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Transcript of Qfs ucits presentation nov 12
INVEST UCITS FUNDS | NOT FOR DISTRIBUTION TO RETAIL INVESTORS
Merrill Lynch Investment Solutions –
QFS Currency UCITS Fund
November 2012
2
INVEST UCITS FUNDS | NOT FOR DISTRIBUTION TO RETAIL INVESTORS
Important Note
Investors are urged to seek independent advice and to conduct their own due diligence processes regarding
the legal, regulatory, tax or financial implications of any investment. These should include investigations
regarding the suitability of the product to meet their Investment objectives, parameters and constraints, the
investment rationale of the product, and the personnel and procedures employed by the Investment Manager
to the Fund. They should also include assessment of the operational aspects of the Sub-Funds, and the
relevant legal, regulatory, tax and similar framework. Investors are urged to review these findings on a regular
and ongoing basis, as circumstances may change.
Please note that the Sub-Funds are not approved for retail distribution in all jurisdictions - we invite you to
contact Merrill Lynch Investment Solutions (MLIS) to receive the current status
Please also note that this presentation is not approved for distribution to retail investors.
3
INVEST UCITS FUNDS | NOT FOR DISTRIBUTION TO RETAIL INVESTORS
Table of Contents
Part 1: Investment Manager: QFS Asset Management, L.P.
Part 2: Merrill Lynch Investment Solutions – QFS Currency UCITS Fund
Appendix 1: Performance
Appendix 2: Biographies
Important Disclosures & Risk Factors
INVEST UCITS FUNDS | NOT FOR DISTRIBUTION TO RETAIL INVESTORS
Part 1:
Investment Manager: QFS Asset Management, L.P.
5
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QFS at a Glance
Source: QFS Asset Management, L.P.
• Over two decades of delivering uncorrelated alpha to our investors through multiple market cycles
• QFS Currency Program since inception March 1993 has an annualized net return of +11.42%
• Fundamental, econometric process to extract alpha from global capital markets
• Systematic risk management technology designed to truncate the left tail of the return distribution (resulting in positive skew)
• Legacy of research excellence
• Combining the best of Fundamental and Systematic investment managers
• Dedication to innovation in alpha idea generation and portfolio construction
• A real-time trading and portfolio construction methodology integrates alpha generation and risk management
Innovation & Thought Leadership
Members of QFS research team are published in many prestigious publications including:
•American Economic Review •Journal of Finance •Econometrica •Journal of Political Economy
QFS returns are through 10/1/12 and are the composite returns, net of profit share allocations,
fees and expenses, of all accounts managed pursuant to each Program (including certain
accounts that pay reduced or no fees, such as those of QFS and its affiliates, the investments by
which may be material). Certain accounts in each Program composite may have constraints (on
instruments traded or exposure levels) that differ from others in the Program. The returns of any
particular investor will vary from these returns due to a number of factors, including the timing of
its subscriptions and redemptions. Please see Important Disclosures at the end of this
presentation for additional information covering these figures. Past performance is not necessarily
indicative of future results and investors risk the loss of the investment.
Proven Performance
6
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QFS Asset Management - Corporate Profile
Source: QFS Asset Management, L.P.
Founded in 1988
Assets Under Management exceed $1.7 billion as of October 1, 2012
42 employees, with headquarters in Greenwich, Connecticut
16 Person Research & Strategy team, including 6 PhDs
Trades globally across a diverse set of liquid asset classes and instruments
Registered with the Securities and Exchange Commission as an investment advisor and registered with the
Commodities Futures Trading Commission as a commodity trading advisor and commodity pool operator
since 1990 (via predecessor firm)
Operates three investment strategies and through QFS Solutions provides risk assessment, portable alpha
and equity and currency overlay services
Consistent monitoring of counterparty risk
Comprehensive compliance program
Tested business continuity plan with multiple offsite backup locations
Experienced technology department supporting research and operations
Included in our calculation of AUM is $50 million in assets for which QFS provides risk overlay management services and $392 million in assets for which QFS provides risk advisory services. AUM includes both fully funded and notionally funded client portfolios. AUM includes principals’ investments and proprietary capital. AR(Absolute Return + Alpha) is a publication of Institutional Investor and Hedge Fund Intelligence. QFS was nominated for the above award by Hedge Fund Intelligence, using data from the Absolute Return database (to which QFS submits performance and AUM information about its programs). As part of the final nomination process, QFS confirmed to Hedge Fund Intelligence certain performance and AUM information about the QFS Currency Fund and the QFS Currency Program. There were five final nominees in the Managed Futures category.
The QFS Currency Fund won the 2011 AR
Award for Fund of the Year in the
Managed Futures category.
The QFS Global Macro Program and QFS
Currency Program were ranked 2nd and 3rd
respectively, by Lipper’s Best Money Managers
for 20 Quarters 2006 – 2011.
7
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Why QFS
Source: QFS Asset Management, L.P.
• Proven ability to extract Alpha from global capital flows through diverse business cycles
• Rigorous and systematic risk controls
• Trades in liquid markets
• Trading methodology based on over 20 years experience
• The Currency Program has exhibited Positive Skew, since inception
• Over the same period each Program has exhibited Low Correlation to other managers and asset classes
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. An investor could lose some or all of his or her investment in a QFS program.
8
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Opportunity
Source: QFS Asset Management, L.P.
• QFS seeks to identify dispersion and dislocations in global growth rates and central bank monetary policies.
• Currency prices embody the relative economic and monetary conditions among different countries.
