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EX-31.02 - EX-31.02 - ML BlueTrend FuturesAccess LLCa15-17926_1ex31d02.htm
EX-32.01 - EX-32.01 - ML BlueTrend FuturesAccess LLCa15-17926_1ex32d01.htm
EX-32.02 - EX-32.02 - ML BlueTrend FuturesAccess LLCa15-17926_1ex32d02.htm
EX-31.01 - EX-31.01 - ML BlueTrend FuturesAccess LLCa15-17926_1ex31d01.htm

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended September 30, 2015

 

OR

 

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

 

For the transition period from               to               

 

Commission File Number 0-53794

 

ML BLUETREND FUTURESACCESS LLC

(Exact name of registrant as specified in its charter)

 

Delaware

 

26-2581977

(State or other jurisdiction of

 

(I.R.S. Employer Identification No.)

incorporation or organization)

 

 

 

c/o Merrill Lynch Alternative Investments LLC

250 Vesey Street, 11th Floor

New York, New York 10080

(Address of principal executive offices)

(Zip Code)

 

609-274-5838

(Registrant’s telephone number, including area code)

 

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

 

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

 

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

 

Large accelerated filer o

 

Accelerated filer o

 

 

 

Non-accelerated filer x

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

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

 

As of September 30, 2015 45,893,930 units of limited liability company interest were outstanding.

 

 

 



 

ML BLUETREND FUTURESACCESS LLC

 

QUARTERLY REPORT FOR SEPTEMBER 30, 2015 ON FORM 10-Q

 

Table of Contents

 

 

 

 

PAGE

 

 

 

 

 

PART I—FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1.

Financial Statements

 

1

 

 

 

 

Item 2.

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

 

18

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

29

 

 

 

 

Item 4.

Controls and Procedures

 

34

 

 

 

 

 

PART II—OTHER INFORMATION

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

34

 

 

 

 

Item 1A.

Risk Factors

 

34

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

34

 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

36

 

 

 

 

Item 4.

Mine Safety Disclosures

 

36

 

 

 

 

Item 5.

Other Information

 

36

 

 

 

 

Item 6.

Exhibits

 

36

 



 

PART I - FINANCIAL INFORMATION

 

Item 1.   Financial Statements

 

ML BLUETREND FUTURESACCESS LLC

(A Delaware Limited Liability Company)

 

STATEMENTS OF FINANCIAL CONDITION

(unaudited)

 

 

 

September 30,

 

December 31 ,

 

 

 

2015

 

2014

 

ASSETS:

 

 

 

 

 

Equity in commodity trading accounts:

 

 

 

 

 

Cash (including restricted cash of $5,222,925 for 2015 and $13,831,321 for 2014)

 

$

49,312,239

 

$

84,392,795

 

Unrealized profit on open futures contracts

 

2,221,367

 

5,172,855

 

Unrealized profit on open forwards contracts

 

708,182

 

1,629,265

 

Cash and cash equivalents

 

566,554

 

447,891

 

Other assets

 

21

 

3,179

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

52,808,363

 

$

91,645,985

 

 

 

 

 

 

 

LIABILITIES AND MEMBERS’ CAPITAL:

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

Brokerage commissions payable

 

$

5,223

 

$

5,867

 

Sponsor and Performance fees payable

 

305,287

 

203,132

 

Redemptions payable

 

872,490

 

746,054

 

Unrealized loss on open futures contracts

 

698,953

 

3,036,436

 

Unrealized loss on open forwards contracts

 

892,310

 

945,840

 

Other liabilities

 

238,080

 

189,329

 

 

 

 

 

 

 

Total liabilities

 

3,012,343

 

5,126,658

 

 

 

 

 

 

 

MEMBERS’ CAPITAL:

 

 

 

 

 

Members’ Capital (45,893,930 Units and 75,062,259 Units outstanding; unlimited Units authorized)

 

49,796,020

 

86,519,327

 

Total members’ capital

 

49,796,020

 

86,519,327

 

 

 

 

 

 

 

TOTAL LIABILITIES AND MEMBERS’ CAPITAL

 

$

52,808,363

 

$

91,645,985

 

 

 

 

 

 

 

NET ASSET VALUE PER UNIT:

 

 

 

 

 

 

 

 

 

 

 

Class A

 

$

1.0994

 

$

1.0634

 

Class C

 

$

1.0354

 

$

1.0089

 

Class D

 

$

0.9669

 

$

 

Class I

 

$

1.1318

 

$

1.0914

 

Class DS*

 

$

 

$

1.3536

 

Class DT

 

$

1.2136

 

$

1.1571

 

Class M

 

$

1.0475

 

$

1.0018

 

 


*Units fully redeemed as of April 30, 2015.

 

See notes to financial statements.

 

1



 

ML BLUETREND FUTURESACCESS LLC

(A Delaware Limited Liability Company)

 

STATEMENTS OF OPERATIONS

(unaudited)

 

 

 

For the three months
ended

 

For the three months
ended

 

For the nine
months ended

 

For the nine
months ended

 

 

 

September 30, 2015

 

September 30, 2014

 

September 30, 2015

 

September 30, 2014

 

TRADING PROFIT (LOSS):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Realized, net

 

$

1,472,518

 

$

2,829,486

 

$

9,071,491

 

$

9,572,343

 

Change in unrealized, net

 

2,286,307

 

(2,396,379

)

(1,481,558

)

(4,188,895

)

Brokerage commissions

 

(63,715

)

(103,480

)

(309,874

)

(417,590

)

 

 

 

 

 

 

 

 

 

 

Total trading profit (loss), net

 

3,695,110

 

329,627

 

7,280,059

 

4,965,858

 

 

 

 

 

 

 

 

 

 

 

INVESTMENT INCOME (EXPENSE):

 

 

 

 

 

 

 

 

 

Interest, net

 

(463

)

1,964

 

247

 

3,851

 

 

 

 

 

 

 

 

 

 

 

EXPENSES:

 

 

 

 

 

 

 

 

 

Management fee

 

172,199

 

406,830

 

729,873

 

1,359,992

 

Sponsor fee

 

186,986

 

207,986

 

592,865

 

678,184

 

Performance fee

 

184,801

 

 

784,002

 

 

Other

 

139,869

 

119,624

 

421,649

 

411,482

 

Total expenses

 

683,855

 

734,440

 

2,528,389

 

2,449,658

 

 

 

 

 

 

 

 

 

 

 

NET INVESTMENT INCOME (LOSS)

 

(684,318

)

(732,476

)

(2,528,142

)

(2,445,807

)

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS)

 

$

3,010,792

 

$

(402,849

)

$

4,751,917

 

$

2,520,051

 

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS) PER UNIT:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of Units outstanding

 

 

 

 

 

 

 

 

 

Class A

 

3,646,734

 

4,000,006

 

3,797,074

 

4,710,166

 

Class C

 

25,658,641

 

30,444,152

 

26,531,438

 

33,887,060

 

Class D**

 

100

 

 

100

 

 

Class I

 

2,077,876

 

2,456,768

 

2,093,106

 

3,206,488

 

Class DS*

 

 

26,384,475

 

24,806,229

 

32,369,562

 

Class DT

 

9,459,633

 

10,504,400

 

9,505,234

 

11,847,618

 

Class M

 

5,164,068

 

5,137,245

 

5,274,110

 

4,621,130

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per weighted average Unit

 

 

 

 

 

 

 

 

 

Class A

 

$

0.0667

 

$

(0.0058

)

$

0.0354

 

$

0.0174

 

Class C

 

$

0.0606

 

$

(0.0088

)

$

0.0300

 

$

0.0182

 

Class D**

 

$

0.0617

 

$

 

$

(0.0332

)

$

 

Class I

 

$

0.0699

 

$

(0.0052

)

$

0.0411

 

$

0.0101

 

Class DS*

 

$

 

$

(0.0029

)

$

0.1154

 

$

0.0337

 

Class DT

 

$

0.0766

 

$

0.0003

 

$

0.0678

 

$

0.0472

 

Class M

 

$

0.0666

 

$

(0.0052

)

$

0.0435

 

$

0.0297

 

 

 

 

 

 

 

 

 

 

 

 


*Units fully redeemed as of April 30, 2015. (Presentation of weighted average units outstanding and net income (loss) per weighted average units for this share class is for the period January 1, 2015 to April 30, 2015.)

** Units fully redeemed as of December 31, 2013. Units reissued on May 1, 2015. (Presentation of weighted average units outstanding and net income (loss) per weighted average units for this share class is for the period May 1, 2015 to September 30, 2015.)

 

See notes to financial statements.

 

2



 

ML BLUETREND FUTURESACCESS LLC

(A Delaware Limited Liability Company)

 

STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

(unaudited) (in Units)

 

 

 

Members’ Capital
December 31, 2013

 

Subscriptions

 

Redemptions

 

Members’ Capital
September 30, 2014

 

 

 

Members’ Capital
December 31, 2014

 

Subscriptions

 

Redemptions

 

Members’ Capital
September 30, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A

 

6,205,276

 

80,426

 

(2,356,466

)

3,929,236

 

 

 

3,681,307

 

426,798

 

(491,998

)

3,616,107

 

Class C

 

36,389,842

 

6,745,178

 

(13,828,647

)

29,306,373

 

 

 

27,903,528

 

520,170

 

(3,203,037

)

25,220,661

 

Class D**

 

 

 

 

 

 

 

 

100

 

 

100

 

Class I

 

4,423,168

 

89,719

 

(2,105,496

)

2,407,391

 

 

 

2,112,602

 

 

(51,132

)

2,061,470

 

Class DS*

 

40,760,743

 

 

(14,922,090

)

25,838,653

 

 

 

25,956,877

 

 

(25,956,877

)

 

Class DT

 

13,436,067

 

 

(3,182,128

)

10,253,939

 

 

 

10,137,574

 

1,690,858

 

(1,791,147

)

10,037,285

 

Class M

 

4,366,217

 

4,108,122

 

(2,861,508

)

5,612,831

 

 

 

5,270,371

 

255,839

 

(567,903

)

4,958,307

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Members’ Units

 

105,581,313

 

11,023,445

 

(39,256,335

)

77,348,423

 

 

 

75,062,259

 

2,893,765

 

(32,062,094

)

45,893,930

 

 


*Units fully redeemed as of April 30, 2015.

**Units reissued May 1, 2015.

 

See notes to financial statements.

