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EX-31.02 - EX-31.02 - ML BlueTrend FuturesAccess LLCa15-23241_1ex31d02.htm
EX-32.02 - EX-32.02 - ML BlueTrend FuturesAccess LLCa15-23241_1ex32d02.htm
EX-13.01 - EX-13.01 - ML BlueTrend FuturesAccess LLCa15-23241_1ex13d01.htm
EX-31.01 - EX-31.01 - ML BlueTrend FuturesAccess LLCa15-23241_1ex31d01.htm
EX-32.01 - EX-32.01 - ML BlueTrend FuturesAccess LLCa15-23241_1ex32d01.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-K

 

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

 

For the fiscal year ended: December 31, 2015

 

or

 

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

 

Commission file number: 0-53794

 

ML BLUETREND FUTURESACCESS LLC

(Exact name of registrant as specified in its charter)

 

Delaware

 

26-2581977

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

c/o Merrill Lynch Alternative Investments LLC

250 Vesey Street, 11th Floor

New York, New York 10281

(Address of principal executive offices)

(Zip Code)

 

609-274-5838

(Registrant’s telephone number, including area code)

 

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

 

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

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

 

Yes o  No x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.

 

Yes o  No x

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes x  No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

Yes x  No o

 

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

 

Yes o  No x

 

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

 

As of February 29, 2016 Units of limited liability company interest with an aggregate Net Asset Value of $33,256,198 were outstanding and held by non-affiliates.

 

Documents Incorporated by Reference

 

The registrant’s 2015 Annual Report and Report of Independent Registered Public Accounting Firm, the annual report to security holders for the year ended December 31, 2015, is incorporated by reference into Part II, Item 8, and Part IV hereof and filed as an Exhibit herewith. Copies of the annual report are available free of charge by contacting Alternative Investments Client Services at 1-866-657-3784.

 

 

 



 

ML BLUETREND FUTURESACCESS LLC

 

ANNUAL REPORT FOR 2015 ON FORM 10-K

 

Table of Contents

 

 

 

PAGE

 

PART I

 

Item 1.

Business

1

 

 

 

Item 1A.

Risk Factors

9

 

 

 

Item 1B.

Unresolved Staff Comments

20

 

 

 

Item 2.

Properties

20

 

 

 

Item 3.

Legal Proceedings

20

 

 

 

Item 4.

Mine Safety Disclosures

20

 

 

 

 

PART II

 

 

 

 

Item 5.

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

 

 

Equity Securities

20

 

 

 

Item 6.

Selected Financial Data

23

 

 

 

Item 7.

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

32

 

 

 

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

44

 

 

 

Item 8.

Financial Statements and Supplementary Data

48

 

 

 

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

48

 

 

 

Item 9A.

Controls and Procedures

48

 

 

 

Item 9B.

Other Information

49

 

 

 

 

PART III

 

 

 

 

Item 10.

Directors, Executive Officers and Corporate Governance

49

 

 

 

Item 11.

Executive Compensation

51

 

 

Item 12.

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

51

 

 

 

Item 13.

Certain Relationships and Related Transactions, and Director Independence

52

 

 

 

Item 14.

Principal Accounting Fees and Services

52

 

 

 

 

PART IV

 

 

 

 

Item 15.

Exhibits, Financial Statement Schedules

53

 



 

PART I

 

Item 1:   Business

 

(a)           General Development of Business:

 

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) (the “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.

 

Effective as of January 1, 2015 Systematica Investments Limited replaced BlueCrest Capital Management Limited as the trading advisor for the Fund.  The Trading Advisor trades the BlueTrend Program (the “Trading Program”) for the Fund. BlueCrest Capital Management Limited (the “Former Trading Advisor”) transferred assets and liabilities to Systematica Investments Limited (the “New Trading Advisor”). The Former Trading Advisor and the New Trading Advisor have informed MLAI that this restructuring was undertaken as a result of the Former Trading Advisor’s spinning off the Trading Program into a separate advisory firm.

 

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. 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.

 

The Trading Advisor is registered under the Investment Advisers Act of 1940. The Trading Advisor may delegate any of its duties and obligations under the Advisory Agreement to any of its duly appointed sub-investment managers (each a “Trading Advisor Subsidiary”), including, but not limited to, Systematica Investments Jersey Limited; provided that the Trading Advisor shall act in good faith and shall exercise reasonable skill and care in the selection, use and monitoring of the Trading Advisor Subsidiary.

 

The Trading Program is a systematic trend follower, but its decision-making inputs are 100% technical.  The Trading Program focuses on daily futures and liquid OTC instruments across 150+ markets in equity indexes, fixed income, F/X, energy, metals, agriculturals and soft commodities.  See “Trading Advisor’s Trading Program,” below.

 

The Fund issues units of limited liability company interest (“Units”) which are privately offered pursuant to Regulation D of the Securities Act of 1933, as amended (the “Securities Act”).

 

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.

 

1



 

As of December 31, 2015, the Net Asset Value of the Fund was $33,879,085.  As of December 31, 2015, the Net Asset Value per Unit was $1.0657 for Class A, $1.0011 for Class C, $0.9407 for Class D, $1.0981 for Class I and $1.0191 for Class M. Effective as of April 30, 2015 all Class DS Units were redeemed.  Effective as of December 31, 2015 all Class DT Units were redeemed.

 

Since the Fund began trading activities, the highest and lowest period-end Net Asset Value per Unit are listed below. The highest period-end Net Asset Value per Unit for Class A was $1.2738 (April 30, 2011) and the lowest was $0.9398 (March 31, 2014).  The highest period-end Net Asset Value per Unit for Class C was $1.2538 (April 30, 2011) and the lowest was $0.8984 (March 31, 2014).  The highest period-end Net Asset Value per Unit for Class D was $1.3027 (April 30, 2011) and the lowest was $0.9050 (June 30, 2015).  The highest period-end Net Asset Value per Unit for Class I was $1.2883 (April 30, 2011) and the lowest was $0.9617 (March 31, 2014). The highest period-end Net Asset Value per Unit for Class DS was $1.5347 (April 30, 2011) and the lowest was $1.0408 (September 30, 2008). The highest period-end Net Asset Value per Unit for Class DT was $1.2744 (March 31, 2015) and the lowest was $1.0036 (March 31, 2014). The highest period-end Net Asset Value per Unit for Class M was $1.1023 (March 31, 2015) and the lowest was $0.8755 (March 31, 2014).

 

The Net Asset Value of the Fund is generally calculated in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). However, the Fund’s Limited Liability Company Operating Agreement allows MLAI to depart from U.S. GAAP in calculating the Fund’s Net Asset Value for all purposes other than for financial statement purposes, including for purposes of subscriptions and redemptions and fee calculations, if MLAI determines in its good-faith discretion that this departure is advisable in order to better reflect the true value of any asset or amount of any liability, or to further the fair and equitable treatment of investors. MLAI may depart from U.S. GAAP in calculating the Fund’s Net Asset Value for these purposes if, for example, it determines that application of U.S. GAAP would cause an expense to be taken in a particular fiscal period — and therefore borne only by investors who hold Units during such period — but MLAI determines that it is more appropriate to spread such expense over additional fiscal periods.  In the event that MLAI departs from U.S. GAAP in calculating the Fund’s Net Asset Value for purposes of subscriptions and redemptions, calculation of fees and other non-financial statement purposes, the Fund’s audited financial statements will continue to be determined in accordance with U.S. GAAP.

 

(b)          Financial Information about Segments:

 

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

 

(c)           Narrative Description of Business:

 

Advisory Agreement Term

 

The Fund and MLAI are parties to an Advisory Agreement with the Trading Advisor. The Advisory Agreement will continue in effect until December 31, 2016.  Thereafter, the Advisory Agreement will be automatically renewed for successive one-year periods, on the same terms, unless terminated by either the Trading Advisor or the Fund upon 120 days written notice to the other party. The Advisory Agreement may, however, be terminated at any time pursuant to any of the following: (i) the Trading Advisor may terminate the Advisory Agreement upon 90 days written notice in the event that the Trading Advisor independently determines not to pursue, for any accounts, the trading strategy in which the Trading Advisor engages on behalf of the Fund; and (ii) the Fund and/or MLAI, on the one hand, or the Trading Advisor, on the other, may terminate the Advisory agreement as a result of a material breach of the Advisory Agreement by the other party, after due notice and an opportunity to cure.  The Advisory Agreement will also terminate immediately if the Fund is terminated and dissolved as determined by MLAI.

 

Trading Advisor’s Trading Program

 

The Trading Program is a systematic trend follower, but its decision-making inputs are technical.  The Trading Advisor aims to apply scientific techniques to the analysis and modeling of markets.  The Fund trades daily futures and liquid OTC instruments across 150+ markets in equity indexes, fixed income, F/X, energy, metals, agriculturals and soft commodities.

 

The Trading Program’s systematic trading team combines research/model development, implementation and execution functions. The Fund’s portfolio construction is regularly reviewed.

 

2



 

The trading strategy utilized by the Fund is a systematic trading model.  Capital allocation decisions between the models, between the markets within a model and individual buy and sell decisions within such markets are made on a systematic basis using quantitative analysis.

 

Although the Trading Advisor’s Trading Program is continually evolving, there were no fundamental or material changes to the Trading Program during the 2015 fiscal year

 

Forward Contracts and Counterparties

 

Currently, the only forward contracts entered into by the Fund are currency forwards.  MLI is the only counterparty to these forward contracts.  In the future the Fund may enter into other types of forwards and/or use other counterparties.  The standard terms of forward contracts entered into by the Fund are the term, the currency, the exchange rate, the principal amount and, in some cases the definition of a “disruption event,” i.e., a contingency pricing and settlement mechanism if an event occurs that causes the unavailability of the relevant exchange rate.  Forwards are governed by International Swaps and Derivatives Association documentation, and, in some cases, also by EMTA, Inc. documentation.

 

Employees

 

The Fund has no employees.

 

Use of Proceeds and Cash Management Income

 

Subscription Proceeds

 

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

 

Markets

 

The Fund trades daily futures and liquid OTC instruments across 150+ markets in equity indexes, fixed income, F/X, energy, metals, agricultural and soft commodities.

 

The Fund trades on a variety of United States and foreign futures exchanges as well as OTC.  The Fund’s commitments to different types of markets — U.S. and non-U.S., regulated and non-regulated —may differ from time to time, as well as over time.  The Fund has no policy restricting its relative commitment to any of these different types of markets.

