424B3 1 frontier-funds.htm 424B3

FRONTIER FUNDS

         
   Maximum Available Units 
   Class 1/1a   Class 2/2a 
Frontier Diversified Fund    4,906,302    4,489,492 
Frontier Masters Fund    1,570,493    1,579,067 
Frontier Long/Short Commodity Fund    928,287    1,206,645 

 

Trust and Managing Owner

 

Frontier Funds is a Delaware statutory trust that is continuously publicly offering participation in three separate series. Each series engages directly or indirectly in the speculative trading of a diversified portfolio of futures, forwards (including interbank foreign currencies), swaps and options contracts and/or other derivative instruments.

 

Frontier Fund Management LLC, the managing owner of the trust, has delegated its commodity pool operator (“CPO”) responsibilities to Wakefield Advisors LLC (“Wakefield”), a registered commodity pool operator, and allocates the assets of each series to a diverse group of experienced commodity trading advisors through investments in one or more trading companies managed by the managing owner and in one or more commodity pools offered through the Galaxy Plus Managed Account Platform, which is an unaffiliated, third-party managed account platform (the “Galaxy Plus Platform”) sponsored and operated by Gemini Alternative Funds, LLC (“Gemini”). The managing owner in the future may also allocate assets to trading companies or accounts in other similar managed account platforms. In addition, the managing owner, from time to time, may enter into swaps or other derivatives with respect to certain reference trading programs or other investment platforms similar to those described herein. There are a number of factors that would determine whether to allocate to trading advisors versus entering into swaps. These factors include but are not limited to whether a trading advisor accepts separately managed accounts or is only available on third party platforms, costs such as management fees where the fees may vary for separately managed accounts versus third party platforms, minimum account sizing where a managed account would require larger investments than those on third party platforms and liquidity which is generally similar for managed accounts and third party platforms but may vary and become a factor. Each series, which currently invests its assets in both trading companies managed by the managing owner and in commodity pools available through the Galaxy Plus Platform, expects to ultimately allocate all of its assets to such commodity pools, in addition to entering into any swaps or other derivative instruments with respect to certain reference trading programs. The managing owner expects to liquidate each trading company it manages once no further assets of the series are invested in such trading company. In addition, the managing owner has entered into an administrative services agreement and a fund services agreement with certain affiliates of Gemini to provide certain administrative services to the trust, as described in further detail below. Units are available for subscription on each business day at the then applicable net asset value per unit. As of September 30, 2018, the net asset value per unit was: Frontier Diversified Fund: $104.46 (Class 1), $122.91 (Class 2); Frontier Masters Fund: $97.21 (Class 1), $114.40 (Class 2); and Frontier Long/Short Commodity Fund: $66.19 (Class 1a), $77.15 (Class 2a). The net asset value per unit on the date of your purchase may differ significantly from the net asset value per unit stated in the previous sentence.

 

Units

 

Each series is available in two classes. Class 1 (and, in the case of the Frontier Long/Short Commodity Fund, class 1a) units are subject to an initial service fee equal to up to 2.0% of the purchase price and, after the first year, an ongoing annual service fee of up to 2.0% of the net asset value of your units, which is payable either monthly or quarterly (as agreed with the selling agent). The initial service fee will generally be prepaid by the managing owner to the applicable selling agent and will be reimbursed by the applicable series over the first 12 months of your investment. Class 2 (and, in the case of the Frontier Long/Short Commodity Fund, class 2a) units are not subject to an initial service fee and will only be offered to investors who invest through approved selling agents who are separately compensated by the investor directly. Class 2 and 2a units may be subject to ongoing service fees for certain administrative services provided by the selling agents in an amount equal to 0.25% annually of the net asset value of each unit (an additional amount of up to 0.25% may be paid by the managing owner), payable at the end of each month. See “Fees and Expenses—Service Fees.” All initial service fees and annual ongoing service fees are subject to compensation limitations imposed by the Financial Industry Regulatory Authority (“FINRA”) Rule 2310. Units that have reached the compensation limitations as determined by the managing owner will be designated as class 3 (and, in the case of the Frontier Long/Short Commodity Fund, class 3a) units for reporting purposes and will not be subject to additional ongoing service fees. See “Plan of Distribution” beginning on page 93.

 

Before you invest you will be required to represent and warrant that you meet applicable state minimum financial suitability standards. You are encouraged to discuss an investment in a series with your financial, legal and tax advisors before investing.