 

3



 

ML BLUETREND FUTURESACCESS LLC

(A Delaware Limited Liability Company)

 

STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

(unaudited)

 

 

 

Members’ Capital
December 31, 2013

 

Subscriptions

 

Redemptions

 

Net Income
(Loss)

 

Members’ Capital
September 30, 2014

 

 

 

Members’ Capital
December 31, 2014

 

Subscriptions

 

Redemptions

 

Net Income
(Loss)

 

Members’ Capital
September 30, 2015

 

Class A

 

$

6,141,004

 

$

79,020

 

$

(2,297,780

)

$

81,988

 

$

4,004,232

 

 

 

$

3,914,576

 

$

467,018

 

$

(540,167

)

$

134,240

 

$

3,975,667

 

Class C

 

34,513,938

 

6,245,000

 

(12,968,181

)

617,614

 

28,408,371

 

 

 

28,153,234

 

546,000

 

(3,382,779

)

795,943

 

26,112,398

 

Class D**

 

 

 

 

 

 

 

 

 

100

 

 

(3

)

97

 

Class I

 

4,474,756

 

88,000

 

(2,079,748

)

32,419

 

2,515,427

 

 

 

2,305,631

 

 

(58,433

)

85,924

 

2,333,122

 

Class DS*

 

50,584,682

 

 

(18,281,835

)

1,091,084

 

33,393,931

 

 

 

35,135,941

 

 

(37,998,300

)

2,862,359

 

 

Class DT

 

14,111,529

 

 

(3,371,266

)

559,662

 

11,299,925

 

 

 

11,730,252

 

2,024,842

 

(2,218,288

)

644,255

 

12,181,061

 

Class M

 

4,010,087

 

3,803,517

 

(2,582,445

)

137,284

 

5,368,443

 

 

 

5,279,693

 

269,000

 

(584,217

)

229,199

 

5,193,675

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Members’ Capital

 

$

113,835,996

 

$

10,215,537

 

$

(41,581,255

)

$

2,520,051

 

$

84,990,329

 

 

 

$

86,519,327

 

$

3,306,960

 

$

(44,782,184

)

$

4,751,917

 

$

49,796,020

 

 


*Units fully redeemed as of April 30, 2015.

**Units reissued May 1, 2015.

 

See notes to financial statements.

 

4



 

ML BLUETREND FUTURESACCESS LLC

(A Delaware Limited Liability Company)

 

FINANCIAL DATA HIGHLIGHTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2015 (unaudited)

 

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

 

 

 

Class A

 

Class C

 

Class I

 

Class D*

 

Class DT

 

Class M

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per Unit Operating Performance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, beginning of period

 

$

1.0329

 

$

0.9752

 

$

1.0623

 

$

0.9050

 

$

1.1347

 

$

0.9804

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

0.0832

 

0.0785

 

0.0856

 

0.0728

 

0.0915

 

0.0790

 

Brokerage commissions

 

(0.0014

)

(0.0013

)

(0.0015

)

(0.0013

)

(0.0016

)

(0.0013

)

Interest income, net (b)

 

(0.0000

)

(0.0000

)

(0.0000

)

0.0000

 

(0.0000

)

(0.0000

)

Expenses

 

(0.0153

)

(0.0170

)

(0.0146

)

(0.0096

)

(0.0110

)

(0.0106

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, end of period

 

$

1.0994

 

$

1.0354

 

$

1.1318

 

$

0.9669

 

$

1.2136

 

$

1.0475

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return: (a) (d)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total return before Performance fees

 

6.83

%

6.55

%

6.93

%

7.23

%

7.37

%

7.23

%

Performance fees

 

-0.39

%

-0.38

%

-0.39

%

-0.39

%

-0.41

%

-0.39

%

Total return after Performance fees

 

6.44

%

6.17

%

6.54

%

6.84

%

6.96

%

6.84

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios to Average Member’s Capital: (d)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses (excluding Performance fees) (c)

 

1.05

%

1.30

%

0.94

%

0.67

%

0.54

%

0.67

%

Performance fees

 

0.36

%

0.36

%

0.36

%

0.36

%

0.38

%

0.36

%

Expenses (including Performance fees)

 

1.41

%

1.66

%

1.30

%

1.03

%

0.92

%

1.03

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income (loss) (excluding Performance fees)

 

-1.05

%

-1.30

%

-0.94

%

-0.67

%

-0.54

%

-0.67

%

Performance fees

 

-0.36

%

-0.36

%

-0.36

%

-0.36

%

-0.38

%

-0.36

%

Net investment income (loss) (including Performance fees)

 

-1.41

%

-1.66

%

-1.30

%

-1.03

%

-0.92

%

-1.03

%

 


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

(b) Interest income, net is less than $0.0001 per Unit.

(c) The expense ratios do not include brokerage commissions.

(d) The ratios and total return are not annualized.

 

*Units reissued May 1, 2015.

 

See notes to financial statements.

 

5



 

ML BLUETREND FUTURESACCESS LLC

(A Delaware Limited Liability Company)

 

FINANCIAL DATA HIGHLIGHTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 (unaudited)

 

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

 

 

 

Class A

 

Class C

 

Class I

 

Class D**

 

Class DS*

 

Class DT

 

Class M

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per Unit Operating Performance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, beginning of period

 

$

1.0634

 

$

1.0089

 

$

1.0914

 

$

1.0000

 

$

1.3536

 

$

1.1571

 

$

1.0018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

0.0780

 

0.0740

 

0.0801

 

(0.0309

)

0.1444

 

0.0848

 

0.0735

 

Brokerage commissions

 

(0.0052

)

(0.0049

)

(0.0054

)

(0.0028

)

(0.0028

)

(0.0057

)

(0.0049

)

Interest income, net (b)

 

(0.0000

)

(0.0000

)

(0.0000

)

0.0000

 

0.0000

 

(0.0000

)

(0.0000

)

Expenses

 

(0.0368

)

(0.0426

)

(0.0343

)

0.0006

 

(0.0313

)

(0.0226

)

(0.0229

)

Net asset value, before full redemption

 

1.0994

 

1.0354

 

1.1318

 

0.9669

 

1.4639

 

1.2136

 

1.0475

 

Less redemption

 

 

 

 

 

1.4639

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, end of period

 

$

1.0994

 

$

1.0354

 

$

1.1318

 

$

0.9669

 

$

 

$

1.2136

 

$

1.0475

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return: (a) (d)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total return before Performance fees

 

3.75

%

2.99

%

4.07

%

-4.41

%

9.70

%

5.32

%

4.92

%

Performance fees

 

-0.37

%

-0.37

%

-0.37

%

1.10

%

-1.55

%

-0.44

%

-0.36

%

Total return after Performance fees

 

3.38

%

2.62

%

3.70

%

-3.31

%

8.15

%

4.88

%

4.56

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios to Average Member’s Capital: (d)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses (excluding Performance fees) (c)

 

2.95

%

3.71

%

2.65

%

2.00

%

1.61

%

1.44

%

1.82

%

Performance fees

 

0.34

%

0.34

%

0.34

%

-1.14

%

1.49

%

0.42

%

0.34

%

Expenses (including Performance fees)

 

3.29

%

4.05

%

2.99

%

0.86

%

3.10

%

1.86

%

2.16

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income (loss) (excluding Performance fees)

 

-2.95

%

-3.71

%

-2.65

%

-2.00

%

-1.61

%

-1.44

%

-1.82

%

Performance fees

 

-0.34

%

-0.34

%

-0.34

%

1.14

%

-1.49

%

-0.42

%

-0.34

%

Net investment income (loss) (including Performance fees)

 

-3.29

%

-4.05

%

-2.99

%

-0.86

%

-3.10

%

-1.86

%

-2.16

%

 


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

(b) Interest income, net is less than $0.0001 per Unit.

(c) The expense ratios do not include brokerage commissions.

(d) The ratios and total return are not annualized.

 

*Units fully redeemed as of April 30, 2015.

**Units reissued May 1, 2015.

 

See notes to financial statements.

 

6



 

ML BLUETREND FUTURESACCESS LLC

(A Delaware Limited Liability Company)

 

FINANCIAL DATA HIGHLIGHTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2014 (unaudited)

 

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

 

 

 

Class A

 

Class C

 

Class I

 

Class DS

 

Class DT

 

Class M

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per Unit Operating Performance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, beginning of period

 

$

1.0252

 

$

0.9776

 

$

1.0501

 

$

1.2953

 

$

1.1017

 

$

0.9586

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

0.0055

 

0.0052

 

0.0056

 

0.0069

 

0.0059

 

0.0051

 

Brokerage commissions

 

(0.0012

)

(0.0012

)

(0.0012

)

(0.0015

)

(0.0013

)

(0.0011

)

Interest income, net (b)

 

0.0000

 

0.0000

 

0.0000

 

0.0000

 

0.0000

 

0.0000

 

Expenses

 

(0.0104

)

(0.0122

)

(0.0096

)

(0.0083

)

(0.0043

)

(0.0061

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, end of period

 

$

1.0191

 

$

0.9694

 

$

1.0449

 

$

1.2924

 

$

1.1020

 

$

0.9565

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return: (a) (d)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total return before Performance fees

 

-0.59

%

-0.84

%

-0.49

%

-0.22

%

0.03

%

-0.22

%

Performance fees

 

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

Total return after Performance fees

 

-0.59

%

-0.84

%

-0.49

%

-0.22

%

0.03

%

-0.22

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios to Average Member’s Capital: (d)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses (excluding Performance fees) (c)

 

1.01

%

1.26

%

0.91

%

0.64

%

0.39

%

0.64

%

Performance fees

 

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

Expenses (including Performance fees)

 

1.01

%

1.26

%

0.91

%

0.64

%

0.39

%

0.64

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income (loss) (excluding Performance fees)

 

-1.01

%

-1.26

%

-0.91

%

-0.64

%

-0.39

%

-0.64

%

Performance fees

 

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

Net investment income (loss) (including Performance fees)

 

-1.01

%

-1.26

%

-0.91

%

-0.64

%

-0.39

%

-0.64

%

 


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

(b) Interest income, net is less than $0.0001 per Unit.

(c) The expense ratios do not include brokerage commissions.

(d) The ratios and total return are not annualized.

 

See notes to financial statements.

 

7



 

ML BLUETREND FUTURESACCESS LLC

(A Delaware Limited Liability Company)

 

FINANCIAL DATA HIGHLIGHTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 (unaudited)

 

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

 

 

 

Class A

 

Class C

 

Class I

 

Class DS

 

Class DT

 

Class M

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per Unit Operating Performance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, beginning of period

 

$

0.9896

 

$

0.9485

 

$

1.0117

 

$

1.2410

 

$

1.0503

 

$

0.9184

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

0.0638

 

0.0609

 

0.0654

 

0.0807

 

0.0687

 

0.0597

 

Brokerage commissions

 

(0.0042

)

(0.0040

)

(0.0043

)

(0.0053

)

(0.0045

)

(0.0039

)

Interest income, net

 

0.0000

 

0.0000

 

0.0000

 

0.0001

 

0.0000

 

0.0000

 

Expenses

 

(0.0301

)

(0.0360

)

(0.0279

)

(0.0241

)

(0.0125

)

(0.0177

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, end of period

 

$

1.0191

 

$

0.9694

 

$

1.0449

 

$

1.2924

 

$

1.1020

 

$

0.9565

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return: (a) (c)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total return before Performance fees

 

2.98

%

2.20

%

3.28

%

4.14

%

4.93

%

4.14

%

Performance fees

 

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

Total return after Performance fees

 

2.98

%

2.20

%

3.28

%

4.14

%

4.93

%

4.14

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios to Average Member’s Capital: (c)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses (excluding Performance fees) (b)

 

3.06

%

3.82

%

2.76

%

1.93

%

1.18

%

1.93

%

Performance fees

 

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

Expenses (including Performance fees)

 

3.06

%

3.82

%

2.76

%

1.93

%

1.18

%

1.93

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income (loss) (excluding Performance fees)

 

-3.06

%

-3.81

%

-2.76

%

-1.93

%

-1.17

%

-1.93

%

Performance fees

 

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

Net investment income (loss) (including Performance fees)

 

-3.06

%

-3.81

%

-2.76

%

-1.93

%

-1.17

%

-1.93

%

 


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

(b) The expense ratios do not include brokerage commissions.