 

3



CONDENSED SCHEDULES OF INVESTMENTS

 

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

 

December 31, 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

 

49

 

$

(8,940

)

-0.03

%

(453

)

$

235,860

 

0.70

%

$

226,920

 

0.67

%

March 2016

 

Currencies-Forwards*

 

47,118,237

 

61,597

 

0.18

%

(58,341,822

)

(126,242

)

-0.37

%

(64,645

)

-0.19

%

March 2016

 

Energy

 

 

 

0.00

%

(256

)

218,018

 

0.64

%

218,018

 

0.64

%

January 2016 - April 2016

 

Interest rates

 

758

 

(88,889

)

-0.26

%

(584

)

5,166

 

0.01

%

(83,723

)

-0.25

%

March 2016 - December 2019

 

Metals

 

194

 

7,031

 

0.02

%

(280

)

195,391

 

0.58

%

202,422

 

0.60

%

January 2016 - April 2016

 

Stock indices

 

93

 

(31,689

)

-0.09

%

(297

)

(101,010

)

-0.30

%

(132,699

)

-0.39

%

January 2016 - March 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

$

(60,890

)

-0.18

%

 

 

$

427,183

 

1.26

%

$

366,293

 

1.08

%

 

 

 

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 December 31, 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, 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.

 

4



 

Margin

 

When a futures or options on futures position is established, “initial margin” is calculated by the exchange on which the position is listed and deposited with a Futures Commission Merchant (“FCM”) that is a member of the clearinghouse through which transactions on the relevant exchange are cleared.  An FCM must, in turn, deposit initial margin with the clearinghouse to secure its obligations to the clearinghouse with respect to the positions of its customers.  The amount of both the trader’s initial margin payment to the FCM and the FCM’s initial margin payment to the clearinghouse are determined on the basis of risk, taking into account the price and volatility of the commodity underlying the position and, in certain cases, the offsetting risks that exist within a portfolio of positions.  On most exchanges, at the close of each trading day “variation margin,” representing the unrealized gain or loss on the open positions, is either credited to or debited from an account.  A trader must maintain a minimum margin level for each outstanding futures position known as “maintenance margin,” which is set by the relevant exchange and based on the risk of the futures position, often a set percentage of the “initial margin.”  If “variation margin” payments cause the “initial margin” to fall below “maintenance margin” levels, a “margin call” is made, requiring the trader to deposit additional margin or have its position closed out.  A clearinghouse may have “maintenance margin” requirements for member FCMs. An FCM may require a higher level of “initial margin” and “maintenance margin” from the trader than the clearinghouse requires from the FCM, but generally will not allow lower margin levels.  Margin is also required to be posted with counterparties when making investments through forward, swap or other OTC instruments.  The counterparties calculate margin based on the risk of the underlying commodity and will deposit margin with each other based on a previously agreed upon schedule.  In general, approximately 10% to 30% of the Fund’s assets are expected to be committed as margin for futures or options on futures positions at any one time, although these amounts could be substantially higher or lower. The Fund’s exposure and liability are not limited to the amount placed on margin, but are based on the total value of the futures contracts being traded.  Fund assets not committed to margin will be held in cash or cash equivalents and will earn interest as described below.

 

As of December 31, 2015 the Fund employed $3,754,903 and $3,504,600 as initial margin to support futures and forward positions, respectively, representing approximately 7.78% and 7.26% respectively, of the Fund’s total assets as of such date.

 

Custody of Assets

 

The Fund’s financial assets consist primarily of cash, futures and OTC FX forward and spot positions.  In addition, the Fund has authority to trade options on futures and forwards and certain other OTC derivatives including swaps, but these contracts typically represent a small percentage of the Fund’s financial assets, if any are traded at all.

 

Futures and OTC forwards and other instruments typically constitute a predominant amount of the Fund’s investment risk, but the notional value of these instruments is not included on the Fund’s balance sheet.

 

The vast majority of the net assets of the Fund is, and has historically been, held in the form of cash.  The Fund’s cash is used in various ways.  It can be:

 

·        posted as margin with MLPF&S in segregated or secured accounts in connection with commodities trading on regulated exchanges;

·        pledged as collateral to MLI for OTC forwards or options on forwards or to other OTC prime brokers for other OTC investments;

·        deposited in savings or demand deposit accounts with the Fund’s custodian or other banking institutions, both in the United States and internationally;

·        held in securities brokerage accounts maintained with MLPF&S; and

·        held in segregated or secured accounts with MLPF&S, which generally invests the cash in short-term high-quality securities or other instruments viewed as cash equivalents.

 

Typically the vast majority of the Fund’s assets are held in segregated or secured accounts with MLPF&S.  In general, approximately 10% to 30% of the Fund’s assets are expected to be required as margin or collateral at any one time.  Approximately 90% of the Fund’s assets are held in customer segregated accounts at MLPF&S pursuant to applicable Commodity Futures Trading Commission (“CFTC”) regulations to margin U.S. exchange-traded futures contracts and options thereon, or in customer secured accounts at MLPF&S and used to margin futures trading on non-U.S. exchanges pursuant to CFTC regulations.  The remaining approximately 10% is expected to be deposited with MLI, other OTC prime brokers, or one or more third-party collateral custodians as margin for OTC trades.  These amounts could be substantially higher or lower and there is no obligation to maintain margin or collateral within these or any other specific ranges.

 

5



 

Assets held in segregated or secured accounts at MLPF&S may be invested only in CFTC-permitted investments, which include U.S. government and government agency securities, commercial paper and corporate notes and bonds guaranteed by the U.S. government, and money market mutual funds.  Under the applicable regulations, such permitted investments are subject to instrument and issuer based concentration and time to maturity limits and must be managed with the objectives of preserving principal and maintaining liquidity.

 

Cash deposited in savings or demand deposit accounts with the Fund’s custodian or other banking institutions may be in excess of the limits on federal insurance for deposits, and thus not insured by the Federal Deposit Insurance Corporation (“FDIC”), and would be subject to the risk of bank failure.

 

MLAI, as sponsor of the Fund, has a general policy of maintaining clearing and prime brokerage arrangements with its BofA Corp. affiliates, such as MLPF&S and MLI, although MLAI may, nevertheless, engage unaffiliated service providers as clearing brokers or prime brokers for the Fund.  Other affiliates may from time to time be involved in the clearing, custody or investment of the Fund’s assets, including as prime brokers.  However, the vast majority of the Fund’s assets are held with, and therefore subject to the credit risk of, MLPF&S.  MLAI believes that its policy is in the best interest of investors due to the enhanced dependability and quality of service provided by MLPF&S and MLI to FuturesAccess as a result of MLAI’s relationship and shared corporate infrastructure with these affiliates. In addition, MLAI believes that MLPF&S is well capitalized and that the Fund benefits from the transparency provided to MLAI, as an affiliate of MLPF&S, into the controls MLPF&S has implemented to comply with the various regulatory requirements designed to protect customer funds.  However, there nonetheless exists a substantial risk of loss with respect to each of the above custody arrangements in the event of the bankruptcy or insolvency of MLI or MLPF&S if it does not properly segregate customer funds.  See “Risk Factors — Risk of Loss Due to the Bankruptcy or Failure of Counterparties, Custodians, Brokers and Exchanges” below for a more detailed discussion of these risks.

 

Subject to the interest income arrangements discussed below, each BofA Corp. entity holding Fund assets, including MLPF&S, retains the additional economic benefit derived from possession and investment of those assets for the entity’s own account.

 

Cash Management and Interest

 

MLAI is primarily responsible for the placement of the Fund’s “cash assets” with MLPF&S or other brokers.  In exercising this responsibility, MLAI’s primary considerations are safety of assets, seeking interest income, and the services provided by custodians.  A vast majority of the Fund’s cash has historically been held in futures brokerage accounts with affiliates.  To a smaller degree, the Fund’s cash assets may be held with the Fund’s bank custodian, which is at present the administrator.

 

MLAI retains the ability to change its cash management practices at any time, including by transferring a majority of the Fund’s cash assets to the Fund’s custodial bank accounts or other bank accounts.  Bank deposits may be in either savings accounts that pay interest, or demand deposit accounts, which may or may not pay interest and which may or may not be subject to FDIC insurance.  Any of these banks may be affiliated with MLAI if MLAI believes that to be in the best interests of the investors in the Fund.

 

MLPF&S and any other BofA Corp. affiliates that hold the Fund’s cash receive economic benefits, which may be substantial, from holding this cash, even in low interest rate environments in which the Fund receives little or no interest on these cash assets.

 

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 MLAI 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 daily effective federal funds rate is a volume-weighted average of rates on trades arranged by major brokers and is calculated by the Federal Reserve Bank of New York using data provided by the brokers.   Interest is computed based upon the daily net equity balance of the Fund’s account and is posted to the Fund’s account on a monthly basis.

 

MLPF&S, in the course of acting as commodity broker for the Fund, will have use of Fund cash and earn interest and receive other economic benefits as a result. The interest income arrangements with regard to cash held with MLPF&S will be equivalent with those under the Interest Earning Program as discussed above.

 

6



 

Charges

 

The following table summarizes the charges incurred by the Fund for the years ended December 31, 2015, 2014 and 2013.

 

 

 

2015

 

2014

 

2013

 

Charges

 

Dollar
Amount

 

% of Average
Month-End
Net Assets

 

Dollar
Amount

 

% of Average
Month-End
Net Assets

 

Dollar
Amount

 

% of Average
Month-End
Net Assets

 

Other Expenses

 

$

552,393

 

0.92

%

$

531,241

 

0.57

%

$

475,775

 

0.31

%

Sponsor fee

 

772,655

 

1.28

%

882,045

 

0.95

%

937,658

 

0.62

%

Management fee

 

896,970

 

1.49

%

1,770,108

 

1.92

%

2,951,301

 

1.95

%

Performance fee

 

612,282

 

1.02

%

 

0.00

%

49,399

 

0.03

%

Total

 

$

2,834,300

 

4.71

%

$

3,183,394

 

3.44

%

$

4,414,133

 

2.91

%

 

The foregoing table does not reflect:  (i) the bid-ask spreads paid by the Fund on it forward trading, (ii) brokerage commissions, (iii) the benefits which may be derived by BofA Corp. from the deposit of certain of the Fund’s U.S. dollar assets maintained at MLPF&S, or (iv) sales commissions payable in connection with the sales of Class A, Class D and Class I Units of the Fund.  Bid-ask spreads and brokerage commissions are components of the trading profit or loss of the Fund which are netted against realized and unrealized trading gains or losses in determining trading profit or loss.  Benefits derived by BofA Corp. from the deposit of the Fund’s assets at MLPF&S are neither a direct expense of the Fund nor readily quantifiable.  Aggregate sales commissions are not included in the table of charges because they are not an expense of the Fund, but rather are paid to MLPF&S out of an investor’s subscription proceeds and therefore reduce the amount invested in the Fund by the investor.