• Deep links to country policies – fiscal policy linked to monetary policy
• Deep links to other asset markets – country destination of foreign direct investment, fixed income and equity portfolio investment drive capital flows.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. An investor could lose some or all of his or her investment in a QFS program.
9
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Core Investment Theses
Source: QFS Asset Management, L.P.
QFS developed a process to
extract alpha at a business
cycle frequency from global
capital flows that is driven by
Dr. Sanford J. Grossman’s
pioneering theory of the
“allocative” role of prices in
markets.
• Generally, asset prices move to reflect new information. However asset prices can also have an allocative function, moving to drive capital to flow from one asset, market or country to another.
• The ability to distinguish allocative changes in asset prices creates opportunities for excess returns.
• Macroeconomic Thesis I: divergences in growth from expectation drive capital flows to their uses of highest marginal productivity across the globe. Lack of synchronization among global economies creates many such opportunities over the business cycle.
• Macroeconomic Thesis II: at a long-run horizon the relative soundness of monetary and fiscal policy is a key determinant of the movement of exchange rates.
Information on the QFS Currency Program is provided for information purposes only to illustrate the investment process. Performance and investments of the Merrill
Lynch Investment Solutions – QFS Currency UCITS Fund will differ from the QFS Currency Program and therefore historic data should be interpreted accordingly.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. An investor could lose some or all of his or her investment in a QFS program.
10
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Uncorrelated Alpha A History of Low Correlations
Source: QFS Asset Management, L.P.
-0.2 0.0 0.2 0.4 0.6 0.8 1.0
S&P 500
MSCI World
JP Morgan Global Bonds
DJ CS Hedge Funds
Barclay Currency Index
Index correlation with QFS Currency Program
As of 9/30/12. Correlations have been calculated using the composite returns, net of profit share allocations, fees and expenses, of all accounts managed pursuant each QFS Program (including certain
accounts that pay reduced or no fees, such as those of QFS and its affiliates, the investments by which may be material). Certain accounts in each Program composite may have constraints (on instruments
traded or exposure levels) that differ from others in the Program. The returns of any particular investor will vary from these returns due to a number of factors, including the timing of its subscriptions and
redemptions. Please see Important Disclosures at the end of this presentation for additional information covering these figures. Past performance is not necessarily indicative of future results and investors
risk the loss of the investment. Indices are shown for comparison purposes only. It is not possible to invest directly in an index.
0.08
0.09
0.04
0.15
0.11
Information on the QFS
Currency Program is provided
for information purposes only
to illustrate the investment
process.
Performance and investments
of the Merrill Lynch
Investment Solutions – QFS
Currency UCITS Fund will
differ from the QFS Currency
Program and therefore
historic data should be
interpreted accordingly.
Performance and risk profile
presented represents past
performance, which is no
guarantee of future results, and
current performance may be
lower or higher than the figures
shown. Investment returns and
principal value may fluctuate
and there is no guarantee of a
return on capital. Investors may
not receive back the amount
invested.
11
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Positive Skew QFS Currency Program
Source: QFS Asset Management, L.P.
Information on the QFS Currency Program is provided
for information purposes only to illustrate the
investment process.
Performance and investments of the Merrill Lynch
Investment Solutions – QFS Currency UCITS Fund will
differ from the QFS Currency Program and therefore
historic data should be interpreted accordingly.
Performance and risk profile presented represents past
performance, which is no guarantee of future results, and
current performance may be lower or higher than the figures
shown. Investment returns and principal value may fluctuate
and there is no guarantee of a return on capital. Investors
may not receive back the amount invested.
Analysis is based on the composite returns, net of profit share allocations, fees and expenses, of all accounts managed pursuant to this Program (including certain accounts that pay reduced or no fees, such as those of QFS and its affiliates, the investments by which may be material). Certain accounts in each Program composite may have constraints (on instruments traded or exposure levels) that differ from others in the Program. The returns of any particular investor will vary from these returns due to a number of factors, including the timing of its subscriptions and redemptions. Please see Important Disclosures at the end of this presentation for additional information covering these figures. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. An investor could lose some or all of his or her investment in a QFS program.
Return Analysis Result
Portfolio Return 0.1087
Skewness 0.4501
Kurtosis 3.4327
The Portfolio Return is the average annual program composite net return.
Sep 2002 to Sep 2012
0
5
10
15
20
-0.1500 -0.1000 -0.0500 -0.0000 0.0500 0.1000 0.1500
Num
ber
of M
onth
s
Monthly Percentage Return - Net
POSITIVE SKEW
12
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Combining the Best of Fundamental and Systematic Investment Managers
Source: QFS Asset Management, L.P.
Information on the QFS Currency Program is provided for information purposes only to illustrate the investment process. Performance and investments of the Merrill
Lynch Investment Solutions – QFS Currency UCITS Fund will differ from the QFS Currency Program and therefore historic data should be interpreted accordingly.
Performance and risk profile presented represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures
shown. Investment returns and principal value may fluctuate and there is no guarantee of a return on capital. Investors may not receive back the amount invested.
13
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Investment Process
Core QFS model structure consistent since 1993 •Performance history based on durable methodology
•Fundamental economic concepts remain key drivers of returns
•Ongoing research efforts to innovate and develop cutting-edge methodologies and models
Research & Development •Past and current research starts with a causation based thesis, stemming from macroeconomics or financial micro structure.
Systematically traded fundamental strategies •The macroeconomic views developed in the R&D process are expressed – literally encoded – as expected returns.
Source: QFS Asset Management, L.P.
14
INVEST UCITS FUNDS | NOT FOR DISTRIBUTION TO RETAIL INVESTORS
Source: QFS Asset Management, L.P.