(c) The ratios are not annualized.

 

See notes to financial statements.

 

8



 

ML BLUETREND FUTURESACCESS LLC

(A Delaware Limited Liability Company)

 

NOTES TO FINANCIAL STATEMENTS

(unaudited)

 

1.      ORGANIZATION

 

ML BlueTrend FuturesAccess LLC (the “Fund”), a  FuturesAccessSM Program (“FuturesAccess”) fund, which is an investment company as defined by Accounting Standards Codification (“ASC”) guidance, was organized under the Delaware Limited Liability Company Act on April 30, 2008 and commenced trading activities on September 1, 2008. The Fund engages in the speculative trading of futures and forward contracts on a wide range of commodities. Systematica Investments Limited (acting as general partner of Systematica Investments LP) (“Trading Advisor”) is the trading advisor of the Fund. The Trading Advisor trades the BlueTrend Program (the “Trading Program”) for the Fund.   The Trading Advisor has delegated the day-to-day operation of the Trading Program to an affiliated sub-investment manager, Systematica Investments Jersey Limited and may in the future delegate to other affiliated sub-investment managers.

 

Merrill Lynch Alternative Investments LLC (“MLAI”, the “Sponsor” or the “Managing Member”) is the sponsor and manager of the Fund. MLAI is an indirect wholly-owned subsidiary of Bank of America Corporation. Bank of America Corporation and its affiliates are referred to herein as “BofA Corp.”. Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S”) is currently the exclusive clearing broker for the Fund. The Sponsor may select other parties as clearing broker(s). Merrill Lynch International (“MLI”) is the primary foreign exchange (“F/X”) forward prime broker for the Fund. The Sponsor may select other of its affiliates, or third parties, as F/X or other over-the-counter (“OTC”) prime brokers. MLPF&S and MLI are BofA Corp. affiliates.

 

FuturesAccess is a group of managed futures funds sponsored by MLAI (“FuturesAccess Funds”).  FuturesAccess is exclusively available to investors that have investment accounts with Merrill Lynch Wealth Management, U.S. Trust and other divisions or affiliates of BofA Corp.  FuturesAccess Funds currently are composed of direct-trading funds advised by a single trading advisor and a single fund of funds no longer offered to investors for which MLAI acts as the advisor and allocates capital among multiple trading advisors. Although redemption terms vary among FuturesAccess Funds, FuturesAccess applies, with some exceptions, the same minimum investment amounts, fees and other operational criteria across all FuturesAccess Funds.  Each trading advisor participating in FuturesAccess employs different technical, fundamental, systematic and/or discretionary trading strategies.

 

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

 

The Fund considers all highly liquid investments, with a maturity of three months or less when acquired, to be cash equivalents. As of September 30, 2015 the Fund holds cash equivalents. Cash was held at a nationally recognized financial institution.

 

In the opinion of management, these interim financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the financial position of the Fund as of  September 30, 2015 and December 31, 2014 and the results of its operations for the three and nine month periods ended September 30, 2015 and 2014.  However, the operating results for the interim periods may not be indicative of the results for the full year.

 

9



 

Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been omitted.  These financial statements should be read in conjunction with the financial statements and notes thereto included in the Fund’s report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2014.

 

Estimates

 

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

 

10



 

2.              CONDENSED SCHEDULES OF INVESTMENTS

 

The Fund’s investments, defined as unrealized profit (loss) on open contracts on the Statements of Financial Condition, as of September 30, 2015 and December 31, 2014, are as follows:

 

September 30, 2015

 

 

 

Long Positions

 

Short Positions

 

Net Unrealized

 

 

 

 

 

Commodity Industry

 

Number of

 

Unrealized

 

Percent of

 

Number of

 

Unrealized

 

Percent of

 

Profit (Loss)

 

Percent of

 

 

 

Sector

 

Contracts/Notional*

 

Profit (Loss)

 

Members’ Capital

 

Contracts/Notional*

 

Profit (Loss)

 

Members’ Capital

 

on Open Positions

 

Members’ Capital

 

Maturity Dates

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agriculture

 

92

 

$(12,952

)

-0.03

%

(200

)

$83,388

 

0.17

%

$70,436

 

0.14

%

November 2015 - December 2015

 

Currencies-Forwards*

 

77,781,844

 

(466,049

)

-0.94

%

(96,478,964

)

281,921

 

0.57

%

(184,128

)

-0.37

%

December 2015

 

Energy

 

1

 

(590

)

0.00

%

(143

)

127,309

 

0.26

%

126,719

 

0.26

%

October 2015 - January 2016

 

Interest rates

 

1,469

 

894,115

 

1.80

%

(243

)

(50,891

)

-0.10

%

843,224

 

1.70

%

December 2015 - September 2019

 

Metals

 

210

 

(22,342

)

-0.04

%

(271

)

540,546

 

1.09

%

518,204

 

1.05

%

October 2015 - January 2016

 

Stock indices

 

48

 

(13,680

)

-0.03

%

(195

)

(22,489

)

-0.05

%

(36,169

)

-0.08

%

October 2015 - December 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

$378,502

 

0.76

%

 

 

$959,784

 

1.94

%

$1,338,286

 

2.70

%

 

 

 

December 31, 2014

 

 

 

Long Positions

 

Short Positions

 

Net Unrealized

 

 

 

 

 

Commodity Industry

 

Number of

 

Unrealized

 

Percent of

 

Number of

 

Unrealized

 

Percent of

 

Profit (Loss)

 

Percent of

 

 

 

Sector

 

Contracts/Notional*

 

Profit (Loss)

 

Members’ Capital

 

Contracts/Notional*

 

Profit (Loss)

 

Members’ Capital

 

on Open Positions

 

Members’ Capital

 

Maturity Dates

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agriculture

 

237

 

$

(197,940

)

-0.23

%

(280

)

$

(49,009

)

-0.06

%

$

(246,949

)

-0.29

%

March 2015

 

Currencies-Forwards*

 

79,830,267

 

(490,902

)

-0.57

%

(112,103,635

)

1,174,327

 

1.36

%

683,425

 

0.79

%

March 2015

 

Energy

 

 

 

0.00

%

(101

)

614,270

 

0.71

%

614,270

 

0.71

%

January 2015 - April 2015

 

Interest rates

 

3,925

 

1,658,552

 

1.92

%

 

 

0.00

%

1,658,552

 

1.92

%

March 2015 - December 2018

 

Metals

 

332

 

(1,654,290

)

-1.91

%

(407

)

1,332,879

 

1.54

%

(321,411

)

-0.37

%

January 2015 - April 2015

 

Stock indices

 

870

 

847,057

 

0.98

%

(171

)

(415,100

)

-0.48

%

431,957

 

0.50

%

January 2015 - April 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

$

162,477

 

0.19

%

 

 

$

2,657,367

 

3.07

%

$

2,819,844

 

3.26

%

 

 

 


*Currencies-Forwards present notional amounts as converted to USD.

 

No individual contract’s unrealized profit or loss comprised greater than 5% of Members’ Capital as of September 30, 2015 and December 31, 2014. With respect to each commodity industry sector listed in the above chart, the net unrealized profit (loss) on open positions is the sum of the unrealized profits (losses) of long positions and short positions of the open contracts, netting unrealized losses against unrealized profits as applicable.  Net unrealized profit and loss provides a rough measure of the exposure of the Fund to the various sectors as of the date listed, although such exposure can change at any time.

 

11



 

3. FAIR VALUE OF INVESTMENTS

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

12



 

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

 

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

 

Where the Fund believes that quoted market prices are not available or that the market is not active, fair values are estimated by using observable prices of investments with similar characteristics and these are generally classified as Level II investments. The Fund determined that Level II investments would include its forwards and certain futures contracts.

 

Transfers of investments between different levels of the fair value hierarchy, if any, are recorded as of the beginning of the reporting period. There were no transfers to or from any level during the three or nine month periods ended September 30, 2015 or the year ended December 31, 2014.

 

The Fund’s unrealized profit (loss) on open forwards and futures contracts, by the above fair value hierarchy levels, as of September 30, 2015 and December 31, 2014, are as follows:

 

Net unrealized profit (loss)

 

 

 

 

 

 

 

 

 

on open contracts

 

Total

 

Level I

 

Level II

 

Level III

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

Futures

 

$

2,221,367

 

$

1,459,065

 

$

762,302

 

$

 

Forwards

 

708,182

 

 

708,182

 

 

 

 

$

2,929,549

 

$

1,459,065

 

$

1,470,484

 

$

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

Futures

 

$

698,953

 

$

447,890

 

$

251,063

 

$

 

Forwards

 

892,310

 

 

892,310

 

 

 

 

$

1,591,263

 

$

447,890

 

$

1,143,373

 

$

 

 

 

 

 

 

 

 

 

 

 

September 30, 2015

 

$

1,338,286

 

$

1,011,175

 

$

327,111

 

$

 

 

13



 

Net unrealized profit (loss)

 

 

 

 

 

 

 

 

 

on open contracts

 

Total

 

Level I

 

Level II

 

Level III

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

Futures

 

$

5,172,855

 

$

3,866,451

 

$

1,306,404

 

$

 

Forwards

 

1,629,265

 

 

1,629,265

 

 

 

 

$

6,802,120

 

$

3,866,451

 

$

2,935,669

 

$

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

Futures

 

$

3,036,436

 

$

1,379,871

 

$

1,656,565

 

$

 

Forwards

 

945,840

 

 

945,840

 

 

 

 

$

3,982,276

 

$

1,379,871

 

$

2,602,405

 

$

 

 

 

 

 

 

 

 

 

 

 

December 31, 2014

 

$

2,819,844

 

$

2,486,580

 

$

333,264

 

$

 

 

The Fund’s volume of trading forwards and futures as of the nine month period ended September 30, 2015 and year ended December 31, 2014 are representative of the activity throughout these periods.

 

The Fund engages in the speculative trading of futures, options on futures and forward contracts on a wide range of commodities. Such contracts meet the definition of a derivative as noted in the ASC guidance for accounting for derivative and hedging activities. The fair value amounts of, and the net profits and losses on, derivative instruments are disclosed in the Statements of Financial Condition and Statements of Operations, respectively. There are no credit related contingent features embedded in these derivative contracts. The total notional, number of contracts and fair values of derivative instruments by contract type/commodity sector are disclosed in Note 2.

 

The Fund maintains margin deposits and cash collateral with its futures and forwards brokers, respectively, based on the greater of exchange margin or amounts determined by the respective broker. At September 30, 2015 and December 31, 2014, the initial margin deposits (cash) are used to satisfy the margin requirements to establish the futures or forward contracts and are presented on the Statements of Financial Condition in Cash in the Equity in commodity trading accounts. The variation margin on open contracts is presented gross on the Statements of Financial Condition in Unrealized profit or loss on futures or forwards contracts, respectively. The Fund is subject to agreements which support the ability to settle net with their counterparties; however, the Fund has elected to present the related balances on the Statements of Financial Condition on a gross basis. The net of these amounts less the restricted cash presented within the Cash in the Equity in commodity trading accounts on the Statements of Financial Condition represents the Fund’s net exposure.