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Selling Agents

 

The managing owner appoints broker-dealers that are registered under the Securities Exchange Act of 1934, as amended (referred to as the Exchange Act), and are members of FINRA as selling agents to assist in the making of offers and sales of units. The selling agents are not required to sell any specific number or dollar amount of units but will use their best efforts to sell the units offered. As compensation for their services, selling agents receive service fees, as described below.

 

Minimum Subscription Amounts per Series

              
Initial subscription*   $1,000   Additional subscriptions*   $100 

 

 

*Plan investors (including IRAs), employees (including family members of employees) of the managing owner and its affiliates, and charitable organizations have no minimum investment requirement. Higher minimum subscription amounts apply to Texas residents.

 

The units are speculative securities and you could lose all or substantially all of your investment in a series. Read this entire prospectus carefully and consider the “Risk Factors” beginning on page 23. In particular, you should be aware that:

 

Past performance is not necessarily indicative of future results.

 

Futures, forwards and options trading is speculative, volatile and highly leveraged.

 

Each series will rely on the trading advisors selected by the managing owner for success, including through its investments in commodity pools on the Galaxy Plus Platform.

 

The assets of each series will be substantially invested in commodity pools offered through the Galaxy Plus Platform advised by independent trading advisors. Each series’ performance depends substantially upon the performance of these commodity pools, the adherence of the commodity pools to their selected strategies and the effectiveness of those strategies.

 

Your annual tax liability is anticipated to exceed cash distributions to you.

 

There is no secondary market for the units and the transfer of units is restricted. If you redeem all or a portion of your class 1 or 1a units before the end of 12 full months following your purchase, you will be charged a redemption fee of up to 2.0% of the purchase price of the units being redeemed.

 

Each series is subject to substantial charges. You will sustain losses if the series is unable to generate sufficient trading profits to offset its fees and expenses.

 

The trust is not a mutual fund and is not subject to regulation under the Investment Company Act of 1940, as amended (“Investment Company Act”).

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE MERITS OF PARTICIPATING IN THIS POOL NOR HAS THE COMMISSION PASSED ON THE ADEQUACY OR ACCURACY OF THIS DISCLOSURE DOCUMENT.

 

The date of this prospectus is January 31, 2019.

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COMMODITY FUTURES TRADING COMMISSION

RISK DISCLOSURE STATEMENT

 

YOU SHOULD CAREFULLY CONSIDER WHETHER YOUR FINANCIAL CONDITION PERMITS YOU TO PARTICIPATE IN A COMMODITY POOL. IN SO DOING, YOU SHOULD BE AWARE THAT COMMODITY INTEREST TRADING CAN QUICKLY LEAD TO LARGE LOSSES AS WELL AS GAINS. SUCH TRADING LOSSES CAN SHARPLY REDUCE THE NET ASSET VALUE OF THE POOL AND CONSEQUENTLY THE VALUE OF YOUR INTEREST IN THE POOL. IN ADDITION, RESTRICTIONS ON REDEMPTIONS MAY AFFECT YOUR ABILITY TO WITHDRAW YOUR PARTICIPATION IN THE POOL.

 

FURTHER, COMMODITY POOLS MAY BE SUBJECT TO SUBSTANTIAL CHARGES FOR MANAGEMENT, AND ADVISORY AND BROKERAGE FEES. IT MAY BE NECESSARY FOR THOSE POOLS THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING PROFITS TO AVOID DEPLETION OR EXHAUSTION OF THEIR ASSETS. THIS DISCLOSURE DOCUMENT CONTAINS A COMPLETE DESCRIPTION OF EACH EXPENSE TO BE CHARGED THIS POOL AT PAGES 78 THROUGH 86 AND A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT IS, TO RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGES 19 THROUGH 20.

 

THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER FACTORS NECESSARY TO EVALUATE YOUR PARTICIPATION IN THIS COMMODITY POOL. THEREFORE, BEFORE YOU DECIDE TO PARTICIPATE IN THIS COMMODITY POOL, YOU SHOULD CAREFULLY STUDY THIS DISCLOSURE DOCUMENT, INCLUDING A DESCRIPTION OF THE PRINCIPAL RISK FACTORS OF THIS INVESTMENT, AT PAGES 23 THROUGH 39.

 

YOU SHOULD ALSO BE AWARE THAT THIS COMMODITY POOL MAY TRADE FOREIGN FUTURES OR OPTIONS CONTRACTS. TRANSACTIONS ON MARKETS LOCATED OUTSIDE THE UNITED STATES, INCLUDING MARKETS FORMALLY LINKED TO A UNITED STATES MARKET, MAY BE SUBJECT TO REGULATIONS WHICH OFFER DIFFERENT OR DIMINISHED PROTECTION TO THE POOL AND ITS PARTICIPANTS. FURTHER, UNITED STATES REGULATORY AUTHORITIES MAY BE UNABLE TO COMPEL THE ENFORCEMENT OF THE RULES OF REGULATORY AUTHORITIES OR MARKETS IN NON-UNITED STATES JURISDICTIONS WHERE TRANSACTIONS FOR THE POOL MAY BE EFFECTED.