 

The Fund’s average month-end Net Asset Values during 2015, 2014 and 2013 equaled $60,251,788, $92,425,259 and $151,678,934, respectively.

 

During 2015, the interest income of the Fund was $2,004, or approximately 0.00% of the Fund’s average month-end Net Asset Values During 2014, the interest income of the Fund was $3,304, or approximately 0.00% of the Fund’s average month-end Net Asset Values. During 2013, the interest income for the Fund was $2,577, or approximately 0.00% of the Fund’s average month-end Net Asset Values.

 

Description of Current Charges

 

Recipient

 

Nature of Payment

 

Amount of Payment

 

 

 

 

 

MLPF&S

 

Brokerage commissions

 

During 2015, 2014 and 2013, the average round-turn (each purchase and sale or sale and purchase of a single futures contract) rate of the Fund’s brokerage commissions were approximately $5.91, $7.04 and $6.64, respectively.

 

 

 

 

 

MLPF&S

 

Use of assets

 

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

 

 

 

 

 

MLAI

 

Sponsor fees

 

The Fund charges Sponsor fees on the month-end Net Asset Value at annual rates equal to 1.5% for Class A Units, 2.5% for Class C Units, and 1.1% for Class I Units. Class D Units and Class M Units are not charged Sponsor fees. No Sponsor fees are charged to Class M Units because investors purchasing Class M Units are subject to asset-based fees on BofA Corp. managed accounts in which the Class M Units are held

 

 

 

 

 

MLPF&S

 

Sales commissions

 

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.

 

7



 

 

 

 

 

Sales commissions are directly deducted from subscription amounts. Class C Units and Class M Units are not subject to upfront sales commissions. No upfront sales commission is charged to Class M Units because investors purchasing Class M Units are subject to asset-based fees on BofA Corp. managed accounts in which the Class M Units are held.

 

 

 

 

 

MLI (or an affiliate); Other counterparties

 

Bid—ask spreads

 

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

 

 

 

 

 

MLI (or an affiliate); Other counterparties

 

EFP differentials

 

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

 

 

 

 

 

Trading Advisor and MLAI

 

Performance fees

 

The Fund pays a 25% annual performance fee to the Trading Advisor with respect to all Classes of Units. The performance fee is calculated based on any increase in the aggregate Net Asset Value of the Classes of Units subject to the same rate of performance fees (“Class Group”), taken together, in excess of the Class Group’s highest Net Asset Value as of any previous December 31, after adjustment for subscriptions and the performance fee then paid (“High Water Mark”). The increase in Net Asset Value on which Performance fees are calculated is prior to reduction for Sponsor fees. The performance fee is also paid on net redemptions, and the High Water Mark is proportionately reduced. Net Asset Value for purposes of calculating the performance fee does not include any interest income earned by the Fund.

 

 

 

 

 

Trading Advisor and MLAI

 

Management fees

 

The Fund pays monthly management fees to the Trading Advisor based on the month-end Net Asset Value of the Fund (prior to the reduction for the management fees being calculated and any accrued performance fees or Sponsor fees). The management fee rate is 1.5% per year for all Classes of Units, except for Class DT Units which is charged a 1.0% annual rate. The Trading Advisor has agreed to share with MLAI an amount equal to 0.65% of the gross asset value attributable to the Units issued by the Fund, excluding Class DT Units. The Trading Advisor fee sharing arrangement with MLAI is in order to defray costs in connection with and in consideration of BofA Corp. providing certain administrative and operational support for the Fund.

 

 

 

 

 

Others

 

Operating expenses of Fund including audit, legal and tax services

 

Actual payments to third parties.

 

 

 

 

 

MLAI

 

Ongoing offering costs
reimbursed

 

Actual costs incurred.

 

8



 

Regulation

 

The CFTC has delegated to the National Futures Association (“NFA”) responsibility for the registration of “commodity trading advisors,” “commodity pool operators,” “futures commission merchants,” “introducing brokers” and their respective associated persons, and “floor brokers” and “floor traders.”  The Commodity Exchange Act (“CEA”) requires commodity pool operators such as MLAI, commodity trading advisors such as the Trading Advisor and commodity brokers or FCMs such as MLPF&S to be registered and to comply with various reporting and record keeping requirements.  CFTC regulations also require FCMs to maintain a minimum level of net capital.  In addition, the CFTC and certain commodities exchanges have established limits referred to as “speculative position limits” on the maximum net long or net short speculative positions that any person may hold or control in any particular futures or options contracts traded on U.S. commodities exchanges.  All accounts owned or managed by the Trading Advisor will be combined for position limit purposes.  The Trading Advisor could be required to liquidate positions in order to comply with such limits.  Any such liquidation could result in substantial costs to the Fund.  In addition, many futures exchanges impose limits beyond which the price of a futures contract may not trade during the course of a trading day, and there is a potential for a futures contract to reach its daily price limit for several days in a row, making it impossible for the Trading Advisor to liquidate a position and thereby experiencing dramatic losses.  Currency forward contracts are not regulated as “swaps” under the CEA, but are subject to governmental regulation such as mandatory reporting and business conduct standards for swap dealers and major swap participants to the extent otherwise applicable to swaps under the CEA and applicable rules of the CFTC, see Item 1A “Risk Factors—F/X Forward Trading” and “—Regulatory Changes Could Restrict the Fund’s Operations.”

 

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

 

(d)          Financial Information about Geographic Areas

 

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

 

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

 

Item 1A:  Risk Factors

 

Past Performance Not Necessarily Indicative of Future Results

 

There can be no assurance that the Trading Program will produce profitable results.  The past performance of the Fund or the Trading Advisor is not necessarily indicative of how the Fund or the Trading Advisor may perform in the future.  There can be no assurance that the Fund will achieve its investment objectives or avoid substantial or total loss.  The Fund may sustain losses under future market conditions that are similar to conditions in which it may have achieved gains in the past.

 

Volatile Markets; Highly Leveraged Trading

 

Trading in the futures and OTC markets typically results in volatile performance.  Market price levels fluctuate dramatically and may be materially affected by unpredictable factors such as weather and governmental intervention.  The low margin requirements normally required in futures and OTC trading permit an extremely high degree of economic leverage.  This combination of leverage and volatility creates a high degree of risk.  Additionally, although the Trading Advisor may initiate stop-loss orders on certain positions to limit this risk, there can be no assurance that any stop-loss order will be executed or, even if executed, that it will be executed at the desired price or time.

 

Importance of General Market Conditions

 

Neither MLAI nor the Trading Advisor can predict or control overall market or economic conditions.  These conditions, however, can be expected to have a material effect on the performance of the Trading Program.

 

9



 

The Fund may incur major losses in the event of disrupted markets and other extraordinary events in which historical pricing relationships become materially distorted.  The risk of loss from pricing distortions is compounded by the fact that in disrupted markets many positions become illiquid, making it difficult or impossible to close out positions against which the markets are moving.  The financing available to the Fund from its banks, dealers and other counterparties is typically reduced in disrupted markets, which may result in substantial losses to the Fund.  Market disruptions may from time to time cause dramatic losses for the Fund and can result in the Trading Advisor’s strategy performing with unprecedented volatility and risk.

 

Managed Futures Trading Strategies and Trading Systems

 

Trend-Following Systems.  Many managed futures trading systems are trend-following systems generally anticipate that a majority of their trades will be unprofitable and seek to achieve overall profitability by substantial gains made on a limited number of positions.  These strategies are generally only successful in markets in which strong price trends occur.  In stagnant markets in which these trends do not occur, or in “whipsaw markets” in which apparent trends develop but then quickly reverse, trend-following trading systems are likely to incur substantial losses.  Furthermore, the profit potential of trend-following systems may be diminished by the changing character of the markets, which may make historical price data, on which technical trading systems are based, only marginally relevant to future market patterns.

 

Discretionary Strategies.  The Trading Advisor may utilize a discretionary, rather than systematic, trading strategy.  Discretionary trading advisors may allow emotion to affect trading decisions and may exhibit a lack of discipline in their trading that systematic strategies are designed to avoid.  Relying on subjective trading judgment may produce less consistent results than those obtained by more systematic approaches.

 

Technical Analysis and Trading Systems.  The Trading Advisor may employ technical analysis and/or technical trading systems.  Technical strategies rely on information intrinsic to the market itself to determine trades, such as prices, price patterns, volume and volatility.  These strategies can incur major losses when factors exogenous to the markets themselves, including political events, natural catastrophes, acts of war or terrorism, dominate the markets.  The widespread use of technical trading systems frequently results in numerous managers’ attempting to execute similar trades at or about the same time, altering trading patterns and affecting market liquidity.

 

Fundamental Analysis.  The Trading Advisor’s strategy may rely on fundamental analysis.  Fundamental analysis is premised on the assumption that markets are not perfectly efficient, that informational advantages and mispricings do occur and that econometric analysis can identify trading opportunities.  Fundamental analysis may result in substantial losses if these economic factors are not correctly analyzed, not all relevant factors are identified and/or market forces cause mispricings to continue despite the traders’ having correctly identified mispricings.  Fundamental analysis may also be more subject to human error and emotional factors than technical analysis.

 

Quantitative Trading.  The Trading Advisor may engage in quantitative trading.  Quantitative trading strategies are highly complex, and, for their successful application, require relatively sophisticated mathematical calculations and relatively complex computer programs.  These programs anticipate that many of their trades may be unprofitable, seeking to achieve overall profitability through recognizing major profits on a limited number of positions while cutting losing positions quickly.  These trading strategies are dependent upon various computer and telecommunications technologies and upon adequate liquidity in the markets traded.  The successful execution of these strategies could be severely compromised by, among other things, a diminution in the liquidity of the markets traded, telecommunications failures, power loss and software-related “system crashes.”  There are also periods when even an otherwise highly successful system incurs major losses due to external factors dominating the market, such as natural catastrophes and political interventions.  Due to the high trading volume of quantitative trading strategies, the resulting transaction costs may be significant.  In addition, the difference between the expected price of a trade and the price a trade is executed at, or “slippage,” may be significant and may result in losses.

