0895

 

$

1.0938

 

$

1.0910

 

$

1.1306

 

$

1.1666

 

$

1.1310

 

$

1.1993

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS I

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jan.

 

Feb.

 

Mar.

 

Apr.

 

May

 

June

 

July

 

Aug.

 

Sept.

 

Oct.

 

Nov.

 

Dec.

 

2009

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

$

1.0211

 

$

1.0673

 

$

1.0693

 

$

1.1355

 

$

1.0789

 

2010

 

$

1.0394

 

$

1.0741

 

$

1.1357

 

$

1.1660

 

$

1.0854

 

$

1.0874

 

$

1.0907

 

$

1.0869

 

$

1.1253

 

$

1.1601

 

$

1.1236

 

$

1.1904

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS DS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jan.

 

Feb.

 

Mar.

 

Apr.

 

May

 

June

 

July

 

Aug.

 

Sept.

 

Oct.

 

Nov.

 

Dec.

 

2008

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

$

1.0408

 

$

1.1416

 

$

1.1916

 

$

1.2227

 

2009

 

$

1.2096

 

$

1.2138

 

$

1.2009

 

$

1.1446

 

$

1.1820

 

$

1.1543

 

$

1.1572

 

$

1.1827

 

$

1.2374

 

$

1.2409

 

$

1.3191

 

$

1.2665

 

2010

 

$

1.2212

 

$

1.2631

 

$

1.3368

 

$

1.3738

 

$

1.2799

 

$

1.2835

 

$

1.2885

 

$

1.2852

 

$

1.3319

 

$

1.3743

 

$

1.3324

 

$

1.4128

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS DT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jan.

 

Feb.

 

Mar.

 

Apr.

 

May

 

June

 

July

 

Aug.

 

Sept.

 

Oct.

 

Nov.

 

Dec.

 

2010

 

n/a

 

$

1.0350

 

$

1.0960

 

$

1.1271

 

$

1.0508

 

$

1.0543

 

$

1.0592

 

$

1.0571

 

$

1.0962

 

$

1.1318

 

$

1.0980

 

$

1.1650

 

 

15



 

ML BLUETREND FUTURESACCESS LLC

(CLASS A UNITS) (5)

December 31, 2010

 

Type of Pool:  Single Advisor Non-“Principal Protected”(1)

Inception of Trading: August 1, 2009

Aggregate Subscriptions: $4,741,759

Current Capitalization:   $5,027,628

Worst Monthly Drawdown(2):  (6.95)% ( May 2010 )

Worst Peak-to-Valley Drawdown(3):  (8.91)%  (December 2009 — April 2010)

 

Net Asset Value per Unit for Class A, December 31, 2010:   $1.1785

 

Monthly Rates of Return (4)

 

Month

 

2010

 

2009

 

January

 

(3.69

)%

0.00

%

February

 

3.30

 

 

March

 

5.70

 

 

April

 

2.64

 

 

May

 

(6.95

)

 

June

 

0.15

 

 

July

 

0.27

 

 

August

 

(0.38

)

2.08

 

September

 

3.50

 

4.49

 

October

 

3.06

 

0.16

 

November

 

(3.18

)

6.13

 

December

 

5.90

 

(5.42

)

Compound Annual Rate of Return

 

9.89

%

7.23

%

 


(1) Certain funds are structured so as to guarantee to investors that their investment will be worth no less than a specified amount (typically, the initial purchase price) as of a date certain after the date of investment.  The CFTC refers to such funds as “principal protected”. The Fund has no such feature.

 

(2) Worst Monthly Drawdown represents the largest negative Monthly Rate of Return experienced since August 1, 2009 by the Fund; a drawdown is measured on the basis of month-end Net Asset Value only, and does not reflect intra-month figures.

 

(3) Worst Peak-to-Valley Drawdown represents the greatest percentage decline since August 1, 2009 from a month-end cumulative Monthly Rate of Return without such cumulative Monthly Rate of Return being equaled or exceeded as of a subsequent month-end.  For example, if the Monthly Rate of Return was (1)% in each of January and February, 1% in March and (2)% in April, the Peak-to-Valley Drawdown would still be continuing at the end of April in the amount of approximately (3)%, whereas if the Monthly Rate of Return had been approximately 3% in March, the Peak-to-Valley Drawdown would have ended as of the end of February at approximately the (2)% level.

 

(4) Monthly Rate of Return is the net performance of the Fund during the month of determination (including interest income and after all expenses have been accrued or paid) divided by the total capital of the Fund as of the beginning of such month.