 

ALSO, BEFORE YOU DECIDE TO PARTICIPATE IN THIS POOL, YOU SHOULD NOTE THAT YOUR POTENTIAL LIABILITY AS A PARTICIPANT IN THIS POOL FOR TRADING LOSSES AND OTHER EXPENSES OF THE POOL IS NOT LIMITED TO THE AMOUNT OF YOUR CONTRIBUTION FOR THE PURCHASE OF AN INTEREST IN THE POOL AND ANY PROFITS EARNED THEREON. A COMPLETE DESCRIPTION OF THE LIABILITY OF A PARTICIPANT IN THIS POOL IS EXPLAINED MORE FULLY IN THIS DISCLOSURE DOCUMENT.

 

YOU SHOULD ALSO BE AWARE THAT THIS COMMODITY POOL MAY ENGAGE IN OFF-EXCHANGE FOREIGN CURRENCY TRADING. SUCH TRADING IS NOT CONDUCTED IN THE INTERBANK MARKET. THE FUNDS THAT THE POOL USES FOR OFF-EXCHANGE FOREIGN CURRENCY TRADING WILL NOT RECEIVE THE SAME PROTECTIONS AS FUNDS USED TO MARGIN OR GUARANTEE EXCHANGE-TRADED FUTURES AND OPTION CONTRACTS. IF THE POOL DEPOSITS SUCH FUNDS WITH A COUNTERPARTY AND THAT COUNTERPARTY BECOMES INSOLVENT, THE POOL’S CLAIM FOR AMOUNTS DEPOSITED OR PROFITS EARNED ON TRANSACTIONS WITH THE COUNTERPARTY MAY NOT BE TREATED AS A COMMODITY CUSTOMER CLAIM FOR PURPOSES OF SUBCHAPTER IV OF CHAPTER 7 OF THE BANKRUPTCY CODE AND THE REGULATIONS THEREUNDER. THE POOL MAY BE A GENERAL CREDITOR AND ITS CLAIM MAY BE PAID, ALONG WITH THE CLAIMS OF OTHER GENERAL CREDITORS, FROM ANY MONIES STILL AVAILABLE AFTER PRIORITY CLAIMS ARE PAID. EVEN POOL FUNDS THAT THE COUNTERPARTY KEEPS SEPARATE FROM ITS OWN FUNDS MAY NOT BE SAFE FROM THE CLAIMS OF PRIORITY AND OTHER GENERAL CREDITORS.

 

SWAPS TRANSACTIONS, LIKE OTHER FINANCIAL TRANSACTIONS, INVOLVE A VARIETY OF SIGNIFICANT RISKS. THE SPECIFIC RISKS PRESENTED BY A PARTICULAR SWAP TRANSACTION NECESSARILY DEPEND UPON THE TERMS OF THE TRANSACTION AND YOUR CIRCUMSTANCES. IN GENERAL, HOWEVER, ALL SWAPS TRANSACTIONS INVOLVE SOME COMBINATION OF MARKET RISK, CREDIT RISK, COUNTERPARTY CREDIT RISK, FUNDING RISK, LIQUIDITY RISK, AND OPERATIONAL RISK.

 

HIGHLY CUSTOMIZED SWAPS TRANSACTIONS IN PARTICULAR MAY INCREASE LIQUIDITY RISK, WHICH MAY RESULT IN A SUSPENSION OF REDEMPTIONS. HIGHLY LEVERAGED TRANSACTIONS MAY

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EXPERIENCE SUBSTANTIAL GAINS OR LOSSES IN VALUE AS A RESULT OF RELATIVELY SMALL CHANGES IN THE VALUE OR LEVEL OF AN UNDERLYING OR RELATED MARKET FACTOR.