 

The following table indicates the trading profits and losses before brokerage commissions, by commodity industry sector for each of the three and nine month periods ended September 30, 2015 and 2014:

 

14



 

 

 

For the three months ended

 

For the nine months ended

 

 

 

September 30, 2015

 

September 30, 2015

 

Commodity Industry Sector

 

profit (loss) from trading, net

 

profit (loss) from trading, net

 

 

 

 

 

 

 

Agriculture

 

$

(282,860

)

$

(1,085,279

)

Currencies

 

333,965

 

(593,956

)

Energy

 

1,469,383

 

671,815

 

Interest rates

 

1,661,970

 

5,393,939

 

Metals

 

1,158,254

 

1,084,644

 

Stock indices

 

(581,887

)

2,118,770

 

 

 

 

 

 

 

Total, net

 

$

3,758,825

 

$

7,589,933

 

 

 

 

For the three months ended

 

For the nine months ended

 

 

 

September 30, 2014

 

September 30, 2014

 

Commodity Industry Sector

 

profit (loss) from trading, net

 

profit (loss) from trading, net

 

 

 

 

 

 

 

Agriculture

 

$

1,966,280

 

$

2,551,316

 

Currencies

 

498,396

 

97,197

 

Energy

 

(2,444,660

)

(3,363,514

)

Interest rates

 

1,453,891

 

9,016,966

 

Metals

 

4,332

 

(1,181,804

)

Stock indices

 

(1,045,132

)

(1,736,713

)

 

 

 

 

 

 

Total, net

 

$

433,107

 

$

5,383,448

 

 

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

 

4.  MARKET AND CREDIT RISKS

 

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

 

Market Risk

 

Derivative instruments involve varying degrees of market risk.  Changes in the level or volatility of interest rates, foreign currency exchange rates or the market values of the financial instruments or commodities underlying such derivative instruments frequently result in changes in the Fund’s unrealized profit (loss) on open contracts on such derivative instruments as reflected in the Statements of Financial

 

15



 

Condition.  The Fund’s exposure to market risk is influenced by a number of factors, including the relationships among the derivative instruments held by the Fund as well as the volatility and liquidity of the markets in which the derivative instruments are traded.  Investments in foreign markets may also entail legal and political risks.

 

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

 

Credit Risk

 

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

 

The credit risk associated with these instruments from counterparty nonperformance is the unrealized profit (loss) on open contracts, if any, included in the Statements of Financial Condition. MLAI, as sponsor of the Fund, has a general policy of maintaining clearing and prime brokerage arrangements with BofA Corp. affiliates, such as MLPF&S and MLI, although MLAI may engage non-BofA Corp. affiliated service providers as clearing brokers or prime brokers for the Fund. This policy may increase risk to the Fund by preventing the diversification of brokers used by the Fund.

 

The Fund, in its normal course of business, enters into various contracts, with MLPF&S acting as its futures clearing broker.  Due to the relationship with MLPF&S, in the event of default, all futures balances are eligible for offset with a net settlement due to MLPF&S.  Due to the relationship with MLI, in the event of default, all forwards balances are eligible for offset with a net settlement due to MLI.

 

Indemnifications

 

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

 

16



 

5.    RELATED PARTY TRANSACTIONS

 

MLAI owns 100 Class D Units which represent less than 1% of the Fund’s Net Asset Value as of September 30, 2015.

 

MLAI and the Fund entered into a transfer agency and investor services agreement with Financial Data Services, Inc. (the “Transfer Agent”), a wholly-owned subsidiary of BofA Corp. and affiliate of MLAI. The Transfer Agent provides registrar, distribution disbursing agent, transfer agent and certain other services related to the issuance, redemption, exchange and transfer of Units. The fees charged by the Transfer Agent for its services are based on the aggregate net assets of funds managed or sponsored by MLAI. The fee rate ranges from 0.016% to 0.02% per year of the aggregate net assets managed or sponsored by MLAI. During the quarter ended September 30, 2015, the rate ranged from 0.018% to 0.02%.  The fee is payable monthly in arrears. MLAI allocates the Transfer Agent fees to each of the managed or sponsored funds, including the Fund, on a monthly basis based on each fund’s net assets. The Transfer Agent fee allocated to the Fund for the three month periods ended September 30, 2015, and 2014 amounted to $5,600 and $4,355, respectively. The Transfer Agent fee allocated to the Fund for the nine month periods ended September 30, 2015, and 2014 amounted to $23,461 and  $14,625, respectively, of which $6,298 and $2,936 was payable to the Transfer Agent as of September 30, 2015 and December 31, 2014, respectively.

 

Brokerage commissions, Interest and Sponsor fees, as presented on the Statements of Operations, are all received from or paid to related parties. Equity in commodity trading accounts, including cash and Unrealized profit (loss), as presented on the Statements of Financial Condition are held with a related party.

 

6.   RECENT ACCOUNTING PRONOUNCEMENTS

 

In May 2015, the Financial Accounting Standards Board (“FASB”) issued ASU 2015-07, Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). ASU 2015-07 removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. It also removes the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. ASU 2015-07 will be effective for the Fund beginning in the first quarter of 2016, with early adoption permitted, and will be applied retrospectively. MLAI is currently evaluating the standard and does not believe it will have a material impact on the Fund’s financial statements.

 

7.   SUBSEQUENT EVENTS

 

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

 

17



 

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

 

MONTH-END NET ASSET VALUE PER UNIT

 

The Fund calculates the Net Asset Value per Unit of each Class of Units as of the last calendar day of each month and as of any other dates MLAI may determine in its discretion (each, a “Calculation Date”). The Fund’s Net Asset Value as of any Calculation Date generally equals the value of the Fund’s account under the management of the Trading Advisor as of that date, plus any other assets held by the Fund, minus accrued Sponsor, management and performance fees, trading liabilities, including brokerage commissions, any offering or operating costs, and all other liabilities of the Fund. MLAI or its delegates are authorized to make all Net Asset Value determinations.

 

MLAI believes that the Net Asset Value used to calculate subscription and redemption value and to    report performance to investors is a useful performance measure for the investors of the Fund. Therefore, the charts below are referencing Net Asset Value at each Calculation Date.

 

MONTH-END NET ASSET VALUE PER UNIT CLASS A

 

 

 

Jan. 

 

Feb.

 

Mar.

 

Apr.

 

May

 

Jun.

 

Jul.

 

Aug.

 

Sep.

 

2014

 

$

0.9493

 

$

0.9696

 

$

0.9398

 

$

0.9455

 

$

1.0023

 

$

1.0252

 

$

0.9999

 

$

1.0480

 

$

1.0191

 

2015

 

$

1.1375

 

$

1.1463

 

$

1.1657

 

$

1.1442

 

$

1.1245

 

$

1.0329

 

$

1.0892

 

$

1.0912

 

$

1.0994

 

 

MONTH-END NET ASSET VALUE PER UNIT CLASS C

 

 

 

Jan.

 

Feb.

 

Mar.

 

Apr.

 

May

 

Jun.

 

Jul.

 

Aug.

 

Sep.

 

2014

 

$

0.9091

 

$

0.9277

 

$

0.8984

 

$

0.9031

 

$

0.9565

 

$

0.9776

 

$

0.9527

 

$

0.9977

 

$

0.9694

 

2015

 

$

1.0783

 

$

1.0858

 

$

1.1033

 

$

1.0821

 

$

1.0625

 

$

0.9752

 

$

1.0274

 

$

1.0285

 

$

1.0354

 

 

MONTH-END NET ASSET VALUE PER UNIT CLASS D

 

 

 

Jan. 

 

Feb.

 

Mar.

 

Apr.

 

May

 

Jun.

 

Jul.

 

Aug.

 

Sep.

 

2014

 

NA

 

NA

 

NA

 

NA

 

NA

 

NA

 

NA

 

NA

 

NA

 

2015

 

NA

 

NA

 

NA

 

NA

 

$

0.9840

 

$

0.9050

 

$

0.9555

 

$

0.9584

 

$

0.9669

 

 

MONTH-END NET ASSET VALUE PER UNIT CLASS I

 

 

 

Jan. 

 

Feb.

 

Mar.

 

Apr.

 

May

 

Jun.

 

Jul.

 

Aug.

 

Sep.

 

2014

 

$

0.9708

 

$

0.9919

 

$

0.9617

 

$

0.9678

 

$

1.0263

 

$

1.0501

 

$

1.0246

 

$

1.0742

 

$

1.0449

 

2015

 

$

1.1678

 

$

1.1773

 

$

1.1976

 

$

1.1759

 

$

1.1560

 

$

1.0623

 

$

1.1205

 

$

1.1229

 

$

1.1318

 

 

MONTH-END NET ASSET VALUE PER UNIT CLASS DS

 

 

 

Jan. 

 

Feb.

 

Mar.

 

Apr.

 

May

 

Jun.

 

Jul.

 

Aug.

 

Sep.

 

2014

 

$

1.1920

 

$

1.2189

 

$

1.1830

 

$

1.1915

 

$

1.2647

 

$

1.2953

 

$

1.2649

 

$

1.3275

 

$

1.2924

 

2015

 

$

1.4497

 

$

1.4628

 

$

1.4895

 

NA

 

NA

 

NA

 

NA

 

NA

 

NA

 

 

MONTH-END NET ASSET VALUE PER UNIT CLASS DT

 

 

 

Jan.

 

Feb.

 

Mar.

 

Apr.

 

May

 

Jun.

 

Jul.

 

Aug.

 

Sep.

 

2014

 

$

1.0096

 

$

1.0333

 

$

1.0036

 

$

1.0118

 

$

1.0748

 

$

1.1017

 

$

1.0768

 

$

1.1309

 

$

1.1020

 

2015

 

$

1.2397

 

$

1.2513

 

$

1.2744

 

$

1.2529

 

$

1.2333

 

$

1.1347

 

$

1.1985

 

$

1.2026

 

$

1.2136

 

 

MONTH-END NET ASSET VALUE PER UNIT CLASS M

 

 

 

Jan.

 

Feb.

 

Mar.

 

Apr.

 

May

 

Jun.

 

Jul.

 

Aug.

 

Sep.

 

2014

 

$

0.8821

 

$

0.9021

 

$

0.8755

 

$

0.8818

 

$

0.9360

 

$

0.9586

 

$

0.9361

 

$

0.9824

 

$

0.9565

 

2015

 

$

1.0729

 

$

1.0826

 

$

1.1023

 

$

1.0833

 

$

1.0660

 

$

0.9804

 

$

1.0351

 

$

1.0383

 

$

1.0475

 

 

Liquidity and Capital Resources

 

The Fund borrows only to a limited extent and only on a strictly short-term basis in order to finance losses on non-U.S. dollar denominated trading positions pending the conversion of the Fund’s U.S. dollar deposits. These borrowings are at a prevailing short-term rate in the relevant currency.

 

18



 

Substantially all of the Fund’s assets are held in cash with the brokers. Changes in interest rates could cause periods of strong up or down price trends, during which the Fund’s profit or loss potential might increase. Inflation in commodity prices could also generate price movements, which the strategies might successfully follow. The Fund should be able to close out its open trading positions and liquidate its holdings relatively quickly and at market prices, except in unusual circumstances.  This typically permits the Fund to limit losses as well as reduce market exposure on short notice should its strategies indicate doing so.

