Attached files
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EX-13.01 - EX-13.01 - ML Winton FuturesAccess LLC | a17-1098_1ex13d01.htm |
EX-32.02 - EX-32.02 - ML Winton FuturesAccess LLC | a17-1098_1ex32d02.htm |
EX-32.01 - EX-32.01 - ML Winton FuturesAccess LLC | a17-1098_1ex32d01.htm |
EX-31.02 - EX-31.02 - ML Winton FuturesAccess LLC | a17-1098_1ex31d02.htm |
EX-31.01 - EX-31.01 - ML Winton FuturesAccess LLC | a17-1098_1ex31d01.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, 2016
or
o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission file number: 0-51084
ML WINTON FUTURESACCESS LLC
(Exact name of registrant as specified in its charter)
Delaware |
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20-1227904 |
(State or other jurisdiction of |
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(I.R.S. Employer |
incorporation or organization) |
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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
(Registrants 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 registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer o |
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Accelerated filer o |
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Non-accelerated filer x |
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Smaller reporting company o |
(Do not check if a smaller reporting company) |
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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 registrants outstanding equity that is readily determinable.
As of February 28, 2017 Units of limited liability company interest with an aggregate Net Asset Value of $824,812,611 were outstanding and held by non-affiliates.
Documents Incorporated by Reference
The registrants 2016 Annual Report and Report of Independent Registered Public Accounting Firm, the annual report to security holders for the year ended December 31, 2016, 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 WINTON FUTURESACCESS LLC
ANNUAL REPORT FOR 2016 ON FORM 10-K
Table of Contents
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PAGE |
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PART I |
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Item 1. |
Business |
1 |
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Item 1A. |
Risk Factors |
10 |
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Item 1B. |
Unresolved Staff Comments |
24 |
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Item 2. |
Properties |
24 |
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Item 3. |
Legal Proceedings |
24 |
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Item 4. |
Mine Safety Disclosures |
24 |
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PART II |
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Item 5. |
Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
24 |
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Item 6. |
Selected Financial Data |
28 |
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Item 7. |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
31 |
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Item 7A. |
Quantitative and Qualitative Disclosures About Market Risk |
40 |
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Item 8. |
Financial Statements and Supplementary Data |
44 |
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Item 9. |
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure |
44 |
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Item 9A. |
Controls and Procedures |
44 |
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Item 9B. |
Other Information |
45 |
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PART III |
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Item 10. |
Directors, Executive Officers and Corporate Governance |
45 |
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Item 11. |
Executive Compensation |
48 |
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Item 12. |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
48 |
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Item 13. |
Certain Relationships and Related Transactions and Director Independence |
48 |
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Item 14. |
Principal Accounting Fees and Services |
48 |
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PART IV |
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Item 15. |
Exhibits, Financial Statement Schedules |
49 |
PART I
Item 1: Business
(a) General Development of Business:
ML Winton 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 May 17, 2004 and commenced trading activities on February 1, 2005. The Fund engages in the speculative trading of futures and forward contracts on a wide range of commodities. Winton Capital Management Limited (the Trading Advisor) is the trading advisor of the Fund. The Trading Advisor trades the Winton Futures Program (the Trading Program) for the Fund.
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 Program employs what is traditionally known as a systematic approach to trading financial instruments. In this context, the term systematic implies that the vast majority of the trading systems are executed, without discretion, either electronically or by a team responsible for the placement of orders, based on the instructions generated by a computer-based system, see Trading Advisors Trading Program, below. The Trading Advisor is registered under the Investment Advisers Act of 1940, as amended (the Advisers Act).
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, the fifteenth calendar day of each month and as of any other dates MLAI may determine in its discretion (each, a Calculation Date). The Funds Net Asset Value as of any Calculation Date generally equals the value of the Funds 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.
As of December 31, 2016, the Net Asset Value of the Fund was $886,903,211 and the Net Asset Value per Unit was $1.8617 for Class A, $1.6543 for Class C, $2.0509 for Class D, $1.9373 for Class I, $0.9629 for Class DI, $1.1524 for Class M, $1.1531 for Class F and $1.1816 for Class F1.
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 Funds Limited Liability Company Operating Agreement allows MLAI to depart from U.S. GAAP in calculating the Funds 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 Funds 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 Funds Net Asset Value for purposes of subscriptions and redemptions, calculation of fees and other non-financial statement purposes, the Funds audited financial statements will continue to be determined in accordance with U.S. GAAP.
(b) Financial Information about Segments:
The Funds 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 have entered into an Advisory Agreement with the Trading Advisor. The Advisory Agreement will continue in effect until December 31, 2017. Thereafter, the Advisory Agreement will be automatically renewed for successive three-year periods, on the same terms, unless terminated at any time by either the Trading Advisor or the Fund upon 90 days written notice to the other party. The Advisory Agreement may, however, be terminated at any time by the Fund and/or MLAI, on the one hand, or the Trading Advisor, on the other, as a result of a material breach of the Advisory Agreement by the other party, after due notice and a reasonable opportunity to cure. The Advisory Agreement will also terminate immediately if the Fund is terminated and dissolved as determined by MLAI.
Trading Advisors Trading Program
The Trading Advisor follows a disciplined investment process that is based on statistical analysis of past data. The initial stage of the process involves collecting, cleaning and organizing large amounts of data. The Trading Advisor uses a wide variety of data inputs including factors that are intrinsic to markets, such as price, volume and open interest and those that are external to markets, such as economic statistics, industrial and commodity data and public company financial data. The Trading Advisor conducts statistical research into the data in an attempt to quantify the probability of particular markets rising or falling, conditional on a variety of quantifiable factors. The Trading Advisors research is used to develop mathematical models that attempt to forecast market returns, the variability or volatility associated with such returns (often described as risk), correlation between markets and transaction costs. These forecasts are used in investment strategies that determine what positions should be held to maximize profit within a certain range of risk.
The Trading Advisors investment strategies are operated as an automated, computer-based system. This investment system is modified over time as the Trading Advisor monitors its operation and undertakes further research. Changes to the system occur as a result of, among other things, the discovery of new relationships, changes in market liquidity, the availability of new data or the reinterpretation of existing data.
Although the Trading Advisors Trading Program is continually evolving, there were no fundamental or material changes to the Trading Program during the 2016 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 Funds cash is used as security for and to pay the Funds trading losses, offset by trading gains, 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 Funds assets are also generally available for cash management, as described below under Cash Management and Interest.
Markets
The Fund trades on a variety of United States and foreign futures exchanges as well as OTC. The Funds 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.
CONDENSED SCHEDULES OF INVESTMENTS
The Funds investments, defined as unrealized profit (loss) on open contracts on the Statements of Financial Condition, as of December 31, 2016 and 2015, are as follows:
December 31, 2016
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Long Positions |
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Short Positions |
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Net Unrealized |
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Commodity Industry |
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Number of |
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Unrealized |
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Percent of |
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Number of |
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Unrealized |
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Percent of |
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Profit (Loss) |
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Percent of |
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Sector |
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Contracts/Notional* |
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Profit (Loss) |
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Members Capital |
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Contracts/Notional* |
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Profit (Loss) |
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Members Capital |
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on Open Positions |
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Members Capital |
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Maturity Dates |
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Agriculture |
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1,343 |
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$ |
(829,500 |
) |
-0.09 |
% |
(2,577 |
) |
$ |
3,088,279 |
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0.35 |
% |
$ |
2,258,779 |
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0.26 |
% |
January 2017 - May 2017 |
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Currencies - Futures |
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0.00 |
% |
(4,246 |
) |
4,263,986 |
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0.48 |
% |
4,263,986 |
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0.48 |
% |
March 2017 |
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Currencies - Forwards* |
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375,072,969 |
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2,624,303 |
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0.30 |
% |
(228,896,545 |
) |
(1,483,334 |
) |
-0.17 |
% |
1,140,969 |
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0.13 |
% |
January 2017 - March 2017 |
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Energy |
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545 |
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587,351 |
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0.07 |
% |
(210 |
) |
(425,312 |
) |
-0.05 |
% |
162,039 |
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0.02 |
% |
January 2017 - March 2017 |
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Interest rates |
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3,943 |
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924,684 |
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0.10 |
% |
(7,799 |
) |
891,077 |
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0.10 |
% |
1,815,761 |
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0.20 |
% |
March 2017 - December 2019 |
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Metals |
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1,245 |
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(1,075,952 |
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-0.12 |
% |
(1,533 |
) |
(490,328 |
) |
-0.06 |
% |
(1,566,280 |
) |
-0.18 |
% |
January 2017 - April 2017 |
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Stock indices |
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7,991 |
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2,944,929 |
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0.33 |
% |
(283 |
) |
(45,935 |
) |
-0.01 |
% |
2,898,994 |
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0.32 |
% |
January 2017 - March 2017 |
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Total |
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$ |
5,175,815 |
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0.59 |
% |
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$ |
5,798,433 |
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0.64 |
% |
$ |
10,974,248 |
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1.23 |
% |
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December 31, 2015
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Long Positions |
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Short Positions |
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Commodity Industry |
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Number of |
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Unrealized |
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Percent of |
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Number of |
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Unrealized |
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Percent of |
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Profit (Loss) |
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Percent of |
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Sector |
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Contracts/Notional* |
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Profit (Loss) |
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Members Capital |
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Contracts/Notional* |
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Profit (Loss) |
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Members Capital |
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on Open Positions |
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Members Capital |
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Maturity Dates |
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Agriculture |
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459 |
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$ |
51,979 |
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0.01 |
% |
(3,851 |
) |
$ |
1,311,309 |
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0.13 |
% |
$ |
1,363,288 |
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0.14 |
% |
January 2016 - May 2016 |
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Currencies - Futures |
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574 |
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34,405 |
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0.00 |
% |
(5,108 |
) |
4,418,923 |
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0.43 |
% |
4,453,328 |
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0.43 |
% |
March 2016 |
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Currencies - Forwards* |
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461,839,319 |
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(4,714,657 |
) |
-0.46 |
% |
(273,519,553 |
) |
2,785,952 |
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0.27 |
% |
(1,928,705 |
) |
-0.19 |
% |
January 2016 - June 2016 |
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Energy |
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0.00 |
% |
(2,601 |
) |
1,389,060 |
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0.14 |
% |
1,389,060 |
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0.14 |
% |
January 2016 - May 2016 |
| |||
Interest rates |
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22,577 |
|
(4,080,903 |
) |
-0.40 |
% |
(762 |
) |
(35,806 |
) |
0.00 |
% |
(4,116,709 |
) |
-0.40 |
% |
March 2016 - December 2018 |
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Metals |
|
327 |
|
85,008 |
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0.01 |
% |
(2,272 |
) |
3,637,773 |
|
0.35 |
% |
3,722,781 |
|
0.36 |
% |
January 2016 - April 2016 |
| |||
Stock indices |
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2,952 |
|
1,203,351 |
|
0.12 |
% |
(1,922 |
) |
(595,695 |
) |
-0.06 |
% |
607,656 |
|
0.06 |
% |
January 2016 - March 2016 |
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Total |
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|
|
$ |
(7,420,817 |
) |
-0.72 |
% |
|
|
$ |
12,911,516 |
|
1.26 |
% |
$ |
5,490,699 |
|
0.54 |
% |
|
|
*Currencies-Forwards present notional amounts as converted to USD.
No individual contracts unrealized profit or loss comprised greater than 5% of Members Capital as of December 31, 2016 and December 31, 2015. 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.
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 traders initial margin payment to the FCM and the FCMs 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 forwards, swaps 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 Funds 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 Funds 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, 2016 the Fund employed $74,264,524 and $13,483,028 as initial margin to support futures and forward positions, respectively, representing approximately 8.09% and 1.47%, respectively, of the Funds total assets as of such date.
Custody of Assets
The Funds 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 Funds financial assets, if any are traded at all.
Futures and OTC forwards and other instruments typically constitute a predominant amount of the Funds investment risk, but the notional value of these instruments is not included on the Funds balance sheet.
The vast majority of the net assets of the Fund is, and has historically been, held in the form of cash. The Funds 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 Funds custodian or other banking institutions, both in the United States and internationally; 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 Funds assets are held in segregated or secured accounts with MLPF&S. In general, approximately 10% to 30% of the Funds assets are expected to be required as margin or collateral at any one time. Approximately 90% of the Funds 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.
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 Funds 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 Funds assets, including as prime brokers. However, the vast majority of the Funds 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 MLAIs 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 entitys own account.
Cash Management and Interest
MLAI is primarily responsible for the placement of the Funds cash assets with MLPF&S or other brokers. In exercising this responsibility, MLAIs primary considerations are safety of assets, seeking interest income, and the services provided by custodians. A vast majority of the Funds cash has historically been held in futures brokerage accounts with affiliates. To a smaller degree, the Funds cash assets may be held with the Funds 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 Funds cash assets to the Funds 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 Funds 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%, except for currencies designated by MLPF&S as negative interest rate currencies (discussed below). 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 Funds account and is posted to the Funds account on a monthly basis.
At present, due to the low interest rate environment that has prevailed in the U.S. since 2008, MLAI may seek to transfer cash from affiliates if it believes that any interest earned on this cash was consistent with its goal of safely maintaining these assets and otherwise would offset the advantages of maintaining cash with its affiliates.
MLPF&S deposits certain of the Funds assets as margin or collateral with clearinghouses and/or depositories. As a result of the present low interest rate environment, these clearinghouses and depositories charge MLPF&S fees to account for the negative interest rates on cash balances for certain currencies, which may change from time to time at the discretion of MLPF&S and without prior notice to the Fund. Accordingly, MLPF&S charges the Fund a negative interest rate fee for any currencies designated by MLPF&S as a negative interest rate currency. The negative interest rate fee is based on the relevant currencys benchmark index less a certain number of basis points, depending on the currency and based on the current market conditions, including but not limited to negative interest rates charged by clearinghouses and other depositories. The negative interest rate fee constitutes compensation to MLPF&S, although in some cases the fee may be used to offset MLPF&S own costs incurred in connection with maintaining cash at clearinghouses or depositories. The negative interest rate fee is subject to change from time to time at the discretion of MLPF&S and without prior notice to the Fund. The negative interest rate fee is computed by MLPF&S on the daily net cash and open trade equity in the Funds account at MLPF&S and charged 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.
Charges
The following table summarizes the charges incurred by the Fund for the years ended December 31, 2016, 2015 and 2014.
|
|
2016 |
|
2015 |
|
2014 |
| |||||||||
Charges |
|
Dollar |
|
% of Average |
|
Dollar |
|
% of Average |
|
Dollar |
|
% of Average |
| |||
Other expenses |
|
$ |
2,301,140 |
|
0.24 |
% |
$ |
2,538,930 |
|
0.24 |
% |
$ |
1,939,953 |
|
0.21 |
% |
Sponsor fee |
|
13,562,259 |
|
1.40 |
% |
14,477,352 |
|
1.37 |
% |
13,968,592 |
|
1.48 |
% | |||
Management fee |
|
18,609,590 |
|
1.92 |
% |
20,409,088 |
|
1.93 |
% |
18,246,934 |
|
1.94 |
% | |||
Performance fee |
|
8,312 |
|
0.00 |
% |
11,590,474 |
|
1.10 |
% |
29,738,237 |
|
3.16 |
% | |||
Total |
|
$ |
34,481,301 |
|
3.56 |
% |
$ |
49,015,844 |
|
4.64 |
% |
$ |
63,893,716 |
|
6.79 |
% |
The foregoing table does not reflect: (i) the bid-ask spreads paid by the Fund on its forward trading, (ii) brokerage commissions, (iii) the benefits which may be derived by BofA Corp from the deposit of certain of the Funds U.S. dollar assets maintained at MLPF&S, or (iv) sales commissions payable in connection with the sales of Class A, Class D, Class I Units, Class F Units and Class G 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 Funds 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 investors subscription proceeds and therefore reduce the amount invested in the Fund by the investor.
The Funds average period-end Net Asset Values during 2016, 2015, and 2014 equaled $969,936,827, $1,055,898,502 and $942,137,762, respectively.
During 2016, the interest income for the Fund was $1,848,204 or approximately 0.19% of the Funds average period-end Net Asset Values. During 2015, the interest income for the Fund was $38,457, or approximately 0.00% of the Funds average period-end Net Asset Values. During 2014, the interest expense for the Fund was $492,913, or approximately 0.05% of the Funds average period-end Net Asset Values.
Description of Current Charges
Recipient |
|
Nature of Payment |
|
Amount of Payment |
MLPF&S |
|
Brokerage commissions |
|
During 2016, 2015 and 2014, the average round-turn (each purchase and sale or sale and purchase of a single futures contract) rate of the Funds brokerage commissions was approximately $3.73, $3.64 and $4.08, respectively. |
|
|
|
|
|
MLPF&S |
|
Use of assets |
|
BofA Corp. may derive an economic benefit from the deposit of certain of the Funds U.S. dollar assets in accounts maintained at MLPF&S. |
|
|
|
|
|
MLAI |
|
Sponsor fees |
|
The Fund charges Sponsor fees on the period-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, Class DI Units, Class F Units, Class F1 Units, Class G 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 were subject to upfront sales commissions paid to MLPF&S ranging from 1.0% to 2.5% of an investors gross subscription amount. Effective as of February 1, 2017, the upfront sales commission range applicable to Class A Units changed to between 0% and 2.5%. Class D Units and Class I Units are subject to upfront sales commissions up to 2.5% of an investors gross subscription amount. Class F Units and Class G Units are subject to upfront sales commissions paid to MLPF&S up to 0.5% of an investors gross subscription amount. Sales commissions are deducted from subscription amounts. Class C Units, Class DI Units, Class F1 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 |
|
Bidask spreads |
|
Bidask 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 Funds 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 Funds cash currency positions for equivalent futures positions. |
|
|
|
|
|
Trading Advisor |
|
Performance fees |
|
The Fund pays a 20% quarterly performance fee to the Trading Advisor with respect to all Classes of Units. The performance fee is calculated and paid to the Trading Advisor as of the end of each calendar quarter. 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 Groups highest Net Asset Value as of any previous calendar quarter end 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 period-end Net Asset Value of the Fund (prior to reduction for the management fees being calculated and any accrued performance fees or Sponsor fees). The management fee rate is 2% per year for Class A Units, Class C Units, Class I Units, Class D Units, Class DI Units and Class M Units. The management fee rate is 1.25% per year for Class G Units. The management fee rate is 1% per year for Class F Units and Class F1 Units. The Trading Advisor has agreed to share with MLAI: (i) 50% of the management fee with respect to Class A Units, Class C Units, Class D Units, Class I Units, Class DI Units and Class M Units; (ii) 30% of the management fee with respect to Class F Units and Class F1 Units; and (iii) 36% of the management fee with respect to Class G Units. The Trading Advisor has agreed to share the management fees with MLAI in order to defray costs in connection with and in consideration of BofA Corp. providing certain operational support for the Fund. |
|
|
|
|
|
Others |
|
Operating expenses of the Fund including audit, legal and tax services |
|
The Fund bears all of the aggregated operating costs of both the Fund and WNTN FuturesAccess Ltd. (the Offshore Fund), which are allocated pro rata among the Classes of Units, including Class DI Units. The Offshore Fund holds all of the outstanding Class DI Units. |
MLAI |
|
Ongoing offering costs reimbursed |
|
Actual costs incurred. |
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 FactorsF/X Forward Trading and Regulatory Changes Could Restrict the Funds Operations.
Other than in respect of the registration requirements pertaining to the Funds 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 Advisers Act. 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 Funds 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.
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 Advisors 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. 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 Advisors 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 Advisors 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.