 

(5) The information presented is based on Net Asset Value and Net Asset Value per Unit. The inception to date total return is 17.85%.

 

16



 

ML BLUETREND FUTURESACCESS LLC

(CLASS C UNITS) (5)

December 31, 2010

 

Type of Pool:  Single Advisor Non-“Principal Protected”(1)

Inception of Trading: August 1, 2009

Aggregate Subscriptions:    $25,586,362

Current Capitalization:   $26,142,926

Worst Monthly Drawdown(2):  (7.02)% (May 2010)

Worst Peak-to-Valley Drawdown(3):  (8.91)%  (December 2009 — April 2010)

 

Net Asset Value per Unit for Class C, December 31, 2010:   $1.1639

 

Monthly Rates of Return (4)

 

Month

 

2010

 

2009

 

January

 

(3.77

)%

0.00

%

February

 

3.22

 

 

March

 

5.62

 

 

April

 

2.55

 

 

May

 

(7.02

)

 

June

 

0.07

 

 

July

 

0.19

 

 

August

 

(0.47

)

1.99

 

September

 

3.41

 

4.40

 

October

 

2.97

 

0.08

 

November

 

(3.25

)

6.05

 

December

 

5.81

 

(5.34

)

Compound Annual Rate of Return

 

8.80

%

6.93

%

 


(1) Certain funds are structured so as to guarantee to investors that their investment will be worth no less than a specified amount (typically, the initial purchase price) as of a date certain after the date of investment.  The CFTC refers to such funds as “principal protected”. The Fund has no such feature.

 

(2) Worst Monthly Drawdown represents the largest negative Monthly Rate of Return experienced since August 1, 2009 by the Fund; a drawdown is measured on the basis of month-end Net Asset Value only, and does not reflect intra-month figures.

 

(3) Worst Peak-to-Valley Drawdown represents the greatest percentage decline since August 1, 2009 from a month-end cumulative Monthly Rate of Return without such cumulative Monthly Rate of Return being equaled or exceeded as of a subsequent month-end.  For example, if the Monthly Rate of Return was (1)% in each of January and February, 1% in March and (2)% in April, the Peak-to-Valley Drawdown would still be continuing at the end of April in the amount of approximately (3)%, whereas if the Monthly Rate of Return had been approximately 3% in March, the Peak-to-Valley Drawdown would have ended as of the end of February at approximately the (2)% level.

 

(4) Monthly Rate of Return is the net performance of the Fund during the month of determination (including interest income and after all expenses have been accrued or paid) divided by the total capital of the Fund as of the beginning of such month.

 

(5) The information presented is based on Net Asset Value and Net Asset Value per Unit. The inception to date total return is 16.25%.

 

17



 

ML BLUETREND FUTURESACCESS LLC

(CLASS D UNITS) (5)

December 31, 2010

 

Type of Pool:  Single Advisor Non-“Principal Protected”(1)

Inception of Trading: August 1, 2009

Aggregate Subscriptions:    $13,431,625

Current Capitalization:   $14,733,244

Worst Monthly Drawdown(2):  (6.83)% (May 2010)

Worst Peak-to-Valley Drawdown(3):  (9.03)%  ( December 2009 — April 2010 )

 

Net Asset Value per Unit for Class D, December 31, 2010:   $1.1993

 

Monthly Rates of Return (4)

 

Month

 

2010

 

2009

 

January

 

(3.57

)%

0.00

%

February

 

3.43

 

 

March

 

5.83

 

 

April

 

2.77

 

 

May

 

(6.83

)

 

June

 

0.29

 

 

July

 

0.39

 

 

August

 

(0.26

)

2.21

 

September

 

3.63

 

4.62

 

October

 

3.18

 

0.28

 

November

 

(3.05

)

6.27

 

December

 

6.04

 

(5.66

)

Compound Annual Rate of Return

 

11.56

%

7.56

%

 


(1) Certain funds are structured so as to guarantee to investors that their investment will be worth no less than a specified amount (typically, the initial purchase price) as of a date certain after the date of investment.  The CFTC refers to such funds as “principal protected”. The Fund has no such feature.

 

(2) Worst Monthly Drawdown represents the largest negative Monthly Rate of Return experienced since August 1, 2009 by the Fund; a drawdown is measured on the basis of month-end Net Asset Value only, and does not reflect intra-month figures.