 

IN EVALUATING THE RISKS AND CONTRACTUAL OBLIGATIONS ASSOCIATED WITH A PARTICULAR SWAP TRANSACTION, IT IS IMPORTANT TO CONSIDER THAT A SWAP TRANSACTION MAY BE MODIFIED OR TERMINATED ONLY BY MUTUAL CONSENT OF THE ORIGINAL PARTIES AND SUBJECT TO AGREEMENT ON INDIVIDUALLY NEGOTIATED TERMS. THEREFORE, IT MAY NOT BE POSSIBLE FOR THE COMMODITY POOL OPERATOR TO MODIFY, TERMINATE, OR OFFSET THE POOL’S OBLIGATIONS OR THE POOL’S EXPOSURE TO THE RISKS ASSOCIATED WITH A TRANSACTION PRIOR TO ITS SCHEDULED TERMINATION DATE.

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TABLE OF CONTENTS

 

FRONTIER FUNDS

 

PART ONE
DISCLOSURE DOCUMENT

 

This Prospectus is in two parts: a Disclosure Document (including Appendices) and a Statement of Additional Information (including Exhibits). These parts are bound together and may not be distributed separately. Both the Disclosure Document and the Statement of Additional Information contain important information.

 

SUMMARY  1
Frontier Diversified Fund  14
Frontier Masters Fund  15
Frontier Long/Short Commodity Fund  16
Allocation of Assets among Trading Advisors and Commodity Pools  17
BREAK-EVEN ANALYSIS  19
FRONTIER DIVERSIFIED FUND  19
FRONTIER MASTERS FUND  19
FRONTIER LONG/SHORT COMMODITY FUND  20
RISK FACTORS  23
Risks Relating to the Trust and the Offering of Units  23
Possible Total Loss of an Investment in a Series of the Trust.  23
You Should Not Rely on Past Performance of the Managing Owner or the Trading Advisors in Deciding to Purchase Units in any Series.  23
Neither the Trust nor any of the Trading Companies nor any of the Commodity Pools on the Galaxy Plus Platform is a Registered Investment Company.  23
You Should Not Rely on Past Performance of any Series in Deciding to Purchase Units in any Other Series.  23
Certain Restrictions on Redemption and Transfer of the Units Will Apply.  23
Redemptions May Be Temporarily Suspended.  23
An Unanticipated Number of Redemption Requests over a Short Period of Time Could Result in Losses.  24
Reserves for Contingent Liabilities May Be Established Upon Redemption, and the Trust May Withhold a Portion of Your Redemption Amount.  24
You Have Limited Rights, and You Cannot Prevent the Trust from Taking Actions Which Could Cause Losses.  24
You Will Not Be Able to Review Any Series’ Holdings on a Daily Basis, and You May Suffer Unanticipated Losses.  24
You Will Not Be Aware of Changes to Trading Programs or Investments into, or Divestments from, any Commodity Pools on the Galaxy Plus Platform.  24

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TABLE OF CONTENTS
(Continued)

 

The Trust Could Terminate Before You Achieve Your Investment Objective, Causing Potential Loss of Your Investment or Upsetting Your Investment Portfolio.  24
The Managing Owner May Allocate Nominal Assets in Respect of a Series that are in Excess of the Net Asset Value of such Series.  24
The Managing Owner May Adjust the Leverage Employed by a Trading Advisor through a Trading Company to Maintain the Target Rate of Volatility.  25
Each Series may be Charged Substantial Fees and Expenses Regardless of Profitability.  25
There are Certain Risks Associated with Investments in Trading Companies and Commodity Pools Available on the Galaxy Plus Platform.  25
Conflicts of Interest Exist in the Structure and Operation of the Trust.  26
Each Series May Incur Higher Fees and Expenses Upon Renewing Existing or Entering into New Contractual Relationships.  26
Each Series May Be Subject to Indirect Fees and Expenses Associated with Investments in Swaps or Other Derivative Instruments.  26
The Failure or Bankruptcy of One of its Futures Clearing Brokers, Central Clearing Brokers, Banks, Counterparties or Other Custodians Could Result in a Substantial Loss of One or More Series’ Assets.  26
You May Not Be Able to Establish a Basis for Liability Against a Trading Advisor, a Clearing Broker or a Swap Counterparty.  27
The Managing Owner is Leanly Staffed and Relies Heavily on its Key Personnel to Manage the Trust’s Trading Activities. The Loss of Such Personnel Could Adversely Affect the Trust.  27
The Trust and the Managing Owner Have Been Represented by Unified Counsel, and Neither the Trust Nor the Managing Owner Will Retain Independent Counsel to Review this Offering.  27
Risks Relating to Trading and the Markets  27
Futures Interests Trading is Speculative and Volatile.  27
Options Trading Can Be More Volatile and Expensive than Futures Trading.  28
Trading Swaps Creates Distinctive Risks.  28
The Trading on Behalf of Each Series Will Be Margined, Which Means that Sharp Declines in Prices Could Lead to Large Losses.  29
The Unregulated Nature of Uncleared Trades in the OTC Markets, Such as Off-Exchange Forex, Creates Counterparty Risks that Do Not Exist in Futures Trading on Exchanges or in Cleared Swaps.  29
Foreign Currency and Spot Contracts Historically Were Not Regulated When Traded Between Certain “Eligible Contract Participants” and Are Subject to Credit Risk.  29
Trading on Foreign Exchanges Presents Greater Risks to the Series than Trading on U.S. Exchanges.  29
Assets Held in Accounts at U.S. Banks May Not Be Fully Insured.  30
Exchanges of Futures for Physicals May Adversely Affect Performance.  30