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 deliverable and non-deliverable F/X forward contracts. Prospective investors must recognize that deliverable F/X forward trading generally does not take place on futures exchanges or swap execution facilities, and is not standardized; rather, banks and dealers act as principals in these markets, negotiating each transaction on an individual basis (including many deliverable forwards where the parties do not take delivery). 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, certain non-deliverable F/X forwards are voluntarily traded on swap execution facilities and cleared through regulated clearing houses. See Regulatory Changes Could Restrict the Funds Operations in this section below. The responsibility for performing under a non-cleared 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 deliverable 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 counterpartys 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 Funds net assets and certain key person events. Any premature termination of the Funds 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.
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 Funds 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 Funds 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.
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 type of 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 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 investors 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 investors 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 Advisors principals. The loss of any one of these principals 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 Funds 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.
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 Funds portfolio and the Trading Advisors 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 CFTCs 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 CFTCs 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 Funds 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.
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 Funds 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 Funds 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.
MLAIs 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, MLAI may have limited ability to assess the extent to which the Trading Advisor maintains the Funds assets in unregulated accounts subject to the bankruptcy of the counterparties holding such assets.
The following paragraphs discuss the various uses of the Funds assets and the risks of loss in addition to losses from trading associated with each use.
Margin for Commodities Trading. Although MLAI believes that MLPF&S is appropriately capitalized to function as the Funds 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&Ss bankruptcy and are expected to be reserved for distribution to customers of MLPF&S. If MLPF&S did not 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&Ss 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&Ss other customers. If MLPF&S becomes insolvent, only a pro rata share of all property available for distribution to all of MLPF&Ss 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 Funds account at MLPF&S would be considered a proprietary account under CFTC regulations and the Funds 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 Funds 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&Ss 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 Funds 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 entitys insolvency the Fund could be a general creditor of the entity even with regard to property specifically traceable to the Funds account. As a result, the Funds 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 customers 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 FDICs 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 CFTCs 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.
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 Funds 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 deliverable 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 Funds 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 MLAI indirectly due to the impact of the requirements on the Funds 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 exchange or swap exchange 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 facilitiesand especially if it decides to become a direct member of one or more of these exchanges or execution facilitiesthe 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 exchanges or execution facilitys 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 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-Franks 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 Funds 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 Funds investment sector.
On August 16, 2012, the European Market Infrastructure Regulation (EMIR) entered into force. 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 alternative investment fund managers authorized under the Alternative Fund Managers Directive, 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 EMIRs 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 (NFC-s).
Broadly, EMIRs 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 EMIRs 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. Secondary legislation has been published subjecting certain index credit default swaps, along with certain interest rate derivative contracts denominated in EUR, GBP, JPY, USD, NOK, PLN and SEK, to the clearing obligation. Mandatory clearing for these classes of derivatives is now in the process of being phased in by class of counterparty.
The majority of risk mitigation obligations under EMIR (such as the obligation to reconcile portfolios and confirm transactions in a timely fashion) are already in force, while the requirement to exchange collateral will apply from March 1, 2017 for the majority of counterparties (when the obligation to exchange variation margin commences). Exchange of initial margin is subject to a longer phase-in timeline.
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 IIs provisions will only become effective on January 3, 2018. 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 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 Funds 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.
In addition to the changes in the regulation of U.S. markets described above, it is impossible to predict what additional interim or permanent governmental regulations, restrictions or limitations may be imposed, whether in the U.S. or non-U.S. markets, on, for example: (x) the markets in which the Fund invests and the strategies of the Fund; and (y) BofA Corp. Such measures could have a material and adverse effect on the Fund, including expenses that result from increased compliance requirements.
Concerns Regarding the Downgrade of the U.S. Credit Rating, the Sovereign Debt Crisis in Europe and Brexit
On August 5, 2011, Standard & Poors lowered its long term sovereign credit rating on the United States of America from AAA to AA+. This downgrade or future downgrades by Standard & Poors 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 markets anticipation of these impacts could have a material adverse effect on the investments made by the Fund and thereby the Funds financial condition and liquidity. The ultimate impact on global markets and the Funds 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.
On June 23, 2016, the U.K. held an in-or-out referendum on the U.K.s membership of the E.U., the result of which favored the exit of the U.K. from the E.U. (Brexit). The U.K. has the largest financial services sector in the E.U. A process of negotiation will determine the future terms of the U.K.s relationship with the E.U. which could take many forms. In the meantime, the U.K. remains a member of the E.U. The potential impact of Brexit on the Fund is currently unclear. Depending on the terms of Brexit, economic conditions in the U.K., the rest of the E.U. and global markets may be adversely affected by reduced economic growth and volatility. The uncertainty before, during and after the period of negotiation could also have a negative economic impact and increase volatility in the financial markets, particularly (but not exclusively) in the E.U. Such volatility and negative economic impact could, in turn, adversely affect the net asset value, and trading of the Fund. Further items that may be affected by Brexit may include the regulatory environment in which the Trading Advisor or the Fund operates/trades in. It is possible that Brexit will stimulate further calls for referenda and political instability among member states of the E.U. and in the U.K. itself with attendant risks.
Cybersecurity Risk
With the increased use of technologies such as the Internet to conduct business, the Fund is susceptible to operational, information security and related risks. In general, cyber incidents can result from deliberate attacks or unintentional events. Cyber-attacks include, but are not limited to, gaining unauthorized access to digital systems, for example, through hacking or malicious software coding, for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption. Cyber-attacks may also be carried out in a manner that does not require gaining unauthorized access, such as causing denial-of-service attacks on websites, i.e., efforts to make network services unavailable to intended users. Cyber incidents affecting MLAI, the administrator and other service providers (including, but not limited to, the Funds accountants, custodians, transfer agents and financial intermediaries) have the ability to cause disruptions and affect business operations, potentially resulting in financial losses, interference with the Funds ability to value securities or other investments, impediments to trading, the inability of investors to transact business, violations of applicable privacy and other laws, regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, or additional compliance costs. Similar adverse consequences could result from cyber incidents affecting the Trading Program, counterparties with which the Trading Advisor engages in transactions, governmental and other regulatory authorities, exchange and other financial market operators, banks, brokers, dealers, insurance companies and other financial institutions (including financial intermediaries and service providers for investors) and other parties. In addition, substantial costs may be incurred in order to prevent any cyber incidents in the future. While MLAI and the Funds service providers have established business continuity plans in the event of, and risk management systems to prevent, such cyber incidents, there are inherent limitations in such plans and systems including the possibility that certain risks have not been identified. Furthermore, neither MLAI nor the Fund can control the cyber security plans and systems put in place by its service providers or any other third parties whose operations may affect the Fund or its investors. The Fund and investors could be harmed as a result.
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 Funds 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 MLAIs offices.
Item 3: Legal Proceedings
None.
Item 4: Mine Safety Disclosures
Not applicable.
PART II
Item 5: Market for Registrants 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 (i) the 15th calendar day of each month and/or (ii) 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 1st and 16th of every month. MLAI may eliminate investors mid-month redemption right at any time. The Net Asset Value of redeemed Units is determined as of the Redemption Date. Investors will remain exposed to fluctuations in Net Asset Value during the period between submission of their redemption request and the applicable Redemption Date.
(b) Holders:
As of December 31, 2016, there were 7,045 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:
Not applicable.
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(a)(2) of the Securities Act and Rule 506 thereunder. The selling agent of the Units is MLPF&S.
The Funds sales of unregistered securities are as follows for each Class of Units:
CLASS A
|
|
Subscription |
|
|
| ||||
|
|
Amount |
|
Units |
|
NAV (1) |
| ||
1/01/2016 |
|
$ |
405,540 |
|
212,904 |
|
$ |
1.9048 |
|
1/16/2016 |
|
370,250 |
|
186,439 |
|
1.9859 |
| ||
2/01/2016 |
|
610,605 |
|
309,857 |
|
1.9706 |
| ||
2/16/2016 |
|
313,010 |
|
157,276 |
|
1.9902 |
| ||
3/01/2016 |
|
156,475 |
|
78,105 |
|
2.0034 |
| ||
3/16/2016 |
|
625,280 |
|
325,311 |
|
1.9221 |
| ||
4/01/2016 |
|
985,925 |
|
509,311 |
|
1.9358 |
| ||
4/16/2016 |
|
218,705 |
|
112,404 |
|
1.9457 |
| ||
5/01/2016 |
|
349,870 |
|
184,026 |
|
1.9012 |
| ||
5/16/2016 |
|
136,115 |
|
71,572 |
|
1.9018 |
| ||
6/01/2016 |
|
1,045,165 |
|
560,020 |
|
1.8663 |
| ||
6/16/2016 |
|
512,675 |
|
268,501 |
|
1.9094 |
| ||
7/01/2016 |
|
322,140 |
|
164,366 |
|
1.9599 |
| ||
7/16/2016 |
|
141,720 |
|
72,853 |
|
1.9453 |
| ||
8/01/2016 |
|
360,640 |
|
182,890 |
|
1.9719 |
| ||
8/16/2016 |
|
708,580 |
|
359,612 |
|
1.9704 |
| ||
9/01/2016 |
|
468,935 |
|
242,946 |
|
1.9302 |
| ||
9/16/2016 |
|
80,000 |
|
42,218 |
|
1.8949 |
| ||
10/01/2016 |
|
511,605 |
|
266,614 |
|
1.9189 |
| ||
10/16/2016 |
|
566,100 |
|
301,872 |
|
1.8753 |
| ||
11/01/2016 |
|
1,413,285 |
|
757,753 |
|
1.8651 |
| ||
11/16/2016 |
|
1,172,250 |
|
638,237 |
|
1.8367 |
| ||
12/01/2016 |
|
123,475 |
|
67,110 |
|
1.8399 |
| ||
12/16/2016 |
|
291,135 |
|
154,391 |
|
1.8857 |
| ||
01/01/2017 |
|
235,839 |
|
126,680 |
|
1.8617 |
| ||
01/16/2017 |
|
445,500 |
|
239,195 |
|
1.8625 |
| ||
02/01/2017 |
|
98,750 |
|
53,868 |
|
1.8332 |
| ||
CLASS C
|
|
Subscription |
|
|
| ||||
|
|
Amount |
|
Units |
|
NAV (1) |
| ||
1/01/2016 |
|
$ |
1,074,161 |
|