 

(3) Worst Peak-to-Valley Drawdown represents the greatest percentage decline since August 1, 2009 from a month-end cumulative Monthly Rate of Return without such cumulative Monthly Rate of Return being equaled or exceeded as of a subsequent month-end.  For example, if the Monthly Rate of Return was (1)% in each of January and February, 1% in March and (2)% in April, the Peak-to-Valley Drawdown would still be continuing at the end of April in the amount of approximately (3)%, whereas if the Monthly Rate of Return had been approximately 3% in March, the Peak-to-Valley Drawdown would have ended as of the end of February at approximately the (2)% level.

 

(4) Monthly Rate of Return is the net performance of the Fund during the month of determination (including interest income and after all expenses have been accrued or paid) divided by the total capital of the Fund as of the beginning of such month.

 

(5) The information presented is based on Net Asset Value and Net Asset Value per Unit . The inception to date total return is 19.93%.

 

18



 

ML BLUETREND FUTURESACCESS LLC

(CLASS I UNITS) (5)

December 31, 2010

 

Type of Pool:  Single Advisor Non-“Principal Protected”(1)

Inception of Trading: August 1, 2009

Aggregate Subscriptions:  $9,752,894

Current Capitalization:   $10,263,653

Worst Monthly Drawdown(2):  (6.91)% ( May 2010 )

Worst Peak-to-Valley Drawdown(3):  (8.46)%  ( December 2009 — March 2010)

 

Net Asset Value per Unit for Class I, December 31, 2010:   $1.1904

 

Monthly Rates of Return (4)

 

Month

 

2010

 

2009

 

January

 

(3.66

)%

0.00

%

February

 

3.34

 

 

March

 

5.74

 

 

April

 

2.67

 

 

May

 

(6.91

)

 

June

 

0.18

 

 

July

 

0.30

 

 

August

 

(0.35

)

2.11

 

September

 

3.53

 

4.52

 

October

 

3.09

 

0.19

 

November

 

(3.15

)

6.19

 

December

 

5.95

 

(4.98

)

Compound Annual Rate of Return

 

10.33

%

7.89

%

 


(1) Certain funds are structured so as to guarantee to investors that their investment will be worth no less than a specified amount (typically, the initial purchase price) as of a date certain after the date of investment.  The CFTC refers to such funds as “principal protected”. The Fund has no such feature.

 

(2) Worst Monthly Drawdown represents the largest negative Monthly Rate of Return experienced since August 1, 2009 by the Fund; a drawdown is measured on the basis of month-end Net Asset Value only, and does not reflect intra-month figures.

 

(3) Worst Peak-to-Valley Drawdown represents the greatest percentage decline since August 1, 2009 from a month-end cumulative Monthly Rate of Return without such cumulative Monthly Rate of Return being equaled or exceeded as of a subsequent month-end.  For example, if the Monthly Rate of Return was (1)% in each of January and February, 1% in March and (2)% in April, the Peak-to-Valley Drawdown would still be continuing at the end of April in the amount of approximately (3)%, whereas if the Monthly Rate of Return had been approximately 3% in March, the Peak-to-Valley Drawdown would have ended as of the end of February at approximately the (2)% level.

 

(4) Monthly Rate of Return is the net performance of the Fund during the month of determination (including interest income and after all expenses have been accrued or paid) divided by the total capital of the Fund as of the beginning of such month.

 

(5) The information presented is based on Net Asset Value and Net Asset Value per Unit. The inception to date total return is 19.04%.

 

19



 

ML BLUETREND FUTURESACCESS LLC

(CLASS DS UNITS) (5)

December 31, 2010

 

Type of Pool:  Single Advisor Non-“Principal Protected”(1)

Inception of Trading: September 1, 2008

Aggregate Subscriptions:   $138,335,378

Current Capitalization:   $159,599,857

Worst Monthly Drawdown(2):  (6.84)% ( May 2010 )

Worst Peak-to-Valley Drawdown(3):  (7.42)%  ( December 2009 — March 2010)

 

Net Asset Value per Unit for Class DS, December 31, 2010:  $1.4128

 

Monthly Rates of Return (4)

 

Month

 

2010

 

2009

 

2008

 

January

 

(3.57

)%

(1.08

)%

 

February

 

3.43

 

0.35

 

 

March

 

5.83

 

(1.06

)

 

April

 

2.77

 

(4.69

)

 

May

 

(6.84

)

3.27

 

 

June

 

0.28

 

(2.34

)

 

July

 

0.39

 

0.25

 

 

August

 

(0.26

)

2.20

 

 

September

 

3.63

 

4.63

 

4.08

%

October

 

3.18

 

0.28

 

9.68

 

November

 

(3.05

)

6.30

 

4.38

 

December

 

6.03

 

(3.99

)

2.62

 

Compound Annual Rate of Return

 

11.55

%

3.29

%

22.27

%

 


(1) Certain funds are structured so as to guarantee to investors that their investment will be worth no less than a specified amount (typically, the initial purchase price) as of a date certain after the date of investment.  The CFTC refers to such funds as “principal protected”. The Fund has no such feature.