 

Importance of Market Judgment

 

Although the Trading Advisor may use systematic or quantitative valuation models in evaluating the economic components of many prospective trades, the market judgment and discretion of the Trading Advisor’s personnel are often fundamental to the implementation of the Trading Program.  The greater the importance of subjective factors, the more unpredictable a trading strategy becomes.  The Trading Advisor may not have the same access to market information as do certain of its competitors, and the market decisions made by the Trading Advisor will, accordingly, often be based on less information and analysis than those available to competing investors.

 

10



 

F/X Forward Trading

 

The Fund may trade currencies in the F/X Markets, in addition to its trading in the futures markets, including by trading in F/X forward contracts.  Prospective investors must recognize that F/X forward trading takes place in unregulated markets, rather than on futures exchanges or swap execution facilities, and may, but does not now, take place through “retail” F/X Markets subject to the jurisdiction of the CFTC or other regulatory bodies.  The responsibility for performing under a particular forward transaction currently rests solely with the counterparties to that transaction, not with any exchange or clearinghouse.  As a result, the Fund is exposed to the credit risk of the OTC counterparties with which it trades F/X forwards and deposits collateral, including that of MLI.  See “Risk of Loss Due to the Bankruptcy or Failure of Counterparties, Custodians, Brokers and Exchanges” in this section below.

 

The Fund is also subject to the risk that a forward counterparty may not settle a transaction in accordance with its terms, because the counterparty is unwilling or unable to do so, potentially resulting in significant losses. A counterparty’s failure to perform could occur in respect of an offsetting forward contract on which the Fund remains obligated to perform.  The Fund will not, however, be excused from performance under any forward contracts into which it has entered due to defaults under other forward contracts.  In addition, counterparties to forwards generally have the right to terminate trades under a number of circumstances including, for example, declines in the Fund’s net assets and certain “key person” events.  Any premature termination of the Fund’s currency forward trades could result in significant losses for the Fund, because the Fund may be unable to quickly re-establish those trades and may only be able to do so at disadvantageous prices.  Forward market counterparties are under no obligation to enter into forward transactions with the Fund, including transactions through which the Fund is attempting to liquidate open positions.  In addition, the prices offered for the same forward contract may vary significantly among different forward market participants.

 

As a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), the CFTC now regulates non-deliverable forwards as swaps, including deliverable forwards where the parties do not take delivery.  Although non-deliverable forwards are not currently required to be executed in regulated markets, such as futures exchanges or swap execution facilities, this may change in the future. See “Regulatory Changes Could Restrict the Fund’s Operations” in this section below.

 

Dodd-Frank amended the definition of “eligible contract participant,” and the Fund expects to meet the amended definition so long as its total assets exceed $10 million.  If the Fund does not meet the definition of “eligible contract participant,” it could lead to the Fund’s bearing higher upfront and mark-to-market margin, less favorable trade pricing, and the possible imposition of new or increased fees.  “Retail forex” markets 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 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.

 

The imposition of credit controls by governmental authorities or the implementation of regulations pursuant to Dodd-Frank might limit forward trading to less than that which MLAI would otherwise recommend, to the possible detriment of the Fund.

 

Derivatives Risks

 

The Trading Advisor uses derivative instruments, primarily futures and OTC F/X forwards, in implementing the Trading Program.  The market for many types of these derivative instruments is comparatively illiquid and inefficient, creating the potential for substantial mispricings, as well as sustained deviations between theoretical and market value.  In addition, the derivatives market is, in comparison to other markets, a relatively new market, and the events of 2008 and 2009, including the bailout of American International Group, Inc., demonstrated that even the most sophisticated market participants may misunderstand how the market in derivatives will perform during periods of unusual price volatility or instability, market illiquidity, or credit distress.  The primary risks associated with the use of derivatives are model risk, market risk and counterparty risk.

 

The Fund’s investments in uncleared OTC derivatives are subject to greater risk of counterparty default and less liquidity than exchange-traded derivatives, although derivatives traded on regulated exchanges or execution facilities are subject to risk of failure of the exchange or facility on which they are traded and the clearinghouse through which they are guaranteed.  Counterparty risk includes not only the risk of default and failure to pay mark-to-market amounts and return risk premium, if any, but also the risk that the market value of OTC derivatives will fall if the creditworthiness of the counterparties to those derivatives weakens.

 

11



 

In addition, there are increased risks associated with offshore OTC trading, including the risk that assets held by offshore brokers and unregulated trading counterparties may not benefit from the protection afforded to customer funds deposited with regulated FCMs or broker-dealers.

 

The prices of derivative instruments can be highly volatile.  Price movements of derivative instruments are influenced by, among other things, interest rates, changing supply and demand relationships, trade, fiscal, monetary and exchange control programs and policies of governments, and national and international political and economic events and policies.  In addition, governments from time to time intervene, directly and by regulation, in certain markets.  This intervention often is intended directly to influence prices and may, together with other factors, cause all of such markets to move rapidly in the same direction because of, among other things, interest rate fluctuations.

 

There was substantial disruption in the derivatives markets related to the bankruptcies of Lehman Brothers Holdings, Inc. and MF Global Inc. and uncertainty relating to the government bailout of American International Group, Inc. This disruption and uncertainty can cause substantial losses if transactions are prematurely terminated, especially due to default when payment may be delayed or completely lost.  Uncertainties in the derivatives markets continue due to proposed regulatory initiatives, new regulations requiring OTC derivatives clearing, and allegations of inappropriate behavior by market participants to cause or avoid payments under credit default swaps.  See “Risk of Loss Due to the Bankruptcy or Failure of Counterparties, Custodians, Brokers and Exchanges” in this section below.

 

Trading in Options

 

The Trading Advisor may trade options on futures contracts or options on F/X forward contracts.  Although successful options trading requires many of the same skills as successful futures and forward trading, the risks involved are different.  For example, the assessment of near-term market volatility, which is directly reflected in the price of outstanding options, can be of much greater significance in trading options than it is in many long-term futures strategies.  The use of options can be extremely expensive if market volatility is incorrectly predicted.  A purchaser of options is exposed to the risk of loss of the entire premium paid; a seller, or writer, of call options is exposed to the risk of theoretically unlimited loss, and the seller of put options is exposed to the risk of substantial loss far in excess of the premium received.

 

Exchange of Futures for Physicals

 

The Trading Advisor may engage in exchange of futures for physical (“EFP”) transactions on behalf of the Fund.  As is the case with executing a transaction purely on an exchange or purely in the OTC market, EFP transactions, which are done partially on a futures exchange and partially in the OTC market, involve higher transaction costs.

 

Physical Commodities Trading

 

The Trading Advisor may engage in transactions that involve taking delivery of physical commodity assets such as agricultural commodities, freight, coal, oil, gas and electric power.  These investments are subject to risks that are not typically directly applicable to other financial instruments, such as:  destruction; loss; industry-specific regulation, such as pollution control regulation; operating failures; and work stoppages.

 

Physical commodities trading, as opposed to commodity futures trading, is substantially unregulated, and if the Fund engages in this type of trading, it will not be assured the same access to these markets as it might have in a regulated context.

 

Exchange Rate Risks; Currency Hedging

 

The Fund may invest and trade in currencies for speculative and/or hedging purposes.  In addition, the Units are denominated, and the Fund values its assets in U.S. dollars and the Fund may trade and invest in assets denominated in non-U.S. currencies.

 

Currency-related investments are subject to the risk that the value of a particular currency will change in relation to the U.S. dollar, and the exchange rates of currencies may be highly volatile.  Among the factors that may affect currency values are direct government intervention, which is often intended specifically to change currency values, trade balances, the level of short-term interest rates differences in the relative values of similar assets in different currencies, long-term opportunities for investment and capital appreciation and political developments.

 

While the Trading Advisor may from time to time hedge a certain amount of risks associated with currency trading, it is under no obligation to do so.  Even if it chooses to do so, it is not economically feasible and often simply not

 

12



 

possible to fully or effectively hedge exchange-rate risks.  In a number of cases, otherwise highly successful investment funds have incurred significant, and in certain instances total, losses due to the decline in the value of the currencies in which their investments were denominated or in which they were invested for speculative purposes.

 

Off-Balance Sheet Risk

 

The Fund may invest in financial instruments with off-balance sheet risk.  These instruments include futures and forward contracts, swaps and options contracts sold short.  In entering into these contracts, there exists a market risk that the contracts may be significantly influenced by conditions, such as interest rate volatility, resulting in the contracts becoming less valuable.  An off-balance sheet risk is associated with a financial instrument if it exposes the investor to a loss in excess of the investor’s recognized asset carrying value in the financial instrument, if any, or if the ultimate liability associated with the financial instrument has the potential to exceed the amount that the investor recognizes as a liability in the investor’s statement of assets and liabilities.

 

In the past few years regulators have alleged that certain interest rate benchmarks that underlie various swap agreements had been manipulated for several years and multiple banks involved in setting such benchmarks are currently under investigation for this manipulation.  Certain of these banks have been fined by, or entered into civil and criminal settlements with, various international regulators, including the U.S. Department of Justice, CFTC, and U.K. Financial Conduct Authority.  In entering into swap agreements, the Fund relies on the integrity of interest rates and other benchmarks.  If the level of these benchmarks is artificially influenced by market participants, the Fund could suffer losses.

 

Increased Assets Under Management

 

There appears to be a tendency for the rates of return achieved by managed futures advisors to decline as assets under management increase.  The Trading Advisor has not agreed to limit the amount of additional equity which it may manage and may be at or near its all-time high in assets under management.

 

The aggregate capital committed to the managed futures sector in general is also near its all-time high.  The more capital that is traded in these markets, or that is committed to any one particular strategy, the greater the competition for a finite number of positions and the less the profit potential for all strategies or for any particular strategy.

 

Dependence on Key Individuals

 

The success of the Fund is significantly dependent upon the expertise of one or more of the Trading Advisor’s principals.  The loss of any one of these principal’s services may have a substantial impact on the performance of the Fund and may result in liquidation of the Fund which, if made at an inopportune time, may result in losses for the Fund.

 

Trading Advisor Risk

 

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

 

Redemptions by Other Trading Advisor Fund Investors

 

Investors in other funds or accounts implementing the Trading Program or similar strategies may be able to redeem their investments more frequently or on less prior notice than Investors in the Fund.  Redemptions by investors in these funds or withdrawals from accounts that have less restrictive redemption terms could have a material adverse impact on the Fund’s portfolio and could disadvantage investors in certain circumstances.