628,348 |
|
$ |
1.7095 |
|
1/16/2016 |
|
489,000 |
|
274,472 |
|
1.7816 |
| ||
2/01/2016 |
|
996,972 |
|
564,154 |
|
1.7672 |
| ||
2/16/2016 |
|
545,000 |
|
305,510 |
|
1.7839 |
| ||
3/01/2016 |
|
1,485,000 |
|
827,298 |
|
1.7950 |
| ||
3/16/2016 |
|
1,229,000 |
|
713,913 |
|
1.7215 |
| ||
4/01/2016 |
|
1,339,343 |
|
772,847 |
|
1.7330 |
| ||
4/16/2016 |
|
448,000 |
|
257,309 |
|
1.7411 |
| ||
5/01/2016 |
|
319,623 |
|
187,947 |
|
1.7006 |
| ||
5/16/2016 |
|
175,000 |
|
102,911 |
|
1.7005 |
| ||
6/01/2016 |
|
614,000 |
|
368,083 |
|
1.6681 |
| ||
6/16/2016 |
|
327,000 |
|
191,699 |
|
1.7058 |
| ||
7/01/2016 |
|
478,000 |
|
273,112 |
|
1.7502 |
| ||
7/16/2016 |
|
336,000 |
|
193,504 |
|
1.7364 |
| ||
8/01/2016 |
|
915,000 |
|
520,034 |
|
1.7595 |
| ||
8/16/2016 |
|
569,000 |
|
323,774 |
|
1.7574 |
| ||
9/01/2016 |
|
227,000 |
|
131,915 |
|
1.7208 |
| ||
9/16/2016 |
|
10,000 |
|
5,921 |
|
1.6887 |
| ||
10/01/2016 |
|
2,117,000 |
|
1,238,446 |
|
1.7094 |
| ||
10/16/2016 |
|
371,000 |
|
222,182 |
|
1.6698 |
| ||
11/01/2016 |
|
317,000 |
|
190,964 |
|
1.6600 |
| ||
11/16/2016 |
|
219,000 |
|
134,019 |
|
1.6341 |
| ||
12/01/2016 |
|
299,000 |
|
182,740 |
|
1.6362 |
| ||
12/16/2016 |
|
302,000 |
|
180,159 |
|
1.6763 |
| ||
01/01/2017 |
|
403,000 |
|
243,608 |
|
1.6543 |
| ||
01/16/2017 |
|
10,000 |
|
6,045 |
|
1.6542 |
| ||
02/01/2017 |
|
294,990 |
|
181,254 |
|
1.6275 |
| ||
CLASS D
|
|
Subscription |
|
|
| ||||
|
|
Amount |
|
Units |
|
NAV (1) |
| ||
1/01/2016 |
|
$ |
|
|
|
|
$ |
2.0671 |
|
1/16/2016 |
|
|
|
|
|
2.1565 |
| ||
2/01/2016 |
|
|
|
|
|
2.1412 |
| ||
2/16/2016 |
|
|
|
|
|
2.1638 |
| ||
3/01/2016 |
|
2,000,000 |
|
917,642 |
|
2.1795 |
| ||
3/16/2016 |
|
|
|
|
|
2.0924 |
| ||
4/01/2016 |
|
|
|
|
|
2.1087 |
| ||
4/16/2016 |
|
|
|
|
|
2.1207 |
| ||
5/01/2016 |
|
|
|
|
|
2.0735 |
| ||
5/16/2016 |
|
|
|
|
|
2.0756 |
| ||
6/01/2016 |
|
850,000 |
|
417,055 |
|
2.0381 |
| ||
6/16/2016 |
|
|
|
|
|
2.0864 |
| ||
7/01/2016 |
|
10,000,000 |
|
4,666,573 |
|
2.1429 |
| ||
7/16/2016 |
|
|
|
|
|
2.1283 |
| ||
8/01/2016 |
|
|
|
|
|
2.1588 |
| ||
8/16/2016 |
|
|
|
|
|
2.1585 |
| ||
9/01/2016 |
|
|
|
|
|
2.1157 |
| ||
9/16/2016 |
|
|
|
|
|
2.0784 |
| ||
10/01/2016 |
|
200,000 |
|
94,967 |
|
2.1060 |
| ||
10/16/2016 |
|
|
|
|
|
2.0594 |
| ||
11/01/2016 |
|
2,575,000 |
|
1,256,404 |
|
2.0495 |
| ||
11/16/2016 |
|
|
|
|
|
2.0196 |
| ||
12/01/2016 |
|
315,000 |
|
155,610 |
|
2.0243 |
| ||
12/16/2016 |
|
|
|
|
|
2.0761 |
| ||
01/01/2017 |
|
|
|
|
|
2.0509 |
| ||
01/16/2017 |
|
40,000 |
|
19,484 |
|
2.0530 |
| ||
02/01/2017 |
|
|
|
|
|
2.0220 |
| ||
CLASS I
|
|
Subscription |
|
|
| ||||
|
|
Amount |
|
Units |
|
NAV (1) |
| ||
1/01/2016 |
|
$ |
802,000 |
|
406,241 |
|
$ |
1.9742 |
|
1/16/2016 |
|
|
|
|
|
2.0585 |
| ||
2/01/2016 |
|
7,817 |
|
3,826 |
|
2.0431 |
| ||
2/16/2016 |
|
25,000 |
|
12,114 |
|
2.0637 |
| ||
3/01/2016 |
|
130,000 |
|
62,569 |
|
2.0777 |
| ||
3/16/2016 |
|
29,000 |
|
14,546 |
|
1.9937 |
| ||
4/01/2016 |
|
505,000 |
|
251,456 |
|
2.0083 |
| ||
4/16/2016 |
|
40,000 |
|
19,813 |
|
2.0189 |
| ||
5/01/2016 |
|
1,010,000 |
|
511,911 |
|
1.9730 |
| ||
5/16/2016 |
|
|
|
|
|
1.9741 |
| ||
6/01/2016 |
|
19,800 |
|
10,219 |
|
1.9375 |
| ||
6/16/2016 |
|
25,000 |
|
12,610 |
|
1.9826 |
| ||
7/01/2016 |
|
|
|
|
|
2.0353 |
| ||
7/16/2016 |
|
1,400,000 |
|
692,898 |
|
2.0205 |
| ||
8/01/2016 |
|
700,000 |
|
341,713 |
|
2.0485 |
| ||
8/16/2016 |
|
620,000 |
|
302,838 |
|
2.0473 |
| ||
9/01/2016 |
|
1,078,000 |
|
537,441 |
|
2.0058 |
| ||
9/16/2016 |
|
|
|
|
|
1.9695 |
| ||
10/01/2016 |
|
335,000 |
|
167,937 |
|
1.9948 |
| ||
10/16/2016 |
|
544,250 |
|
279,130 |
|
1.9498 |
| ||
11/01/2016 |
|
1,251,000 |
|
645,012 |
|
1.9395 |
| ||
11/16/2016 |
|
747,000 |
|
391,038 |
|
1.9103 |
| ||
12/01/2016 |
|
280,000 |
|
146,298 |
|
1.9139 |
| ||
12/16/2016 |
|
11,000 |
|
5,607 |
|
1.9619 |
| ||
01/01/2017 |
|
550,000 |
|
283,900 |
|
1.9373 |
| ||
01/16/2017 |
|
|
|
|
|
1.9384 |
| ||
02/01/2017 |
|
130,000 |
|
68,127 |
|
1.9082 |
| ||
CLASS M
|
|
Subscription |
|
|
| ||||
|
|
Amount |
|
Units |
|
NAV (1) |
| ||
1/01/2016 |
|
$ |
1,241,497 |
|
1,068,874 |
|
$ |
1.1615 |
|
1/16/2016 |
|
97,004 |
|
80,056 |
|
1.2117 |
| ||
2/01/2016 |
|
1,347,192 |
|
1,119,767 |
|
1.2031 |
| ||
2/16/2016 |
|
345,000 |
|
283,764 |
|
1.2158 |
| ||
3/01/2016 |
|
117,000 |
|
95,534 |
|
1.2247 |
| ||
3/16/2016 |
|
2,208,244 |
|
1,878,237 |
|
1.1757 |
| ||
4/01/2016 |
|
1,406,881 |
|
1,187,442 |
|
1.1848 |
| ||
4/16/2016 |
|
486,484 |
|
408,261 |
|
1.1916 |
| ||
5/01/2016 |
|
984,000 |
|
844,563 |
|
1.1651 |
| ||
5/16/2016 |
|
92,000 |
|
78,889 |
|
1.1662 |
| ||
6/01/2016 |
|
1,682,069 |
|
1,468,800 |
|
1.1452 |
| ||
6/16/2016 |
|
95,000 |
|
81,037 |
|
1.1723 |
| ||
7/01/2016 |
|
1,201,514 |
|
997,852 |
|
1.2041 |
| ||
7/16/2016 |
|
883,000 |
|
738,418 |
|
1.1958 |
| ||
8/01/2016 |
|
2,328,686 |
|
1,919,774 |
|
1.2130 |
| ||
8/16/2016 |
|
3,680,421 |
|
3,034,648 |
|
1.2128 |
| ||
9/01/2016 |
|
494,014 |
|
415,558 |
|
1.1888 |
| ||
9/16/2016 |
|
|
|
|
|
1.1678 |
| ||
10/01/2016 |
|
1,658,000 |
|
1,401,048 |
|
1.1834 |
| ||
10/16/2016 |
|
2,342,000 |
|
2,023,850 |
|
1.1572 |
| ||
11/01/2016 |
|
352,275 |
|
305,900 |
|
1.1516 |
| ||
11/16/2016 |
|
854,990 |
|
753,427 |
|
1.1348 |
| ||
12/01/2016 |
|
804,200 |
|
706,989 |
|
1.1375 |
| ||
12/16/2016 |
|
650,230 |
|
557,420 |
|
1.1665 |
| ||
01/01/2017 |
|
1,596,694 |
|
1,385,538 |
|
1.1524 |
| ||
01/16/2017 |
|
100,000 |
|
86,685 |
|
1.1536 |
| ||
02/01/2017 |
|
1,173,000 |
|
1,032,480 |
|
1.1361 |
| ||
CLASS F
|
|
Subscription |
|
|
| ||||
|
|
Amount |
|
Units |
|
NAV (1) |
| ||
1/01/2016 |
|
$ |
|
|
|
|
$ |
1.1508 |
|
1/16/2016 |
|
|
|
|
|
1.2010 |
| ||
2/01/2016 |
|
|
|
|
|
1.1931 |
| ||
2/16/2016 |
|
|
|
|
|
1.2061 |
| ||
3/01/2016 |
|
|
|
|
|
1.2153 |
| ||
3/16/2016 |
|
|
|
|
|
1.1672 |
| ||
4/01/2016 |
|
|
|
|
|
1.1767 |
| ||
4/16/2016 |
|
|
|
|
|
1.1840 |
| ||
5/01/2016 |
|
|
|
|
|
1.1581 |
| ||
5/16/2016 |
|
|
|
|
|
1.1597 |
| ||
6/01/2016 |
|
|
|
|
|
1.1392 |
| ||
6/16/2016 |
|
|
|
|
|
1.1668 |
| ||
7/01/2016 |
|
|
|
|
|
1.1988 |
| ||
7/16/2016 |
|
|
|
|
|
1.1911 |
| ||
8/01/2016 |
|
|
|
|
|
1.2087 |
| ||
8/16/2016 |
|
|
|
|
|
1.2091 |
| ||
9/01/2016 |
|
|
|
|
|
1.1856 |
| ||
9/16/2016 |
|
|
|
|
|
1.1652 |
| ||
10/01/2016 |
|
|
|
|
|
1.1812 |
| ||
10/16/2016 |
|
|
|
|
|
1.1555 |
| ||
11/01/2016 |
|
|
|
|
|
1.1504 |
| ||
11/16/2016 |
|
|
|
|
|
1.1341 |
| ||
12/01/2016 |
|
|
|
|
|
1.1372 |
| ||
12/16/2016 |
|
|
|
|
|
1.1668 |
| ||
01/01/2017 |
|
|
|
|
|
1.1531 |
| ||
01/16/2017 |
|
|
|
|
|
1.1548 |
| ||
02/01/2017 |
|
|
|
|
|
1.1378 |
| ||
CLASS F1
|
|
Subscription |
|
|
| ||||
|
|
Amount |
|
Units |
|
NAV (1) |
| ||
1/01/2016 |
|
$ |
|
|
|
|
$ |
1.1792 |
|
1/16/2016 |
|
|
|
|
|
1.2307 |
| ||
2/01/2016 |
|
|
|
|
|
1.2225 |
| ||
2/16/2016 |
|
|
|
|
|
1.2358 |
| ||
3/01/2016 |
|
|
|
|
|
1.2452 |
| ||
3/16/2016 |
|
|
|
|
|
1.1959 |
| ||
4/01/2016 |
|
|
|
|
|
1.2057 |
| ||
4/16/2016 |
|
|
|
|
|
1.2132 |
| ||
5/01/2016 |
|
|
|
|
|
1.1866 |
| ||
5/16/2016 |
|
|
|
|
|
1.1883 |
| ||
6/01/2016 |
|
|
|
|
|
1.1673 |
| ||
6/16/2016 |
|
|
|
|
|
1.1955 |
| ||
7/01/2016 |
|
|
|
|
|
1.2284 |
| ||
7/16/2016 |
|
|
|
|
|
1.2205 |
| ||
8/01/2016 |
|
|
|
|
|
1.2385 |
| ||
8/16/2016 |
|
|
|
|
|
1.2389 |
| ||
9/01/2016 |
|
|
|
|
|
1.2149 |
| ||
9/16/2016 |
|
|
|
|
|
1.1939 |
| ||
10/01/2016 |
|
|
|
|
|
1.2103 |
| ||
10/16/2016 |
|
|
|
|
|
1.1840 |
| ||
11/01/2016 |
|
|
|
|
|
1.1788 |
| ||
11/16/2016 |
|
|
|
|
|
1.1621 |
| ||
12/01/2016 |
|
|
|
|
|
1.1653 |
| ||
12/16/2016 |
|
|
|
|
|
1.1956 |
| ||
01/01/2017 |
|
|
|
|
|
1.1816 |
| ||
01/16/2017 |
|
|
|
|
|
1.1833 |
| ||
02/01/2017 |
|
|
|
|
|
1.1659 |
| ||
CLASS DI
|
|
Subscription |
|
|
| ||||
|
|
Amount |
|
Units |
|
NAV (1) |
| ||
1/01/2016 |
|
$ |
|
|
|
|
$ |
0.9704 |
|
1/16/2016 |
|
|
|
|
|
1.0124 |
| ||
2/01/2016 |
|
|
|
|
|
1.0052 |
| ||
2/16/2016 |
|
|
|
|
|
1.0158 |
| ||
3/01/2016 |
|
|
|
|
|
1.0232 |
| ||
3/16/2016 |
|
|
|
|
|
0.9823 |
| ||
4/01/2016 |
|
|
|
|
|
0.9899 |
| ||
4/16/2016 |
|
|
|
|
|
0.9956 |
| ||
5/01/2016 |
|
|
|
|
|
0.9735 |
| ||
5/16/2016 |
|
|
|
|
|
0.9744 |
| ||
6/01/2016 |
|
|
|
|
|
0.9568 |
| ||
6/16/2016 |
|
|
|
|
|
0.9795 |
| ||
7/01/2016 |
|
|
|
|
|
1.0060 |
| ||
7/16/2016 |
|
|
|
|
|
0.9992 |
| ||
8/01/2016 |
|
|
|
|
|
1.0135 |
| ||
8/16/2016 |
|
|
|
|
|
1.0133 |
| ||
9/01/2016 |
|
|
|
|
|
0.9933 |
| ||
9/16/2016 |
|
|
|
|
|
0.9757 |
| ||
10/01/2016 |
|
|
|
|
|
0.9887 |
| ||
10/16/2016 |
|
|
|
|
|
0.9668 |
| ||
11/01/2016 |
|
|
|
|
|
0.9622 |
| ||
11/16/2016 |
|
|
|
|
|
0.9481 |
| ||
12/01/2016 |
|
|
|
|
|
0.9504 |
| ||
12/16/2016 |
|
|
|
|
|
0.9747 |
| ||
01/01/2017 |
|
|
|
|
|
0.9629 |
| ||
01/16/2017 |
|
|
|
|
|
0.9638 |
| ||
02/01/2017 |
|
|
|
|
|
0.9493 |
| ||
(1) Beginning of the period 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 investors 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 investors gross subscription amount. Class F Units and Class G Units are subject to upfront sales commissions paid to MLPF&S up to 0.5% of an investors gross subscription amount. Sales commissions are directly deducted from subscription amounts. Class C Units, Class DI Units, Class F1 Units and Class M Units are not subject to upfront sales commissions. Class DT Units and Class DS Units were 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 |
|
For the year |
|
For the year |
|
For the year |
|
For the year |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Trading profit (loss), net: |
|
|
|
|
|
|
|
|
|
|
| |||||
Realized, net |
|
$ |
10,105,902 |
|
$ |
50,940,784 |
|
$ |
174,445,190 |
|
$ |
84,320,010 |
|
$ |
(12,985,638 |
) |
Change in unrealized, net |
|
5,483,549 |
|
(20,611,325 |
) |
(4,426,647 |
) |
19,691,885 |
|
(12,556,280 |
) | |||||
Brokerage commissions |
|
(909,013 |
) |
(1,114,645 |
) |
(1,182,808 |
) |
(1,310,913 |
) |
(1,658,223 |
) | |||||
Total trading profit (loss), net |
|
14,680,438 |
|
29,214,814 |
|
168,835,735 |
|
102,700,982 |
|
(27,200,141 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
INVESTMENT INCOME (EXPENSE): |
|
|
|
|
|
|
|
|
|
|
| |||||
Interest, net |
|
1,848,204 |
|
38,457 |
|
(492,913 |
) |
(370,405 |
) |
(268,920 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
EXPENSES: |
|
|
|
|
|
|
|
|
|
|
| |||||
Management fee |
|
18,609,590 |
|
20,409,088 |
|
18,246,934 |
|
21,013,843 |
|
22,799,470 |
| |||||
Performance fee |
|
8,312 |
|
11,590,474 |
|
29,738,237 |
|
6,385,339 |
|
519 |
| |||||
Sponsor fee |
|
13,562,259 |
|
14,477,352 |
|
13,968,592 |
|
15,912,263 |
|
17,137,471 |
| |||||
Other |
|
2,301,140 |
|
2,538,930 |
|
1,939,953 |
|
2,145,799 |
|
2,111,326 |
| |||||
Total Expenses |
|
34,481,301 |
|
49,015,844 |
|
63,893,716 |
|
45,457,244 |
|
42,048,786 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
NET INVESTMENT LOSS |
|
(32,633,097 |
) |
(48,977,387 |
) |
(64,386,629 |
) |
(45,827,649 |
) |
(42,317,706 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
NET INCOME (LOSS) |
|
$ |
(17,952,659 |
) |
$ |
(19,762,573 |
) |
$ |
104,449,106 |
|
$ |
56,873,333 |
|
$ |
(69,517,847 |
) |
|
|
|
|
|
|
|
|
|
|
|
| |||||
Balance Sheet Data |
|
December 31, |
|
December 31, |
|
December 31, |
|
December 31, |
|
December 31, |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Members Capital |
|
$ |
886,903,211 |
|
$ |
1,024,143,098 |
|
$ |
981,085,057 |
|
$ |
978,349,405 |
|
$ |
1,092,387,177 |
|
Net Asset Value per Class A Unit |
|
1.8617 |
|
1.9048 |
|
1.9392 |
|
1.7385 |
|
1.6478 |
| |||||
Net Asset Value per Class C Unit |
|
1.6543 |
|
1.7095 |
|
1.7580 |
|
1.5919 |
|
1.5240 |
| |||||
Net Asset Value per Class D Unit |
|
2.0509 |
|
2.0671 |
|
2.0732 |
|
1.8309 |
|
1.7095 |
| |||||
Net Asset Value per Class I Unit |
|
1.9373 |
|
1.9742 |
|
2.0018 |
|
1.7875 |
|
1.6874 |
| |||||
Net Asset Value per Class DS Unit**** |
|
|
|
|
|
2.0706 |
|
1.8286 |
|
1.7074 |
| |||||
Net Asset Value per Class DT Unit***** |
|
|
|
|
|
2.2127 |
|
1.9307 |
|
1.7935 |
| |||||
Net Asset Value per Class M Unit |
|
1.1524 |
|
1.1615 |
|
1.1649 |
|
1.0288 |
|
0.9606 |
| |||||
Net Asset Value per Class F Unit* |
|
1.1531 |
|
1.1508 |
|
1.1433 |
|
1.0007 |
|
|
| |||||
Net Asset Value per Class F1 Unit** |
|
1.1816 |
|
1.1792 |
|
1.1715 |
|
1.0254 |
|
|
| |||||
Net Asset Value per Class DI Unit*** |
|
0.9629 |
|
0.9704 |
|
|
|
|
|
|
|
* Units issued on May 16, 2013.
** Units issued on June 1, 2013.
***Units issued on February 1, 2015.
****Units fully redeemed as of April 30, 2015.
*****Units fully redeemed as of December 31, 2015.
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. 15th |
|
Jan. |
|
Feb. 15th |
|
Feb. |
|
Mar. 15th |
|
Mar. |
|
Apr. 15th |
|
Apr. |
|
May 15th |
|
May |
|
Jun. 15th |
|
Jun. |
| ||||||||||||
2012 |
|
n/a |
|
$ |
1.7560 |
|
n/a |
|
$ |
1.7371 |
|
n/a |
|
$ |
1.7217 |
|
n/a |
|
$ |
1.7186 |
|
n/a |
|
$ |
1.7165 |
|
n/a |
|
$ |
1.6545 |
| ||||||
2013 |
|
$ |
1.6695 |
|
$ |
1.6830 |
|
$ |
1.6825 |
|
$ |
1.6722 |
|
$ |
1.7156 |
|
$ |
1.7080 |
|
$ |
1.7425 |
|
$ |
1.7563 |
|
$ |
1.7639 |
|
$ |
1.7198 |
|
$ |
1.6651 |
|
$ |
1.6749 |
|
2014 |
|
$ |
1.7319 |
|
$ |
1.6967 |
|
$ |
1.7075 |
|
$ |
1.7329 |
|
$ |
1.7016 |
|
$ |
1.7214 |
|
$ |
1.7247 |
|
$ |
1.7487 |
|
$ |
1.7555 |
|
$ |
1.7791 |
|
$ |
1.7747 |
|
$ |
1.7787 |
|
2015 |
|
$ |
1.9671 |
|
$ |
1.9900 |
|
$ |
1.9613 |
|
$ |
1.9857 |
|
$ |
2.0058 |
|
$ |
2.0193 |
|
$ |
2.0377 |
|
$ |
1.9453 |
|
$ |
1.9201 |
|
$ |
1.9422 |
|
$ |
1.8839 |
|
$ |
1.8757 |
|
2016 |
|
$ |
1.9859 |
|
$ |
1.9706 |
|
$ |
1.9902 |
|
$ |
2.0034 |
|
$ |
1.9221 |
|
$ |
1.9358 |
|
$ |
1.9457 |
|
$ |
1.9012 |
|
$ |
1.9018 |
|
$ |
1.8663 |
|
$ |
1.9094 |
|
$ |
1.9599 |
|
|
|
Jul. 15th |
|
Jul. |
|
Aug. 15th |
|
Aug. |
|
Sep. 15th |
|
Sep. |
|
Oct. 15th |
|
Oct. |
|
Nov. 15th |
|
Nov. |
|
Dec. 15th |
|
Dec. |
| ||||||||||||
2012 |
|
n/a |
|
$ |
1.7251 |
|
n/a |
|
$ |
1.7004 |
|
n/a |
|
$ |
1.6573 |
|
$ |
1.6313 |
|
$ |
1.6115 |
|
$ |
1.5952 |
|
$ |
1.6279 |
|
$ |
1.6432 |
|
$ |
1.6478 |
| |||
2013 |
|
$ |
1.6770 |
|
$ |
1.6515 |
|
$ |
1.6253 |
|
$ |
1.5993 |
|
$ |
1.6516 |
|
$ |
1.6475 |