 

(2) Worst Monthly Drawdown represents the largest negative Monthly Rate of Return experienced since September 1, 2008 by the Fund; a drawdown is measured on the basis of month-end Net Asset Value only, and does not reflect intra-month figures.

 

(3) Worst Peak-to-Valley Drawdown represents the greatest percentage decline since September 1, 2008 from a month-end cumulative Monthly Rate of Return without such cumulative Monthly Rate of Return being equaled or exceeded as of a subsequent month-end.  For example, if the Monthly Rate of Return was (1)% in each of January and February, 1% in March and (2)% in April, the Peak-to-Valley Drawdown would still be continuing at the end of April in the amount of approximately (3)%, whereas if the Monthly Rate of Return had been approximately 3% in March, the Peak-to-Valley Drawdown would have ended as of the end of February at approximately the (2)% level.

 

(4) Monthly Rate of Return is the net performance of the Fund during the month of determination (including interest income and after all expenses have been accrued or paid) divided by the total capital of the Fund as of the beginning of such month.

 

(5) The information presented is based on Net Asset Value and Net Asset Value per Unit. The inception to date total return is 41.31%.

 

20



 

ML BLUETREND FUTURESACCESS LLC

(CLASS DT UNITS) (5)

December 31, 2010

 

Type of Pool:  Single Advisor Non-“Principal Protected”(1)

Inception of Trading: February 1, 2010

Aggregate Subscriptions:   $1,056,507

Current Capitalization:   $45,566,640

Worst Monthly Drawdown(2):  (6.77)% ( May 2010 )

Worst Peak-to-Valley Drawdown(3):  (6.77)%  ( May - October 2010)

 

Net Asset Value per Unit for Class DT, December 31, 2010:  $1.1650

 

Monthly Rates of Return (4)

 

Month

 

2010

 

January

 

0.00

%

February

 

3.50

 

March

 

5.89

 

April

 

2.84

 

May

 

(6.77

)

June

 

0.33

 

July

 

0.46

 

August

 

(0.20

)

September

 

3.70

 

October

 

3.25

 

November

 

(2.99

)

December

 

6.10

 

Compound Annual Rate of Return

 

16.50

%

 


(1) Certain funds are structured so as to guarantee to investors that their investment will be worth no less than a specified amount (typically, the initial purchase price) as of a date certain after the date of investment.  The CFTC refers to such funds as “principal protected”. The Fund has no such feature.

 

(2) Worst Monthly Drawdown represents the largest negative Monthly Rate of Return experienced since September 1, 2008 by the Fund; a drawdown is measured on the basis of month-end Net Asset Value only, and does not reflect intra-month figures.

 

(3) Worst Peak-to-Valley Drawdown represents the greatest percentage decline since September 1, 2008 from a month-end cumulative Monthly Rate of Return without such cumulative Monthly Rate of Return being equaled or exceeded as of a subsequent month-end.  For example, if the Monthly Rate of Return was (1)% in each of January and February, 1% in March and (2)% in April, the Peak-to-Valley Drawdown would still be continuing at the end of April in the amount of approximately (3)%, whereas if the Monthly Rate of Return had been approximately 3% in March, the Peak-to-Valley Drawdown would have ended as of the end of February at approximately the (2)% level.

 

(4) Monthly Rate of Return is the net performance of the Fund during the month of determination (including interest income and after all expenses have been accrued or paid) divided by the total capital of the Fund as of the beginning of such month.

 

(5) The information presented is based on Net Asset Value and Net Asset Value per Unit. The inception to date total return is 16.59%.

 

21



 

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

 

Operational Overview

 

This performance summary is an outline description of how the Fund performed in the past, not necessarily any indication of how it will perform in the future.  In addition, the general causes to which certain price movements are attributed may or may not in fact have caused such movements, but simply occurred at or about the same time.

 

The Fund is unlikely to be profitable in markets in which such trends do not occur.  Static or erratic prices are likely to result in losses.  Similarly, unexpected events (for example, a political upheaval, natural disaster or governmental intervention) can lead to major short-term losses, as well as gains.

 

While there can be no assurance that the Fund will be profitable under any given market condition, markets in which substantial and sustained price movements occur typically offer the best profit potential for the Fund.