 

Trade Execution Risk

 

The Trading Advisor may use executing brokers unaffiliated with BofA Corp.  In the event of a trading error, the Fund may have no effective remedy against these executing brokers.

 

Changes in Trading Program

 

The Trading Advisor may make material changes to the Trading Program without the knowledge of MLAI.  It is virtually impossible for MLAI to detect these changes, particularly given the confidential, proprietary, systematic and/or quantitative nature of the Trading Program strategies, customarily referred to as “black box strategies.”

 

13



 

Illiquid Markets

 

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

 

Most U.S. futures exchanges limit fluctuations in some futures contract prices during a single day by regulations referred to as “daily price limits.”  During a single trading day no trades may be executed in these contracts at prices beyond the daily price limit.  Once the price of a futures contract has increased or decreased to the limit point, positions can be neither taken nor liquidated.  Futures prices have occasionally moved to the daily limit for several consecutive days with little or no trading.  Similar occurrences could prevent the Fund from promptly liquidating unfavorable positions and subject the Fund to substantial losses.  Also, the CFTC or exchanges may suspend or limit trading.  Trading on non-U.S. exchanges may also be subject to price fluctuation limits and subject to periods of significant illiquidity.  Trading in the F/X Markets and other OTC markets is not subject to daily limits, although OTC trading is also subject to periods of significant illiquidity.

 

Possible Effects of Speculative Position Limits

 

The CFTC and U.S. commodities exchanges have established limits referred to as “speculative position limits” on the maximum net long or net short speculative positions that any person may hold or control in any particular futures or options on futures contracts traded on U.S. commodities exchanges.  All proprietary or client accounts owned or managed by the Trading Advisor are combined for purposes of calculating position limits.  The Trading Advisor could be required to liquidate positions held for the Fund, or may not be able to fully implement the Trading Program, in order to comply with such limits, even though the positions attributable to the Fund do not themselves trigger the position limits or are a small portion of the aggregate positions directed by the Trading Advisor.  Position limits could force the Fund to liquidate profitable positions, result in a tracking error between the Fund’s portfolio and the Trading Advisor’s standard trading program and cause the Fund to incur substantial transaction costs.

 

In October 2011, the CFTC adopted rules that, among other things, established a separate position limits regime for 28 so-called “exempt,” i.e., metals and energy, and agricultural futures and options contracts and their economically equivalent swap contracts.  Position limits in spot months were generally set at 25% of the official estimated deliverable supply of the underlying commodity while position limits related to non-spot months were generally set at 10% of open interest in the first 25,000 contracts and 2.5% of the open interest thereafter.  Those proposed speculative position limits were vacated by a United States District Court, but the CFTC has proposed a new set of speculative position limits which are not yet finalized.  If the current proposal is approved, the size or duration of positions available to the Fund may be further limited.

 

In addition, Dodd-Frank significantly expands the CFTC’s authority to impose position limits with respect to futures contracts, options on futures contracts, swaps that are economically equivalent to futures or options on futures, swaps that are traded on a regulated exchange and certain swaps that perform a significant price discovery function.

 

MLAI is subject to CFTC-imposed position limits through its control of the Fund, and will have to aggregate positions of certain FuturesAccess Funds in determining whether the position limits are reached.  The CFTC’s current position limit proposal would, if implemented in substance, in addition to expanding the contracts subject to CFTC-imposed position limits, narrow certain exemptions from the aggregation requirements, making it more likely that a party such as MLAI hiring multiple trading advisors may be required to aggregate the positions controlled by the various trading advisors.  Although MLAI may claim an exemption from the aggregation requirements for the majority of FuturesAccess Funds, the aggregation of positions of certain FuturesAccess Funds may be required.  If aggregation is required in the Fund’s case, the Trading Advisor may not be able to implement the Trading Program for the Fund in the same manner as for its other clients, causing the Fund to underperform other accounts utilizing the Trading Program, or the Fund may have to liquidate trading positions when the Trading Advisor would otherwise not advise doing so, resulting in losses to the Fund.

 

Any of the regulations discussed above could adversely affect the Fund in certain circumstances.

 

Trading on Non-U.S. Exchanges

 

The Trading Advisor may trade on futures exchanges outside the United States on behalf of the Fund.  Trading on non-U.S. exchanges is not regulated by any U.S. government agency and may involve certain risks not applicable to trading on U.S. exchanges.

 

14



 

For example, some non-U.S. exchanges, in contrast to U.S. exchanges, are “principals’ markets” similar to the forward markets in which performance is the responsibility only of the individual member with whom the Fund has entered into a futures contract and not of any exchange or clearinghouse.  In these cases, the Fund will be subject to the risk of the inability or refusal to perform with respect to the individual member with whom the Fund has entered into a futures contract.

 

Trading on non-U.S. exchanges may involve the additional risks of expropriation, burdensome or confiscatory taxation (including taxes on specific trading activities), moratoriums, exchange or investment controls and political or diplomatic disruptions, each of which might materially adversely affect the Fund’s trading activities.  The Fund could incur substantial losses trading on non-U.S. exchanges to which it would not have been subject had the Trading Advisor limited its trading to U.S. markets.

 

The U.S. tax treatment of non-U.S. futures trading may be adverse compared to the tax treatment of U.S. futures trading.  The profits and losses derived from trading non-U.S. futures and options will generally be denominated in non-U.S. currencies.  Consequently, the Fund will be subject to exchange-rate risk in trading those contracts.

 

Foreign Exchange Controls

 

Governments in non-U.S. markets may impose F/X controls at will, making it impossible to convert local currency into other currencies.  Should the Fund trade on futures exchanges outside the United States or otherwise invest in non-U.S. markets, these controls may effectively prevent Fund capital from being removed from a country where its futures contracts and other investments are traded.  In addition, certain countries do not have fully convertible currencies as a matter of policy, adding cost or delay to the trading of currency investments by the Fund.  The imposition of currency controls by a non-U.S. government may negatively affect performance and liquidity in the Fund as capital becomes trapped in that country.

 

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

 

The Fund is exposed to the risk that the bankruptcy or insolvency of its trading counterparties and other entities holding Fund assets — such as broker-dealers, FCMs, futures exchanges, clearinghouses, banks or other financial institutions, particularly MLPF&S, MLI and their affiliates — could result in all or a substantial portion of the Fund’s assets being lost permanently or impounded for a matter of years pending the final disposition of legal proceedings.  A bankruptcy or insolvency of this kind, or the threat of one, may cause MLAI to decide to liquidate the Fund or suspend, limit or otherwise alter trading, perhaps causing the Fund to miss significant profit opportunities.

 

MLAI has historically preferred BofA Corp. affiliates in clearing and prime brokerage relationships, and as a result has maintained the vast majority of its cash in futures brokerage accounts with its affiliates.  This policy exposes the Fund to the specific credit risk of these BofA Corp. affiliates because balances in these accounts are not subject to FDIC or other form of deposit insurance against loss from failure of the BofA Corp. affiliate.  Balances maintained with clearing brokers are, however, subject to the protections for customer segregated, cleared swaps customer accounts and secured accounts discussed below.

 

MLAI’s policy that the Trading Advisor use MLPF&S and MLI may increase the risks of insolvency described above by preventing the diversification of brokers and counterparties used by the Fund.

 

MLAI may have limited control over the selection of counterparties by the Fund.  The Fund also may not be restricted from dealing with any particular counterparty, regulated or unregulated, or from concentrating any or all of its transactions with a single counterparty or limited number of counterparties or from initially transacting, clearing or brokering with a non- BofA Corp. broker and from “giving up” those trades to MLPF&S or MLI.  In addition, to the extent assets are held at entities other than MLPF&S and MLI, the Sponsor may have limited ability to assess the extent to which the Trading Advisor maintains the Fund’s assets in unregulated accounts subject to the bankruptcy of the counterparties holding such assets.

 

The following paragraphs discuss the various uses of the Fund’s assets and the risks of loss — in addition to losses from trading — associated with each use.

 

Margin for Commodities Trading.  Although the Sponsor believes that MLPF&S is appropriately capitalized to function as the Fund’s FCM, cash posted as margin for commodities trading with MLPF&S is nevertheless subject to the risk of insolvency of MLPF&S.  The Fund maintains cash deposits with MLPF&S in segregated accounts, which are required by CFTC regulations to be separate from its proprietary assets for futures and options trading on U.S. exchanges.  Funds held in segregated accounts are intended to be readily identifiable as customer funds in the event of MLPF&S’s bankruptcy and are expected to be reserved for distribution to customers of MLPF&S.  If MLPF&S did not

 

15



 

comply with the segregation requirement, however, the assets of the Fund might not be fully protected.  Even given proper segregation, the Fund may be subject to a risk of loss of its funds because, although CFTC regulations require that FCMs invest customer funds only in certain types of interest bearing financial instruments, these instruments are still subject to credit and market risk.  As a result, if the instruments in which customer segregated funds are invested lose value, there would be a shortfall in customer segregated funds held by MLPF&S in the event of MLPF&S’s insolvency.

 

In addition, there may be a shortfall in customer segregated funds held by MLPF&S in the event of a substantial default by one or more of MLPF&S’s other customers.  If MLPF&S becomes insolvent, only a pro rata share of all property available for distribution to all of MLPF&S’s customers would be recovered, whether or not another customer also defaults and even if this property is held in segregated accounts.

 

In addition, if BofA Corp. directly or indirectly owns 10% or more of the Fund, which would typically result from BofA Corp. providing seed capital to the Fund to help ensure that the Fund has enough capital to commence trading activities, the Fund’s account at MLPF&S would be considered a “proprietary account” under CFTC regulations and the Fund’s assets, including assets used to margin U.S. exchange-traded futures and options, would not be protected as “customer funds.”  If MLPF&S became insolvent at a time when the Fund’s assets on deposit with MLPF&S were not considered customer funds, the Fund would likely lose significantly more as a result of the bankruptcy than would otherwise be the case.  Where BofA Corp. provides seed capital it also establishes a regular redemption schedule providing for withdrawal of the capital when the Fund capitalization reaches a certain level.  Once BofA Corp.’s ownership of a FuturesAccess Fund falls below 10%, the account of the FuturesAccess Fund will be considered a customer account rather than a proprietary account.