Investment Process
DISCRETIONARY DISCRETIONARY & TECHNOLOGY
Asset Selection
MODELS & SYSTEMATIC
Asset Allocation
• Inspiration
• Causal sources
of excess
returns
• Core ideas
Idea Generation
Requires
ability to test
• Formalize
• Create
equation
Availability,
reliable source,
sufficient
amount
Research
Data definition
Test Implementation
Codify into
trading system Continuous Optimization
& Risk Control
Trading System
Monitoring: • Model governance • Diagnostics • Update parameter
estimates • Ongoing
improvements
Portfolio Construction & Risk Management
Mean-variance
optimization
Drawdown Control &
Scaling Technology
Validate
~10% Falsify ~90%
Document results and
save in internal wiki
Real time prices: Daily prices &
data
R&D Implementation & Production
The graphic above is included as a general depiction of the QFS
Investment Process, which may not be implemented in this way in
all circumstances.
15
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Source: QFS Asset Management, L.P.
Trading System
16
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Robust Risk & Opportunity Management •Initial risk budget (target) determined by opportunity set
•As portfolio drawdown approaches a set threshold, portfolio reduction is expected to accelerate
•As profits are earned back, models seek to re-establish risk by moving back up the curve
•A time decay applied to the drawdown used for risk management purposes allows for increase in expected risk budget
•Methodology allows portfolio to remain in high conviction positions
Time Decayed Drawdown
Ris
k B
ud
ge
t
Inflection
Point
The above graph is an approximation of the relationship between performance drawdown and the reduction in risk target that the QFS Programs will attempt to achieve. There is no guaranty that the QFS drawdown technology will in any particular circumstance seek to, or be able to, reduce risk in the manner illustrated above. Please see Important Disclosures at the end of this presentation for additional information.
QFS Drawdown Control & Scaling Technology
Risk Management
Source: QFS Asset Management, L.P.
17
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History of QFS
Dynamic
Programming
Optimization is
incorporated into
the trading
system
QFS acquires Cenario
Capital Management and
Karlheinz Muhr appointed
CEO of QFS
QFS
Currency
Program
launched
QFS Financial
Futures Program
is launched,
predecessor to
Global Macro
Program
Jim Conklin,
PhD joins
QFS as
Director of
Research
QFS Currency Fund wins the 2011 AR Award for Fund of the Year in the Managed Futures category
QFS Global
Macro
Program
launched
Crude oil
futures
added to
QFS Global
Macro
Program
QFS Portable
Alpha
QFS Fixed
Income
Program
launched
“Optimal Investment
Strategies for Controlling
Drawdowns” is published,
forming the basis for QFS’s
Drawdown Control
QFS founded by Sanford Grossman, PhD to develop systematic investment strategies using his research discoveries in economics and quantitative finance
Jim Conklin,
PhD & Jim
Xiong, PhD
appointed
CO-CIOs
1988 1990 1993 1998 2000 2005 2011 2012
Source: QFS Asset Management, L.P.
18
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QFS Organization
Client Solutions and Client Services
Research & Trading and Technology
Operations & Administration
Legal and Compliance
Management
Functional Area Head Count
5
19
14
2
2
Source: QFS Asset Management, L.P.
INVEST UCITS FUNDS | NOT FOR DISTRIBUTION TO RETAIL INVESTORS
Part 2:
The Merrill Lynch Investment Solutions -
QFS Currency UCITS Fund
20
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The UCITS Framework
The UCITS framework provides access to Alternative Investments in a liquid and transparent format
Highly regulated for investor protection
Regulated Fund Asset Protection Investment Parameters Liquidity and Transparency
UCITS is the recognised
standard across Europe,
Asia and Latin America
Favourable tax treatment
for some investors in some
jurisdictions
Potential for increased
asset allocation: classified
as mutual fund not
alternative
Limited counterparty exposure
Ring-fenced assets
Risk management processes
established by regulators
Independent oversight of
assets/Price verification and
accounting performed by third
parties
Concentration limits to sectors
and single names
Permissible investments and
markets are set out within the
UCITS rules
Daily liquidity
Daily official NAV
Monthly factsheets containing
performance and risk
information
21
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Merrill Lynch has established a UCITS Compliant Luxembourg SICAV (Merrill Lynch Investment Solutions), authorised by
the Luxembourg regulator – Commission de Surveillance du Secteur Financier (CSSF)
QFS Asset Management, L.P. is the Investment Manager for the Merrill Lynch Investment Solutions – QFS Currency
UCITS Fund (a Sub-Fund of the SICAV)
- The SICAV contains other Sub-Funds; additional Sub-Funds will be added to the SICAV in due course. The assets
of each Sub-Fund are individually ring-fenced
Merrill Lynch International acts as Sponsor for the SICAV and as such is responsible for the operation and oversight of
the SICAV. This includes the following duties:
- Obtaining regulatory approval for the SICAV and related Sub-Funds
- Selection of top-tier investment managers; extensive due diligence process
- Appointment of independent, top quality service providers, including custodian and independent administrator
- Cash control connected with the management and operation of the Sub-Fund
- Risk monitoring and oversight of the Fund in accordance with UCITS regulations and the investment policy
- Independent trade monitoring and validation of NAV levels provided by the third-party administrator
- Superior client reporting: including daily official NAV publication; monthly factsheets; regular investor calls
The Merrill Lynch Investment Solutions – QFS Currency UCITS Fund has been passported for public offering into UK,
Ireland, France, Germany, Italy and Spain
Bank of America Merrill Lynch’s Role as a Sponsor
22
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* Bank of America Merrill Lynch has selected a SICAV structure whereby assets of each Sub-Fund are individually ring-fenced. With regard to the shareholders, each Sub-Fund is regarded
as being a separate entity.