 

Results of Operations

 

General

 

BlueCrest’s objective in providing trading management services is to effect appreciation of the assets of its clients through the speculative trading of financial instruments of any kind, which includes without limitation: (i) futures contracts that are now traded, or may be traded in the future, on exchanges located in the United States and abroad and options on such futures contracts and (ii) foreign currencies, foreign currency futures contracts, foreign currency forward contracts, foreign currency forward contracts and options relating thereto.

 

Performance Summary

 

This performance summary is an outline description of how the Fund performed in the past, not necessarily any indication of how it will perform in the future.  In addition, the general causes to which certain price movements are attributed may or may not have caused such movements, but simply occurred at or about the same time.

 

Year ended December 31, 2010

 

 

 

Total Trading

 

 

 

Profit (Loss)

 

Stock Indices

 

$

7,216,549

 

Metals

 

4,175,627

 

Agricultural Commodities

 

645,680

 

Currencies

 

4,109,014

 

Energy

 

(898,266

)

Interest Rates

 

33,274,797

 

Subtotal

 

48,523,401

 

Change in Brokerage Commissions Payable

 

(880,901

)

Total

 

$

47,642,500

 

 

22



 

The Fund experienced a net trading profit before brokerage commissions and related fees for the year ended December 31, 2010 of $48,523,401.  Profits were primarily attributable to the Fund trading in the interest rate, stock indices, metals, currency and agriculture sectors posting profits while the energy sector posted losses.

 

The interest rate sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the first 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 first 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 first quarter. Profits were posted to the Fund at the beginning of the second 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 second 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 second 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.  Profits were posted to the Fund at the beginning of the third quarter. The majority of the positive performance resulted from a month end rally in the short interest rate sector positions, with those who participated in the risky asset rally ready to book profits after a weak U.S. quarter on quarter gross domestic product figures in the final session forced many contracts to new life highs. Profits continued to be posted to the Fund in the middle of the third quarter. The closest watched events were the Federal Open Market Committee (“FOMC”) rate decision on August 10th along with the United States Federal Reserve Chairman’s speech at the annual Jackson Hole symposium on August 27th. Weakening data had led to talk of more easing but the FOMC elected to keep the balance sheet elevated as opposed to introducing new measures with the U.S. Federal Reserve appearing to offer stimulus if the economic picture deteriorated. The third quarter ended with losses being posted to the Fund. Losses were posted to the Fund throughout the fourth quarter. The price action in October was dictated by speculation pertaining to the quantitative easing the U.S. Federal Reserve was to announce at the FOMC meeting in early November. Assumptions affiliated to the structure of U.S. Federal Reserve measures were the primary cause of excessive swings as rhetoric and commentary from U.S. Federal Reserve officials impacted markets. In Australia, forecasts have risen of imminent and continuing rate hikes by the Reserve Bank of Australia as falling unemployment and increased demand from China and India suggest further Australian economic expansion. A volatile month with returns in November impaired by insecurities relating to the European Sovereign debt crisis which weighed on the Fund’s long fixed income exposure. Also, returns in bonds and short rates also came in below par.

 

The stock indices sector posted profits to the Fund. Losses were initially posted to the Fund at the beginning of the first quarter 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 first 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 first quarter ended with profits being posted to the Fund. Losses were posted to the Fund at the beginning of the second 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 second 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 second 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. Losses were posted to the Fund at the beginning of the third quarter. The month of July began with weak macroeconomic data in Europe, Asia and the U.S. with initial jobless claims on July 1st setting the tone. As the month progressed, healthy second quarter earnings in the U.S. and fading concern of a persistent banking crisis in Europe saw equity indices rise steadily along with the Fund’s risk allocation.

 

23



 

Infrequent surprises to the downside via weak macro prints ended up yielding losses as the main indices reacted accordingly. Losses were posted to the Fund in the middle of the third quarter. Positive data surprises were relatively few in August while there were several disappointments in U.S. housing related data, an up trend in jobless claims, and private payrolls did not increase as much as was hoped for. A more robust September saw performance in the Fund’s trading program led by significant returns in equities resulting in profits being posted to the Fund at the end of the third quarter. Profits were posted to the Fund at the beginning of the fourth quarter. A continuation of the stellar performance of last month continued with returns in October influenced by noteworthy contributions from equities. U.S. economic figures avoided any major disappointments with Q3 Gross Domestic Product estimates in line with consensus while retail sales and existing home sales grew. Also, the British Government introduced the Comprehensive Spending Review with the announcement of large scale public sector job cuts, deemed a proactive step towards stabilizing the economy. A volatile month with returns in November impaired by insecurities relating to the European Sovereign debt crisis which weighed on the trading program’s long equity exposure resulted in losses posted to the Fund in the middle of the fourth quarter. With Ireland finally submitting to the inevitable and applying for a bail out and questions arising as per the austerity of other PIIGS nations namely, Portugal, Italy and Greece there was a clamber for safe haven assurance with equity markets retracing gains as they realized the full extent of the European desolation. A strong month for returns in December with noteworthy performance attributed to equities resulting in profits posted to the Fund at the end of the fourth quarter. With the holiday season at the forefront of market thoughts, liquidity was the focus in the few weeks of December with Christmas volumes prevailing in the latter part. Price action was dominated by rebalancing flow while the general market theme remained focused on the ongoing macro recovery.