 

MLPF&S is required by CFTC regulations to maintain in a secured account the amount required to margin futures and options positions established on non-U.S. futures exchanges in order to protect customer funds in the event of MLPF&S’s bankruptcy.  While the secured account requirement relating to trading non-U.S. futures exchanges is similar in some respects to the segregation requirement relating to trading on U.S. futures exchanges, they are not identical and there are special risks associated with funds maintained in a secured account.  Funds held in a secured account may be commingled with funds of non-U.S. persons and, because they are by necessity held in a non-U.S. jurisdiction, are subject to different insolvency laws and customer protection regulations, which may be less favorable than U.S. laws and regulations.  Moreover, funds transferred from a secured account to a non-U.S. FCM, exchange or clearing agency to margin trading on non-U.S. futures exchanges are not subject to the same limitations on permissible investments as funds held by U.S. FCMs.  In addition to these special risks, funds held in a secured account are subject to risks comparable to those applicable to funds in a segregated account, namely that MLPF&S will not comply with the relevant regulations, that investments in the account will decline in value, of a shortfall in the event of the default by another customer, and that, if, BofA Corp. owns 10% or more of the Fund, the Fund’s assets will not be protected as “customer funds.”

 

If the Fund deposits assets with a particular entity and those assets are not held in segregation or in a secured account as “customer funds” for any of the reasons discussed above, in the event of the entity’s insolvency the Fund could be a general creditor of the entity even with regard to property specifically traceable to the Fund’s account.  As a result, the Fund’s claim would be paid along with the claims of other general creditors and the Fund would be subject to the loss of its entire deposit with the party.

 

To the extent the Fund enters into cleared swap transactions, the Fund will deposit collateral with MLPF&S in cleared swaps customer accounts, which are required by CFTC regulations to be separate from its proprietary collateral posted for cleared swaps transactions.  Cleared swap customer collateral is subject to regulations that closely parallel the regulations governing customer segregated funds but provide certain additional protections to cleared swaps collateral in the event of an FCM or FCM customer default.  For example, in the event of a default of both the FCM and a customer of the FCM, a clearing house is only permitted to access the cleared swaps collateral in the legally separate (but operationally commingled) account of the defaulting cleared swap customer of the FCM, as opposed to the treatment of customer segregated funds, under which the clearing house may access all of the commingled customer segregated funds of a defaulting FCM.

 

Collateral for OTC Transactions.  Cash pledged as collateral with MLI or any other OTC prime broker for uncleared OTC trades is subject to the risk of the insolvency of the prime broker.  Unlike cash posted as margin for commodities trading on regulated exchanges, cash margin for OTC trades is not required to be segregated or held in a secured account.  With respect to cleared OTC trades, the Fund will not face a clearinghouse directly, but rather will do so through MLI or any other OTC prime broker that is registered with the CFTC and that acts as a clearing member.  The Fund may face the indirect risk of the failure of another clearing member customer to meet its obligations to its clearing member.  Such scenario could arise due to a default by the clearing member on its obligations to the clearinghouse triggered by a customer’s

 

16



 

failure to meet its obligations to the clearing member.

 

Bank Deposits.  The vast majority of the cash deposited with banks would be in excess of the limits on federal insurance for deposits, and thus not insured by the FDIC, and would be subject to the risk of bank failure.  Only up to $250,000 held in the interest bearing demand deposit accounts is insured under the FDIC’s general deposit insurance rules.

 

Cash in Securities Brokerage Accounts.  Cash in securities brokerage accounts with MLPF&S is subject to the risk of insolvency of MLPF&S.  While brokers are required to keep customer cash in a special reserve account for the benefit of customers, it is possible that a shortfall could exist in this account, in which case the Fund, along with other customers, would suffer losses.  The Securities Investor Protection Corporation provides protection against these losses, up to a limit, but the cash deposited by the Fund in a securities brokerage account would far exceed the limit.

 

Direct Investments.  Fund investments in U.S. government securities are backed by the full faith and credit of the U.S. government.  To the extent the Fund makes investments in non-government securities it would be subject to a risk of loss that depended on the type of security.

 

Historical events underscore the risks described above.  Significant losses incurred by many investment funds in relation to the bankruptcy and/or administration of Lehman Brothers Holdings Inc. and its affiliates illustrate the risks incurred in both derivatives trading and custody/brokerage arrangements.  The bankruptcy liquidation of MF Global Inc. also demonstrates that even customer funds subject to segregation requirements may be difficult for an FCM to locate, and customer funds held by an FCM in bankruptcy may not be distributed promptly and may be subject to a lengthy claims process.

 

Insolvency of Dual-Registered Entities

 

MLPF&S is registered as both an FCM with the CFTC and as a broker-dealer with the SEC.  Other counterparties and entities holding Fund assets may also be entities registered with both the CFTC and the SEC.  In the event of an insolvency of a dual-registered entity, the distribution of CFTC regulated customer funds would be governed by the CFTC’s bankruptcy rules and Chapter 7 of the U.S. Bankruptcy Code, while the distribution of SEC regulated customer funds would be governed by the Securities Investor Protection Act of 1970 and applicable provisions of the U.S. Bankruptcy Code.  Uncertainty exists regarding the application of the two separate insolvency regimes to the insolvency of a single entity.

 

Risk of Loss Due to Trading Errors and the Failure of Trading Systems

 

The Fund is subject to the risk of failures or inaccuracies in the trading systems of the Trading Advisor.  Trades for the Fund may be placed or executed in error due to technical errors such as coding or programming errors in software, hardware problems and inaccurate pricing information provided by third parties or execution errors such as keystroke, typographic or inadvertent drafting errors.  Many exchanges have adopted “obvious error” rules that prevent the entry and execution of trades more than a specified amount away from the current best price on the exchange.  However, these rules may not be in place on the exchanges on which the Trading Advisor trades on behalf of the Fund and may not be enforced even if in effect.  These rules likely would not prevent the entry and execution of a trade entered close to the market price but at the wrong size.

 

The Fund is subject to the risk of the unavailability or failure of the computer systems of the exchanges on which the Trading Advisor trades.  Any such errors or failures could subject the Fund to substantial losses.

 

Government Intervention; Market Disruptions

 

The global financial markets have in the past several years experienced pervasive and fundamental disruptions that have led to extensive and unprecedented governmental intervention.  Government intervention has in certain cases been implemented on an “emergency” basis, suddenly and substantially eliminating market participants’ ability, at least on a temporary basis, to continue to implement certain strategies or manage the risk of their outstanding positions.  In addition, as one would expect given the complexities of the financial markets and the limited time frame within which governments have taken action, these interventions typically have been difficult to interpret and unclear in scope and application, resulting in confusion and uncertainty.  This confusion and uncertainty in itself has been materially detrimental to the efficient functioning of the markets as well as previously successful investment strategies.

 

17



 

The Fund may incur substantial losses in the event of disrupted markets and other extraordinary events in which historical pricing relationships become materially distorted, the availability of credit is restricted or the ability to trade or invest capital, including exiting existing positions, is otherwise impaired.  The risk of loss from pricing distortions is compounded by the fact that in disrupted markets many positions become illiquid, making it difficult or impossible to close out positions against which the markets are moving.  The financing available to private investment funds, such as the Fund from banks, dealers and other counterparties is typically reduced in disrupted markets.  Any reduction may result in substantial losses to the Fund.  Market disruptions may from time to time cause dramatic losses for the Fund and these events can result in otherwise historically low-risk strategies performing with unprecedented volatility and risk.

 

Regulatory Changes Could Restrict the Fund’s Operations

 

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

 

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

 

Dodd-Frank includes provisions that substantially increase the regulation of the OTC derivatives markets.  Regulations implementing Dodd-Frank will ultimately require that a substantial portion of derivatives currently traded over the counter be executed in regulated markets and/or be submitted for clearing to regulated clearinghouses.  Those OTC derivatives may include OTC F/X forwards and swaps which may be traded by the Fund.

 

Although the U.S. Treasury has the discretion to exclude F/X forwards and swaps from certain of the new regulatory requirements, it has done so to date only in limited circumstances.  Forwards and swaps that are not so excluded may be required by Dodd-Frank to be centrally cleared or traded on a regulated market.  Dodd-Frank may also require other OTC derivatives traded by the Fund, if any, to be centrally cleared or traded on a regulated market.  This may subject the Fund, the Trading Advisor, MLAI and/or the Fund’s counterparties to additional regulatory requirements.  Certain of these regulatory requirements could affect the Fund, the Trading Advisor or MLAI directly, while others could impact the Fund, the Trading Advisor or the MLAI indirectly due to the impact of the requirements on the Fund’s counterparties.  For example, OTC derivative dealers are now required to be registered with the CFTC (and ultimately will be required to register with the SEC) and are subject to new minimum capital and margin requirements, business conduct standards, disclosure requirements, reporting and recordkeeping requirements, transparency requirements, position limits, limitations on conflicts of interest and other regulatory burdens.  These new regulatory burdens have and will continue to increase the counterparties’ costs, which are generally passed through to other market participants such as the Fund in the form of higher fees, including clearing account maintenance fees, and less favorable dealer marks.  They may also render certain strategies in which the Trading Advisor might otherwise engage impossible, or so costly that they will no longer be economical, to implement.

 

The CFTC also now requires certain derivative transactions that were previously executed on a bi-lateral basis in the OTC markets to be executed through a regulated futures or swap exchange or execution facility.  These requirements may make it more difficult and costly for investment funds, including the Fund, to enter into highly tailored or customized transactions.  They may also render certain strategies in which the Fund might otherwise engage impossible or so costly that they will no longer be economical to implement.  If the Fund decides to execute derivatives transactions through these exchanges or execution facilities—and especially if it decides to become a direct member of one or more of these exchanges or execution facilities—the Fund would be subject to the rules of the exchange or execution facility, which would bring additional risks and liabilities, and potential requirements under applicable regulations and under rules of the relevant exchange or execution facility.  Even if the Fund indirectly participates in an exchange or execution facility, the Fund and/or the Trading Advisor may be required to consent to the exchange’s or execution facility’s jurisdiction and to the relevant rulebook, which could subject it to a wide range of regulations and other obligations, together with associated costs.  Like any other self-regulatory organization, exchanges and execution facilities regularly revise and interpret their rules, and such

 

18



 

revisions and interpretations could adversely affect the Fund.

 

Although Dodd-Frank requires certain OTC derivative transactions previously entered into on a principal-to-principal basis to be submitted for clearing by a regulated clearinghouse, some of the derivatives that may be traded by the Fund may not be centrally cleared.  The risk of counterparty non-performance can be significant in the case of these OTC instruments, and bid-ask spreads may be unusually wide in these heretofore substantially unregulated markets.  While Dodd-Frank is intended in part to reduce these risks, its success in this respect may not be evident for some time after Dodd-Frank is fully implemented, a process that may take several years.  In addition, while Dodd-Frank’s requirement that certain swaps be traded on a regulated market is intended to improve transparency in the market for these swaps, and may for more liquid swaps decrease trading costs, it may actually increase trading costs for less liquid swaps.