|
$ |
1.6575 |
|
$ |
1.6910 |
|
$ |
1.7051 |
|
$ |
1.7323 |
|
$ |
1.7032 |
|
$ |
1.7385 |
|
2014 |
|
$ |
1.7593 |
|
$ |
1.7340 |
|
$ |
1.7722 |
|
$ |
1.7992 |
|
$ |
1.7656 |
|
$ |
1.7841 |
|
$ |
1.8163 |
|
$ |
1.8418 |
|
$ |
1.8675 |
|
$ |
1.9331 |
|
$ |
1.9055 |
|
$ |
1.9392 |
|
2015 |
|
$ |
1.9157 |
|
$ |
1.9426 |
|
$ |
1.9122 |
|
$ |
1.8463 |
|
$ |
1.8606 |
|
$ |
1.9076 |
|
$ |
1.8671 |
|
$ |
1.8776 |
|
$ |
1.9069 |
|
$ |
1.9392 |
|
$ |
1.9032 |
|
$ |
1.9048 |
|
2016 |
|
$ |
1.9453 |
|
$ |
1.9719 |
|
$ |
1.9704 |
|
$ |
1.9302 |
|
$ |
1.8949 |
|
$ |
1.9189 |
|
$ |
1.8753 |
|
$ |
1.8651 |
|
$ |
1.8367 |
|
$ |
1.8399 |
|
$ |
1.8857 |
|
$ |
1.8617 |
|
NET ASSET VALUE PER UNIT CLASS C
|
|
Jan. 15th |
|
Jan. |
|
Feb. 15th |
|
Feb. |
|
Mar. 15th |
|
Mar. |
|
Apr. 15th |
|
Apr. |
|
May 15th |
|
May |
|
Jun. 15th |
|
Jun. |
| ||||||||||||
2012 |
|
n/a |
|
$ |
1.6390 |
|
n/a |
|
$ |
1.6200 |
|
n/a |
|
$ |
1.6043 |
|
n/a |
|
$ |
1.6001 |
|
n/a |
|
$ |
1.5968 |
|
n/a |
|
$ |
1.5379 |
| ||||||
2013 |
|
$ |
1.5434 |
|
$ |
1.5552 |
|
$ |
1.5542 |
|
$ |
1.5440 |
|
$ |
1.5834 |
|
$ |
1.5757 |
|
$ |
1.6069 |
|
$ |
1.6189 |
|
$ |
1.6253 |
|
$ |
1.5840 |
|
$ |
1.5329 |
|
$ |
1.5413 |
|
2014 |
|
$ |
1.5851 |
|
$ |
1.5523 |
|
$ |
1.5615 |
|
$ |
1.5841 |
|
$ |
1.5548 |
|
$ |
1.5722 |
|
$ |
1.5746 |
|
$ |
1.5959 |
|
$ |
1.6014 |
|
$ |
1.6223 |
|
$ |
1.6175 |
|
$ |
1.6206 |
|
2015 |
|
$ |
1.7825 |
|
$ |
1.8025 |
|
$ |
1.7758 |
|
$ |
1.7971 |
|
$ |
1.8145 |
|
$ |
1.8260 |
|
$ |
1.8418 |
|
$ |
1.7576 |
|
$ |
1.7341 |
|
$ |
1.7534 |
|
$ |
1.7000 |
|
$ |
1.6919 |
|
2016 |
|
$ |
1.7816 |
|
$ |
1.7672 |
|
$ |
1.7839 |
|
$ |
1.7950 |
|
$ |
1.7215 |
|
$ |
1.7330 |
|
$ |
1.7411 |
|
$ |
1.7006 |
|
$ |
1.7005 |
|
$ |
1.6681 |
|
$ |
1.7058 |
|
$ |
1.7502 |
|
|
|
Jul. 15th |
|
Jul. |
|
Aug. 15th |
|
Aug. |
|
Sep. 15th |
|
Sep. |
|
Oct. 15th |
|
Oct. |
|
Nov. 15th |
|
Nov. |
|
Dec. 15th |
|
Dec. |
| ||||||||||||
2012 |
|
n/a |
|
$ |
1.6021 |
|
n/a |
|
$ |
1.5779 |
|
n/a |
|
$ |
1.5367 |
|
$ |
1.5119 |
|
$ |
1.4929 |
|
$ |
1.4772 |
|
$ |
1.5069 |
|
$ |
1.5203 |
|
$ |
1.5240 |
| |||
2013 |
|
$ |
1.5426 |
|
$ |
1.5185 |
|
$ |
1.4938 |
|
$ |
1.4693 |
|
$ |
1.5167 |
|
$ |
1.5123 |
|
$ |
1.5209 |
|
$ |
1.5510 |
|
$ |
1.5632 |
|
$ |
1.5875 |
|
$ |
1.5601 |
|
$ |
1.5919 |
|
2014 |
|
$ |
1.6022 |
|
$ |
1.5785 |
|
$ |
1.6126 |
|
$ |
1.6365 |
|
$ |
1.6052 |
|
$ |
1.6214 |
|
$ |
1.6500 |
|
$ |
1.6724 |
|
$ |
1.6951 |
|
$ |
1.7539 |
|
$ |
1.7281 |
|
$ |
1.7580 |
|
2015 |
|
$ |
1.7272 |
|
$ |
1.7508 |
|
$ |
1.7226 |
|
$ |
1.6626 |
|
$ |
1.6747 |
|
$ |
1.7164 |
|
$ |
1.6793 |
|
$ |
1.6880 |
|
$ |
1.7136 |
|
$ |
1.7419 |
|
$ |
1.7089 |
|
$ |
1.7095 |
|
2016 |
|
$ |
1.7364 |
|
$ |
1.7595 |
|
$ |
1.7574 |
|
$ |
1.7208 |
|
$ |
1.6887 |
|
$ |
1.7094 |
|
$ |
1.6698 |
|
$ |
1.6600 |
|
$ |
1.6341 |
|
$ |
1.6362 |
|
$ |
1.6763 |
|
$ |
1.6543 |
|
NET ASSET VALUE PER UNIT CLASS D
|
|
Jan. 15th |
|
Jan. |
|
Feb. 15th |
|
Feb. |
|
Mar. 15th |
|
Mar. |
|
Apr. 15th |
|
Apr. |
|
May 15th |
|
May |
|
Jun. 15th |
|
Jun. |
| ||||||||||||
2012 |
|
n/a |
|
$ |
1.7969 |
|
n/a |
|
$ |
1.7798 |
|
n/a |
|
$ |
1.7662 |
|
n/a |
|
$ |
1.7652 |
|
n/a |
|
$ |
1.7653 |
|
n/a |
|
$ |
1.7037 |
| ||||||
2013 |
|
$ |
1.7331 |
|
$ |
1.7482 |
|
$ |
1.7488 |
|
$ |
1.7392 |
|
$ |
1.7854 |
|
$ |
1.7786 |
|
$ |
1.8157 |
|
$ |
1.8312 |
|
$ |
1.8403 |
|
$ |
1.7954 |
|
$ |
1.7394 |
|
$ |
1.7508 |
|
2014 |
|
$ |
1.8250 |
|
$ |
1.7891 |
|
$ |
1.8016 |
|
$ |
1.8296 |
|
$ |
1.7976 |
|
$ |
1.8197 |
|
$ |
1.8244 |
|
$ |
1.8509 |
|
$ |
1.8592 |
|
$ |
1.8854 |
|
$ |
1.8819 |
|
$ |
1.8874 |
|
2015 |
|
$ |
2.1043 |
|
$ |
2.1301 |
|
$ |
2.1007 |
|
$ |
2.1281 |
|
$ |
2.1510 |
|
$ |
2.1669 |
|
$ |
2.1879 |
|
$ |
2.0901 |
|
$ |
2.0643 |
|
$ |
2.0894 |
|
$ |
2.0279 |
|
$ |
2.0204 |
|
2016 |
|
$ |
2.1565 |
|
$ |
2.1412 |
|
$ |
2.1638 |
|
$ |
2.1795 |
|
$ |
2.0924 |
|
$ |
2.1087 |
|
$ |
2.1207 |
|
$ |
2.0735 |
|
$ |
2.0756 |
|
$ |
2.0381 |
|
$ |
2.0864 |
|
$ |
2.1429 |
|
|
|
Jul. 15th |
|
Jul. |
|
Aug. 15th |
|
Aug. |
|
Sep. 15th |
|
Sep. |
|
Oct. 15th |
|
Oct. |
|
Nov. 15th |
|
Nov. |
|
Dec. 15th |
|
Dec. |
| ||||||||||||
2012 |
|
n/a |
|
$ |
1.7785 |
|
n/a |
|
$ |
1.7553 |
|
n/a |
|
$ |
1.7130 |
|
$ |
1.6870 |
|
$ |
1.6676 |
|
$ |
1.6518 |
|
$ |
1.6868 |
|
$ |
1.7037 |
|
$ |
1.7095 |
| |||
2013 |
|
$ |
1.7540 |
|
$ |
1.7284 |
|
$ |
1.7021 |
|
$ |
1.6759 |
|
$ |
1.7318 |
|
$ |
1.7285 |
|
$ |
1.7402 |
|
$ |
1.7765 |
|
$ |
1.7923 |
|
$ |
1.8221 |
|
$ |
1.7925 |
|
$ |
1.8309 |
|
2014 |
|
$ |
1.8679 |
|
$ |
1.8422 |
|
$ |
1.8840 |
|
$ |
1.9139 |
|
$ |
1.8793 |
|
$ |
1.9001 |
|
$ |
1.9357 |
|
$ |
1.9640 |
|
$ |
1.9928 |
|
$ |
2.0641 |
|
$ |
2.0358 |
|
$ |
2.0732 |
|
2015 |
|
$ |
2.0647 |
|
$ |
2.0950 |
|
$ |
2.0635 |
|
$ |
1.9937 |
|
$ |
2.0103 |
|
$ |
2.0625 |
|
$ |
2.0199 |
|
$ |
2.0326 |
|
$ |
2.0656 |
|
$ |
2.1019 |
|
$ |
2.0641 |
|
$ |
2.0671 |
|
2016 |
|
$ |
2.1283 |
|
$ |
2.1588 |
|
$ |
2.1585 |
|
$ |
2.1157 |
|
$ |
2.0784 |
|
$ |
2.1060 |
|
$ |
2.0594 |
|
$ |
2.0495 |
|
$ |
2.0196 |
|
$ |
2.0243 |
|
$ |
2.0761 |
|
$ |
2.0509 |
|
NET ASSET VALUE PER UNIT CLASS I
|
|
Jan. 15th |
|
Jan. |
|
Feb. 15th |
|
Feb. |
|
Mar. 15th |
|
Mar. |
|
Apr. 15th |
|
Apr. |
|
May 15th |
|
May |
|
Jun. 15th |
|
Jun. |
| ||||||||||||
2012 |
|
n/a |
|
$ |
1.7916 |
|
n/a |
|
$ |
1.7730 |
|
n/a |
|
$ |
1.7578 |
|
n/a |
|
$ |
1.7553 |
|
n/a |
|
$ |
1.7537 |
|
n/a |
|
$ |
1.6910 |
| ||||||
2013 |
|
$ |
1.7100 |
|
$ |
1.7240 |
|
$ |
1.7239 |
|
$ |
1.7136 |
|
$ |
1.7583 |
|
$ |
1.7508 |
|
$ |
1.7865 |
|
$ |
1.8010 |
|
$ |
1.8091 |
|
$ |
1.7641 |
|
$ |
1.7083 |
|
$ |
1.7187 |
|
2014 |
|
$ |
1.7809 |
|
$ |
1.7451 |
|
$ |
1.7565 |
|
$ |
1.7829 |
|
$ |
1.7510 |
|
$ |
1.7716 |
|
$ |
1.7754 |
|
$ |
1.8004 |
|
$ |
1.8076 |
|
$ |
1.8323 |
|
$ |
1.8280 |
|
$ |
1.8325 |
|
2015 |
|
$ |
2.0310 |
|
$ |
2.0549 |
|
$ |
2.0257 |
|
$ |
2.0512 |
|
$ |
2.0723 |
|
$ |
2.0866 |
|
$ |
2.1059 |
|
$ |
2.0108 |
|
$ |
1.9851 |
|
$ |
2.0083 |
|
$ |
1.9483 |
|
$ |
1.9402 |
|
2016 |
|
$ |
2.0585 |
|
$ |
2.0431 |
|
$ |
2.0637 |
|
$ |
2.0777 |
|
$ |
1.9937 |
|
$ |
2.0083 |
|
$ |
2.0189 |
|
$ |
1.9730 |
|
$ |
1.9741 |
|
$ |
1.9375 |
|
$ |
1.9826 |
|
$ |
2.0353 |
|
|
|
Jul. 15th |
|
Jul. |
|
Aug. 15th |
|
Aug. |
|
Sep. 15th |
|
Sep. |
|
Oct. 15th |
|
Oct. |
|
Nov. 15th |
|
Nov. |
|
Dec. 15th |
|
Dec. |
| ||||||||||||
2012 |
|
n/a |
|
$ |
1.7636 |
|
n/a |
|
$ |
1.7390 |
|
n/a |
|
$ |
1.6955 |
|
$ |
1.6691 |
|
$ |
1.6491 |
|
$ |
1.6328 |
|
$ |
1.6665 |
|
$ |
1.6824 |
|
$ |
1.6874 |
| |||
2013 |
|
$ |
1.7211 |
|
$ |
1.6952 |
|
$ |
1.6686 |
|
$ |
1.6421 |
|
$ |
1.6961 |
|
$ |
1.6922 |
|
$ |
1.7028 |
|
$ |
1.7375 |
|
$ |
1.7522 |
|
$ |
1.7805 |
|
$ |
1.7508 |
|
$ |
1.7875 |
|
2014 |
|
$ |
1.8128 |
|
$ |
1.7870 |
|
$ |
1.8267 |
|
$ |
1.8548 |
|
$ |
1.8205 |
|
$ |
1.8398 |
|
$ |
1.8734 |
|
$ |
1.9000 |
|
$ |
1.9269 |
|
$ |
1.9949 |
|
$ |
1.9667 |
|
$ |
2.0018 |
|
2015 |
|
$ |
1.9818 |
|
$ |
2.0100 |
|
$ |
1.9788 |
|
$ |
1.9110 |
|
$ |
1.9261 |
|
$ |
1.9751 |
|
$ |
1.9335 |
|
$ |
1.9447 |
|
$ |
1.9754 |
|
$ |
2.0092 |
|
$ |
1.9722 |
|
$ |
1.9742 |
|
2016 |
|
$ |
2.0205 |
|
$ |
2.0485 |
|
$ |
2.0473 |
|
$ |
2.0058 |
|
$ |
1.9695 |
|
$ |
1.9948 |
|
$ |
1.9498 |
|
$ |
1.9395 |
|
$ |
1.9103 |
|
$ |
1.9139 |
|
$ |
1.9619 |
|
$ |
1.9373 |
|
NET ASSET VALUE PER UNIT CLASS DS
|
|
Jan. 15th |
|
Jan. |
|
Feb. 15th |
|
Feb. |
|
Mar. 15th |
|
Mar. |
|
Apr. 15th |
|
Apr. |
|
May 15th |
|
May |
|
Jun. 15th |
|
Jun. |
| ||||||||||||
2012 |
|
n/a |
|
$ |
1.7947 |
|
n/a |
|
$ |
1.7776 |
|
n/a |
|
$ |
1.7640 |
|
n/a |
|
$ |
1.7631 |
|
n/a |
|
$ |
1.7631 |
|
n/a |
|
$ |
1.7016 |
| ||||||
2013 |
|
$ |
1.7310 |
|
$ |
1.7460 |
|
$ |
1.7467 |
|
$ |
1.7371 |
|
$ |
1.7832 |
|
$ |
1.7764 |
|
$ |
1.8135 |
|
$ |
1.8290 |
|
$ |
1.8380 |
|
$ |
1.7932 |
|
$ |
1.7372 |
|
$ |
1.7486 |
|
2014 |
|
$ |
1.8228 |
|
$ |
1.7869 |
|
$ |
1.7994 |
|
$ |
1.8273 |
|
$ |
1.7954 |
|
$ |
1.8174 |
|
$ |
1.8221 |
|
$ |
1.8486 |
|
$ |
1.8569 |
|
$ |
1.8831 |
|
$ |
1.8795 |
|
$ |
1.8850 |
|
2015 |
|
$ |
2.1017 |
|
$ |
2.1274 |
|
$ |
2.0981 |
|
$ |
2.1255 |
|
$ |
2.1484 |
|
$ |
2.1642 |
|
$ |
2.1852 |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
| |||||
2016 |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
|
|
Jul. 15th |
|
Jul. |
|
Aug. 15th |
|
Aug. |
|
Sep. 15th |
|
Sep. |
|
Oct. 15th |
|
Oct. |
|
Nov. 15th |
|
Nov. |
|
Dec. 15th |
|
Dec. |
| ||||||||||||
2012 |
|
n/a |
|
$ |
1.7763 |
|
n/a |
|
$ |
1.7532 |
|
n/a |
|
$ |
1.7109 |
|
$ |
1.6850 |
|
$ |
1.6656 |
|
$ |
1.6498 |
|
$ |
1.6847 |
|
$ |
1.7016 |
|
$ |
1.7074 |
| |||
2013 |
|
$ |
1.7518 |
|
$ |
1.7263 |
|
$ |
1.7000 |
|
$ |
1.6738 |
|
$ |
1.7296 |
|
$ |
1.7264 |
|
$ |
1.7380 |
|
$ |
1.7743 |
|
$ |
1.7901 |
|
$ |
1.8199 |
|
$ |
1.7903 |
|
$ |
1.8286 |
|
2014 |
|
$ |
1.8656 |
|
$ |
1.8399 |
|
$ |
1.8817 |
|
$ |
1.9115 |
|
$ |
1.8770 |
|
$ |
1.8978 |
|
$ |
1.9333 |
|
$ |
1.9616 |
|
$ |
1.9903 |
|
$ |
2.0615 |
|
$ |
2.0333 |
|
$ |
2.0706 |
|
2015 |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
| ||||||||||||
2016 |
|
n/a |
|
n/a |
|
n/a |
|
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. 15th |
|
Jan. |
|
Feb. 15th |
|
Feb. |
|
Mar. 15th |
|
Mar. |
|
Apr. 15th |
|
Apr. |
|
May 15th |
|
May |
|
Jun. 15th |
|
Jun. |
| ||||||||||||
2012 |
|
n/a |
|
$ |
1.8769 |
|
n/a |
|
$ |
1.8594 |
|
n/a |
|
$ |
1.8460 |
|
n/a |
|
$ |
1.8458 |
|
n/a |
|
$ |
1.8466 |
|
n/a |
|
$ |
1.7829 |
| ||||||
2013 |
|
$ |
1.8186 |
|
$ |
1.8348 |
|
$ |
1.8359 |
|
$ |
1.8262 |
|
$ |
1.8737 |
|
$ |
1.8680 |
|
$ |
1.9078 |
|
$ |
1.9255 |
|
$ |
1.9360 |
|
$ |
1.8861 |
|
$ |
1.8289 |
|
$ |
1.8413 |
|
2014 |
|
$ |
1.9249 |
|
$ |
1.8875 |
|
$ |
1.9010 |
|
$ |
1.9309 |
|
$ |
1.8976 |
|
$ |
1.9213 |
|
$ |
1.9266 |
|
$ |
1.9560 |
|
$ |
1.9657 |
|
$ |
1.9956 |
|
$ |
1.9919 |
|
$ |
1.9984 |
|
2015 |
|
$ |
2.2484 |
|
$ |
2.2781 |
|
$ |
2.2451 |
|
$ |
2.2767 |
|
$ |
2.3031 |
|
$ |
2.3216 |
|
$ |
2.3460 |
|
$ |
2.2402 |
|
$ |
2.2130 |
|
$ |
2.2404 |
|
$ |
2.1749 |
|
$ |
2.1672 |
|
2016 |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
|
|
Jul. 15th |
|
Jul. |
|
Aug. 15th |
|
Aug. |
|
Sep. 15th |
|
Sep. |
|
Oct. 15th |
|
Oct. |
|
Nov. 15th |
|
Nov. |
|
Dec. 15th |
|
Dec. |
| ||||||||||||
2012 |
|
n/a |
|
$ |
1.8620 |
|
n/a |
|
$ |
1.8385 |
|
n/a |
|
$ |
1.7949 |
|
$ |
1.7681 |
|
$ |
1.7481 |
|
$ |
1.7319 |
|
$ |
1.7689 |
|
$ |
1.7870 |
|
$ |
1.7935 |
| |||
2013 |
|
$ |
1.8451 |
|
$ |
1.8186 |
|
$ |
1.7913 |
|
$ |
1.7640 |
|
$ |
1.8232 |
|
$ |
1.8202 |
|
$ |
1.8328 |
|
$ |
1.8706 |
|
$ |
1.8866 |
|
$ |
1.9202 |
|
$ |
1.8875 |
|
$ |
1.9307 |
|
2014 |
|
$ |
1.9783 |
|
$ |
1.9514 |
|
$ |
1.9961 |
|
$ |
2.0298 |
|
$ |
1.9919 |
|
$ |
2.0150 |
|
$ |
2.0554 |
|
$ |
2.0878 |
|
$ |
2.1206 |
|
$ |
2.2016 |
|
$ |
2.1700 |
|
$ |
2.2127 |
|
2015 |
|
$ |
2.2153 |
|
$ |
2.2483 |
|
$ |
2.2149 |
|
$ |
2.1404 |
|
$ |
2.1587 |
|
$ |
2.2152 |
|
$ |
2.1700 |
|
$ |
2.1840 |
|
$ |
2.2199 |
|
$ |
2.2594 |
|
$ |
2.2193 |
|
n/a |
| |
2016 |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
NET ASSET VALUE PER INITIAL UNIT CLASS M
|
|
Jan. 15th |
|
Jan. |
|
Feb. 15th |
|
Feb. |
|
Mar. 15th |
|
Mar. |
|
Apr. 15th |
|
Apr. |
|
May 15th |
|
May |
|
Jun. 15th |
|
Jun. |
| ||||||||||||
2012 |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
$ |
0.9924 |
|
n/a |
|
$ |
0.9919 |
|
n/a |
|
$ |
0.9919 |
|
n/a |
|
$ |
0.9573 |
| ||||||||
2013 |
|
$ |
0.9738 |
|
$ |
0.9823 |
|
$ |
0.9827 |
|
$ |
0.9773 |
|
$ |
1.0032 |
|
$ |
0.9994 |
|
$ |
1.0202 |
|
$ |
1.0290 |
|
$ |
1.0341 |
|
$ |
1.0088 |
|
$ |
0.9773 |
|
$ |
0.9837 |
|
2014 |
|
$ |
1.0255 |
|
$ |
1.0053 |
|
$ |
1.0123 |
|
$ |
1.0280 |
|
$ |
1.0101 |
|
$ |
1.0225 |
|
$ |
1.0251 |
|
$ |
1.0400 |
|
$ |
1.0447 |
|
$ |
1.0594 |
|
$ |
1.0574 |
|
$ |
1.0605 |
|
2015 |
|
$ |
1.1824 |
|
$ |
1.1969 |
|
$ |
1.1804 |
|
$ |
1.1958 |
|
$ |
1.2086 |
|
$ |
1.2176 |
|
$ |
1.2294 |
|
$ |
1.1744 |
|
$ |
1.1599 |
|
$ |
1.1740 |
|
$ |
1.1394 |
|
$ |
1.1352 |
|
2016 |
|
$ |
1.2117 |
|
$ |
1.2031 |
|
$ |
1.2158 |
|
$ |
1.2247 |
|
$ |
1.1757 |
|
$ |
1.1848 |
|
$ |
1.1916 |
|
$ |
1.1651 |
|
$ |
1.1662 |
|
$ |
1.1452 |
|
$ |
1.1723 |
|
$ |
1.2041 |
|
|
|
Jul. 15th |
|
Jul. |
|
Aug. 15th |
|
Aug. |
|
Sep. 15th |
|
Sep. |
|
Oct. 15th |
|
Oct. |
|
Nov. 15th |
|
Nov. |
|
Dec. 15th |
|
Dec. |
| ||||||||||||
2012 |
|
n/a |
|
$ |
0.9993 |
|
n/a |
|
$ |
0.9863 |
|
n/a |
|
$ |
0.9625 |
|
$ |
0.9479 |
|
$ |
0.9370 |
|
$ |
0.9282 |
|
$ |
0.9478 |
|
$ |
0.9573 |
|
$ |
0.9606 |
| |||
2013 |
|
$ |
0.9856 |
|
$ |
0.9712 |
|
$ |
0.9564 |
|
$ |
0.9417 |
|
$ |
0.9731 |
|
$ |
0.9712 |
|
$ |
0.9778 |
|
$ |
0.9982 |
|
$ |
1.0071 |
|
$ |
1.0238 |
|
$ |
1.0072 |
|
$ |
1.0288 |
|
2014 |
|
$ |
1.0495 |
|
$ |
1.0351 |
|
$ |
1.0586 |
|
$ |
1.0754 |
|
$ |
1.0559 |
|
$ |
1.0677 |
|
$ |
1.0876 |
|
$ |
1.1036 |
|
$ |
1.1197 |
|
$ |
1.1598 |
|
$ |
1.1439 |
|
$ |
1.1649 |
|
2015 |
|
$ |
1.1601 |
|
$ |
1.1772 |
|
$ |
1.1594 |
|
$ |
1.1202 |
|
$ |
1.1296 |
|
$ |
1.1589 |
|
$ |
1.1350 |
|
$ |
1.1421 |
|
$ |
1.1606 |
|
$ |
1.1810 |
|
$ |
1.1598 |
|
$ |
1.1615 |
|
2016 |
|
$ |
1.1958 |
|
$ |
1.2130 |
|
$ |
1.2128 |
|
$ |
1.1888 |
|
$ |
1.1678 |
|
$ |
1.1834 |
|
$ |
1.1572 |
|
$ |
1.1516 |
|
$ |
1.1348 |
|
$ |
1.1375 |
|
$ |
1.1665 |
|
$ |
1.1524 |
|
NET ASSET VALUE PER INITIAL UNIT CLASS F
|
|
Jan. 15th |
|
Jan. |
|
Feb. 15th |
|
Feb. |
|
Mar. 15th |
|
Mar. |
|
Apr. 15th |
|
Apr. |
|
May 15th |
|
May |
|
Jun. 15th |
|
Jun. |
| ||||||||||||
2013 |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
$ |
0.9759 |
|
$ |
0.9459 |
|
$ |
0.9525 |
| |||||||||
2014 |
|
$ |
0.9979 |
|
$ |
0.9787 |
|
$ |
0.9859 |
|
$ |
1.0017 |
|
$ |
0.9846 |
|
$ |
0.9971 |
|
$ |
1.0001 |
|
$ |
1.0149 |
|
$ |
1.0198 |
|
$ |
1.0346 |
|
$ |
1.0330 |
|
$ |
1.0363 |
|
2015 |
|
$ |
1.1609 |
|
$ |
1.1755 |
|
$ |
1.1597 |
|
$ |
1.1752 |
|
$ |
1.1883 |
|
$ |
1.1974 |
|
$ |
1.2095 |
|
$ |
1.1559 |
|
$ |
1.1421 |
|
$ |
1.1564 |
|
$ |
1.1229 |
|
$ |
1.1192 |
|
2016 |
|
$ |
1.2010 |
|
$ |
1.1931 |
|
$ |
1.2061 |
|
$ |
1.2153 |
|
$ |
1.1672 |
|
$ |
1.1767 |
|
$ |
1.1840 |
|
$ |
1.1581 |
|
$ |
1.1597 |
|
$ |
1.1392 |
|
$ |
1.1668 |
|
$ |
1.1988 |
|
|
|
Jul. 15th |
|
Jul. |
|
Aug. 15th |