Bank of America Merrill Lynch SICAV
Sub - Fund
QFS Currency
UCITS Fund
Sub-Fund B Sub-Fund C Sub - Fund D Sub - Fund E Sub - Fund F Sub - Fund G
Investment
Manager
QFS Asset
Management,
L.P.
Investment
Manager B Investment
Manager C
Umbrella
SICAV*
Investment
Manager D
Investment
Manager E
Investment
Manager F
Investment
Manager G
Bank of America Merrill Lynch SICAV Structure
23
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Merrill Lynch SICAV
BANK OF AMERICA MERRILL LYNCH SICAV RISK MANAGEMENT
** Custodian and Sponsor have specific, direct legal responsibility to investors under UCITS regulation
Bank of America Merrill Lynch SICAV
Administrator
State Street Bank
Luxembourg S.A..
Custodian **
§ Independent NAV
calculation
§ Independent position
valuation
§ Reconciliation functions
§ Independent oversight of
assets held at Sub - Custodian/
OTC counterparties
Board of Directors and Dirigeants
(Risk Managers)
Representatives of the Sponsor (MLI)
and independent directors
§ Management and Oversight of SICAV
§ Monitoring of investment activities of
the investment manager to ensure no
breach of the investment policy and/or
UCITS rules
State Street Bank
Luxembourg S.A..
-
Sponsor **
Merrill Lynch International
Transfer Agent
Subscription and redemption
Shareholder register
§
§
§
§
§
Board of Directors and Dirigeants
(Risk Managers) of SICAV
Management and Oversight of
SICAV
Full position transparency
Independent NAV verification
Reconciliation for functions
Independent Risk Management to
ensure compliance with UCITS rules
State Street Bank
Luxembourg S.A..
24
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Compliance with the UCITS regulations dictate that there will be tracking differences between the QFS Currency Program and the
QFS Currency UCITS Fund as marketed under the Merrill Lynch Investment Solutions Umbrella
The divergence relates mostly to administration costs and portfolio construction and are contingent on position taking and market
conditions
i) Administration Costs
The QFS Currency UCITS Fund has daily official NAVs and daily liquidity, whereas the QFS funds that trade the QFS Currency
Program have monthly liquidity. This results in higher administration costs to the UCITS Fund.
ii) Portfolio Construction
The QFS Currency UCITS Fund is subject to certain concentration limits that may result in restricted position taking at certain times
vis-à-vis the QFS Currency Program. However, based on past positions, this is not anticipated to be a cause of significant
tracking difference
The QFS Currency Program strategy is liquid and diverse, and as such, it is not anticipated that it will be significantly tailored to
comply with the UCITS regulation
Difference Between Offshore and UCITS Funds
25
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Sponsor
Investment Manager
Investment Strategy
Domicile
Launch Date
Share Classes
Currency Denomination
Issue Price
Minimum Subscription
Dealing
Subscription Deadline
Redemption Deadline
Valuation Day
Total Sum of Investment Management Fee
and Distribution Fee
Performance Fee
Sales Charge Redemption Charge
Administrative and Operating Fee
Merrill Lynch International
QFS Asset Management, L.P.
Currencies
Luxembourg
3 Jan 2012
Accumulation & Income Shares
Euros (Acc.), Sterling (Acc. & Inc.) and US$ (Acc.)
€100, £100 and US$100
€1m, £1m and US$1m
Daily
12 p.m. Luxembourg time; 2 Banking days prior to the relevant Valuation Day
12 p.m. Luxembourg time; 2 Banking days prior to the relevant Valuation Day
Every day of the week that is a Banking Day
B Shares: 2% p.a.
B Shares: 20% of New Net Appreciation
None
0.4% p.a.
Share Class Details
INVEST UCITS FUNDS | NOT FOR DISTRIBUTION TO RETAIL INVESTORS
Appendix 1: Performance
Information on the QFS Currency Program is provided for information purposes only to
illustrate the investment process.
Performance and investments of the Merrill Lynch Investment Solutions – QFS Currency
UCITS Fund will differ from the QFS Currency Program and therefore historic data should
be interpreted accordingly.
27
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QFS Currency Program
Performance
Source: QFS Asset Management, L.P.
Key Instrument Movers
AUD -14% NZD -21% JPY -10% Nikkei -12%
S&P -33% MSCI World -38% U.S. Long Bond +37% JPY -19%
Crude -12% S&P -44% MSCI World -46% U.S. Long Bond +25% AUD -19% GBP -25% JPY +28%
Gold +59% U.S. Long Bond +41% S&P +37%
QFS Currency Performance
During Period +4.2% +60.7% +11.7% +6.9% +38.0%
Asian Crisis
( 7/97-7/99)
Tech Bubble
Bursts & 9/11 (3/00-10/02)
Iraq War
(3/03 - 5/03)
Credit
Crisis
(6/07-1/09)
Sovereign Debt
Crisis (1/10-Present)
QFS Currency Program Net DJ CS Hedge Fund Index MSCI World Stocks JPM Global Bonds
Data is through 9/30/12. QFS returns presented are the composite returns, net of profit share allocations, fees and expenses, of all accounts managed pursuant to this Program (including certain accounts that pay reduced or no fees, such as those of QFS and its affiliates, the investments by which may be material). Certain accounts in each Program composite may have constraints (on instruments traded or exposure levels) that differ from others in the Program. The returns of any particular investor will vary from these returns due to a number of factors, including the timing of its subscriptions and redemptions. Please see Important Disclosures at the end of this presentation for additional information covering these figures. Past performance is not necessarily indicative of future results and investors risk the loss of the investment. Indices are shown for comparison purposes only. It is not possible to invest directly in an index.