 

While Dodd-Frank is intended to bring more stability and lower counterparty risk to derivatives markets by requiring central clearing of certain standardized derivatives trades, not all of the Fund’s trades will be subject to a clearing requirement because the trades are grandfathered or because they are bespoke, or because they are within a class that is not currently subject to mandatory clearing.  Furthermore, it is yet to be seen whether Dodd-Frank will be effective in reducing counterparty risk or if such risk may actually increase as a result of market uncertainty, mutuality of loss to clearinghouse members, or other reasons.

 

The overall impact of Dodd-Frank on the Fund remains highly uncertain and it is unclear how the OTC derivatives markets will adapt to this new regulatory regime, along with additional, sometimes overlapping, regulatory requirements imposed by non-U.S. regulators.

 

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

 

On August 16, 2012, the European Market Infrastructure Regulation became effective (“EMIR”).  EMIR introduces certain requirements in respect of derivative contracts, which applies primarily to “financial counterparties” (“FCs”) such as European Union (“E.U.”) authorized investment firms, credit institutions, insurance companies, funds regulated under the E.U. Undertakings for Collective Investment in Transferable Securities Directives, referred to as “UCITS,” and alternative investment funds managed by E.U. authorized alternative investment fund managers, and “non-financial counterparties” (“NFCs”), which are entities established in the E.U. that are not financial counterparties.  NFCs whose transactions in OTC derivative contracts exceed EMIR’s prescribed clearing threshold (“NFC+s”) are generally subject to more stringent requirements under EMIR than NFCs whose transactions in OTC derivative contracts do not exceed such clearing threshold, including because such contracts are excluded from the threshold calculation on the basis that they are concluded in order to reduce risks directly relating to the NFC’s commercial activity or treasury financing activity (“NFC-s”).

 

Broadly, EMIR’s requirements in respect of derivative contracts are (i) mandatory clearing of OTC derivative contracts declared subject to the clearing obligation; (ii) risk mitigation techniques in respect of uncleared OTC derivative contracts; and (iii) reporting and record-keeping requirements in respect of all derivative contracts.

 

Broadly, EMIR’s requirements in respect of derivative contracts are (i) mandatory clearing of OTC derivative contracts declared subject to the clearing obligation; (ii) risk mitigation techniques in respect of uncleared OTC derivative contracts; and (iii) reporting and record-keeping requirements in respect of all derivative contracts.

 

As FCs and NFCs are required to comply with EMIR’s risk mitigation obligations regardless of the identity of their counterparties, non-E.U. counterparties such as the Fund are likely to become indirectly subject to such requirements when they transact with E.U. counterparties, which will require compliance by their non-E.U. counterparties in order to satisfy their own obligations under EMIR.  E.U. FCs or NFC+s which transact with a non-E.U. counterparty that would be classed as an FC or an NFC+ if it had been established in the E.U. will also be required to ensure that certain specified OTC derivative contracts are cleared through a duly authorized central counterparty.  No class of OTC derivative contracts has as yet been declared subject to mandatory clearing in the E.U., although draft legislation covering various classes has been proposed.

 

The E.U. regulatory framework and legal regime relating to derivatives is set not only by EMIR but also by a new Directive and Regulation containing a package of reforms to the existing Markets in Financial Instruments Directive (Directive 2004/39/EC), collectively referred to as “MiFID II”.  MiFID II was published on June 12, 2014 in the Official Journal of the European Union but the majority of MiFID II’s provisions will only become effective on January 3, 2017.  In particular, MiFID II is expected to require transactions between FCs and NFC+s in sufficiently liquid OTC derivatives to be executed on a trading venue which meets the requirements of the MiFID II regime.  This trading obligation will also extend to

 

19



 

FCs and NFC+s which trade with third country counterparties that would be classed as FCs or NFC+s if they were established in the E.U.

 

It is difficult to predict the full impact of these regulatory developments on the Fund. Prospective investors should be aware that the regulatory changes arising from EMIR and MiFID II may in due course significantly raise the costs of entering into derivative contracts and may adversely affect the Fund’s ability to engage in transactions in derivatives.

 

Banking Regulation

 

BofA Corp. is subject to certain U.S. banking laws, including the Bank Holding Company Act of 1956 (the “BHCA”), and to regulation by the Board of Governors of the Federal Reserve System.  If BofA Corp. directly, or indirectly through its subsidiaries, makes capital contributions to the Fund in an aggregate amount such that BofA Corp. may be deemed to control the Fund for purposes of the BHCA, or if BofA Corp. is otherwise deemed to control the Fund for purposes of the BHCA, the Fund may be subject to certain investment and other limitations.

 

Concerns Regarding the Downgrade of the U.S. Credit Rating and the Sovereign Debt Crisis in Europe

 

On August 5, 2011, Standard & Poor’s lowered its long term sovereign credit rating on the United States of America from AAA to AA+.  This downgrade or future downgrades by Standard & Poor’s or other credit rating agencies could have material adverse effects on financial markets and economic conditions in the United States and throughout the world and, in turn, the market’s anticipation of these impacts could have a material adverse effect on the investments made by the Fund and thereby the Fund’s financial condition and liquidity.  The ultimate impact on global markets and the Fund’s business is unpredictable.

 

Global markets and economic conditions have been negatively affected by the ability of E.U. member states to service their sovereign debt obligations.  The continued uncertainty over the outcome of the E.U.’s financial support programs and financial troubles could have an adverse effect on the Fund.

 

Item 1B: Unresolved Staff Comments

 

Not applicable.

 

Item 2:   Properties

 

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

 

The Fund’s offices are the administrative offices of MLAI (Merrill Lynch Alternative Investments LLC, 250 Vesey Street, 11th Floor, New York, New York, 10281). MLAI performs administrative services for the Fund from MLAI’s offices.

 

Item 3:   Legal Proceedings

 

None.

 

Item 4:  Mine Safety Disclosures

 

Not applicable.

 

PART II

 

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

 

(a)           Market Information:

 

There is no 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

 

20



 

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.

 

(b)          Holders:

 

As of December 31, 2015, there were 636 holders of Units.

 

(c)           Dividends:

 

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

 

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

 

Not applicable.

 

(e)           Performance Graph:

 

Not applicable.

 

(f)            Recent Sales of Unregistered Securities:

 

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:

 

21



 

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

 

Nov-15

 

44,550

 

41,155

 

1.0825

 

Dec-15

 

 

 

1.1089

 

Jan-16

 

 

 

1.0657

 

Feb-16

 

 

 

1.1282

 

 

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

 

9,659

 

1.0354

 

Nov-15

 

10,000

 

9,817

 

1.0186

 

Dec-15

 

40,000

 

38,366

 

1.0426

 

Jan-16

 

17,000

 

16,981

 

1.0011

 

Feb-16

 

11,000

 

10,388

 

1.0589

 

 

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

 

Nov-15

 

 

 

1.1148

 

Dec-15

 

 

 

1.1423

 

Jan-16

 

 

 

1.0981

 

Feb-16

 

 

 

1.1629

 

 

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

 

 

 

 

Nov-15

 

 

 

 

Dec-15

 

 

 

 

Jan-16

 

 

 

 

Feb-16

 

 

 

 

 

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

 

Nov-15

 

 

 

1.1969

 

Dec-15

 

 

 

1.2280

 

Jan-16

 

 

 

 

Feb-16

 

 

 

 

 

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

 

Nov-15

 

 

 

1.0327

 

Dec-15

 

39,000

 

36,820

 

1.0592

 

Jan-16

 

 

 

1.0191

 

Feb-16

 

 

 

1.0802

 

 

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

 

Nov-15

 

 

 

0.9532

 

Dec-15

 

 

 

0.9777

 

Jan-16

 

 

 

0.9407

 

Feb-16

 

 

 

0.9971

 

 


(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

 

22



 

MLPF&S up to 2.5% of an investor’s gross subscription amount. Sales commissions are directly deducted from subscription amounts. Class C Units, Class DS Units, Class DT Units and Class M Units are not subject to upfront sales commissions.

 

Item 5(b)

 

Not applicable.

 

Item 5(c)

 

Not applicable.

 

Item 6:   Selected Financial Data

 

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

 

Statements of Operations

 

For the year
ended
December 31,
2015

 

For the year
ended
December 31,
2014

 

For the year
ended
December 31,
2013

 

For the year
ended
December 31,
2012

 

For the year
ended
December 31,
2011

 

 

 

 

 

 

 

 

 

 

 

 

 

Trading profit (loss), net:

 

 

 

 

 

 

 

 

 

 

 

Realized, net

 

$

8,955,359

 

$

11,851,426

 

$

(11,727,253

)

$

7,099,428

 

$

6,885,962

 

Change in unrealized, net

 

(2,453,551

)

(1,786,161

)

383,129

 

(3,439,687

)

(2,990,881

)

Brokerage commissions

 

(366,457

)

(530,630

)

(815,030

)

(886,130

)

(940,971

)

Total trading profit (loss), net

 

6,135,351

 

9,534,635

 

(12,159,154

)

2,773,611

 

2,954,110

 

 

 

 

 

 

 

 

 

 

 

 

 

INVESTMENT INCOME (EXPENSE):

 

 

 

 

 

 

 

 

 

 

 

Interest, net

 

2,004

 

3,304

 

2,577

 

(8,831

)

10,526

 

 

 

 

 

 

 

 

 

 

 

 

 

EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

Management fee

 

896,970

 

1,770,108

 

2,951,301

 

4,156,778

 

4,986,858

 

Performance fee

 

612,282

 

 

49,399

 

102,552

 

667

 

Sponsor fees

 

772,655

 

882,045

 

937,658

 

729,287

 

797,628

 

Other

 

552,393

 

531,241

 

475,775

 

555,699

 

593,820

 

Total Expenses

 

2,834,300

 

3,183,394

 

4,414,133

 

5,544,316

 

6,378,973

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INVESTMENT INCOME (LOSS)

 

(2,832,296

)

(3,180,090

)

(4,411,556

)

(5,553,147

)

(6,368,447

)

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS)

 

$

3,303,055

 

$

6,354,545

 

$

(16,570,710

)

$

(2,779,536

)

$

(3,414,337

)

 

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet Data

 

December 31,
2015

 

December 31, 
2014

 

December 31,
2013

 

December 31,
2012

 

December 31,
2011

 

 

 

 

 

 

 

 

 

 

 

 

 

Members’ Capital

 

$

33,879,085

 

$

86,519,327

 

$

113,835,996

 

$

170,304,436

 

$

255,706,929

 

Net Asset Value per Series A Unit

 

1.0657

 

1.0634

 

0.9896

 

1.1196

 

1.1479

 

Net Asset Value per Series C Unit

 

1.0011

 

1.0089

 

0.9485

 

1.0838

 

1.1223

 

Net Asset Value per Series D Unit**

 

0.9407

 

 

 

1.1740

 

1.1857

 

Net Asset Value per Series I Unit

 

1.0981

 

1.0914

 

1.0117

 

1.1399

 

1.1641

 

Net Asset Value per Series DS Unit*

 

 

1.3536

 

1.2410

 

1.3830

 

1.3968

 

Net Asset Value per Series DT Unit***

 

 

1.1571

 

1.0503

 

1.1598

 

1.1614

 

Net Asset Value per Series M Unit****

 

1.0191

 

1.0018

 

0.9184

 

1.0235

 

 

 


*Units fully redeemed as of April 30, 2015.