 

The metals sector posted profits to the Fund. Losses were posted to the Fund at the beginning of the first quarter. The U.S. dollar strength triggered large macro stops in gold and the fears over Chinese tightening hit base metals. Losses continued to be posted to the Fund in the middle of the first quarter due to lack of trend and choppiness in the global markets. The commodity markets experienced a variety of different trends with base metal prices increasing resulting in profits at the end of the first quarter. The metals sector posted overall losses to the Fund throughout the second quarter due to volatility in global markets. Losses were posted to the Fund at the beginning of the third quarter due to long gold positions which fell by month’s end as large speculative long positions were unwound. Profits were posted to the Fund in the middle through the end of the third quarter in lieu of market volatility. Profits were posted to the Fund throughout the fourth quarter. The trading program reduced risk in November as markets faded but gradually increased risk later on as markets stabilized and partially retraced with the metals sector providing profits to the Fund which continued into December.

 

The currency sector posted profits to the Fund. Losses were posted to the Fund at the beginning of the first quarter. Trend went into the month long high beta currencies. Despite the trading program 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 trading program 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 in the middle of the quarter. 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 first quarter ended with profits being posted to the Fund. Profits were posted to the Fund at the beginning of the second quarter amidst considerable macroeconomic instability. Losses were posted to the Fund in the middle of the second 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 second 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. Losses were posted to the Fund at the beginning of the third quarter. Underperformance came from short positions in the euro as it strengthened against the U.S. dollar with the disparity between U.S. macro weakness and burgeoning eurozone stability forcing a rally over the month. Profits were posted to the Fund in the middle of the third quarter as returns remained constant after a period of global economic uncertainty prevailed. Profits were posted to the Fund at the end of the third quarter due to the much publicized Bank of Japan intervention which may herald other central bank intervention, while the U.S. Congress passed the Currency Reform for Fair Trades Act, a signal to China on its exchange rate policies. Profits were posted to the Fund at the beginning of the fourth quarter. The price action in October was dictated by speculation pertaining to the quantitative easing the U.S. Federal Reserve was to announce at the Federal Open Market Committee meeting, due to take place in early November. Assumptions affiliated to the structure of U.S. Federal Reserve measures were the primary cause of excessive swings as rhetoric and commentary from U.S. Federal Reserve officials impacted markets, primarily the U.S. dollar, although losses were stemmed as quantitative easing expectations were reined in. Losses were posted to the Fund in the middle of the fourth quarter. November started in colossal fashion with risky assets rallying as the U.S. Federal Reserves long awaited announcement of Quantitative Easing round 2 in which it plans to purchase $600 billion of Treasuries by the second quarter of 2011. With most of the Quantitative Easing already priced in, the market quickly shifted to the eurozone anguish which had been simmering beneath the surface while the media preferred to focus on the U.S. Federal Reserve. November saw increased euro weakness with the euro and the U.S. dollar falling and returns in the FX sector down while returns in bonds and short rates also came in below par. Profits were posted to the Fund at the end of the fourth quarter as eurozone sovereign worries calmed when Ireland’s parliament passed

 

24



 

the International Monetary Fund’s bail out plan which had been reaffirmed by the European Central Bank increasing its financial support for the region. In addition the United States extended cuts in payroll taxes and unemployment benefits helping fuel the positive sentiment.

 

The agriculture sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the first 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 first 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 first quarter. Losses were posted to the Fund at the beginning and end of the second quarter due to volatility in global markets. Profits were posted to the Fund in the middle of the second quarter as grains continued its slide from the previous month. Losses were posted to the Fund at the beginning through the middle of the third quarter due to volatility in global markets only to be offset at the end of the third quarter with profits being posted to the Fund. Profits were posted to the Fund at the beginning and the end of the fourth quarter. Losses were posted to the Fund in November due to volatility in the global markets.