|
Aug. |
|
Sep. 15th |
|
Sep. |
|
Oct. 15th |
|
Oct. |
|
Nov. 15th |
|
Nov. |
|
Dec. 15th |
|
Dec. |
| ||||||||||||
2013 |
|
$ |
0.9546 |
|
$ |
0.9411 |
|
$ |
0.9271 |
|
$ |
0.9132 |
|
$ |
0.9441 |
|
$ |
0.9427 |
|
$ |
0.9495 |
|
$ |
0.9697 |
|
$ |
0.9787 |
|
$ |
0.9953 |
|
$ |
0.9794 |
|
$ |
1.0007 |
|
2014 |
|
$ |
1.0261 |
|
$ |
1.0124 |
|
$ |
1.0358 |
|
$ |
1.0526 |
|
$ |
1.0340 |
|
$ |
1.0458 |
|
$ |
1.0657 |
|
$ |
1.0817 |
|
$ |
1.0979 |
|
$ |
1.1375 |
|
$ |
1.1223 |
|
$ |
1.1433 |
|
2015 |
|
$ |
1.1442 |
|
$ |
1.1615 |
|
$ |
1.1445 |
|
$ |
1.1062 |
|
$ |
1.1159 |
|
$ |
1.1453 |
|
$ |
1.1222 |
|
$ |
1.1297 |
|
$ |
1.1485 |
|
$ |
1.1692 |
|
$ |
1.1487 |
|
$ |
1.1508 |
|
2016 |
|
$ |
1.1911 |
|
$ |
1.2087 |
|
$ |
1.2091 |
|
$ |
1.1856 |
|
$ |
1.1652 |
|
$ |
1.1812 |
|
$ |
1.1555 |
|
$ |
1.1504 |
|
$ |
1.1341 |
|
$ |
1.1372 |
|
$ |
1.1668 |
|
$ |
1.1531 |
|
NET ASSET VALUE PER INITIAL UNIT CLASS F1
|
|
Jan. 15th |
|
Jan. |
|
Feb. 15th |
|
Feb. |
|
Mar. 15th |
|
Mar. |
|
Apr. 15th |
|
Apr. |
|
May 15th |
|
May |
|
Jun. 15th |
|
Jun. |
| ||||||||||||
2013 |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
$ |
0.9692 |
|
$ |
0.9759 |
| ||||||||||
2014 |
|
$ |
1.0225 |
|
$ |
1.0028 |
|
$ |
1.0102 |
|
$ |
1.0264 |
|
$ |
1.0089 |
|
$ |
1.0217 |
|
$ |
1.0247 |
|
$ |
1.0400 |
|
$ |
1.0450 |
|
$ |
1.0601 |
|
$ |
1.0584 |
|
$ |
1.0619 |
|
2015 |
|
$ |
1.1895 |
|
$ |
1.2045 |
|
$ |
1.1883 |
|
$ |
1.2042 |
|
$ |
1.2176 |
|
$ |
1.2270 |
|
$ |
1.2393 |
|
$ |
1.1844 |
|
$ |
1.1702 |
|
$ |
1.1850 |
|
$ |
1.1505 |
|
$ |
1.1468 |
|
2016 |
|
$ |
1.2307 |
|
$ |
1.2225 |
|
$ |
1.2358 |
|
$ |
1.2452 |
|
$ |
1.1959 |
|
$ |
1.2057 |
|
$ |
1.2132 |
|
$ |
1.1866 |
|
$ |
1.1883 |
|
$ |
1.1673 |
|
$ |
1.1955 |
|
$ |
1.2284 |
|
|
|
Jul. 15th |
|
Jul. |
|
Aug. 15th |
|
Aug. |
|
Sep. 15th |
|
Sep. |
|
Oct. 15th |
|
Oct. |
|
Nov. 15th |
|
Nov. |
|
Dec. 15th |
|
Dec. |
| ||||||||||||
2013 |
|
$ |
0.9782 |
|
$ |
0.9643 |
|
$ |
0.9500 |
|
$ |
0.9358 |
|
$ |
0.9674 |
|
$ |
0.9660 |
|
$ |
0.9729 |
|
$ |
0.9936 |
|
$ |
1.0028 |
|
$ |
1.0198 |
|
$ |
1.0036 |
|
$ |
1.0254 |
|
2014 |
|
$ |
1.0514 |
|
$ |
1.0373 |
|
$ |
1.0613 |
|
$ |
1.0785 |
|
$ |
1.0595 |
|
$ |
1.0716 |
|
$ |
1.0920 |
|
$ |
1.1084 |
|
$ |
1.1249 |
|
$ |
1.1656 |
|
$ |
1.1500 |
|
$ |
1.1715 |
|
2015 |
|
$ |
1.1724 |
|
$ |
1.1901 |
|
$ |
1.1727 |
|
$ |
1.1335 |
|
$ |
1.1434 |
|
$ |
1.1736 |
|
$ |
1.1499 |
|
$ |
1.1575 |
|
$ |
1.1768 |
|
$ |
1.1980 |
|
$ |
1.1770 |
|
$ |
1.1792 |
|
2016 |
|
$ |
1.2205 |
|
$ |
1.2385 |
|
$ |
1.2389 |
|
$ |
1.2149 |
|
$ |
1.1939 |
|
$ |
1.2103 |
|
$ |
1.1840 |
|
$ |
1.1788 |
|
$ |
1.1621 |
|
$ |
1.1653 |
|
$ |
1.1956 |
|
$ |
1.1816 |
|
NET ASSET VALUE PER INITIAL UNIT CLASS DI
|
|
Jan. 15th |
|
Jan. |
|
Feb. 15th |
|
Feb. |
|
Mar. 15th |
|
Mar. |
|
Apr. 15th |
|
Apr. |
|
May 15th |
|
May |
|
Jun. 15th |
|
Jun. |
| ||||||||||||
2014 |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
| ||||||||||||
2015 |
|
n/a |
|
n/a |
|
$ |
0.9862 |
|
$ |
0.9991 |
|
$ |
1.0098 |
|
$ |
1.0173 |
|
$ |
1.0272 |
|
$ |
0.9812 |
|
$ |
0.9691 |
|
$ |
0.9809 |
|
$ |
0.9520 |
|
$ |
0.9485 |
| ||
2016 |
|
$ |
1.0124 |
|
$ |
1.0052 |
|
$ |
1.0158 |
|
$ |
1.0232 |
|
$ |
0.9823 |
|
$ |
0.9899 |
|
$ |
0.9956 |
|
$ |
0.9735 |
|
$ |
0.9744 |
|
$ |
0.9568 |
|
$ |
0.9795 |
|
$ |
1.0060 |
|
|
|
Jul. 15th |
|
Jul. |
|
Aug. 15th |
|
Aug. |
|
Sep. 15th |
|
Sep. |
|
Oct. 15th |
|
Oct. |
|
Nov. 15th |
|
Nov. |
|
Dec. 15th |
|
Dec. |
| ||||||||||||
2014 |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
| ||||||||||||
2015 |
|
$ |
0.9693 |
|
$ |
0.9835 |
|
$ |
0.9687 |
|
$ |
0.9360 |
|
$ |
0.9438 |
|
$ |
0.9683 |
|
$ |
0.9483 |
|
$ |
0.9542 |
|
$ |
0.9697 |
|
$ |
0.9868 |
|
$ |
0.9690 |
|
$ |
0.9704 |
|
2016 |
|
$ |
0.9992 |
|
$ |
1.0135 |
|
$ |
1.0133 |
|
$ |
0.9933 |
|
$ |
0.9757 |
|
$ |
0.9887 |
|
$ |
0.9668 |
|
$ |
0.9622 |
|
$ |
0.9481 |
|
$ |
0.9504 |
|
$ |
0.9747 |
|
$ |
0.9629 |
|
Item 7: Managements Discussion and Analysis of Financial Condition and Results of Operations
Critical Accounting Policies
The Funds critical accounting policies are as follows:
· Preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates and such differences could be material.
· The fair value of a financial instrument is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
· The fair value amounts of, and the net profits and losses on, derivative instruments is disclosed in the Statements of Financial Condition and Statements of Operations, respectively.
· Realized profits (losses) and changes in unrealized profits (losses) on open positions are recognized in the period in which the contract is closed or the changes occur, respectively and are included in the Statements of Operations.
Results of Operations
General
The Trading Program employs what is traditionally known as a systematic approach to trading financial instruments. In this context the term systematic implies that the vast majority of the trading decisions are executed, without discretion, either electronically or by a team for the placement of orders, based upon the instructions generated by a computer-based system. The Trading Program currently invests globally in exchange-traded futures and forwards, and currency forwards traded OTC.
Performance Summary
This performance summary is an outline description of how the Fund performed in the past, not necessarily any indication of how it will perform in the future. In addition, the general causes to which certain price movements are attributed may or may not have caused such movements, but simply occurred at or about the same time.
|
|
Total Trading |
| |
Year ended December 31, 2016 |
|
Profit (Loss) |
| |
|
|
|
| |
Interest Rates |
|
$ |
48,174,692 |
|
Agricultural |
|
(5,108,659 |
) | |
Currencies |
|
23,899,963 |
| |
Energy |
|
(20,731,130 |
) | |
Metals |
|
(30,523,950 |
) | |
Stock Indices |
|
(121,465 |
) | |
Subtotal |
|
15,589,451 |
| |
Brokerage Commissions |
|
(909,013 |
) | |
Total |
|
$ |
14,680,438 |
|
The Fund experienced a net trading profit of $15,589,451 before brokerage commissions and related fees for the year ended December 31, 2016. The Funds profits were primarily attributable to the interest rates and currency sectors. The stock indices, agriculture, energy and metal sectors posted losses.
The interest rate sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the first quarter as the Euribor and Bunds futures prices both recovered their December losses during January. Profits were posted to the Fund in the middle of the quarter due to profits in Eurodollar, Bund and Japanese government bond futures prices. Losses were posted to the Fund at the end of the quarter. In U.S. government bonds, yields rose for the first half of March only to fall by month end. The Trading Program was reducing its position in these markets during March, and hence incurred losses. Losses were posted to the Fund at the beginning of the second quarter as long positions in bonds and short-term interest rates weighed on returns. Profits were posted to the Fund in the middle of the second quarter as the German bunds led the bond sector returns. Profits were posted to the Fund at the end of the second quarter due to the Trading Programs positions in short-term interest rate futures. Profits were posted to the Fund at the beginning of the third quarter due to the Trading Programs long positions in bonds. Losses were posted to the Fund in the middle of the quarter. Hawkish comments from Janet Yellen and Stanley Fischer, the respective chair and vice-chair of the U.S. Federal Reserve, increased expectations of a further U.S. rate rise in 2016 which led to losses from the Trading Programs long positions in U.S. government bonds. Losses were posted to the Fund at the end of the third quarter. The Trading Programs long positions in U.S. government bonds undid profits earned in German government bonds. Losses were posted to the Fund at the beginning of the fourth quarter due to the long positions across bonds and short-term interest rates dropping amid rising long-term yields and increasing expectations of a U.S. rate hike. Losses were posted to the Fund in the middle of the fourth quarter as rising yields led to significant reductions in the Trading Programs long fixed income positions during November. Profits were posted to the Fund at the end of the fourth quarter as a short position in Eurodollar futures was profitable as markets revised their U.S. interest rate expectations upwards.
The currency sector posted profits to the Fund. Losses were posted to the Fund at the beginning of the first quarter which were reversed in the middle of the quarter. One of the most notable developments in February was the British pound sliding lower versus the U.S. dollar as heightened concerns around Brexit took hold that is the possibility of Britain exiting the European Union. Losses were posted to the Fund at the end of the first quarter where strengthening euro- and sterling-U.S. dollar exchange rates and an upwards shift in the eurodollar term structure led to the most notable detractors. Profits were posted to the Fund at the beginning of the second quarter due to the Trading Programs long positions in the Japanese yen, which rallied at the end of April after the Bank of Japan decided against further monetary easing. Losses were posted to the Fund in the middle of the quarter. The Trading Programs long positioning in the Japanese yen and the Australian dollar held back returns. Profits were posted to the Fund at the end of the second quarter. Losses were posted to the Fund at the beginning of the third quarter. Performance was driven by market movements towards the end of July as a strengthening Euro hurt the Trading Programs short position in the shared currency. Losses were posted to the Fund in the middle of the quarter as the U.S. dollar weighed on the Trading Programs long positioning against the Japanese yen. Profits were posted to the Fund at the end of the third quarter due to the Trading Programs long positions in the Japanese yen. Profits were posted to the Fund at the beginning of the fourth quarter as the Trading Program gained from short positions in the British pound and the euro, although a longstanding position in the Japanese yen gave up some of its year-to-date gains after losing ground against the U.S. dollar. Losses were posted to the Fund in the middle of the fourth quarter as profits from a short position in the euro were undone by positioning in emerging market currencies and the British pound. Profits were posted to the Fund at the end of the fourth quarter as the Trading Program benefited from mostly long positioning in the Japanese yen and a short position in the British pound. The Trading Programs position added value during sterlings sharp depreciation after the EU referendum result and the ensuing downwards trend. Emerging market currencies also contributed to returns overall, particularly the Brazilian real which appreciated over the course of the year.
The stock indices sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the first quarter which reversed in the middle of the quarter. Profits were posted to the Fund in the middle of the quarter as global stock markets were steadier in February as compared with January. Losses were posted to the Fund at the end of the first quarter due to the Trading Programs short exposure to the equity markets. Losses were posted to the Fund at the beginning of the second quarter. Profits were posted to the Fund in the middle of the second quarter as global stock markets rose in May. Losses were posted to the Fund at the end of the second quarter as there were sell-offs in global stock markets. Profits were posted to the Fund at the beginning of the third quarter. The Trading Programs long positions in stock indices, particularly in the U.S. S&P 500 was the biggest contributor to performance. Profits were posted to the Fund in the middle of the quarter due to the Trading Programs long positions in stock indices particularly in the Hang Seng. Profits were posted to the Fund at the end of the third quarter despite negative headlines around the European banking sector weighing on the Eurostoxx 50 and the DAX. Profits were posted to the Fund at the beginning of the fourth quarter as returns were mixed at the market level. Profits were posted to the Fund in the middle of the fourth quarter as the Trading Programs long stock index positions, most notably in the U.S. and Japan, added value. Profits were posted to the Fund at the end of the fourth quarter. The Trading Program was long stock indices again overall, leaving it well positioned for subsequent market gains, particularly in the S&P 500.
The agriculture sector posted losses to the Fund. Profits were posted to the Fund at the beginning through the middle of the first quarter. Losses were posted to the Fund at the end of the first quarter due to the Trading Programs short exposure in crops futures. Losses were posted to the Fund at the beginning of the second quarter. The crops sector was an area that detracted from performance as corn and soybean prices surged in response to poor weather conditions in South America. Profits were posted to the Fund in the middle through the end of the second quarter. Crops performed well after a difficult April thanks largely to profits from trading in soybeans. Losses were posted to the Fund at the beginning of the third quarter. Profits were reduced by the Trading Programs long positions in crops and returns in the crops sector were held back after soybean markets sold off on forecasts of favorable growing conditions. Profits were posted to the Fund in the middle of the quarter only to be reversed at the end of the third quarter which carried into the beginning of the fourth quarter. Profits were posted to the Fund in the middle of the fourth quarter due to the Trading Programs short positions in crops. Losses were posted to the Fund at the end of the fourth quarter.