Information on the QFS Currency Program is provided for information purposes only to illustrate the investment process. Performance and investments of the Merrill Lynch Investment Solutions
– QFS Currency UCITS Fund will differ from the QFS Currency Program and therefore historic data should be interpreted accordingly.
Performance and risk profile presented represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures shown. Investment returns and
principal value may fluctuate and there is no guarantee of a return on capital. Investors may not receive back the amount invested.
-0.50
0.00
0.50
1.00
1.50
2.00
2.50
INVEST UCITS FUNDS | NOT FOR DISTRIBUTION TO RETAIL INVESTORS
QFS Currency Program
Performance
Source: QFS Asset Management, L.P.
Information on the QFS Currency Program is provided for information purposes only to illustrate the investment process. Performance and investments of the Merrill
Lynch Investment Solutions – QFS Currency UCITS Fund will differ from the QFS Currency Program and therefore historic data should be interpreted accordingly.
Performance and risk profile presented represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures shown.
Investment returns and principal value may fluctuate and there is no guarantee of a return on capital. Investors may not receive back the amount invested.
Data is through 9/30/12. QFS returns presented are the composite returns, net of profit share allocations, fees and expenses, of all accounts managed pursuant to this Program (including certain accounts that pay reduced or no fees, such as those of QFS and its affiliates, the investments by which may be material). Certain accounts in each Program composite may have constraints (on instruments traded or exposure levels) that differ from others in the Program. The returns of any particular investor will vary from these returns due to a number of factors, including the timing of its subscriptions and redemptions. Please see Important Disclosures at the end of this presentation for additional information covering these figures. Past performance is not necessarily indicative of future results and investors risk the loss of the investment. Indices are shown for comparison purposes only. It is not possible to invest directly in an index. The Sharpe ratio is a measure of the excess return per unit of risk in an investment asset or a trading strategy. The Sortino ratio measures the excess return per unit of “downside risk,” i.e. the volatility of its returns below a certain threshold (in this case, US T-Bills).
QFS Currency Program
S&P 500
JP Morgan Global Bond Index
DJ CS Hedge Fund Index
Barclay Currency Index
0.56
0.93
1.02
0.12
8.30
6.54
8.67
3.32
15.27
6.50
7.51
5.76
0.42
0.56
0.78
0.06
19
19
19
19
Sortino
Ratio Years
Annualized
Net Return
(%)
Annualized
Std Dev
(%)
Sharpe
Ratio
11.42 14.49 0.65 19 1.10
29
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Performance – QFS Currency UCITS Fund
1 The performance figures contained herein are net of
fees. The returns shown are based on share class
USD B (Acc) and therefore such historical
information does not represent actual returns that an
investor in share classes other than USD B (Acc)
may receive but is for information purposes to
illustrate the performance of the QFS Currency
UCITS Fund (the “Fund”) and should be interpreted
accordingly. Past performance is not an indication of
future performance or actual realised returns on an
investment in the Fund (which may be affected by a
number of factors including, but not limited to,
applicable fees and the timing of subscriptions and
redemptions in the Fund).
HISTORICAL MONTHLY RETURNS1 (%)
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD
2012 2.66 (3.45) (7.50) 3.46 (1.98) 0.70 10.90 (4.41) (1.21) (3.42) (5.30)
Based on unaudited month-end valuations. Source: Bank of America Merrill Lynch
INVEST UCITS FUNDS | NOT FOR DISTRIBUTION TO RETAIL INVESTORS
Appendix 2:
Biographies
31
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QFS Asset Management - Biographies
Source: QFS Asset Management, L.P.
SANFORD J. GROSSMAN, PHD
Dr. Grossman founded a predecessor of QFS in 1988. Dr. Grossman’s research has spanned the analysis of
information in securities markets, corporate structure, property rights and optimal dynamic risk
management. He has published widely in leading economic and business journals, including American
Economic Review, Journal of Econometrics, Econometrica and Journal of Finance. His papers include “The
Existence of Futures Markets, Noisy Rational Expectations and Information Externalities”; “On the Efficiency of
Competitive Stock Markets Where Traders Have Diverse Information”; “On the Impossibility of Informationally
Efficient Markets”, with Joseph Stiglitz; “An Introduction to the Theory of Rational Expectations Under
Asymmetric Information”; and “The Costs and Benefits of Ownership: A Theory of Vertical Integration”, with
Oliver Hart.
• Degrees in Economics from University of Chicago: B.A. in 1973, M.A. in 1974, PhD in 1975
• Academic appointments: Stanford University, University of Chicago, Princeton University (John L.
Weinberg Professor of Economics, 1985-89), University of Pennsylvania’s Wharton School of Business
(Steinberg Trustee Professor of Finance, 1989-1999, now held in Emeritus)
• Awarded John Bates Clark Medal by American Economic Association in 1987
• American Finance Association: Elected a Director (1988), Vice President (1992) and President (1994)
• Other positions: Economist, Board of Governors of the Federal Reserve System (1977-78), Public Director,
Chicago Board of Trade (1992-96), Director, Wharton Center for Quantitative Finance (1994-99)
Karlheinz Muhr is Chief Executive Officer and a Member of the Investment Committee of QFS Asset
Management. Mr. Muhr was a Founding Partner, Chairman and CEO of Cenario Capital, an alternative
asset management firm, which was acquired by QFS in April 2011. Prior to Cenario, Mr. Muhr served as a
Managing Director and was head of Credit Suisse Volaris, a firm he co-founded and sold to Credit Suisse in
2003. He was also a member of both the Chairman's Board and the Management Council of Credit Suisse.
With over 27 years of investment experience, Mr. Muhr has held a variety of senior positions at UBS Warburg
and Credit Suisse First Boston, spanning from head of Global Credit Fixed Income to other senior
management roles within investment banking.