 

There is no established public trading market for the Units. Investors in the Fund generally may redeem any or all of their Units at Net Asset Value, in whole or fractional Units, effective as of the last calendar day of each month (each a “Redemption Date”), upon submitting a redemption request by the “Subscription/Redemption Notice Date,” which is eight business days prior to the first of every month. The Net Asset Value of redeemed Units is determined as of the Redemption Date. Investors will remain exposed to fluctuations in Net Asset Value during the period between submission of their redemption request and the applicable Redemption Date.

 

As a commodity pool, the Fund maintains an extremely large percentage of its assets in cash, which it must have available to post initial and variation margin on futures contracts.  This cash is also used to fund redemptions.  While the Fund has the ability to fund redemption proceeds from liquidating positions, as a practical matter positions are not liquidated to fund redemptions.  In the event that positions were liquidated to fund redemptions, MLAI, as the manager of the Fund, has the ability to override decisions of the Trading Advisor to fund redemptions if necessary, but in practice the Trading Advisor would determine in its discretion which investments should be liquidated.

 

For the nine month period ended September 30, 2015, Fund capital decreased 42.45% from $86,519,327 to $49,796,020.  This decrease was attributable to the net profit from operations of $4,751,917, coupled with the redemption of 32,062,094 redeemable Units resulting in an outflow of $44,782,184.  The cash outflow was offset with cash inflow of $3,306,960 due to subscriptions of 2,893,765 Units.  Future redemptions could impact the amount of funds available for investment in commodity contract positions in subsequent months.

 

Critical Accounting Policies

 

Statement of Cash Flows

 

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

 

Investments

 

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

 

19



 

Fair Value Measurements

 

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

 

Futures Contracts

 

The Fund trades exchange listed futures contracts.  A listed futures contract is a firm commitment to buy or sell a standardized quantity of an underlying asset over a specified duration.  The Fund buys and sells contracts based on indices of financial assets such as stocks, domestic and global stock indices, as well as contracts on various physical commodities. Prices paid or received on these contracts are determined by the ask or bid provided by the exchanges on which they are traded.   Contracts may be settled in physical form or cash settled depending upon the contract.  Upon the execution of a trade, margin requirements determine the amount of cash that must be on deposit to secure the transaction.  These amounts are considered restricted cash on the Fund’s Statements of Financial Condition.  Contracts are priced daily by the Fund and the profit or loss is based on the daily mark to market and is recorded as unrealized profit (loss).  When the contract is closed, the Fund records a realized profit or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed.  Because transactions in futures contracts require participants to make both initial margin deposits of cash or other assets and variation margin deposits, through the futures broker or directly with the exchange on which the contracts are traded, credit exposure is limited.  Realized profit (loss), net and change in unrealized profit (loss), net on futures contracts are recognized in the period in which the contract is closed or the changes occur, respectively and are included in the Statements of Operations.  The Fund also trades futures contracts on the London Metals Exchange (LME). The valuation pricing for LME contracts is based on action of a committee that incorporates prices from the most liquid trading sessions of the day and can also rely on other inputs such as supply and demand factors and bids and asks from open outcry sessions.

 

Forward Foreign Currency Contracts

 

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

 

Interest Rates and Income

 

BofA Corp.’s “Interest Earning Program,” which offers interest on cash balances subject to a negotiated schedule, will generally apply to Fund cash assets during any time they are maintained by the Sponsor with its affiliates.  The present interest rate under the Interest Earning Program on U.S. dollar cash balances is the daily effective federal funds rate less 20 basis points, recalculated and accrued daily, and subject to a floor of 0%.  The current short term interest rates have remained extremely low when compared with historical rates and thus have contributed negligible amounts to overall Fund performance.

 

20



 

Income Taxes

 

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

 

The Fund follows the ASC guidance on accounting for uncertainty in income taxes.  This guidance provides how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements.  This guidance also requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Fund’s financial statements to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority.  Tax positions with respect to tax at the Fund level not deemed to meet the “more-likely-than-not” threshold would be recorded as a tax benefit or expense in the current year.  A prospective investor should be aware that, among other things, income taxes could have a material adverse effect on the periodic calculations of the Net Asset Value of the Fund, including reducing the Net Asset Value of the Fund to reflect reserves for income taxes, such as foreign withholding taxes, that may be payable by the Fund. This could cause benefits or detriments to certain investors, depending upon the timing of their entry and exit from the Fund. MLAI has analyzed the Fund’s tax positions and has concluded that no provision for income tax is required in the Fund’s financial statements. The following is the major tax jurisdiction for the Fund and the earliest tax year subject to examination: United States — 2012.

 

Reform Act

 

The Dodd-Frank Wall Street Reform and Consumer Protection Act amended the definition of “eligible contract participant” and the Fund expects to meet the amended definition as it applies to trading in “retail forex” transactions so long as its total assets exceed $10 million.  If the Fund does not meet the definition of “eligible contract participant” for purposes of trading in “retail forex” transactions, it could lead to the Fund being unable to trade such transactions in the interbank market and bearing higher upfront and mark-to-market margin, less favorable trade pricing, and the possible imposition of new or increased fees.  “Retail forex” markets available to parties that do not meet the definition of “eligible contract participant” could also be significantly less liquid than the interbank market.  Moreover, the creditworthiness of the counterparties with whom the Fund may be required to trade in such circumstances could be significantly weaker than the creditworthiness of MLI and the currency forward counterparties with which the Fund would otherwise engage for its currency forward transactions.

 

Results of Operations

 

January 1, 2015 to September 30, 2015

 

January 1, 2015 to March 31, 2015

 

The Fund experienced a net trading profit of $11,101,791 before brokerage commissions and related fees in the first quarter of 2015. The Fund’s profits were primarily attributable to interest rates, stock indices, currency and energy sectors. The metals and agriculture sectors posted losses.

 

The interest rate sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the first quarter. Price action resulted from monetary policy actions by major central banks that led to a strong rally in bonds. The bond sector contained the majority of the best performing individual markets, with the U.S. 5 year note posting the strongest gains. Losses were posted to the Fund in the middle of the

 

21



 

quarter. February was difficult for fixed income, which experienced weak performance at the start of the month. However, after the Greek crisis found some resolution, European bonds traded lower in yield terms, particularly the German Bund and Italian BTPs. Elsewhere the U.S. and UK saw weakness in fixed income throughout February with yields rallying back to where they were at the start of the year. After the strong gains in fixed income in January, the Trading Program suffered a small relative loss on its fixed income positioning in February.  Profits were posted to the Fund at the end of the quarter. It was a tough start to March for fixed income which saw yields initially go higher. However with the European Central Bank ratcheting up bond purchases and a commitment to buying bonds even with negative yields, European bonds traded lower. In the U.S., treasuries found a buyer in the medium to long term part of the curve.  Accordingly, the Fund benefitted from its continued long bias to the sector.

 

The stock indices sector posted profits to the Fund. Losses were posted to the Fund at the beginning of the first quarter while profits were posted to the Fund in the middle of the quarter. European equities led the way, especially after a short term solution was found for Greece. However, all regions contributed to performance, with Europe and Asia strongest while U.S. equities made a comeback towards the end of February. Losses were posted to the Fund at the end of the quarter as the Fund suffered modest losses from long positioning in a number of markets including the S&P as well as the FTSE Index.

 

The currency sector posted profits to the Fund.  Profits were posted to the Fund at the beginning of the first quarter. The currency sector also contributed positively to performance in January, though it contained some of the top and bottom performing individual markets for the Trading Program. The dollar staged a rally, with the Fund benefitting from a short EUR position. The Trading Program had largely removed the Swiss Franc from its core strategies avoiding the negative impact from the decision by the Swiss National Bank to remove the currency cap against the Euro. Profits were posted to the Fund in the middle of the quarter. The currencies sector contributed positively to returns with the U.S. dollar index finishing February higher albeit in a relatively tight range over the month. The Fund generated gains from both a short JPY position as well as a long NZD position. Profits were posted to the Fund at the end of the quarter. The currency sector was a source of gains for the Fund as the U.S. dollar index continued to rally against a number of currencies, which led to an element of profit taking as March drew to a close. The Fund made positive returns from the currency space despite this profit taking into March month end and, in particular, short exposure to the Euro and Swedish krone were a source of gains.

 

The energy sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the first quarter as OPEC-induced over supply led to further declines in energy prices. Losses were posted to the Fund in the middle of the quarter. Energy markets continued the rally which started in late January hurting the Fund’s short positioning in the sector. Profits were posted to the Fund at the end of the quarter. Short Brent crude position was the significant source of profits.

 

The metals sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the first quarter. Profits were posted to the Fund in the middle of the quarter. The commodities space suffered reversals in most sectors with only metals avoiding losses. Losses were posted to the Fund at the end of the quarter. Although the metals sector contribution was essentially flat, this sector did produce losses.

 

The agriculture sector posted losses to the Fund. Profits were posted to the Fund at the beginning of the first quarter primarily from short exposure to wheat during January. Losses were posted to the Fund in the middle of the quarter because of the Fund’s short positioning in crops which was to the detriment of Fund performance. Losses were posted to the Fund at the end of the quarter. The Fund experienced modest losses in crops from a short bias to the sector.

 

22



 

April 1, 2015 to June 30, 2015

 

The Fund experienced a net trading loss of $7,270,683 before brokerage commissions and related fees in the second quarter of 2015. The Fund’s losses were primarily attributable to metals, stock indices, agriculture, energy, currency and interest rate sectors.

 

The metals sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the second quarter due to gold and silver being down in the face of U.S. dollar weakness. Losses were posted to the Fund in the middle of the quarter due to the Fund’s short positioning in metals. Profits were posted to the Fund at the end of the quarter. Metals were the lone positive performing sector, with copper and palladium among the top performing markets for the Fund in June.

 

The stock indices sector posted losses to the Fund. Profits were posted to the Fund at the beginning of the second quarter. In April, the Fund maintained long exposure to the equities sector, favoring Asian and U.S. equities over EU equities for the majority of April. This regional diversification benefitted performance, and despite an aggressive sell off towards the end of April, equities posted a positive return. Profits were posted to the Fund in the middle of the quarter.  Exposure remained fairly balanced across the three major regions, the United States, Europe and Asia, with U.S. equities posting positive performance. Losses were posted to the Fund at the end of the quarter. The Fund maintained mixed exposures to equities throughout June but ended June with an overall aggregate short exposure. General weakness throughout June was apparent. The close of June brought about a downturn in European and U.S. equities resulting from concerns over Greece. The Shanghai Composite saw large daily swings in both directions. Short positioning in the VIX was among the worst performing positions in June.

 

The agriculture sector posted losses to the Fund. Profits were posted to the Fund at the beginning of the second quarter. In April agriculture was strong with gains in short corn and wheat positions, where both trended lower in the face of good supply and higher yields due to better weather. Losses were posted to the Fund in the middle of the quarter as the crops sector was a detractor for May. Losses were posted to the Fund at the end of the quarter. Short positioning in crops in the beginning of June largely contributed to the negative performance as adverse weather conditions fuelled a large rally towards the end of June. Short wheat and corn positions were large contributors to the negative performance in the crop sector.