The energy sector posted losses to the Fund. Profits were posted to the Fund at the beginning of the first quarter as the Trading Program continued to follow the crude oil price lower amid rising stockpiles and the removal of sanctions on Iran. Profits were posted to the Fund in the middle of the quarter. A steady and profitable downwards trend in natural gas prices outshone the Trading Programs crude oil positioning, which made minimal gains in February after relatively strong performance in January. Losses were posted to the Fund at the end of the first quarter. The Fund gave up part of its year-to-date profits within energies as the West Texas Intermediate crude prices went up per barrel in March. Losses were posted to the Fund at the beginning of the second quarter. The rising prices caused the Trading Programs short positions to detract from performance, particularly in heating oil futures which rose in value during April. Losses were posted to the Fund in the middle through the end of the second quarter. Profits were posted to the Fund at the beginning of the third quarter due to the Trading Programs short positions in energy. Losses were posted to the Fund in the middle of the quarter. The Trading Programs short positions suffered as crude oil rallied during the first half of August on hopes of a production freeze. Losses were posted to the Fund at the end of the third quarter. Losses were posted to the Fund at the beginning of the fourth quarter as energies were reduced in October. Losses were posted to the Fund in the middle of the fourth quarter as crude oil and natural gas led the losses in energies, while rising yields led to significant reductions in the long fixed income positions during the month. Losses were posted to the Fund at the end of the fourth quarter due to the Trading Programs short crude oil positions which led to losses in the energies sector.
The metals sector posted losses to the Fund. Losses were posted to the Fund at the beginning through the middle of the first quarter. The Trading Programs short position in a rising gold price detracted from performance. Losses were posted to the Fund at the end of the first quarter. Profits were posted to the Fund at the beginning of the second quarter due to the Trading Programs long positions in precious metals. Losses were posted to the Fund in the middle of the second quarter as an increased exposure to gold was responsible for most of the negative performance from the precious metals sector. Profits were posted to the Fund at the end of the second quarter due to the Trading Programs gold positions. Profits were posted to the Fund at the beginning of the third quarter due to the Trading Programs long positions in precious metals. Losses were posted to the Fund in the middle of the quarter. The Trading Programs gains from short positions were undone by losses in long positions amid generally falling prices. Losses were posted to the Fund at the end of the third quarter. The Trading Program started September with profits in precious metals but the European Central Bank announcing that it had not discussed extending its quantitative easing program triggered a market selloff and dragged performance into negative territory. Losses were posted to the Fund at the beginning of the fourth quarter. The Trading Programs long positions across bonds and short-term interest rates dropped amid rising yields and increasing expectations of a U.S. rate hike. The latter also boosted the U.S. dollar which weighed on precious metals, hurting the Trading Programs long positions in gold and silver. Losses were posted to the Fund in the middle of the fourth quarter. A strengthened U.S. dollar also weighed on gold, with the precious metal falling below US$1,200 a troy ounce for the first time since February. Losses were posted to the Fund at the end of the fourth quarter as a reversal in the recent copper rally weighed on performance in the base metals sector.
|
|
Total Trading |
| |
Year ended December 31, 2015 |
|
Profit (Loss) |
| |
|
|
|
| |
Interest Rates |
|
$ |
17,080,347 |
|
Agricultural |
|
3,186,283 |
| |
Currencies |
|
(8,966,092 |
) | |
Energy |
|
36,538,775 |
| |
Metals |
|
8,631,611 |
| |
Stock Indices |
|
(26,141,465 |
) | |
Subtotal |
|
30,329,459 |
| |
Brokerage Commissions |
|
(1,114,645 |
) | |
Total |
|
$ |
29,214,814 |
|
The Fund experienced a net trading profit before brokerage commissions and related fees for the year ended December 31, 2015 of $30,329,459. The Funds profits were primarily attributable to the interest rates, energy and currency sectors posting profits. The metal, stock indices and agriculture sectors posted losses.
The interest rate sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the first quarter as government bond markets rallied, providing positive performance contributions. Profits were posted to the Fund in the middle of the first quarter only to be reversed at the end of the quarter. Markets were further destabilized in March when the U.S. Federal Open Market Committee revised their projected targets, signaling more rapid monetary policy tightening. At the end of the first quarter, the Fund suffered losses in the U.S. fixed income positions. Profits were posted to the Fund at the beginning of the second quarter. In April the European Central Bank opened the door to potential large-scale unsterilized asset purchases in an effort to battle below target inflation. While policymakers stressed that markets should not expect immediate action, European bond prices rallied and yield eager investors helped Greece and Portugal to successfully return to the sovereign debt market after prolonged absences. Long fixed income positions profited where bunds provided the most significant contribution to the Fund. Profits were posted to the Fund in the middle of the second quarter due to the Funds long exposure to German Bunds. Profits were posted to the Fund at the end of the second quarter as the Bank of England made a surprise announcement signaling that interest rates in the United Kingdom could be on the rise sooner than expected. Losses were posted to the Fund at the beginning of the third quarter. At the end of July, a strong GDP number was announced in the U.S and fixed income markets responded with a sharp fall. Profits were posted to the Fund in the middle of the third quarter. Combined with ongoing stresses in the relationship between Russia and Ukraine and continued concerns over European growth (or lack thereof), many fixed income markets reached yearly highs. Losses were posted to the Fund at the end of the third quarter as the prospect of higher U.S. interest rates weighed on bond prices, contributing to losses in this sector. Profits were posted to the Fund at the beginning of the fourth quarter due to the upwards spike in US bond futures in October. Profits were posted to the Fund in the middle of the fourth quarter. Bond yields remained subdued and further declines were experienced in Europe where market participants attempted to interpret communication from the European Central Bank with respect to the possibility of more extensive deflation fighting programs being initiated. As a result, the Trading Programs long bond positions, particularly bunds, delivered positive performance. Profits were posted to the Fund at the end of the fourth quarter. Japanese Prime Minister Shinzo Abe was re-elected but poor activity data confirmed the challenges he faces in pulling the worlds third largest economy, which has slipped into recession, sustainably out of deflation; domestic bond prices continued to rally and the yen sold off in December in anticipation of further stimulus as part of the Abenomics policy.
The energy sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the first quarter. Energy markets rose in January due to demand for heating fuels in North America, benefitting the Funds long natural gas position in particular. Losses were posted to the Fund in the middle through the end of the first quarter due to market volatility. Profits were posted to the Fund at the beginning of the second quarter as natural gas prices and the value of long positions continued to rise in April. Losses were posted to the Fund in the middle of the second quarter. Profits were posted to the Fund at the end of the second quarter. In June conflicts in Iraq threatened refinery output which supported oil prices and benefitted the Funds crude holdings. Losses were posted to the Fund at the beginning of the third quarter. Mild summer weather in the U.S., which was forecasted to continue, had limited energy consumption and subsequently saw storage rise, which eroded the value of Funds natural gas contracts. Crude oil prices and the Funds long position also fell in July where low levels of demand appear to have outweighed the possibility of supply
disruptions, which may be caused by escalating conflicts in the Middle East and additional international sanctions against Russia following the MH17 tragedy. Profits were posted to the Fund in the middle and the end of the third quarter. Profits were posted to the Fund at the beginning of the fourth quarter due to the $10 a barrel fall in crude prices. Profits were posted to the Fund in the middle of the fourth quarter. The anticipated OPEC meeting towards the end of November failed to deliver a meaningful output cut pushing prices lower and benefiting short positions across the energy complex. Profits were posted to the Fund at the end of the fourth quarter. Falling fuel prices profited the Funds short position.
The currency sector posted profits to the Fund. Losses were posted to the Fund at the beginning of the first quarter. In Canada, a worsening trade balance, weak growth and a dovish stance from the central bank contributed to the Canadian dollar trading lower, providing some offset to losses in the currency sector. Profits were posted to the Fund in the middle of the first quarter only to be reversed at the end of the quarter. At the end of the first quarter, the Fund suffered losses across short U.S. dollar positions. The currency sector posted profits to the Fund at the beginning of the second quarter. Losses were posted to the Fund in the middle of the second quarter due to the Funds long Euro positions. Profits were posted to the Fund at the end of the second quarter as sterling reached its highest exchange value against the dollar for over five years profiting the Funds long S&P, bund and pound positions in particular. Losses were posted to the Fund at the beginning of the third quarter. Concerns about the financial strength of a major Portuguese lender provided a reminder that the Eurozone debt crisis is still being resolved. The IMF provided reassurance that risks are isolated in an effort to avoid contagion and also prevent a wider reassessment of the recovering, but still potentially fragile banking system. With the European Central Bank struggling to stem a deflationary tide while U.S. economic activity improved, events emphasized a widening transatlantic divergence through July. Profits were posted to the Fund in the middle of the third quarter due to the gains achieved being positioned short euros. Profits were posted to the Fund at the end of the third quarter due to strong performance for the Trading Program being positioned long euros. Profits were posted to the Fund at the beginning of the fourth quarter. Movements in the Euro against the dollar meant that the currency sector also earned profits in October. Profits were posted to the Fund in the middle of the fourth quarter due to the significant yen depreciation. Profits were posted to the Fund at the end of the fourth quarter. International sanctions against Russia caused for a weak ruble in December. An emergency rate hike took Russias key interest rate higher; however this move only briefly halted the currency depreciation against the U.S. dollar this quarter.
The metals sector posted losses to the Fund. Losses were posted to the Fund at the beginning through the middle of the first quarter only to be reversed at the end of the quarter. Profits were posted to the Fund at the end of the first quarter due to the Funds short positions in silver. Profits were posted to the Fund at the beginning through the middle of the second quarter only to be reversed at the end of the quarter. Losses were posted to the Fund at the end of the second quarter due to regional instability in Iraq which contributed to rising precious metal values and subsequent losses for Funds short positions in this sector. Profits were posted to the Fund at the beginning of the third quarter. Base metal systems contributed positive performance; particularly aluminum and zinc where a series of production cuts by global smelters and mine closures resulted in deteriorating inventories and supply deficits. Profits were posted to the Fund in the middle and the end of the third quarter. Profits were posted to the Fund at the beginning of the fourth quarter due to the declining gold market. Profits were posted to the Fund in the middle of the fourth quarter. Losses were posted to the Fund at the end of the fourth quarter.
The stock indices sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the first quarter. Escalating political tension, notably in Ukraine, Turkey and Thailand, further increased pressure on emerging markets which experienced a broad flight to quality through January. Losses were suffered in the Funds global equity indices which declined towards the end of January. Profits were posted to the Fund in the middle of the first quarter as global equity markets rallied through February, reversing losses experienced in January. Losses were posted to the Fund at the end of the first quarter. The resultant threat of international sanctions against Russia and the simmering geopolitical tension led to a volatile March for global markets. Profits were posted to the Fund at the beginning of the second quarter. Profits were posted to the Fund in the middle of the second quarter. Profits were posted to the Fund at the end of the second quarter. In June the Eurozone tried to stem deflation by cutting key interest rates including the bold move of negative deposit rates. These actions provided a catalyst for a number of U.S. equity indices to climb higher. Losses were posted to the Fund at the beginning of the third quarter. Throughout July, equity markets tried to climb higher, but fell sharply at the end of the month following a very strong GDP number in the U.S. Profits were posted to the Fund in the middle of the third quarter. U.S. equities climbed as investors focused on strong corporate earnings and a healthier domestic micro environment in favor of macro headwinds. Losses were posted to the Fund at the end of the third quarter. The prospect of higher U.S. interest rates weighed on equity prices, contributing to losses in this sector.
Losses were posted to the Fund at the beginning of the fourth quarter due to the global stock markets downward move. Profits were posted to the Fund in the middle of the fourth quarter. The announcement of a broad large monetary stimulus package from the Bank of Japan set the tone for a strong performance in November for global equities. Indices continued to be supported by falling oil prices where slower economic growth in China and Europe, coupled with the U.S. shale gas boom extended forecasts of oversupply. Losses were posted to the Fund at the end of the fourth quarter due to the poor performance for European equity indices.
The agriculture sector posted losses to the Fund. Profits were posted to the Fund at the beginning of the first quarter. In February, drought in Brazil damaged coffee crops and Arabica prices increased. The Funds short positions in coffee suffered losses. Excess rain in the soybean producing regions of Brazil reduced the quality of maturing crops and profited the Funds long position as prices rose which was not enough to offset losses posted to the Fund in the middle of the first quarter. Profits were posted to the Fund at the end of the first quarter. Profits were posted to the Fund at the beginning of the second quarter. In April the agriculture sector had positive performance, in particular the Funds soybean holding which benefitted from reports showing increasing international demand for U.S. crop and little sign of a seasonal decline in shipments from Brazil as the end of its harvest approached. The Fund suffered losses in the middle of the second quarter. In May improving weather conditions in the U.S. and Russia led to double digit declines in the price of wheat and corn, which adversely affected the Funds performance. Corn price declines were further impacted by Chinese import curbs against U.S. genetically modified supplies containing presence of MIR 162, an insect-resistant genetic trait. Losses were posted to the Fund at the end of the second quarter. In June corn prices continued to fall with high inventory levels and anticipation of large harvests in the U.S. adding to bearish sentiment and reducing the value of the Funds contracts. Losses were posted to the Fund at the beginning of the third quarter. Losses were posted to the Fund in the middle of the third quarter as Vladimir Putin banned imports of agricultural produce from those countries which imposed sanctions on Russia for its actions in the Ukraine crisis. Losses were posted to the Fund at the end of the third quarter as soybean prices and the value of contracts continued to fall in September, trading lower as U.S. farmers began to harvest a strong crop and China suspended import approval for two genetically modified traits. Profits were posted to the Fund at the beginning of the fourth quarter as a grain markets rallied in October. Losses were posted to the Fund in the middle of the fourth quarter. Profits were posted to the Fund at the end of the fourth quarter.
|
|
Total Trading |
| |
Year ended December 31, 2014 |
|
Profit (Loss) |
| |
|
|
|
| |
Interest Rates |
|
$ |
112,341,985 |
|
Agricultural |
|
(10,831,497 |
) | |
Currencies |
|
23,750,878 |
| |
Energy |
|
48,093,717 |
| |
Metals |
|
(1,188,085 |
) | |
Stock Indices |
|
(2,148,455 |
) | |
Subtotal |
|
170,018,543 |
| |
Brokerage Commissions |
|
(1,182,808 |
) | |
Total |
|
$ |
168,835,735 |
|
The Fund experienced a net trading profit before brokerage commissions and related fees for the year ended December 31, 2014 of $170,018,543. The Funds profits were primarily attributable to the stock indices, currency, agriculture, and metal sectors posting profits. The energy and interest rate sectors posted losses.
The stock indices posted profits to the Fund. Profits were posted to the Fund at the beginning of the first quarter due to the markets in Europe and Japan rising along with the U.S. markets. Losses were posted to the Fund in the middle of the first quarter. February was a turbulent month for asset prices with plenty of impacting events. These included a UK downgrade, the Bank of Japan searching for a new governor and the U.S. Federal Open Market Committee (FOMC) discussing how they will unwind their quantitative easing. These events interrupted the January stock market rally which left the value of the Funds equity positions down in February. Profits were posed to the Fund at the end of the first quarter. Despite the sequestration U.S. budget cuts coming into effect at the beginning of March, U.S. equity markets resumed their rally. Promising employment data complemented the positive market mood, pushing the Dow Jones higher
and producing strong returns for the Funds equity index. Profits were posted to the Fund at the beginning through the middle of the second quarter resulting from the Trading Programs long and short positions. Losses were posted to the Fund at the end of the second quarter due to the Trading Programs long positions in the equity markets. Profits were posted to the Fund at the beginning of the third quarter. U.S. and European equity indices recovered some of their June losses in July, which was to the benefit of the Funds portfolio which remained net long in this sector. Losses were posted to the Fund in the middle of the third quarter. Attention shifted through the course of August from the prospect of U.S. domestic monetary policy tightening to rapidly escalating geopolitical tensions. Both themes weighed on sentiment and developments in Syria apparently accelerated a sell-off in risky assets. As part of this sell-off equity prices fell, causing losses in the Trading Programs stock index positions. Profits were posted to the Fund at the end of the third quarter. Profits were posted to the Fund at the beginning of the fourth quarter as world stock markets closed October higher. Profits were posted to the Fund in the middle through the end of the fourth quarter due to the Trading Programs American and Japanese stock positions.
The currency sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the first quarter. In Asia, the new Japanese government initiating a yen stimulus package helped the Trading Programs short position in the Japanese yen. Long euro positions produced profits for the Fund. Losses were posted to the Fund in the middle of the first quarter. The strong upward moves in the U.S. dollar left the value of the Trading Programs currency positions down in February. Profits were posted to the Fund at the end of the first quarter. Governor Kuroda used his first press conference as leader of the Bank of Japan to reiterate his desire to end deflation. This contributed to the Trading Programs profits in the Japanese yen. Profits were posted to the Fund at the beginning of the second quarter resulting from the Trading Programs short positions in the Japanese yen. Losses were posted to the Fund in the middle of the second quarter as currencies weakened as the differential between core and peripheral yields narrowed, negatively impacting the Trading Programs long holding of Turkish lira and Chilean peso. Losses were posted to the Fund at the end of the second quarter resulting from the Trading Programs holdings of Turkish lira and Russian rouble. Losses were posted to the Fund at the beginning of the third quarter as the euro rallied to erase its recent losses, but these gains were offset by losses in the Trading Programs short Japanese yen position. Losses were posted to the Fund in the middle of the third quarter due to a rise in energy prices which contributed to a weakening in currencies of oil importing nations, most notably India. Profits were posted to the Fund at the end of the third quarter with the U.S. dollar losing some interest rate support. Long positions in euros, sterling and emerging market currencies including the rouble and rand rallied. Profits were posted to the Fund at the beginning of the fourth quarter from the Trading Programs long positions in the euro. Profits were posted to the Fund in the middle through the end of the fourth quarter as the Trading Programs short positions in Japanese yen contributed to performance.
The agriculture sector posted profits to the Fund. Losses were posted to the Fund at the beginning of the first quarter which was reversed in the middle of the quarter. Profits were posted to the Fund in the middle of the first quarter. Rain in the U.S., most notably over the plains, reduced concerns of drought conditions worsening. This weather contributed to crop prices falling, benefitting the Trading Programs short wheat and corn positions. Profits were posted to the Fund at the end of the first quarter. Losses were posted to the Fund at the beginning of the second quarter. Profits were posted to the Fund in the middle through the end of the second quarter. Losses were posted to the Fund at the beginning of the third quarter. Profits were posted to the Fund in the middle of the third quarter. Crops provided the strongest performance as dry conditions in the Midwest threatened new crop yields and strong demand from China helped soybean futures post gains. Losses were posted to the Fund at the end of the third quarter. Profits were posted to the Fund at the beginning through the middle of the fourth quarter. The soy complex traded strongly in November reacting positively to export data and profiting the Funds soybean and soymeal holdings. Crop markets, coffee, the soybean complex, wheat and sugar all made positive contributions ending the year with profits being posted to the Fund
The metals sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the first quarter only to be reversed in the middle of quarter. Position liquidation and interrupted demand contributed to market falls with the result that the Trading Programs silver holding positions incurred losses. Profits were posted to the Fund at the end of the first quarter. Profits were posted to the Fund at the beginning of the second quarter. Metal prices sold off and struggled to recover in April increasing the value of the Trading Programs short holdings in gold, copper and to a lesser extent, silver. Profits were posted to the Fund in the middle of the second quarter resulting from precious metals losses, benefitting the Trading Programs short gold position. Profits were posted to the Fund at the end of the second quarter from the Trading Programs short positions in the precious and base metal sectors. Losses were posted to the Fund at the beginning of the third quarter as metal markets experienced a relief rally in July contributing losses to the Trading
Programs short gold and copper positions. Losses were posted to the Fund in the middle of the third quarter as precious metal prices rallied leading to further losses in short gold and silver positions. Profits were posted to the Fund at the end of the third quarter due to the Trading Programs short gold and silver positions. Losses were posted to the Fund at the beginning of the fourth quarter only to be reversed in the middle of the fourth quarter. Profits were posted to the Fund in the middle of the fourth quarter due to the Trading Programs short positions in gold and silver. Profits were posted to the Fund at the end of the fourth quarter as gold continued to fall.