A native of Austria, Mr. Muhr has a Degree from Vienna's University for Business and Economics (1982) and
an M.B.A from UCLA Anderson School of Business at the University of California at Los Angeles (1985). He
serves on the following not-for-profit boards: The Institute of International Education (IIE), New York and The
Aspen Institute, Washington D.C., where he is also a Crown Fellow. Mr. Muhr is also a member of The
Economic Club of New York.
Chairman
KARLHEINZ MUHR Chief Executive Officer
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INVEST UCITS FUNDS | NOT FOR DISTRIBUTION TO RETAIL INVESTORS
QFS Asset Management - Biographies
Source: QFS Asset Management, L.P.
JIM CONKLIN, PHD Dr. Jim Conklin joined QFS in 2011 and manages the research department. As Co-Chief Investment Officer,
Dr. Conklin collaborates with Dr. Xiong and Dr. Grossman in pursuing new research and managing the
existing investment programs. Prior to joining QFS, Dr. Conklin was Head of Investment Research at FX
Concepts and member of the Management Committee there. He was a Portfolio Manager at Fortress
Investments in the Liquid Markets group, where he ran a quant-macro portfolio and headed an 8-person
quant investment team. With 14 years of investment experience, Dr. Conklin has worked as a quant-trader
and strategist in FX volatility trading, currencies, commodities, fixed income relative value, and equity long-
short at various institutions. A native of Northern California, Dr. Conklin has an A.B. in Economics from
Princeton University (1986) and a PhD in Economics from Stanford University (1993). He held faculty positions
at the University of Texas and the University of Madrid Carlos III prior to entering the field of finance. He has
scholarly publications in the Journal of Political Economy and Econometrica.
Dr. Xiong joined QFS in 1997 and was promoted to Manager of Research in 2001 and Managing Director in
2005. After a year sabbatical from the industry that began in mid-2011, he rejoined the firm as Co-Chief
Investment Officer. In that role he collaborates with Dr. Conklin and Dr. Grossman in pursuing new research
and managing the existing investment programs. Dr. Xiong contributes strong expertise in global
optimization, multivariate statistics, and object-oriented analysis and design. Prior to being employed at
QFS, Dr. Xiong developed financial applications for Salomon Brothers and also held the position of
management scientist at General Electric's Center for Research and Development. Prior to that, he was a
team leader at CAE Electronics (in Canada) responsible for developing energy management systems. Dr.
Xiong earned his PhD in Mathematics from Rutgers University and his B.S. from Wuhan University.
Co-chief Investment Officer & Director of Research
JIM XIONG, PHD Co-chief Investment Officer
David Zimmerman joined QFS in 2006 as its General Counsel & Chief Compliance Officer. Prior to joining
QFS, David served for two years as the Chief Compliance Officer of Chilton Investment Company. Before
joining Chilton, David was general counsel for LiveWire Capital, LLC, a private equity investment and
management group focused on the technology sector. David’s earlier experience includes work on
mergers and acquisitions and investment management at Davis Polk & Wardwell. He received his B.A. from
Yale University and his J.D. from Columbia Law School (where he was a Harlan Fiske Stone Scholar).
DAVID ZIMMERMAN Chief Operating Officer, General Counsel & Chief Compliance Officer
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INVEST UCITS FUNDS | NOT FOR DISTRIBUTION TO RETAIL INVESTORS
QFS Asset Management - Biographies
Source: QFS Asset Management, L.P.
DAN BENDER Dan Bender is the Chief Financial Officer. His primary responsibilities include oversight of the internal
accounting and reporting functions, tax compliance and human resources. Prior to joining QFS in May 2012,
Mr. Bender served as the Chief Financial Officer of Ramsey Asset Management, a long/short equity hedge
fund manager in the Washington, D.C. area. Before Ramsey, Mr. Bender served as Executive Officer and
Financial Advisor for Octagon Financial Services, a leading wealth advisory firm catering to professional
athletes, artists and entertainers. Mr. Bender began his career in 1998 with the public accounting firm of
Badger, Dunham & Aukamp, with a focus on both tax and audit engagements. Mr. Bender holds a B.S. in
Accounting from the George Mason School of Management and is a licensed Certified Public Accountant
in the Commonwealth of Virginia.
Stephen Van Besien was a founding partner and a Managing Director of Cenario Capital Management.
Previously, Mr. Van Besien was a Co-Founder of Volaris Advisors LLC (a leading Volatility Management firm),
which was acquired by Credit Suisse in 2003. He most recently served as Managing Director and Deputy
Head of the Volaris Volatility business unit within the Credit Suisse Alternative Investments Division from 2003-
2008. Mr. Van Besien was a member of the Diversity Advisory Committee for the firm. Earlier, Mr. Van Besien
held senior positions at UBS Warburg (Executive Director) and ABN AMRO (Group Vice President). A
graduate of The University of Virginia in 1985, Mr. Van Besien also earned an MBA from Columbia Business
School. Mr. Van Besien currently serves as a member of the National Advisory Board of the Jefferson
Scholars Foundation of the University of Virginia and Chairman of the New Jersey Jefferson Scholar
Selection Committee.