 

The energy sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the second quarter. In the energy sector, U.S. dollar weakness and tensions in the Middle East led to a positive environment for energy prices. Higher prices for West Texas Intermediate continued to put pressure on short positions. Losses were posted to the Fund in the middle of the quarter as energies was the largest detractor of the three commodities sectors. Losses were posted to the Fund at the end of the quarter. Short positioning in energies proved difficult with short natural gas positions causing a drag on performance after prices came off their lows from early in June.

 

The currency sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the second quarter. The currency sector saw negative performance in April. Large volatility due to over positioning in short Euro and long U.S. dollar against many other currencies contributed to negative performance. Profits were posted to the Fund in the middle of the quarter. The currency sector contributed positively in May. U.S. dollar strength against other currencies resulted in positive contribution from the sector. The short Japanese yen and Swedish krona forward positions were top contributors for the Fund. Losses were posted to the Fund at the end of the quarter. Currencies were one of the worst performing sectors in June. For the most part, the U.S. dollar traded sideways throughout June. This was largely due to Euro/U.S. dollar appearing stuck in a small range for much of June despite

 

23



 

equities and bonds both moving aggressively on Greek headlines. The short Swedish krona forward position was the largest detractor in the sector.

 

The interest rate sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the second quarter. In April, the fixed income sector saw a positive start as yields fell in major developed bond markets. However, a reversal towards the end of April erased performance, with yields in Germany rallying off the lows to end April. Losses were posted to the Fund in the middle of the quarter. Losses were led by the bond sector as bond markets experienced volatility and price declines. Losses were posted to the Fund at the end of the quarter. Long positioning across fixed income markets continued through June. German bonds continued to sell off in June. Investor concerns over liquidity and inventory levels played out in volatile short term moves. Long positioning in the Japanese 10 YR accounted for the biggest losses in the bond sector. Eurodollar was the largest detractor in the rates sector with varied exposure throughout June, ending June with long exposure.

 

July 1, 2015 to September 30, 2015

 

The Fund experienced a net trading profit of $3,758,825 before brokerage commissions and related fees in the third quarter of 2015. The Fund’s profits were primarily attributable to interest rates, energy, metals and currency sectors. The agriculture and stock indices sectors posted losses.

 

The interest rate sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the third quarter. In July, the Fund benefitted from a long bias in bonds as bonds rallied towards the end of July. The largest positive contributor in the sector was the long EURO-BTP, with additional positive contributions from significant long positions in the U.S. 5 year and Japan 10 year bonds. The risk steadily increased throughout July. Profits were posted to the Fund in the middle of the quarter. The Fund managed a positive return from fixed income in August, with the Eurodollar and the U.K. gilts amongst the best performers. Profits were posted to the Fund at the end of the quarter. Short term interest rates were mainly seen in the Eurodollar and Brazilian contracts where both had large moves and resulted in strong positive performance. The Eurodollar moved higher after the Federal Open Market Committee meeting and continued to trend higher in September. Brazilian short rates moved aggressively higher as the currency sold off to lows versus the U.S. dollar.

 

The energy sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the third quarter as the Fund saw significant contributions to performance from short positions in West Texas Intermediate and Brent crude. Negotiations between the US and Iran resulted in implicit ramifications for oil markets, as traders anticipate an increase in supply if Iran is no longer subjected to an embargo. Profits resulted from this as the Fund was positioned to take advantage of the oil sell-off. Profits were posted to the Fund in the middle of the quarter. Despite the strong price action, the Fund saw positive returns in a number of energy markets. Specifically, short positions in heating oil, West Texas Intermediate and Brent crude were amongst the top performing contracts. Profits were posted to the Fund at the end of the quarter as West Texas Intermediate and Brent crude traded lower throughout September resulting in positive returns in energies that allowed the commodities complex to contribute positively to performance.

 

The metals sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the third quarter due the Fund’s short positions in copper. The Fund also took advantage of the often aggressive markdowns seen in gold. Profits were posted to the Fund in the middle of the quarter due to the Fund’s short positioning in base metals, which provided small positive returns. Losses were posted to the Fund at the end of the quarter. The Fund saw slightly negative returns in metals in September, despite general

 

24



 

weakness in the space. There was a strong bid mid-month that made it difficult to reap the benefits of lower prices. Platinum contributed positively to performance, but not enough to offset losses from copper, palladium, and gold.

 

The currency sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the third quarter. Currencies were one of the top positive contributors throughout July as short Swedish krona, followed by short Canadian dollar positions were the top contributors in the currencies space. Losses were posted to the Fund in the middle of the quarter as slightly larger negative returns seen in developed currencies, specifically short EURO and Swedish krona positions, offset the positive gains and resulted in the sector’s negative performance. Losses were posted to the Fund at the end of the quarter. Currencies overall detracted from performance in September. For the most part the U.S. dollar was flat in September, whereas some emerging market currencies saw declines as a result of political turmoil. The U.S. dollar finished September close to where it started, despite a mid-month dip, after the Federal Open Market Committee failed to raise rates which caused some profit-taking by longs.

 

The agriculture sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the third quarter. Crops were a slight detractor on performance, mainly due to long soybean positions that flipped short at the end of July. Losses were posted to the Fund in the middle of the quarter as crops detracted from performance in August mainly due to a short position in soybeans. Losses were posted to the Fund at the end of the quarter. Crops detracted from performance, mainly due to short positioning in corn and wheat which experienced large short squeezes.

 

The stock indices sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the third quarter. In July, U.S. dollar strength, political instability and weakness in commodities led to poor performance from emerging market equities. Losses were posted to the Fund in the middle of the quarter.

 

The equities sector was the largest detractor from performance for August. Equities started August with net long exposure, however transitioned to net short by month-end. Despite a quiet start to August, global equities on aggregate plunged. This negative contribution was mainly due to a short position in the VIX, which was the largest detractor in the Fund for August. Losses were posted to the Fund at the end of the quarter. September was generally a difficult month for short equity positions in all regions due to the short term squeeze that occurred after the Federal Open Market Committee meeting. Major indices did re-test the August lows towards the end of September, as news flow became very bearish on individual sectors like autos and commodities.

 

January 1, 2014 to September 30, 2014

 

January 1, 2014 to March 31, 2014

 

The Fund experienced a net trading loss of $4,370,805 before brokerage commissions and related fees in the first quarter of 2014. The Fund’s profits were primarily attributable to interest rates and agriculture sectors posting profits. The currency, metals, energy and stock indices sectors posted losses.

 

The interest rate sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the first quarter. The top performing individual markets fell in January within the fixed income sectors.   The Fund’s strategy entered January with a small net long bias to the sector and added to this over the course of the month, benefitting from the flight out of risk assets into the safe haven of fixed income. Profits were posted to the Fund in the middle of the quarter. The Fund’s small net long bias was maintained steadily through February. Losses were posted to the Fund at the end of the quarter.

 

25



 

The agriculture sector posted profits to the Fund. Losses were posted to the Fund at the beginning of the first quarter as wheat continued its decline falling during January. Profits were posted to the Fund in the middle of the quarter as drought conditions in Brazil helped push the agricultural sector higher, including soybeans which were one of the top performing markets for the strategy. Profits were posted to the Fund at the end of the quarter. The crops sector reacted to a bullish report from the U.S.D.A., particularly for soybeans and corn, while risks in Ukraine also impacted wheat, pushing prices higher.

 

The currency sector posted losses to the Fund.  Losses were posted to the Fund at the beginning of the first quarter as the U.S. dollar, as measured by the Dollar Index, rose in January.  Looking across individual currency pairs, the Australian dollar and the Euro both weakened vs. U.S. dollar while the Japanese yen strengthened.  In aggregate the sector detracted from performance in January with many moves representing a reversal of recent trends. Losses were posted to the Fund in the middle of the quarter as the U.S. dollar, as measured by the Dollar Index, fell in February as most developed market currencies, Euro, British pound, Australian dollar and the Japanese yen rose against the U.S. dollar. The Fund held a net long bias to the U.S. dollar and although performance varied across currency pairs, the FX sector detracted from performance in aggregate. Profits were posted to the Fund at the end of the quarter. In currency markets the U.S. dollar was modestly stronger, as the Dollar index increased in March. In developed markets the Euro weakened against the dollar, as did the British pound. The Japanese yen also weakened while the Australian dollar strengthened.  In emerging markets the Brazilian real and Russian ruble both strengthened, respectively. The FX sector was the largest positive contributor to performance in aggregate, as persistent trends were identified and captured.

 

The metals sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the first quarter as gold regained some of its safe haven status, up in January, while industrial metals tended to fall on weaker growth and demand expectations.  Losses were posted to the Fund in the middle of the quarter. Precious metals continued the trend from January with prices rising, on aggregate, while industrial metals were more subdued and registered small price gains as a group. Profits were posted to the Fund at the end of the quarter. Fears of a slowdown in Chinese growth caused a t sell-off in the copper market and gold prices falling in March on reduced demand for the safe haven asset.

 

The energy sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the first quarter. The energy complex was generally lower in January, with the exception of natural gas where the cold winter weather resulted in higher demand in the U.S.  With the Fund’s strategy holding net long exposure to the sector, the general price fall in the sector resulted in it detracting from performance. Profits were posted to the Fund in the middle of the quarter. In February, cold weather conditions in the U.S. lifted natural gas and heating oil prices. Crude oil prices resumed an upward move in February after recent price consolidation, with West Texas Intermediate rising. Losses were posted to the Fund at the end of the quarter. An overall long bias was maintained in the energy sector in March, though reduced physical demand for crude oil and a modest sale of stocks by the U.S. limited any price reaction to the geopolitical risks linked to Russia. Natural gas prices fell back in March as forecasts predicted warming weather trends.

 

The stock indices sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the first quarter. The equity sector detracted from performance as markets retreated from their year-end highs.  In response to these market moves the Fund cut risk exposure to the sector.  While the most significant price moves were seen in the Nikkei, other major indices such as the S&P 500, EuroStoxx and FTSE also experienced falls. Profits were posted to the Fund in the middle of the quarter. The equity sector provided the largest contribution to performance in February.   Long positioning of the Fund’s strategy benefitted from the strong equity markets, as investor risk appetite returned and the recent focus

 

26



 

on emerging market concerns faded. Losses were posted to the Fund at the end of the quarter as equity sector returns were mixed and demonstrated few persistent trends.

 

April 1, 2014 to June 30, 2014

 

The Fund experienced a net trading profit of $9,321,146 before brokerage commissions and related fees in the second quarter of 2014. The Fund’s profits were primarily attributable to interest rates, stock indices, energy, agriculture and currency sectors posting profits. The metals sector posted losses.

 

The interest rate sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the second quarter. In April the U.S. Federal Reserve, European Central Bank, Bank of England and Bank of Japan all kept key interest rates unchanged. Peripheral yields in Europe continued to fall, and economic data improved modestly, but inflation remained low and medium-term inflation expectations also looked to have drifted lower. Profits were posted to the Fund in the middle of the quarter as the short term interest rates sector benefitted from the general strength of fixed income markets. Profits were posted to the Fund at the end of the quarter. In June the short term interest rate sector detracted slightly from performance, however this was more than offset by the positive contribution from the bond sector.