**Units reissued May 1, 2015.

***Units fully redeemed as of December 31, 2015.

****Units issued on December 1, 2012.

 

23



 

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.

 

NET ASSET VALUE PER UNIT CLASS A

 

 

 

Jan. 

 

Feb.

 

Mar.

 

Apr.

 

May

 

Jun.

 

Jul.

 

Aug.

 

Sep.

 

Oct.

 

Nov.

 

Dec.

 

2011

 

$

1.1843

 

$

1.2257

 

$

1.2100

 

$

1.2738

 

$

1.2297

 

$

1.1858

 

$

1.2197

 

$

1.1897

 

$

1.1893

 

$

1.1116

 

$

1.1277

 

$

1.1479

 

2012

 

$

1.1585

 

$

1.1711

 

$

1.1262

 

$

1.1600

 

$

1.1557

 

$

1.0951

 

$

1.1603

 

$

1.1581

 

$

1.1546

 

$

1.0966

 

$

1.1077

 

$

1.1196

 

2013

 

$

1.1592

 

$

1.1422

 

$

1.1650

 

$

1.1837

 

$

1.1087

 

$

1.0140

 

$

1.0030

 

$

0.9942

 

$

0.9889

 

$

1.0201

 

$

1.0268

 

$

0.9896

 

2014

 

$

0.9493

 

$

0.9696

 

$

0.9398

 

$

0.9455

 

$

1.0023

 

$

1.0252

 

$

0.9999

 

$

1.0480

 

$

1.0191

 

$

1.0319

 

$

1.0739

 

$

1.0634

 

2015

 

$

1.1375

 

$

1.1463

 

$

1.1657

 

$

1.1442

 

$

1.1245

 

$

1.0329

 

$

1.0892

 

$

1.0912

 

$

1.0994

 

$

1.0825

 

$

1.1089

 

$

1.0657

 

 

NET ASSET VALUE PER UNIT CLASS C

 

 

 

Jan. 

 

Feb.

 

Mar.

 

Apr.

 

May

 

Jun.

 

Jul.

 

Aug.

 

Sep.

 

Oct.

 

Nov.

 

Dec.

 

2011

 

$

1.1687

 

$

1.2085

 

$

1.1920

 

$

1.2538

 

$

1.2095

 

$

1.1652

 

$

1.1976

 

$

1.1671

 

$

1.1658

 

$

1.0887

 

$

1.1035

 

$

1.1223

 

2012

 

$

1.1318

 

$

1.1431

 

$

1.0984

 

$

1.1304

 

$

1.1253

 

$

1.0655

 

$

1.1279

 

$

1.1248

 

$

1.1205

 

$

1.0633

 

$

1.0732

 

$

1.0838

 

2013

 

$

1.1212

 

$

1.1038

 

$

1.1249

 

$

1.1421

 

$

1.0687

 

$

0.9767

 

$

0.9653

 

$

0.9560

 

$

0.9502

 

$

0.9793

 

$

0.9849

 

$

0.9485

 

2014

 

$

0.9091

 

$

0.9277

 

$

0.8984

 

$

0.9031

 

$

0.9565

 

$

0.9776

 

$

0.9527

 

$

0.9977

 

$

0.9694

 

$

0.9807

 

$

1.0198

 

$

1.0089

 

2015

 

$

1.0783

 

$

1.0858

 

$

1.1033

 

$

1.0821

 

$

1.0625

 

$

0.9752

 

$

1.0274

 

$

1.0285

 

$

1.0354

 

$

1.0186

 

$

1.0426

 

$

1.0011

 

 

NET ASSET VALUE PER UNIT CLASS D

 

 

 

Jan. 

 

Feb.

 

Mar.

 

Apr.

 

May

 

Jun.

 

Jul.

 

Aug.

 

Sep.

 

Oct.

 

Nov.

 

Dec.

 

2010

 

$

1.0366

 

$

1.0722

 

$

1.1347

 

$

1.1661

 

$

1.0864

 

$

1.0895

 

$

1.0938

 

$

1.0910

 

$

1.1306

 

$

1.1666

 

$

1.1310

 

$

1.1993

 

2011

 

$

1.2067

 

$

1.2504

 

$

1.2359

 

$

1.3027

 

$

1.2592

 

$

1.2157

 

$

1.2521

 

$

1.2228

 

$

1.2239

 

$

1.1454

 

$

1.1634

 

$

1.1857

 

2012

 

$

1.1982

 

$

1.2127

 

$

1.1677

 

$

1.2042

 

$

1.2013

 

$

1.1398

 

$

1.2091

 

$

1.2083

 

$

1.2062

 

$

1.1470

 

$

1.1601

 

$

1.1740

 

2013

 

$

1.2170

 

$

1.2007

 

$

1.2262

 

$

1.2475

 

$

1.1698

 

$

1.0713

 

$

1.0610

 

$

1.0530

 

$

1.0487

 

$

1.0831

 

$

1.0916

 

n/a

 

2015

 

n/a

 

n/a

 

n/a

 

n/a

 

$

0.9840

 

$

0.9050

 

$

0.9555

 

$

0.9584

 

$

0.9669

 

$

0.9532

 

$

0.9777

 

$

0.9407

 

 

NET ASSET VALUE PER INITIAL UNIT CLASS I

 

 

 

Jan. 

 

Feb.

 

Mar.

 

Apr.

 

May

 

Jun.

 

Jul.

 

Aug.

 

Sep.

 

Oct.

 

Nov.

 

Dec.

 

2011

 

$

1.1967

 

$

1.2389

 

$

1.2234

 

$

1.2883

 

$

1.2442

 

$

1.2001

 

$

1.2349

 

$

1.2049

 

$

1.2049

 

$

1.1266

 

$

1.1432

 

$

1.1641

 

2012

 

$

1.1752

 

$

1.1884

 

$

1.1432

 

$

1.1779

 

$

1.1739

 

$

1.1128

 

$

1.1794

 

$

1.1775

 

$

1.1744

 

$

1.1158

 

$

1.1275

 

$

1.1399

 

2013

 

$

1.1807

 

$

1.1637

 

$

1.1874

 

$

1.2068

 

$

1.1307

 

$

1.0345

 

$

1.0237

 

$

1.0150

 

$

1.0099

 

$

1.0421

 

$

1.0493

 

$

1.0117

 

2014

 

$

0.9708

 

$

0.9919

 

$

0.9617

 

$

0.9678

 

$

1.0263

 

$

1.0501

 

$

1.0246

 

$

1.0742

 

$

1.0449

 

$

1.0583

 

$

1.1018

 

$

1.0914

 

2015

 

$

1.1678

 

$

1.1773

 

$

1.1976

 

$

1.1759

 

$

1.1560

 

$

1.0623

 

$

1.1205

 

$

1.1229

 

$

1.1318

 

$

1.1148

 

$

1.1423

 

$

1.0981

 

 

NET ASSET VALUE PER UNIT CLASS DS

 

 

 

Jan. 

 

Feb.

 

Mar.

 

Apr.

 

May

 

Jun.

 

Jul.

 

Aug.

 

Sep.

 

Oct.

 

Nov.

 

Dec.

 

2011

 

$

1.4216

 

$

1.4731

 

$

1.4560

 

$

1.5347

 

$

1.4834

 

$

1.4322

 

$

1.4750

 

$

1.4405

 

$

1.4419

 

$

1.3494

 

$

1.3706

 

$

1.3968

 

2012

 

$

1.4115

 

$

1.4287

 

$

1.3756

 

$

1.4187

 

$

1.4152

 

$

1.3427

 

$

1.4244

 

$

1.4234

 

$

1.4210

 

$

1.3513

 

$

1.3667

 

$

1.3830

 

2013

 

$

1.4338

 

$

1.4145

 

$

1.4446

 

$

1.4696

 

$

1.3781

 

$

1.2621

 

$

1.2500

 

$

1.2406

 

$

1.2355

 

$

1.2760

 

$

1.2860

 

$

1.2410

 

2014

 

$

1.1920

 

$

1.2189

 

$

1.1830

 

$

1.1915

 

$

1.2647

 

$

1.2953

 

$

1.2649

 

$

1.3275

 

$

1.2924

 

$

1.3103

 

$

1.3653

 

$

1.3536

 

2015

 

$

1.4497

 

$

1.4628

 

$

1.4895

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

 

NET ASSET VALUE PER UNIT CLASS DT

 

 

 

Jan. 

 

Feb.

 

Mar.

 

Apr.

 

May

 

Jun.

 

Jul.

 

Aug.

 

Sep.

 

Oct.

 

Nov.

 

Dec.

 

2011

 

$

1.1730

 

$

1.2163

 

$

1.2029

 

$

1.2688

 

$

1.2272

 

$

1.1855

 

$

1.2217

 

$

1.1939

 

$

1.1958

 

$

1.1200

 

$

1.1386

 

$

1.1614

 

2012

 

$

1.1743

 

$

1.1893

 

$

1.1461

 

$

1.1827

 

$

1.1805

 

$

1.1210

 

$

1.1900

 

$

1.1899

 

$

1.1886

 

$

1.1313

 

$

1.1451

 

$

1.1598

 

2013

 

$

1.2031

 

$

1.1876

 

$

1.2136

 

$

1.2355

 

$

1.1595

 

$

1.0628

 

$

1.0535

 

$

1.0464

 

$

1.0430