Chief Financial Officer
STEPHEN VAN BESIEN Managing Director, Head of Origination
Jonathan Silber has been the head of QFS’s trading department since April 1999. He came to QFS from
Bankers Trust, where he spent over 10 years in various FX markets. His responsibilities there included
managing FX trading desks, running one of Bankers Trust’s internal hedge funds and creating and
overseeing the company’s internal fund of funds operation. Mr. Silber holds an M.B.A. in Finance from the
NYU Stern School of Business.
JONATHAN SILBER Managing Director, Director of Trading
34
INVEST UCITS FUNDS | NOT FOR DISTRIBUTION TO RETAIL INVESTORS
QFS Asset Management - Biographies
Source: QFS Asset Management, L.P.
ROBERT J. O’DONNELL
Mr. O’Donnell was the Director of Marketing for Cenario Capital Management. Mr. O’Donnell has over 20
years of alternative investment marketing experience. From 2006 to 2010, Mr. O’Donnell was Director of
Marketing for Cohen & Company’s alternative investment products and from 2002 to 2006, he was Director
of Marketing for Kellner DiLeo & Co., a multi-strategy alternative asset management firm. Previously, Mr.
O’Donnell had marketing positions at State Street Bank and PaineWebber. He attended Washington & Lee
University and is a Chartered Alternative Investment Analyst (CAIA) charter holder. Additionally, he has
been the Head of the New York Chapter of CAIA since 2006 and is on CAIA's Exam Council.
William McGirr joined QFS in 2005 and works closely with the marketing team in implementing the firm’s
business development efforts and marketing strategy on a global basis. Mr. McGirr works on client
acquisition and investor relations. Additional responsibilities include investor due diligence, investor portfolio
reviews and managing the marketing materials. Mr. McGirr earned his B.A. from the University of
Pennsylvania in 2005.
Managing Director, Director of Marketing
WILLIAM D. McGIRR Director, Business Development
Jonathan Dunn joined QFS in 2011 as the Associate Director of Investor Services. He works closely with the
marketing, operations, fund accounting, trading, and research teams. Prior to joining QFS, Jonathan spent
seven years at Morgan Stanley doing investment research and client communication in the unified
managed account program for institutional and high net worth clients. He earned a B.S. in marketing and
management at Villanova University and an M.B.A from the University of Connecticut with concentrations in
finance, marketing, and international business, graduating with honors.
JONATHAN T. DUNN Associate Director, Investor Services
35
INVEST UCITS FUNDS | NOT FOR DISTRIBUTION TO RETAIL INVESTORS
Important Merrill Lynch Investment Solutions – QFS Currency UCITS Fund Disclosures
Important Disclosures: An investment in any QFS Entity may not be suitable for all investors. An investment in a QFS Entity will be suitable only for certain sophisticated
investors who have no need for immediate liquidity in their investment. Investors that are U.S. persons must qualify as "accredited investors" as defined under
Regulation D of the U.S. Securities Act of 1933, as amended. Other suitability/eligibility criteria may apply. Investors must have the financial ability,
sophistication/experience and willingness to bear the risks of an investment in a QFS Entity. These investments are illiquid, present significant risks, and may be sold or
redeemed at more or less than the original amount invested.
QFS believes the information contained in this material to be reliable but do not warrant its accuracy or completeness. The estimates, investment strategies, and views
expressed in this document are based upon current market conditions and/or data and information provided by unaffiliated third parties and is subject to change without
notice.
No guarantee or representation is made that the investment program of any of the QFS Entities, including, without limitation, the investment objectives, diversification
strategies, or risk monitoring goals, will be successful, and investment results may vary substantially over time. Investment losses may occur from time to time. Nothing
herein is intended to imply that any QFS Entity's investment methodology may be considered "conservative", "safe", "risk free" or "risk averse".
Where QFS Program composite net returns are presented, they reflect the composite returns, net of profit share allocations, fees and expenses, of all accounts
managed pursuant to the particular Program (including certain accounts that pay reduced or no fees, such as those of QFS and its affiliates, the investments by which
may be material). Indexes: Each index referenced herein has not been selected to represent an appropriate benchmark to compare the performance of a QFS Entity but rather is disclosed to allow for comparison of the performance of such QFS Entity to that of a well-known and widely recognized index. It is not possible to invest directly in an index, and the indices shown are expected to have holdings and risk and return characteristics that are materially different from the holdings and risk and return characteristics of the QFS Entity. The QFS Entity's holdings may differ significantly from the securities that comprise the index. An index is unmanaged and therefore does not have any transaction costs, advisory fees or similar expenses that might be associated with its performance. The investment programs of such QFS Entity is not restricted to securities comprising the index. A QFS Entity, unlike an index, may invest in options and other derivative securities and may employ special investment techniques such as short sales. The portfolio of a QFS Entity may not be as diversified as the index. For the foregoing and other reasons, the performance of a QFS Entity and the index may not be comparable.
The following is a description of certain indexes referred to herein:
•US Stocks: Represented by the total return (including dividends) of the S&P 500, a US large-cap equity index (market capitalization-weighted) compiled by Standard & Poor's.
•Global Bonds: The total return of the JP Morgan Global Government Bond Index, a capitalization-weighted index of government bonds of maturities of 1 year or more in the US and 12 international markets.
•Hedge Funds: Represented by the Dow Jones Credit Suisse Hedge Fund Index, which is an asset-weighted index of over 400 hedge funds across 10 different investment styles compiled by Dow Jones and Credit Suisse. This data series begins in January 1994.