 

The stock indices sector posted profits to the Fund. Losses were posted to the Fund at the beginning of the second quarter due to price drops in stocks linked to the technology area. Long positioning was maintained in the equity sector during April, though with a reduced delta. Benchmark indices saw diverse returns, with muted performance in the S&P500 and Nasdaq; the Nikkei recorded loss; and the FTSE 100 recorded gain. Profits were posted to the Fund in the middle of the quarter. In May the equities sector was a strong contributor to performance, with long positions benefitting from a widespread rally across benchmark contracts. Profits were posted to the Fund at the end of the quarter. In June equity indices around the globe showed diverse performance, for example the S&P 500 and the Nikkei indices, while the FTSE and EuroStoxx indices fell. The Fund maintained a long bias to the equity sector through June.

 

The energy sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the second quarter. In April the energy sector was relatively range-bound, while natural gas was lifted by production issues arising in key supply areas. Profits were posted to the Fund in the middle of the quarter due to oil prices moving higher. Profits were posted to the Fund at the end of the quarter due to a strong contribution in performance from RBOB gasoline.

 

The agriculture sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the second quarter. In April the agricultural sector was active as prices of the benchmark contracts rose on higher than expected demand figures, adding to gains for corn, wheat and soybeans. Profits were posted to the Fund in the middle of the quarter. Losses were posted to the Fund at the end of the quarter. The crop sector detracted from returns as several markets, such as soybeans, saw sharp price movements.  Soybean prices had largely held in the same range over the past few months, but then broke lower after data from the USDA showed high levels of planting and stockpiles.

 

The currency sector posted profits to the Fund. Losses were posted to the Fund at the beginning of the second quarter due to the U.S. dollar being weaker, as several developed market currencies appreciated versus the dollar. In April the currency sector saw mixed returns, with prices of some major markets moving sideways or reversing the existing trends. The more difficult individual markets, detracting from performance, included NZD-USD and USD-JPY which both represented reversals of existing trends. The switch to overall net short positioning in U.S. dollar indicated a flexible response to broader market movements as the U.S. Dollar index (DXY) fell toward the end of April. Profits were posted to the Fund

 

27



 

in the middle of the quarter. In May the U.S. dollar strengthened. Profits were posted to the Fund at the end of the quarter due to a strong individual contributor, NZD-USD, which having fallen in May rallied in June.

 

The metals sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the second quarter. In April the metals sector was relatively range-bound. Metal prices generally recovered from the losses of March. Losses were posted to the Fund in the middle of the quarter as gold was particularly weak as it lost ground in connection with a stronger dollar and rising risk appetites in general. Losses were posted to the Fund at the end of the quarter.

 

July 1, 2014 to September 30, 2014

 

The Fund experienced a net trading profit of $433,107 before brokerage commissions and related fees in the third quarter of 2014. The Fund’s profits were primarily attributable to the agriculture, interest rate, currency and metal sectors posting profits. The stock indices and energy sectors posted losses.

 

The agriculture sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the third quarter. The crops sector was a positive contributor as, having switched to a short bias, it was correctly positioned to benefit from the continued declines in prices, such as falling corn and wheat prices.  Profits were posted to the Fund in the middle of the quarter. Profits were posted to the Fund at the end of the quarter. The crops sector contributed strongly as short positioning benefitted from a resumption of the downward trend that had developed in benchmark markets in the summer.

 

The interest rate sector posted profits to the Fund. Losses were posted to the Fund at the beginning of the third quarter as yields generally fell in Europe. Performance in the short term interest rate sector was influenced by changes in expectations of future rate changes, and detracted from performance. Profits were posted to the Fund in the middle of the quarter. The Fund maintained its long positioning across many fixed income markets during August and benefitted as yields fell (prices rose), particularly in the developed markets where many benchmark yields fell, such as the German 10Y yield and the German 2Y yield. Losses were posted to the Fund at the end of the quarter. The Trading Program reduced its long positioning across many fixed income markets during September, but the initial positions led to modest losses at the start of the month as yields rose (prices fell), particularly in the U.S.

 

The currency sector posted profits to the Fund. Losses were posted to the Fund at the beginning of the third quarter due to weakening of several emerging market currencies. The EUR-USD and NZD-USD both experienced monthly declines. Profits were posted to the Fund in the middle of the quarter. The currency sector contributed positively to performance. The U.S. dollar generally strengthened against many major currencies, including the Euro, Japanese yen and New Zealand dollar but weakened slightly against the Australian dollar. Losses were posted to the Fund at the end of the quarter. The currency sector contributed negatively to performance, as the accelerating movement in U.S. dollar strength led to losses in some currency pairs, including both AUD and NZD versus U.S. dollar.

 

The metals sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the third quarter. In July the metals sector contributed small positive gains as base metal prices modestly extended recent gains. Losses were posted to the Fund in the middle of the quarter. The metals sector detracted slightly with varied price movements across markets. Profits were posted to the Fund at the end of the quarter.

 

The stock indices sector posted losses to the Fund. Profits were posted to the Fund at the beginning of the third quarter. The Fund saw a small gain coming from the equity sector, where it maintained a long bias through July. The exposure was trimmed towards July month end as many developed market indices lost ground in moves triggered by poor economic data and flaring of geopolitical concerns. Profits were

 

28



 

posted to the Fund in the middle of the quarter as a long bias in the equity sector was maintained, and slightly increased through August. This benefitted the Trading Program as many equity markets recovered ground lost in July, and some such as the S&P 500, which broke through the 2000 level, reached new highs; though differentiation was still observed as a number of markets, notably in Asia, did not participate in the broader move. Losses were posted to the Fund at the end of the quarter.  A long bias in the equity sector was significantly reduced over September, and implemented broadly across geographies, helping to protect against the price falls that occurred across a number of markets.

 

The energy sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the third quarter.  This was driven by two of the worst performing individual markets in July: WTI Crude and Gasoline RBOB. The crude oil and distillate markets reversed the previously established positive trend on improved supply estimates, despite the ongoing geopolitical tensions; this prompted a marked reduction in the Trading Program’s risk allocated to the sector. Losses were posted to the Fund in the middle of the quarter. Long positioning in energies, particularly gasoline and crude oil, caused losses as price falls were extended through August on renewed supply availability and fears of economic weakness inducing lower demand.  Losses were posted to the Fund at the end of the quarter.

 

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

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Introduction

 

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

 

Market movements result in frequent changes in the fair market value of the Fund’s open positions and, consequently, in its earnings and cash flow. The Fund’s market risk is influenced by a wide variety of factors, including the level and volatility of interest rates, exchange rates, equity price levels, the market value of financial instruments and contracts, the diversification effects among the Fund’s open positions and the liquidity of the markets in which it trades.

 

The Fund, under the direction of the Trading Advisor, rapidly acquires and liquidates both long and short positions in a wide range of different markets.  Consequently, it is not possible to predict how a particular future market scenario will affect performance, and the Fund’s past performance is not necessarily indicative of its future results.

 

Value at Risk (“VaR”) is a measure of the maximum amount which the Fund could reasonably be expected to lose in a given market sector. However, the inherent uncertainty of the Fund’s speculative trading and the recurrence in the markets traded by the Fund of market movements far exceeding expectations could result in actual trading or non-trading losses far beyond the indicated VaR or the Fund’s experience to date (i.e., “risk of ruin”). In light of the foregoing, as well as the risks and uncertainties intrinsic to all future projections, the quantifications included in this section should not be considered to constitute any assurance or representation that the Fund’s losses in any market sector will be limited to VaR or by the Fund’s attempts to manage its market risk.

 

29



 

Quantifying The Fund’s Trading Value At Risk

 

Quantitative Forward-Looking Statements

 

The following quantitative disclosures regarding the Fund’s market risk exposures contain “forward-looking statements” within the meaning of the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933 (“Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (“Securities Exchange Act”)). All quantitative disclosures in this section are deemed to be forward-looking statements for purposes of the safe harbor, except for statements of historical fact.

 

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

 

Exchange maintenance margin requirements have been used by the Fund as the measure of its VaR.  Maintenance margin requirements are set by exchanges to equal or exceed the maximum loss in the fair value of any given contract incurred in 95%-99% of the one-day time periods included in the historical sample (generally approximately one year) researched for purposes of establishing margin levels.  The maintenance margin levels are established by dealers and exchanges using historical price studies as well as an assessment of current market volatility (including the implied volatility of the options on a given futures contract) and economic fundamentals to provide a probabilistic estimate of the maximum expected near-term one-day price fluctuation.

 

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

 

100% positive correlation in the different positions held in each market risk category has been assumed.  Consequently, the margin requirements applicable to the open contracts have been aggregated to determine each trading category’s aggregate VaR.  The diversification effects resulting from the fact that the Fund’s positions are rarely, if ever, 100% positively correlated have not been reflected.

 

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

 

The following table indicates the average, highest and lowest trading VaR associated with the Fund’s open positions by market category for the fiscal period. For the nine month periods ended September 30, 2015 and 2014 the Fund’s average capitalization was $65,338,236 and $94,260,526, respectively.

 

30



 

 

 

September 30, 2015

 

 

 

Average Value

 

% of Average

 

Highest Value

 

Lowest Value

 

Market Sector

 

at Risk

 

Capitalization

 

at Risk

 

at Risk

 

 

 

 

 

 

 

 

 

 

 

Agricultural Commodities

 

$

88,379

 

0.14

%

$

153,208

 

$

41,374

 

Currencies

 

838,829

 

1.28

%

1,566,819

 

204,561

 

Energy

 

544,027

 

0.83

%

773,828

 

261,379

 

Interest Rates

 

3,627,609

 

5.55

%

6,155,945

 

1,164,038

 

Metals

 

382,269

 

0.59

%

1,042,635

 

70,754

 

Stock Indices

 

800,745

 

1.23

%

1,344,426

 

254,304

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

6,281,858

 

9.62

%

$

11,036,861

 

$

1,996,410

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2014

 

 

 

Average Value

 

% of Average

 

Highest Value

 

Lowest Value

 

Market Sector

 

at Risk

 

Capitalization

 

at Risk

 

at Risk

 

 

 

 

 

 

 

 

 

 

 

Agricultural Commodities

 

$

2,355,611

 

2.50

%

$

3,420,214

 

$

1,137,530

 

Currencies

 

2,394,078

 

2.54

%

4,173,786

 

1,269,667

 

Energy

 

1,044,946

 

1.11

%

1,911,421

 

591,449

 

Interest Rates

 

2,559,797

 

2.72

%

4,474,454

 

1,540,184

 

Metals

 

247,435

 

0.26

%

510,750

 

101,357

 

Stock Indices

 

1,695,899

 

1.80

%

3,355,866

 

242,835

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

10,297,766

 

10.93

%

$

17,846,491

 

$

4,883,022

 

 

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

 

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

 

Non-Trading Risk

 

Foreign Currency Balances; Cash on Deposit with MLPF&S and MLI

 

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

 

31



 

The Fund also has non-trading market risk on approximately 90% of its assets which are held in cash at MLPF&S. The value of this cash is not interest rate sensitive, but there is cash flow risk in that if interest rates decline so will the cash flow generated on these monies.

 

Qualitative Disclosures Regarding Primary Trading Risk Exposures

 

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

 

The following were the primary trading risk exposures of the Fund as of December 31, 2014, by market sector. There have been no material changes at September 30, 2015.