 

The energy sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the first 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 first 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. Profits were posted to the Fund at the beginning of the second 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 second 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 second 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. Losses were posted to the Fund at the beginning of the third quarter. The refined energy products rallied against a weak U.S. dollar and managed to hold flat on average across all regions. Losses continued to be posted to the Fund in the middle of the third quarter as the model trimmed risky assets over the course of the month with exposure comprehensively cut in energies. Therefore, the third quarter ended with profits posted to the Fund. Losses were posted to the Fund at the beginning of the fourth quarter as the trading program moderately scaled back equity exposure while increasing risk in energies. Profits were posted to the Fund in the middle through the end of the fourth quarter. The Fund’s performance can be credited to positive macro sentiment adding speculative interest into the commodity space in December.  With the long term outlook for commodities remaining positive and fueled by continued Asian growth, the move higher was underpinned by an increase in demand, resulting in large falls in the Department of Energy inventory reserves. Brent Crude, West Texas Intermediate crude oil, heating oil and Reformulated Blendstock for Oxygenate Blending (“RBOB”) gasoline all rose over 5% in December.

 

25



 

Year ended December 31, 2009

 

 

 

Total Trading

 

 

 

Profit (Loss)

 

Stock Indices

 

$

6,832,896

 

Metals

 

41,606

 

Agricultural Commodities

 

(259,796

)

Currencies

 

(1,372,119

)

Energy

 

(1,594,326

)

Interest Rates

 

1,464,617

 

Subtotal

 

5,112,878

 

Change in Brokerage Commissions Payable

 

(230,560

)

Total

 

$

4,882,318

 

 

The Fund experienced a net trading profit before brokerage commissions and related fees of $5,112,878.  Profits were primarily attributable to the stock indices, interest rates and metals sectors posting profits and the agriculture, currencies and energy sectors posted losses.

 

Losses were posted to the Fund at the beginning of the first quarter. 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 at the end of January. Profits were posted to the Fund in the middle of the first quarter as 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 profits 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. 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 resulting in losses being posted to the Fund at the end of the first quarter.

 

Losses were posted to the Fund at the beginning of the second quarter. 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.  Beginning the second quarter 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 and the volatility in the markets led to a reduction in the Fund’s exposure, resulting in losses posted for the Fund.  The Fund posted losses in the metals and agricultural markets due to their volatility. Profits were posted to the Fund in the middle of the second quarter in all sectors with the exception of currencies.  As investor sentiment generally became more optimistic that the worst of the recent economic crisis had occurred, 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.  Profits were posted to the Fund 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 metals sector posted profits to the Fund due to its long positions in gold and silver.  The agriculture sector posted profits due to a rally in soymeal and soybeans. Losses were posted to the Fund at the end of the second quarter as 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. The up trends in equities and commodities reversed in the middle of June as sentiment became risk averse again, resulting in losses being posted to the Fund.  Declines in non-farm payrolls caused liquidation of long positions in the rates markets, erasing virtually all of the market’s 2009 gains.  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

 

26



 

to the improved growth prospects and a drawdown in Department of Energy inventory numbers.  The Fund posted profits in agricultural despite a 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 slump in silver.

 

Profits were posted to the Fund at the beginning of the third quarter as corporate earnings came in better than expected plus a series of economic figures that indicated the worst may be over including an upward revision to the United States Gross Domestic Product giving equity markets a lift in the final days of the July. Long positions in equities performed strongly as stock indices rebounded with many trading to 2009 highs. The early sell off of energies and the Fund’s subsequent risk reduction resulted in the Fund not benefiting from the energy rally, resulting in losses posted to the Fund. The currency sector posted profits to the Fund due to the rally in the New Zealand dollar, Australian dollar and the Canadian dollar. The agriculture sector posted losses to the Fund as the short positions in wheat and corn could not compensate for losses sustained in short positions in soybean and soymeal and the metals sector posted profits for the Fund due to a rally in copper. Profits were posted to the Fund in the middle of the third quarter as the United States Gross Domestic Product rate of decline diminished; homes sales were buoyed and confidence bounced. The United Kingdom and Europe also had positive figures as European business and consumer confidence rose plus the United Kingdom consumer spending and retail sales were also up. Equities were the most profitable sector as the MSCI World Index (U.S. dollar) rose. The Fund held onto its long positions in stocks from July and added to them during the early part of August with the European stock indices posting the highest profits to the Fund. The United States Federal Reserve Chairman Bernanke’s comments on holding interest rates for an extended period contributed to the Fund posting profits in short position in the interest rate sector. Short positions in natural gas posted profits to the Fund which could not offset losses in the energies sector, the poorest performing sector in August. Long positions held in the currency market began to prosper as the New Zealand dollar versus the U.S. dollar rallied and the British pound versus the Australian dollar fell. Short positions in wheat and corn were profitable but could not compensate for the for swift price action in the soy complex resulting in losses being posted to the Fund. The metals sector was flat as profits from long base positions were unable to compensate for the losses sustained from the gold and silver positions. Profits were posted to the Fund at the end of the third quarter due to the Fund’s long positions in equity indices in all geographies which benefited from continued up trends in most markets except in Asia.  Fixed income posted profits to the Fund due to the Fund’s maintaining its long positioning at both the short and long ends of the yield curve and continued to ride the trends in those markets. The currency sector posted profits to the Fund due to two primary currency positions, the long positions in the Australian dollar, the short positions in the euro and British pound. The short positions in the euro lost money but that was offset by gains in the long positions in the Australian dollar and the short position in the British pound.  The energy sector posted losses to the Fund. In addition to overall choppiness, there was a big reversal in natural gas and the Fund’s short positions in natural gas which rallied over the month caused significant losses. All other commodity sectors were roughly flat as the third quarter ended.