•Global Macro: Represented by the Dow Jones Credit Suisse Global Macro Index, which is an asset-weighted index of 38 global macro programs compiled by Dow Jones and Credit Suisse. This data series begins in January 1994.
•Currency Managers - Represented by the Barclay Currency Index, which is an equally-weighted composite of over 100 currency trading advisors compiled by Barclay Trading Group, Ltd.
•Global Stocks: Represented by MSCI World Stocks, a stock market index of over 6000 world stocks.
36
INVEST UCITS FUNDS | NOT FOR DISTRIBUTION TO RETAIL INVESTORS
Important Merrill Lynch Investment Solutions – QFS Currency UCITS Fund Disclosures
This document is confidential, is intended only for the person to whom it has been provided and under no circumstance may a copy be shown, copied, transmitted, or otherwise given
to any person other than the authorized recipient. Notwithstanding the foregoing, an investor may disclose to any and all persons, without limitation of any kind, the tax treatment and
tax structure of a QFS Entity and all materials of any kind (including opinions or other tax analyses) that are provided to the investor relating to such tax treatment and tax structure.
Certain information contained in this document constitutes “forward-looking statements,” which can be identified by the use of forward-looking terminology such as “may”, “will”,
“should”, “expect”, “anticipate”, “target”, “project”, “estimate”, “intend”, “continue” or “believe” or the negatives thereof or other variations thereon or comparable terminology. Due to
various risks and uncertainties, actual events or results or the actual performance of a QFS Entity may differ materially from those reflected or contemplated in such forward-looking
statements.
There can be no assurance that professionals currently employed by QFS will continue to be employed by QFS or that the past performance or success of any such professional is
indicative of such professional's future performance or success.
Risk Factors:
There are substantial risks in investing in a QFS Entity. Persons interested in investing in a QFS Entity should carefully note the following:
Speculative Nature: Each QFS Entity represents a speculative investment and involve a high degree of risk. An investor could lose all or a substantial portion of
his/her investment. Investors must have the financial ability, sophistication/experience and willingness to bear the risks of an investment in a QFS Entity. An
investment in a QFS Entity should be discretionary capital set aside strictly for speculative purposes.
A QFS Entity May Employ Investment Techniques That Increase such QFS Entity's Risk of Loss. A QFS Entity may employ leverage and other investment
techniques that may increase the volatility of such QFS Entity's performance and increase such QFS Entity's risk of loss.
Loss of Investment: An investor could lose some or all of his or her investment.
Lack of Diversification: QFS has total trading authority over each QFS Entity. The use of a single advisor applying generally similar trading programs could mean
lack of diversification and, consequentially, higher risk.
Lack of Liquidity: There is no secondary market for investments in a QFS Entity and none is one expected to develop.
Limited Transferability: There may be restrictions on transferring the interests in a QFS Entity.
Volatility: The performance of a QFS Entity may be volatile.
Foreign Exchanges: A substantial portion of the trades executed for a QFS Entity takes place on foreign exchanges.
Fees: The management fees and expenses and performance allocation of a QFS Entity may offset its trading profits.
37
INVEST UCITS FUNDS | NOT FOR DISTRIBUTION TO RETAIL INVESTORS
Risk Factors
Bank of America Merrill Lynch Disclaimer – Important Information
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Investment products offered by Investment Banking Affiliates: Are Not FDIC Insured * May Lose Value * Are Not Bank Guaranteed.
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© 2012 Bank of America Corporation. All rights reserved.
38
INVEST UCITS FUNDS | NOT FOR DISTRIBUTION TO RETAIL INVESTORS
Risk Factors
Distribution Restrictions
The Fund may only be offered and distributed to investors in accordance with all relevant local laws and regulations. The distribution of this brochure and the offering or
purchase of Shares may be restricted in certain jurisdictions. This brochure does not constitute an offer of or invitation or solicitation to subscribe for or acquire any Shares
in any jurisdiction. Persons receiving a copy of this brochure in any jurisdiction may not treat this brochure as constituting an offer, invitation or solicitation to them to
subscribe for Shares notwithstanding that, in the relevant jurisdiction, such an offer, invitation or solicitation could lawfully be made to them without compliance with any
registration or other legal requirement. It is the responsibility of any persons in possession of this brochure and any persons wishing to apply for Shares to inform
themselves of, and to observe, all applicable laws and regulations of any relevant jurisdiction. Prospective applicants for Shares should inform themselves as to the legal
requirements of so applying, and any applicable exchange control regulations and taxes in the countries of their respective citizenship, residence or domicile.
The Shares have not been and will not be registered under the United States Securities Act of 1933, as amended, or the securities laws of any of the states of the United
States. The Shares may not be offered, sold or delivered directly or indirectly in the United States or to or for the account or benefit of any U.S. Person. The Fund has
not been and will not be registered under the United States Investment Company Act of 1940, as amended.
Investment Risks
There has not been and will not be a public offering of the Shares in the United States.
Investment in the Fund carries substantial risk. There can be no assurance that the investment objectives of the Fund will be achieved and investment results may vary
substantially over time. Investment in the Fund is not intended to be a complete investment programme for any investor. Investment in the Fund is intended for
experienced investors who are able to understand and accept the risks involved.
A prospective investor should appreciate that the value of any investment, and any income from any investment, may go down as well as up and that an investor’s capital
is at risk and the investor may not receive back the amount invested. Past performance is not necessarily indicative of future results.
Persons considering investing in the Fund should read the risk disclosure in the Prospectus.
Merrill Lynch International registered address is Merrill Lynch Financial Centre, 2 King Edward Street, London EC1A 1HQ.