 

Interest Rates

 

Interest rate movements directly affect the price of derivative sovereign bond positions held by the Fund and indirectly the value of its stock index and currency positions. Interest rate movements in one country as well as relative interest rate movements between countries may materially impact the Fund’s profitability. The Fund’s primary interest rate exposure is to interest rate fluctuations in the United States and the other G-7 countries.  However, the Fund may also take positions in the government debt of smaller nations e.g., Australia. MLAI anticipates that G-7 interest rates will remain the primary market exposure of the Fund for the foreseeable future.

 

Currencies

 

The Fund trades in a number of currencies. However, the Fund’s major exposures have typically been in the U.S. dollar/Japanese yen, U.S. dollar/Euro and U.S. dollar/New Zealand dollar positions. The Fund does not anticipate that the risk profile of the Fund’s currency sector will change significantly in the future. The currency trading VaR figure includes foreign margin amounts converted into U.S. dollars with an incremental adjustment to reflect the exchange rate risk of maintaining VaR in a functional currency other than U.S. dollars.

 

Stock Indices

 

The Fund’s primary equity exposure is to S&P 500, Nikkei and German DAX equity index price movements. The Fund is primarily exposed to the risk of adverse price trends or static markets in the major U.S., European and Asian indices.

 

32



 

Metals

 

The Fund’s metals market exposure is to fluctuations in the price of precious and non-precious metals.

 

Agricultural Commodities

 

The Fund’s primary agricultural commodities exposure is to agricultural price movements which are often directly affected by severe or unexpected weather conditions. Soybeans, corn, and grains accounted for the substantial bulk of the Fund’s agricultural commodities exposure.

 

Energy

 

The Fund’s primary energy market exposure is to natural gas and crude oil price movements, often resulting from political developments in the Middle East. Oil prices can be volatile and substantial profits and losses have been and are expected to continue to be experienced in this market.

 

Qualitative Disclosures Regarding Non-Trading Risk Exposure

 

The following were the primary non-trading risk exposures of the Fund as of December 31, 2014. There have been no material changes at September 30, 2015.

 

Foreign Currency Balances

 

The Fund’s primary foreign currency balances are in Japanese yen, British pounds and Euros.

 

U.S. Dollar Cash Balance

 

The Fund holds the vast majority of its U.S. dollars in cash at MLPF&S and MLI. The Fund has immaterial cash flow interest rate risk on its cash on deposit with MLPF&S in that declining interest rates would cause the income from such cash to decline.

 

Qualitative Disclosures Regarding Means of Managing Risk Exposure

 

Trading Risk

 

MLAI has procedures in place intended to control market risk, although there can be no assurance that they will, in fact, succeed in doing so.  While MLAI does not itself intervene in the markets to hedge or diversify the Fund’s market exposure, MLAI may urge the Trading Advisor to reallocate positions in an attempt to avoid over-concentrations.  However, such interventions are unusual, except in cases in which it appears that the Trading Advisor has begun to deviate from past practice and trading policies or to be trading erratically. MLAI’s basic control procedures consist of the process of monitoring the Trading Advisor with the market risk controls being applied by the Trading Advisor itself.

 

Risk Management

 

The management of risk is an integral part of the Trading Program.  The Trading Advisor’s focus within risk management is on targeting, measuring and managing risk.  Owing to the leverage inherent in futures trading, position sizes are set according to the Trading Advisor’s expectation of the risk that the positions will provide, rather than the amount of capital required to fund the positions.

 

33



 

Non-Trading Risk

 

The Fund controls the non-trading exchange rate risk by regularly converting foreign currency balances back into U.S. dollars at least once per week, and more frequently if a particular foreign currency balance becomes unusually high.

 

The Fund has cash flow interest rate risk on its cash on deposit with MLPF&S in that declining interest rates would cause the income from such cash to decline. However, a certain amount of cash or cash equivalents must be held by the Fund in order to facilitate margin payments and pay expenses and redemptions. MLAI does not take any steps to limit the cash flow risk on its cash held on deposit at MLPF&S.

 

Item 4. Controls and Procedures

 

Disclosure Controls and Procedures

 

MLAI’s Chief Executive Officer and Chief Financial Officer, on behalf of the Fund, have evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Securities Exchange Act) with respect to the Fund as of the end of the quarter which ended September 30, 2015, and, based on their evaluation, have concluded that these disclosure controls and procedures are effective.

 

Changes in Internal Control over Financial Reporting

 

No change in internal control over financial reporting (in connection with Rule 13a-15 or Rule 15d-15 under the Securities Exchange Act) occurred during the quarter ended September 30, 2015 that has materially affected, or is reasonably likely to materially affect, the Fund’s internal control over financial reporting.

 

PART II - OTHER INFORMATION

 

Item 1.                               Legal Proceedings

 

None.

 

Item 1A.  Risk Factors

 

There are no material changes from risk factors as previously disclosed in the Fund’s report on Form 10-K for the year ended December 31, 2014, filed with the Securities and Exchange Commission on March 20, 2015.

 

Item 2.                               Unregistered Sales of Equity Securities and Use of Proceeds

 

(a)  Units are privately offered and sold to “accredited investors” (as defined in Rule 501(a) under the Securities Act) in reliance on the exemption from registration provided by Section 4(2) of the Securities Act and Rule 506 thereunder.  The selling agent of the Units is MLPF&S.

 

The Fund’s sales of unregistered securities are as follows for each Class of Units:

 

34



 

CLASS A

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

Jan-15

 

$

273,450

 

257,147

 

$

1.0634

 

Feb-15

 

 

 

1.1375

 

Mar-15

 

 

 

1.1463

 

Apr-15

 

80,190

 

68,791

 

1.1657

 

May-15

 

48,750

 

42,606

 

1.1442

 

Jun-15

 

54,728

 

48,669

 

1.1245

 

Jul-15

 

9,900

 

9,585

 

1.0329

 

Aug-15

 

 

 

1.0892

 

Sep-15

 

 

 

1.0912

 

Oct-15

 

 

 

1.0994

 

 

CLASS C

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

Jan-15

 

$

23,000

 

22,796

 

$

1.0089

 

Feb-15

 

20,000

 

18,548

 

1.0783

 

Mar-15

 

 

 

1.0858

 

Apr-15

 

192,000

 

174,023

 

1.1033

 

May-15

 

96,000

 

88,716

 

1.0821

 

Jun-15

 

52,000

 

48,942

 

1.0625

 

Jul-15

 

163,000

 

167,145

 

0.9752

 

Aug-15

 

 

 

1.0274

 

Sep-15

 

 

 

1.0285

 

Oct-15

 

10,000

 

9,658

 

1.0354

 

 

CLASS I

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

Jan-15

 

$

 

 

$

1.0914

 

Feb-15

 

 

 

1.1678

 

Mar-15

 

 

 

1.1773

 

Apr-15

 

 

 

1.1976

 

May-15

 

 

 

1.1759

 

Jun-15

 

 

 

1.1560

 

Jul-15

 

 

 

1.0623

 

Aug-15

 

 

 

1.1205

 

Sep-15

 

 

 

1.1229

 

Oct-15

 

 

 

1.1318

 

 

CLASS DS

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

Jan-15

 

$

 

 

$

1.3536

 

Feb-15

 

 

 

1.4497

 

Mar-15

 

 

 

1.4628

 

Apr-15

 

 

 

1.4895

 

May-15

 

 

 

 

Jun-15

 

 

 

 

Jul-15

 

 

 

 

Aug-15

 

 

 

 

Sep-15

 

 

 

 

Oct-15

 

 

 

 

 

CLASS DT

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

Jan-15

 

$

87,929

 

75,991

 

$

1.1571

 

Feb-15

 

 

 

1.2397

 

Mar-15

 

 

 

1.2513

 

Apr-15

 

 

 

1.2744

 

May-15

 

 

 

1.2529

 

Jun-15

 

 

 

1.2333

 

Jul-15

 

85,662

 

75,493

 

1.1347

 

Aug-15

 

 

 

1.1985

 

Sep-15

 

1,851,251

 

1,539,374

 

1.2026

 

Oct-15

 

 

 

1.2136

 

 

CLASS M

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

Jan-15

 

$

 

 

$

1.0018

 

Feb-15

 

100,000

 

93,205

 

1.0729

 

Mar-15

 

15,000

 

13,856

 

1.0826

 

Apr-15

 

 

 

1.1023

 

May-15

 

 

 

1.0833

 

Jun-15

 

 

 

1.0660

 

Jul-15

 

 

 

0.9804

 

Aug-15

 

154,000

 

148,778

 

1.0351

 

Sep-15

 

 

 

1.0383

 

Oct-15

 

 

 

1.0475

 

 

CLASS D

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

Jan-15

 

$

 

 

$

 

Feb-15

 

 

 

 

Mar-15

 

 

 

 

Apr-15

 

 

 

 

May-15

 

100

 

100

 

1.0000

 

Jun-15

 

 

 

0.9840

 

Jul-15

 

 

 

0.9050

 

Aug-15

 

 

 

0.9555

 

Sep-15

 

 

 

0.9584

 

Oct-15

 

 

 

0.9669

 

 


(1) Beginning of the month Net Asset Value

 

Class A Units are subject to upfront sales commissions paid to MLPF&S ranging from 1.0% to 2.5% of an investor’s gross subscription amount. Class D Units and Class I Units are subject to upfront sales commissions paid to MLPF&S up to 2.5% of an investor’s gross subscription amount. Sales commissions are

 

35



 

directly deducted from subscription amounts. Class C Units, Class DT Units and Class M Units are not subject to upfront sales commissions.

 

(b)         Not applicable.

(c)          Not applicable.

 

Item 3.                               Defaults Upon Senior Securities

None.

 

Item 4.                               Mine Safety Disclosures

Not applicable.

 

Item 5.                               Other Information

None.

 

Item 6.                               Exhibits

 

The following exhibits are filed herewith to this Quarterly Report on Form 10-Q:

 

31.01 and

31.02            Rule 13a-14(a)/15d-14(a) Certifications

 

Exhibit 31.01

and 31.02:  Are filed herewith.

 

32.01 and

32.02                                         Section 1350 Certifications

 

Exhibit 32.01

and 32.02                         Are filed herewith.

 

Exhibit 101   Are filed herewith.

The following materials from the Fund’s quarterly Report on Form 10-Q for the three and nine month periods ended September 30, 2015 formatted in XBRL (Extensible Business Reporting Language): (i) Statements of Financial Condition (ii) Statements of Operations (iii) Statements of Changes in Members’ Capital (iv) Financial Data Highlights and (v) Notes to Financial Statements, tagged as blocks of text.

 

36



 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

 

ML BLUETREND FUTURESACCESS LLC

 

 

 

 

 

 

 

 

By:

MERRILL LYNCH ALTERNATIVE

 

 

 

INVESTMENTS LLC

 

 

 

(Manager)

 

 

 

 

 

 

 

 

Date: November 13, 2015

 

By:

/s/ NANCY FAHMY

 

 

 

Nancy Fahmy

 

 

 

Chief Executive Officer and President

 

 

 

(Principal Executive Officer)

 

 

 

 

 

 

 

 

Date: November 13, 2015

 

By:

/s/ BARBRA E. KOCSIS

 

 

 

Barbra E. Kocsis

 

 

 

Chief Financial Officer

 

 

 

(Principal Financial Officer)

 

37