The energy sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the first quarter. Energy prices increased during January with a negative impact on the Trading Programs short oil and natural gas positions. Losses were posted to the Fund in the middle of the first quarter. Profits were posted to the Fund at the end of the first quarter. Extended cold weather eroded natural gas storage levels, pushing prices higher resulting in the energy sector posting profits. Profits were posted to the Fund at the beginning of the second quarter only to be reversed in the middle through the end of the second quarter. Losses were posted to the Fund at the beginning of the third quarter. The energy complex witnessed a broad rally in the first half of July driven by encouraging economic data in the U.S. and reducing the value of short positions held in heating and crude oil. Losses were posted to the Fund in the middle of the third quarter as energy prices rose towards the end of August in connection with the possibility of supply disruption. Losses were posted to the Fund at the end of the third quarter as the Trading Program reduced the value of crude holdings. Losses were posted to the Fund at the beginning of the fourth quarter. Profits were posted to the Fund in the middle of the fourth quarter. Losses were posted to the Fund at the end of the fourth quarter.
The interest rate sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the first quarter. There were indications of early repayments of European Central Bank loans. A consequence of positive sentiment was increased focus on if, and when, monetary policy will slow and liquidity removal will start. This attention pushed interest rates higher and reduced the value of Trading Programs fixed income positions, particularly in Europe. Profits were posted to the Fund in the middle of the first quarter with higher moves in bond and fixed income prices. Profits were posted to the Fund at the end of the first quarter. Profits were posted to the Fund at the beginning of the second quarter. Financial markets extended their rally through April, with the global search for yield overshadowing potential stumbling blocks surrounding European politics. The combination of central bank balance sheet expansion and a generally bullish earnings season helped deliver positive performance from the fixed income portfolio. Losses were posted to the Fund in the middle of the second quarter. Yields pushed higher as fixed income positions unwound, reducing the value of the Trading Programs long holdings in Europe and the U.S. Losses were posted to the Fund at the end of the second quarter. June proved to be a volatile four weeks for the Fund as it recovered from being down mid-month. The markets continued to feel panicked with the rise in U.S. yields that started in May continuing at an accelerated pace despite attempts from Federal Reserve officials to reassure market participants. This momentum was not helped by generally positive U.S. economic data and the resulting sell off in asset prices suggests that many market participants were rapidly unwinding their positions. The Trading Programs long positions in the fixed income markets fell in value. Profits were posted to the Fund at the beginning of the third quarter as monetary policy was a dominant influence on global financial markets throughout July. Some central banks, including those in the UK, Europe and Australia appeared to distance themselves from the discussions of tapering in the U.S. by providing guidance towards policy remaining accommodative. Losses were posted to the Fund in the middle of the third quarter. August performance was disappointing, as the Trading Program was not well positioned to weather the sell-off. Profits were posted to the Fund at the end of the third quarter as sentiment was boosted in September when the U.S. Federal Reserve did not start tapering. Profits were posted to the Fund at the beginning of the fourth quarter. Events in Washington dominated the attention of the financial markets during October. The U.S. political impasse saw an actual shutdown of a number of federal government activities, borrowing levels moving towards the debt ceiling and speculation mounting of a technical default on paying bond holders. By mid-October President Obama signed in a temporary extension to the debt ceiling. U.S. government bonds were seemingly unaffected by events, closing the month of October up resulting in profits posted to the Fund. Profits were posted to the Fund in the middle of the fourth quarter as short term interest rates in the U.S. continued the gentle ascent that began back in September, resulting in a further positive contribution to the Fund. Losses were posted to the Fund at the end of the fourth quarter.
Variables Affecting Performance
The principal variables that determine the net performance of the Fund are gross profitability from the Funds trading activities and interest income.
The Fund generally earns interest based on BofA Corp.s Interest Earning Program. 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%, except for the currencies designated by MLPF&S as negative interest rate currencies, see Item 1(c) Narrative Description of BusinessCash Management and Interest. The current short term interest rates have remained extremely low when compared with historical rates and thus has contributed negligible amounts to overall Fund performance.
During all periods set forth above in Selected Financial Data, the interest rates in many countries were at unusually low levels. In addition, low interest rates are frequently associated with reduced fixed income market volatility, and in static markets the Funds profit potential generally tends to be diminished. On the other hand, during periods of higher interest rates, the relative attractiveness of a high risk investment such as the Fund may be reduced as compared to high yielding and much lower risk fixed-income investments.
The Funds management fees and Sponsor fees are a constant percentage of Funds assets. Brokerage commissions, which are not based on a percentage of the Funds assets, are based on actual round turns. The performance fees payable to the Trading Advisor are based on increase in the aggregate Net Asset Value of Classes of Units subject to the same rate of performance fees in excess of the High Water Mark, excluding interest and prior to reduction for Sponsor fees.
Unlike many investment fields, there is no meaningful distinction in the operation of the Fund between realized and unrealized profits. Most of the contracts traded by the Fund are highly liquid and can be closed out at any time.
Except in unusual circumstances, factorsregulatory approvals, cost of goods sold, employee relations and the likewhich often materially affect an operating business, have no material impact on the Fund.
Liquidity; Capital Resources
The Fund borrows only to a limited extent and only on a strictly short-term basis in order to finance losses on non-U.S. dollar denominated trading positions pending the conversion of the Funds U.S. dollar deposits. These borrowings are at a prevailing short-term rate in the relevant currency.
Substantially all of the Funds assets are held in cash with the brokers. Changes in interest rates could cause periods of strong up or down price trends, during which the Funds profit or loss potential might increase. Inflation in commodity prices could also generate price movements, which the strategies might successfully follow. The Fund should be able to close out its open trading positions and liquidate its holdings relatively quickly and at market prices, except in unusual circumstances. This typically permits the Fund to limit losses as well as reduce market exposure on short notice should its strategies indicate doing so.
As a commodity pool, the Fund maintains an extremely large percentage of its assets in cash, which it must have available to post initial and variation margin on futures contracts. This cash is also used to fund redemptions. While the Fund has the ability to fund redemption proceeds from liquidating positions, as a practical matter positions are not liquidated to fund redemptions. In the event that positions were liquidated to fund redemptions, MLAI, as the Manager of the Fund, has the ability to override decisions of the Trading Advisor to fund redemptions if necessary, but in practice the Trading Advisor would determine in its discretion which investments should be liquidated.
The Fund has no applicable off-balance sheet arrangements or tabular disclosure of contractual obligations of the type described in Items 303(a)(4) and 303(a)(5) of Regulation S-K.
Recent Accounting Developments
Recent accounting developments, if any, are discussed in the notes to the financial statements, which are included in Exhibit 13.01.
Item 7A: Quantitative and Qualitative Disclosures About Market Risk
Introduction
The Fund is a speculative commodity pool. The market sensitive instruments held by it are acquired for speculative trading purposes and all or substantially all of the Funds assets are subject to the risk of trading loss. Unlike an operating company, the risk of market sensitive instruments is integral, not incidental, to the Funds main line of business.
Market movements result in frequent changes in the fair market value of the Funds open positions and, consequently, in its earnings and cash flow. The Funds market risk is influenced by a wide variety of factors, including the level and volatility of interest rates, exchange rates, equity price levels, the market value of financial instruments and contracts, the diversification effects among the Funds open positions and the liquidity of the markets in which it trades.
The Fund, under the direction of the Trading Advisor, rapidly acquires and liquidates both long and short positions in a wide range of different markets. Consequently, it is not possible to predict how a particular future market scenario will affect performance, and the Funds past performance is not necessarily indicative of its future results.
Value at Risk is a measure of the maximum amount which the Fund could reasonably be expected to lose in a given market sector. However, the inherent uncertainty of the Funds speculative trading and the recurrence in the markets traded by the Fund of market movements far exceeding expectations could result in actual trading or non-trading losses far beyond the indicated Value at Risk or the Funds experience to date (i.e. risk of ruin). In light of the foregoing, as well as the risks and uncertainties intrinsic to all future projections, the quantifications included in this section should not be considered to constitute any assurance or representation that the Funds losses in any market sector will be limited to Value at Risk or by the Funds attempts to manage its market risk.
Quantifying The Funds Trading Value At Risk
Quantitative Forward-Looking Statements
The following quantitative disclosures regarding the Funds market risk exposures contain forward-looking statements within the meaning of the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933 (Securities Act) and Section 21E of the Securities Exchange Act of 1934 (Securities Exchange Act)). All quantitative disclosures in this section are deemed to be forward-looking statements for purposes of the safe harbor, except for statements of historical fact.
The Funds risk exposure in the various market sectors traded by the Trading Advisor is quantified below in terms of Value at Risk. Due to the Funds fair value accounting, any loss in the fair value of the Funds open positions is directly reflected in the Funds earnings (realized or unrealized) and cash flow (in the case of exchange-traded contracts in which profits and losses on open positions are settled daily through variation margin).
Exchange maintenance margin requirements have been used by the Fund as the measure of its Value at Risk. Maintenance margin requirements are set by exchanges to equal or exceed the maximum loss in the fair value of any given contract incurred in 95%-99% of the one-day time periods included in the historical sample (generally approximately one year) researched for purposes of establishing margin levels. The maintenance margin levels are established by dealers and exchanges using historical price studies as well as an assessment of current market volatility (including the implied volatility of the options on a given futures contract) and economic fundamentals to provide a probabilistic estimate of the maximum expected near-term one-day price fluctuation.
In the case of market sensitive instruments which are not exchange-traded (almost exclusively currencies in the case of the Fund), the margin requirements for the equivalent futures positions have been used as Value at Risk. In those rare cases in which a futures-equivalent margin is not available, dealers margins have been used.
100% positive correlation in the different positions held in each market risk category has been assumed. Consequently, the margin requirements applicable to the open contracts have been aggregated to determine each trading categorys aggregate Value at Risk. The diversification effects resulting from the fact that the Funds positions are rarely, if ever, 100% positively correlated have not been reflected.
The Funds Trading Value at Risk in Different Market Sectors
The following table indicates the average, highest and lowest trading Value at Risk associated with the Funds open positions by market category for the fiscal periods. During the years ended December 31, 2016 and December 31, 2015, the Funds average period-end Net Asset Value was approximately $969,936,827 and $1,055,898,502, respectively.
December 31, 2016
|
|
Average |
|
% of Average |
|
Highest Value |
|
Lowest Value |
| |||
Market Sector |
|
Value at Risk |
|
Capitalization |
|
At Risk |
|
At Risk |
| |||
|
|
|
|
|
|
|
|
|
| |||
Agriculture |
|
$ |
4,089,851 |
|
0.42 |
% |
$ |
7,138,751 |
|
$ |
2,312,825 |
|
Currencies |
|
9,504,223 |
|
0.98 |
% |
21,985,842 |
|
7,891 |
| |||
Energy |
|
8,870,865 |
|
0.91 |
% |
31,287,902 |
|
563,007 |
| |||
Interest Rates |
|
30,586,257 |
|
3.15 |
% |
59,972,949 |
|
9,746,242 |
| |||
Metals |
|
8,175,310 |
|
0.84 |
% |
12,748,853 |
|
4,731,694 |
| |||
Stock Indices |
|
4,192,835 |
|
0.43 |
% |
9,648,214 |
|
1,507,734 |
| |||
|
|
|
|
|
|
|
|
|
| |||
TOTAL |
|
$ |
65,419,341 |
|
6.73 |
% |
$ |
142,782,511 |
|
$ |
18,869,393 |
|
December 31, 2015
|
|
Average |
|
% of Average |
|
Highest Value |
|
Lowest Value |
| |||
Market Sector |
|
Value at Risk |
|
Capitalization |
|
At Risk |
|
At Risk |
| |||
|
|
|
|
|
|
|
|
|
| |||
Agriculture |
|
$ |
6,913,634 |
|
0.65 |
% |
$ |
13,834,885 |
|
$ |
2,714,785 |
|
Currencies |
|
9,329,593 |
|
0.88 |
% |
15,759,994 |
|
2,206,360 |
| |||
Energy |
|
3,212,942 |
|
0.30 |
% |
5,524,077 |
|
1,903,287 |
| |||
Interest Rates |
|
41,561,940 |
|
3.94 |
% |
56,151,635 |
|
24,738,289 |
| |||
Metals |
|
7,378,020 |
|
0.70 |
% |
12,058,917 |
|
2,833,120 |
| |||
Stock Indices |
|
8,891,046 |
|
0.84 |
% |
17,645,825 |
|
2,530,879 |
| |||
|
|
|
|
|
|
|
|
|
| |||
TOTAL |
|
$ |
77,287,175 |
|
7.31 |
% |
$ |
120,975,333 |
|
$ |
36,926,720 |
|
Material Limitations on Value at Risk as an Assessment of Market Risk
The face value of the market sector instruments held by the Fund is typically many times the applicable maintenance margin requirement (maintenance margin requirements generally ranging between approximately 1% and 10% of contract face value) as well as many times the capitalization of the Fund. The magnitude of the Funds open positions creates a risk of ruin not typically found in most other investment vehicles. Because of the size of its
positions, certain market conditions unusual, but historically recurring from time to time could cause the Fund to incur severe losses over a short period of time. The foregoing Value at Risk table as well as the past performance of the Fund gives no indication of this risk of ruin.
Non-Trading Risk
Foreign Currency Balances; Cash on Deposit with MLPF&S and MLI.
The Fund has non-trading market risk on its foreign cash balances not needed for margin. However, these balances (as well as the market risk they represent) are immaterial.
The Fund also has non-trading market risk on the approximately 90% of its assets which are held in cash at MLPF&S. The value of this cash is not interest rate sensitive, but there is cash flow risk in that if interest rates decline so will the cash flow generated on these monies.
Qualitative Disclosures Regarding Primary Trading Risk Exposures
The following qualitative disclosures regarding the Funds market risk exposures except for (i) those disclosures that are statements of historical fact and (ii) the descriptions of how the Fund manages its primary market risk exposures constitute forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. The Funds primary market risk exposures as well as the strategies used and to be used by MLAI and the Trading Advisor for managing such exposures are subject to numerous uncertainties, contingencies and risks, any one of which could cause the actual results of the Funds risk controls to differ materially from the objectives of such strategies. Government interventions, defaults and expropriations, illiquid markets, the emergence of dominant fundamental factors, political upheavals, changes in historical price relationships, an influx of new market participants, increased regulation and many other factors could result in material losses as well as in material changes to the risk exposures and the risk management strategies of the Fund. There can be no assurance that the Funds current market exposure and/or risk management strategies will not change materially or that any such strategies will be effective in either the short- or long-term. Investors must be prepared to lose all or substantially all of the time value of their investment in the Fund.
The following were the primary trading risk exposures of the Fund as of December 31, 2016, by market sector.
Interest Rates
Interest rate movements directly affect the price of derivative sovereign bond positions held by the Fund and indirectly the value of its stock index and currency positions. Interest rate movements in one country as well as relative interest rate movements between countries materially impact the Funds profitability. The Funds primary interest rate exposure is to interest rate fluctuations in the United States and the other G-7 countries. However, the Fund also takes positions in the government debt of smaller nations e.g., Australia. MLAI anticipates that G-7 interest rates will remain the primary market exposure of the Fund for the foreseeable future.
Currencies
The Fund trades in a number of currencies. However, the Funds major exposures have typically been in the U.S. dollar/Euro, U.S. dollar/Japanese yen and U.S. dollar/Indian rupee positions. The Fund does not anticipate that the risk profile of the Funds currency sector will change significantly in the future. The currency trading Value at Risk figure includes foreign margin amounts converted into U.S. dollars with an incremental adjustment to reflect the exchange rate risk of maintaining Value at Risk in a functional currency other than U.S. dollars.
Stock Indices
The Funds primary equity exposure is due to various equity index price movements. The Fund is primarily exposed to the risk of adverse price trends or static markets in the major U.S., European and Asian indices.
Metals
The Funds metals market exposure is to fluctuations in both the price of precious and non-precious metals.
Agricultural Commodities
The Funds primary agricultural commodities exposure is to agricultural price movements which are often directly affected by severe or unexpected weather conditions. Soybeans, corn and livestock accounted for the substantial bulk of the Funds agricultural commodities exposure as of December 31, 2016.
Energy
The Funds primary energy market exposure is to natural gas and crude oil price movements, often resulting from political developments in the Middle East. Oil prices can be volatile and substantial profits and losses have been and are expected to continue to be experienced in this market.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following were the primary non-trading risk exposures of the Fund as of December 31, 2016.
Foreign Currency Balances
The Funds primary foreign currency balances are in Japanese yen, British pounds and Euros.
U.S. Dollar Cash Balance
The Fund holds the vast majority of its U.S. dollars in cash at MLPF&S and MLI. The Fund has immaterial cash flow interest rate risk on its cash on deposit with MLPF&S in that declining interest rates would cause the income from such cash to decline.
Qualitative Disclosures Regarding Means of Managing Risk Exposure
Trading Risk
MLAI has procedures in place intended to control market risk, although there can be no assurance that they will, in fact, succeed in doing so. While MLAI does not itself intervene in the markets to hedge or diversify the Funds market exposure, MLAI may urge the Trading Advisor to reallocate positions in an attempt to avoid over-concentrations. However, such interventions are unusual, except in cases in which it appears that the Trading Advisor has begun to deviate from past practice and trading policies or to be trading erratically. MLAIs basic control procedures consist of the process of monitoring the Trading Advisor with the market risk controls being applied by the Trading Advisor itself.
Risk Management
In respect of the Trading Program, the most important determinant of risk is the level of leverage. In order to determine the level of leverage, comprehensive information is required on the risks the Trading Program is taking, including the Trading Programs long- and short-term forecast value at risk using both standard and proprietary volatility models, stress-tested models of extreme value at risk (tail risk) using various proprietary methods, forecasts of extreme loss frequency and measures of margin employment and leverage. The Trading Advisor forecasts volatility in each market and the correlation between markets daily in order to forecast the overall volatility of the portfolio and adjust leverage accordingly to manage portfolio risk. The Trading Advisors investment management committee is primarily responsible for managing investment risk, with oversight from the Trading Advisors risk committee. This risk committee oversees the identification, assessment, management and monitoring of risks to which the Trading Program is exposed, including investment risk, counterparty risk, IT and security risks and regulatory risks.
Non-Trading Risk
The Fund controls the non-trading exchange rate risk by regularly converting foreign currency balances back into U.S. dollars at least once per week, and more frequently if a particular foreign currency balance becomes unusually high.
The Fund has cash flow interest rate risk on its cash on deposit with MLPF&S in that declining interest rates would cause the income from such cash to decline. However, a certain amount of cash or cash equivalents must be held by the Fund in order to facilitate margin payments and pay expenses and redemptions. MLAI does not take any steps to limit the cash flow risk on its cash held on deposit at MLPF&S.
Item 8: Financial Statements and Supplementary Data
The following quarterly information is unaudited.