 

Profits were posted to the Fund at the beginning of the fourth quarter due to key macroeconomic data releases, including improved household and business confidence. Fixed income futures rallied as sentiment began to swing back towards interest rates being on hold for an extended period of time. The long equities positions rallied for the reasons outlined earlier with the Fund viewing most dips within the month of October as buying opportunities. Losses were posted to the Fund in the energy sector due to long positions in crude oil and refined energy products after unexpected build up in inventories caused a large sell off. The currency sector also posted profits to the Fund.  The United States dollar Index Future traded down to levels not seen since September 2008 as Central Banks and macro funds shunned the United States dollar on improving global sentiment. The agriculture sector posted profits to the Fund due to short wheat positions which benefited from bearish harvest yields pushing it to a year low. The metals sector also posted profits to the Fund due to long gold and silver positions, the former trading above $1000. Profits were posted to the Fund in the middle of the fourth quarter due to large fixed income and equity long positions. On the macroeconomics front a number of better than expected U.S. figures and comments from the U.S. Federal Reserve Chairman Ben Bernanke signaling interest rates would remain on hold for an extended period of time resulted in short positions in interest rates to post profits to the Fund and stock  indices to bounce from their selloff in October. Despite fears of a Dubai default at the end of November the stock indices posted profits to the Fund due to gains in the Standard & Poors 500 Index, the Financial Times and Stock Exchange and Deutscher Aktien-Index up at the end of the month. Energies posted losses for the Fund trading in a relatively narrow range as the model retained its long albeit much reduced oil and oil products position against short positions in natural gas.  Currencies posted profits to the Fund due to the Fund’s continuing to hold short positions in the U.S. dollar. The metals sector posted profits to the Fund due to the rise in gold with its best monthly return in ten months and silver also rallied but not as high as gold. Most agricultural positions were much reduced as wheat rallied and soy moved higher resulting in profits being posted to the Fund. Losses were posted to the Fund at the end of the fourth quarter as its long positions in equities failed to offset the losses sustained from rising yields and volatile energy prices. Profits were posted to the Fund in stock indices due to its long positions across all indices.  Small cap outperformed large cap as the Russell 2000 was the program’s best monthly performer. Interest rates posted losses to the Fund as better than expected economic figures plus continued comments from the U.S. Federal Reserve stating interest rates will remain low caused inflation expectations to rise and subsequently, yields to rise. Short rates and bonds were aggressively sold off in relatively thin markets amid a high supply of new issues. Unlike previous months,

 

27



 

positive data in December fed into the U.S. dollar strength as the U.S. Dollar Index Futures index climbed resulting in losses being posted to the Fund. The Fund was positioned to gain from the U.S. dollar weakness plus the New Zealand dollar and the Norwegian krone only to be reversed in December resulting in losses. Long positions were held across all energy products in with an emphasis in oil. West Texas Intermediate Crude Oil prices fell in the beginning of December only to rebound by the end of the month as the energy sector posted losses to the Fund. The agriculture sector posted losses to the Fund due to the volatile crop markets. The Fund was not positioned for the sell off in precious metals resulting in losses being posted to the Fund at the end of the fourth quarter.

 

Period ended December 31, 2008

 

 

 

Total Trading

 

 

 

Profit (Loss)