Net Income (Loss) per quarter
Eight quarters through December 31, 2016
|
|
Fourth |
|
Third |
|
Second |
|
First |
|
Fourth |
|
Third |
|
Second |
|
First |
| ||||||||
|
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
| ||||||||
|
|
2016 |
|
2016 |
|
2016 |
|
2016 |
|
2015 |
|
2015 |
|
2015 |
|
2015 |
| ||||||||
Total Income (Loss) |
|
$ |
(19,712,849 |
) |
$ |
(11,498,263 |
) |
$ |
20,662,996 |
|
$ |
27,076,758 |
|
$ |
8,206,879 |
|
$ |
27,587,445 |
|
$ |
(70,405,389 |
) |
$ |
63,864,336 |
|
Total Expenses |
|
8,163,252 |
|
8,590,215 |
|
8,620,925 |
|
9,106,909 |
|
9,126,355 |
|
9,376,611 |
|
9,537,187 |
|
20,975,691 |
| ||||||||
Net Income (Loss) |
|
$ |
(27,876,101 |
) |
$ |
(20,088,478 |
) |
$ |
12,042,071 |
|
$ |
17,969,849 |
|
$ |
(919,476 |
) |
$ |
18,210,834 |
|
$ |
(79,942,576 |
) |
$ |
42,888,645 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Net Income (Loss) per weighted average Unit (a) |
|
$ |
(0.0458 |
) |
$ |
(0.0323 |
) |
$ |
0.0188 |
|
$ |
0.0269 |
|
$ |
(0.0013 |
) |
$ |
0.0258 |
|
$ |
(0.1138 |
) |
$ |
0.0644 |
|
(a) The Net Income (Loss) per weighted average Unit is based on the weighted average of the total Units for each quarter.
The financial statements required by this Item are included in Exhibit 13.01.
The supplementary financial information (information about oil and gas producing activities) specified by Item 302(b) of Regulation S-K is not applicable.
Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A: Controls and Procedures
Disclosure Controls and Procedures
MLAIs Chief Executive Officer and Chief Financial Officer, on behalf of the Fund, have evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Securities Exchange Act) with respect to the Fund as of and for the year which ended December 31, 2016, and, based on their evaluation, have concluded that these disclosure controls and procedures are effective.
Managements Annual Report on Internal Control over Financial Reporting:
The Funds management is responsible for establishing and maintaining adequate internal control over financial reporting. The Funds internal control over financial reporting is a process designed under the supervision of MLAIs Chief Executive Officer and the Chief Financial Officer, on behalf of the Fund and is effected by management, other personnel and service providers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and included those policy and procedures that:
· Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Fund.
· Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Fund are being made only in accordance with authorizations of management and directors of the Fund; and
· Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use or disposition of the Funds assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in condition, or that the degree of compliance with the policies or procedures may deteriorate.
The Funds management assessed the effectiveness of the Funds internal control over financial reporting as of December 31, 2016. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in its report entitled Internal Control Integrated Framework (2013).
Based on its assessment the Funds management concluded that at December 31, 2016, the Funds internal control over financial reporting was effective.
Changes in Internal Control over Financial Reporting
No change in internal control over financial reporting (in connection with Rule 13a-15 or Rule 15d-15 under the Securities Exchange Act) occurred during the quarter ended December 31, 2016 that has materially affected, or is reasonably likely to materially affect, the Funds internal control over financial reporting.
Item 9B: Other Information
Not applicable.
PART III
Item 10: Directors, Executive Officers and Corporate Governance
10(a) and 10(b) Identification of Directors and Executive Officers:
The Fund has no officers or directors and is managed by MLAI. Trading decisions are made by the Trading Advisor on behalf of the Fund.
The managers and executive officers of MLAI and their respective business backgrounds are as follows:
Nancy Fahmy Chief Executive Officer, President and Manager
Barbra E. Kocsis Chief Financial Officer and Vice President
Dominick A. Carlino Vice President and Manager
Ninon Marapachi Vice President and Manager
Jeff McGoey Vice President and Manager
Greg Parets Vice President and Manager
John V. Leale Vice President and Manager
Nancy Fahmy, age 42, has been the Chief Executive Officer and President of MLAI since October 2015 and is also head of Alternative Investments for the Global Wealth and Retirement Solutions group (GWRS), which is a business unit within the BofA Corp. Global Wealth & Investment Management group (GWIM), a division within BofA Corp. The Alternative Investments group is responsible for providing advisors and clients with access to a range of platforms and investments solutions including hedge funds, private equity, managed futures and precious metals. Since January 2014, she has been a member of MLAIs Board of Managers. Prior to her appointment as the head of the Alternative Investment group in July 2015, Ms. Fahmy was a Managing Director within GWIM, and responsible for private equity and real assets origination and distribution within MLAI since December 2012. She joined MLAI as a Director in April 2006 and was head of private equity and real assets origination and distribution from that date to December 2012. In these capacities, Ms. Fahmy was responsible for a team of private equity and real assets specialists that worked with financial advisors, portfolio managers and clients to educate and raise capital. Ms. Fahmy holds a B.S. degree in Business Administration and Finance with a minor in Economics from the University of Delaware.
Ms. Fahmy has been registered with the CFTC as an associated person of MLAI since October 22, 2015, and she has been listed as a principal of MLAI since January 9, 2014. Ms. Fahmy has been a NFA associate member and registered as an associated person of MLPF&S since October 2015.
Barbra E. Kocsis, age 50, is the Chief Financial Officer for MLAI and is a Director within BofA Corp.s Global Technology and Operations group, positions she has held since October 2006. Ms. Kocsis responsibilities include providing a full range of specialized financial and tax accounting services for the Alternative Investment products offered through the Selling Agent. She graduated cum laude from Monmouth College with a Bachelor of Science in Business Administration Accounting.
Ms. Kocsis has been listed with the CFTC as a principal of MLAI since May 21, 2007.
Dominick A. Carlino, age 44, has been a Managing Director of MLAI since April 2016, and the head of heading Relationship Management and Business Development Distribution for MLAI, since May 2013. In his role, he is responsible for enhancing and driving relationships between MLAI and key asset management partners. Mr. Carlino was on a garden leave from July 2012 through May 2013. Prior to joining Merrill Lynch, Mr. Carlino was Senior Managing Director and Head of Business Development at AlphaOne Capital Partners LLC, an equity-focused alternative asset management firm, from March 2011 through July 2012. From April 2005 through March 2011, he served as an Executive Director within Morgan Stanley Alternative Investment Partners LP, a registered commodity pool operator, focused on business development and distribution. Mr. Carlino holds an M.B.A. and a B.S. degree in Finance from Villanova University.
Mr. Carlino has been listed as a principal of MLAI since January 2, 2014.
Ninon Marapachi, age 39, has been the head of the Hedge Fund Origination and Product Management team within the BofA Corp. Alternative Investments Group, a division within BofA Corp. that provides investment professionals and their clients with access to investment products and other services, since September 2008. Her team is responsible for sourcing, structuring, negotiating and managing hedge funds and managed futures products on GWRS hedge fund platform. Ms. Marapachi graduated magna cum laude with a B.A. degree in Economics from Mount Holyoke College.
Ms. Marapachi has been listed as a principal of MLAI since January 3, 2014. She has been an NFA associate member since February 2011 and registered as an associated person of MLPF&S since March 2011.
Jeff McGoey, age 40, has been a Director within GWRS responsible for Alternative Investment Platform Oversight for BofA Corp. since December 2010. Mr. McGoey had portfolio oversight of ten derivative based closed end funds from March 2009 through December 2010. Within GWRS Alternative Investments, from May 2008 through December 2010, Mr. McGoey was a Vice President holding various roles including hedge fund and private equity origination, exchange fund and customized fund oversight, and managing various strategic initiatives across the organization. Mr. McGoey is a CFA Charter holder, maintains the CAIA designation and holds a B.A. degree in Economics from Rutgers College in New Jersey.
Mr. McGoey has been listed as a principal of MLAI since January 13, 2014.
Greg Parets, age 40, has been Head of Cross Platform Initiatives for the Alternative Investments Group of GWIM since June 2013. Mr. Parets joined BofA Corp. in September 2010 as Head of Strategic Initiatives in the Alternative Investments Groups Origination & Product Management team and remained in this role until June 2013. In this role, he led creation and implementation of an industry-leading platform to offer hedge funds, managed futures, and select private equity funds to advisory accounts. Mr. Parets graduated summa cum laude from The George Washington University with a B.B.A. degree in International Business and cum laude from Harvard Law School with a J.D.
Mr. Parets has been listed as a principal of MLAI since January 2, 2014.
John V. Leale, age 55, is a Director and serves as the Head of the Private Equity and Real Assets Product Origination within BofA Corp. Mr. Leale joined the Alternative Investments group within GWIM in May 2014 and along with his team is responsible for identifying and developing illiquid fund offerings which include private equity, real assets, credit and special situations. Prior to joining Merrill Lynch, Mr. Leale was the head of Private Equity Product Development for Morgan Stanley Wealth Management since 2009. Mr. Leale is a graduate of St. Peters University.
Mr. Leale has been listed as a principal of MLAI since March 1, 2017.
MLAI acts as the sponsor and manager to three public futures funds whose units of limited liability company interests are registered under the Securities Exchange Act: Aspect FuturesAccess LLC, ML BlueTrend FuturesAccess LLC, and ML Winton FuturesAccess LLC. Because MLAI serves as the sole sponsor and manager of each of these funds, the officers and managers of MLAI effectively manage them as officers and directors of such funds.
(c) Identification of Certain Significant Employees:
None.
(d) Family Relationships:
None.
(e) Business Experience:
See Items 10(a) and (b) above.
(f) Involvement in Certain Legal Proceedings:
None.
(g) Promoters and Control Persons:
Not applicable.
(h) Section 16(a) Beneficial Ownership Reporting Compliance:
To the Funds knowledge, all required Section 16(a) filings during the fiscal year ended December 31, 2016 were timely and correctly made.
Code of Ethics:
MLAI and BofA Corp. have adopted a code of ethics which applies to the Funds (MLAIs) principal executive officer and principal financial officer or persons performing similar functions on behalf of the Fund. A copy of the code of ethics is available to any person, without charge, upon request by calling 1-866-MER-ALTS.
Nominating Committee:
Not applicable. (Neither the Fund nor MLAI has a nominating committee.)
Audit Committee; Audit Committee Financial Expert:
Not applicable. (Neither the Fund nor MLAI has an audit committee. There are no listed shares of the Fund or MLAI.)
Item 11: Executive Compensation
The Fund does not have any officers or employees. The managers and officers of MLAI are remunerated by BofA Corp. in their respective positions. The managers and officers do not receive compensation from the Fund. The Fund pays Sponsor fees to MLAI and brokerage commissions to MLPF&S, which is a BofA Corp. affiliate. MLAI also receives a portion of the management fees. MLAI or BofA Corp. affiliates may also receive certain economic benefits from possession of the Funds U.S. dollar assets. See Item 1(c) Narrative Description of BusinessDescription of Current Charges.
Item 12: Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
(a) Security Ownership of Certain Beneficial Owners:
Not applicable. (The Units represent limited liability company interests. The Fund is managed by its Manager, MLAI.)
(b) Security Ownership of Management:
MLAI owns 48 Class D Units which represent less than 1% of the Funds Net Asset Value. The managers and executive officers of MLAI do not own any Units.
(c) Changes in Control:
None.
(d) Securities Authorized for Issuance Under Equity Compensation Plans:
Not applicable.
Item 13: Certain Relationships and Related Transactions and Director Independence
See Item 1(c) Narrative Description of BusinessDescription of Current Charges regarding certain fee arrangements with respect to the Fund and MLAI or other BofA Corp. affiliates.
Director Independence:
No person who served as a manager of MLAI during 2016 could be considered independent (based on the definition of an independent director under the NASDAQ rules).
Item 14: Principal Accounting Fees and Services
(a) Audit Fees
Aggregate fees billed directly to the Fund for professional services rendered by the principal accountant, PricewaterhouseCoopers LLP, for the audit of the Funds annual financial statements and review of financial statements included in the Funds Form 10-Q or services that are normally provided by the accountant in connection with
statutory and regulatory filings or engagements for the years ended December 31, 2016 and 2015 were $182,400 and $182,400, respectively.
(b) Audit-Related Fees
There were no other audit-related fees billed for the years ended December 31, 2016 and 2015 related to the Fund.
(c) Tax Fees
No fees were billed by PricewaterhouseCoopers LLP or any member firms of PricewaterhouseCoopers and their respective affiliates for the years ended December 31, 2016 and 2015 for professional services rendered to the Fund in connection with tax compliance, tax advice and tax planning.
(d) All Other Fees
No other fees were billed by PricewaterhouseCoopers LLP or any member firms of PricewaterhouseCoopers and their respective affiliates for the years ended December 31, 2016 and 2015 for professional services rendered to the Fund, other than as set forth in the preceding paragraph (a).
(e) Neither the Fund nor MLAI has an audit committee to pre-approve principal accountant fees and services. In lieu of an audit committee, the managers and the principal financial officer pre-approve all services prior to the commencement of services.
PART IV
Item 15: Exhibits, Financial Statement Schedules
1. |
Financial Statements (found in Exhibit 13.01): |
|
|
|
Page |
|
|
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
|
1 |
|
|
|
FINANCIAL STATEMENTS: |
|
|
|
|
|
Statements of Financial Condition as of December 31, 2016 and 2015 |
|
2 |
|
|
|
Statements of Operations for the years ended December 31, 2016, 2015 and 2014 |
|
3 |
|
|
|
Statements of Changes in Members Capital for the years ended December 31, 2016, 2015 and 2014 |
|
4 |
|
|
|
Financial Data Highlights for the years ended December 31, 2016, 2015 and 2014 |
|
6 |
|
|
|
Notes to Financial Statements |
|
9 |
2. Financial Statement Schedules:
Financial statement schedules not included in this Form 10-K have been omitted for the reason that they are not required or are not applicable or that equivalent information has been included in the financial statements or notes thereto.
3. Exhibits:
The following exhibits are incorporated by reference or are filed herewith to this Annual Report on Form 10-K:
Designation |
|
Description |
|
|
|
3.01 |
|
Certificate of Formation of ML Winton FuturesAccess LLC. |
|
|
|
Exhibit 3.01: |
|
Is incorporated by reference from Exhibit 3.01 contained in the registrants Registration Statement on Form 10 filed on December 20, 2004 (the Registration Statement). |
|
|
|
3.02 |
|
Sixth Amended and Restated Limited Liability Company Operating Agreement of ML Winton FuturesAccess LLC. |
|
|
|
Exhibit 3.02: |
|
Is incorporated by reference from Exhibit 3.02 contained in the registrants Report on Form 8-K filed on January 30, 2015. |
|
|
|
3.03 |
|
Amendment to the Sixth Amended and Restated Limited Liability Company Operating Agreement of ML Winton FuturesAccess LLC. |
|
|
|
Exhibit 3.03: |
|
Is incorporated by reference from Exhibit 3.01(i) contain in the registrants Report on Form 8-K filed on April 9, 2015. |
|
|
|
10.01 |
|
Customer Agreement between ML Winton FuturesAccess LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated. |
|
|
|
Exhibit 10.01: |
|
Is incorporated by reference from Exhibit 10.01 contained in Amendment No. 1 to the Registration Statement on February 12, 2008. |
|
|
|
10.02 |
|
Amended and Restated Advisory Agreement among ML Winton FuturesAccess LLC, ML Winton FuturesAccess Ltd., Winton Capital Management Limited and Merrill Lynch Alternative Investments LLC. |
|
|
|
Exhibit 10.02: |
|
Is incorporated by reference from Exhibit 10.01 contained in the registrants Report on Form 8-K filed on March 5, 2015. |
|
|
|
10.03 |
|
Amendment to the Advisory Agreement by and among ML Winton FuturesAccess LLC, ML Winton FuturesAccess Ltd., Winton Capital Management Limited and Merrill Lynch Alternative Investments LLC. |
|
|
|
Exhibit 10.03: |
|
Is incorporated by reference from Exhibit 10.01 contained in the registrants Report on Form 8-K filed on May 29, 2015. |
|
|
|
13.01 |
|
2016 Annual Report and Report of Independent Registered Public Accounting Firm. |
|
|
|
Exhibit 13.01: |
|
Is filed herewith. |
|
|
|
31.01 and 31.02 |
|
Rule 13a-14(a)/15d-14(a) Certifications. |
|
|
|
Exhibit 31.01 and 31.02: |
|
Are filed herewith. |
32.01 and 32.02 |
|
Section 1350 Certifications. |
|
|
|
Exhibit 32.01 and 32.02: |
|
Are filed herewith. |
|
|
|
99.1 |
|
Amended and Restated Selling Agreement effective as of July 8, 2011 between Merrill Lynch Alternative Investments LLC (for itself, and as sponsor on behalf of the investment funds listed therein) and Merrill Lynch, Pierce, Fenner & Smith Incorporated (as selling agent). |
|
|
|
Exhibit 99.1: |
|
Is incorporated by reference from Exhibit 99.1 contained in the registrants Report on Form 8-K filed on July 11, 2011. |
|
|
|
101 |
|
The following materials from the Funds Annual Report on Form 10-K for the fiscal year ended December 31, 2016 formatted in XBRL (Extensible Business Reporting Language): (i) Statements of Financial Condition (ii) Statements of Operations (iii) Statements of Changes in Members Capital (iv) Financial Data Highlights and (v) Notes to Financial Statements, tagged as blocks of text. |
|
|
|
Exhibit 101 |
|
Is filed herewith. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 17, 2017.
ML WINTON FUTURESACCESS LLC | ||
| ||
By: |
MERRILL LYNCH ALTERNATIVE INVESTMENTS LLC MANAGER | |
|
|
|
By: |
/s/Nancy Fahmy |
|
Nancy Fahmy |
| |
Chief Executive Officer and President |
| |
(Principal Executive Officer) |
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature |
|
Title |
|
Date |
|
|
|
|
|
|
|
/s/ Nancy Fahmy |
|
Chief Executive Officer, President and Manager |
|
March 17, 2017 |
|
Nancy Fahmy |
|
(Principal Executive Officer) |
|
|
|
|
|
|
|
|
|
/s/ Barbra E. Kocsis |
|
Chief Financial Officer and Vice President |
|
March 17, 2017 |
|
Barbra E. Kocsis |
|
(Principal Financial Officer) |
|
|
|
|
|
|
|
|
|
/s/Dominick A. Carlino |
|
Vice President and Manager |
|
March 17, 2017 |
|
Dominick A. Carlino |
|
|
|
|
|
|
|
|
|
|
|
/s/Ninon Marapachi |
|
Vice President and Manager |
|
March 17, 2017 |
|
Ninon Marapachi |
|
|
|
|
|
|
|
|
|
|
|
/s/Jeff McGoey |
|
Vice President and Manager |
|
March 17, 2017 |
|
Jeff McGoey |
|
|
|
|
|
|
|
|
|
|
|
/s/ Greg Parets |
|
Vice President and Manager |
|
March 17, 2017 |
|
Greg Parets |
|
|
|
|
|
|
|
|
|
|
|
/s/ John V. Leale |
|
Vice President and Manager |
|
March 17, 2017 |
|
John V. Leale |
|
|
|
|
|
ML WINTON FUTURESACCESS LLC
2016 FORM 10-K
INDEX TO EXHIBITS
|
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Exhibit |
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Exhibit 13.01 |
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2016 Annual Report and Report of Independent Registered Public Accounting Firm |
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Exhibit 31.01 and 31.02 |
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Rule 13a - 14(a) / 15d - 14(a) Certifications |
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Exhibit 32.01 and 32.02 |
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Sections 1350 Certifications |
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Exhibit 101 |
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The following materials from the Funds Annual Report on Form 10-K for the fiscal year ended December 31, 2016 formatted in XBRL (Extensible Business Reporting Language): (i) Statements of Financial Condition (ii) Statements of Operations (iii) Statements of Changes in Members Capital (iv) Financial Data Highlights and (v) Notes to Financial Statements, tagged as blocks of text. |