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TABLE OF CONTENTS
(Continued)

 

Cash Flow Needs May Cause Positions to Be Closed Which May Cause Substantial Losses.  30
Your Investment Could Be Illiquid.  31
The Trading Advisors’ Trading is Subject to Execution Risks.  31
An Investment in Units May Not Diversify an Overall Portfolio.  31
Markets or Positions May Be Correlated and May Expose a Series to Significant Risk of Loss.  31
The Trading Advisors’ Positions May Be Concentrated From Time to Time, Which May Render Each Series Susceptible to Larger Losses than if the Positions Were More Diversified.  31
Turnover in Each Series’ Portfolio May Be High, Which Could Result in Higher Brokerage Commissions and Transaction Fees and Expenses.  31
There Are Certain Risks Associated with the Trust’s Investment in U.S. Government Debt Securities.  31
The Trust’s Investment in U.S. Government Debt Securities Will Be Subject to Interest Rate Risk.  32
The Hedging Program Directed by Quest May Not Perform to Minimize Risk as Intended.  32
Investments in Reference Programs Through a Swap or Other Derivative Instrument May Not Always Replicate Exactly Performance of the Relevant CTA Trading Program(s).  32
Risks Relating to the Trading Advisors  32
Specific Risks Associated with a Multi-Advisor Commodity Pool.  32
There Are Disadvantages to Making Trading Decisions Based on Fundamental Analysis.  32
There Are Disadvantages to Making Trading Decisions Based on Technical Analysis.  33
Discretionary Decision Making May Result in Missed Opportunities or Losses.  33
Increased Competition from Other Systematic Traders Could Reduce the Trading Advisors’ Profitability.  33
The Incentive Fees Could Be an Incentive to the Trading Advisors to Make Riskier Investments.  33
The Risk Management Approaches of One or All of the Trading Advisors May Not Be Fully Effective, and a Series May Incur Losses.  33
Increases in Assets Under Management of any of the Trading Advisors Could Lead to Diminished Returns.  33
Each Series Relies on its Trading Advisors for Success, and if a Trading Advisor’s Trading is Unsuccessful, the Series May Incur Losses.  34
There Are Disadvantages Associated with Terminating or Replacing Trading Advisors, Trading Programs or Reference Trading Programs.  34
The Managing Owner’s Allocation of the Trust’s Assets Among Trading Advisors May Result in Less than Optimal Performance by the Trust.  34
Each Trading Advisor Advises Other Clients and May Achieve More Favorable Results for its Other Accounts.  34
The Managing Owner Places Significant Reliance on the Trading Advisors and Their Key Personnel; the Loss of Such Personnel Could Adversely Affect a Series.  35

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TABLE OF CONTENTS
(Continued)

 

The Success of Each Series Depends on the Ability of the Personnel of its Trading Advisors to Accurately Implement Their Trading Systems, and Any Failure to Do So Could Subject a Series to Losses.  35
Stop-loss Orders May Not Prevent Large Losses.  35
Risks Relating to the Galaxy Plus Platform  35
The Success of Each Series Depends on the Performance of the Commodity Pools Available on the Galaxy Plus Platform in Which Each Series Invests  35
The Galaxy Plus Platform is Recently Established and has a Limited Operating History and the Commodity Pools Have Limited or No Operating History or Track Record  35
A Series May be One of Multiple Investors in each Commodity Pool on the Galaxy Plus Platform  36
A Series May Incur Losses Related to Other Investors’ Large Redemptions from, or Investments into, a Commodity Pool on the Galaxy Plus Platform  36
The Galaxy Plus Platform Operates Independently from Each Series, the Trust and the Managing Owner  36
The Galaxy Plus Platform and Gemini May Limit the Ability of a Series to Invest in, or Divest From, a Commodity Pool  36
Cessation of, or Changes to, the Operation of the Galaxy Plus Platform Could Adversely Impact the Performance of a Series  36
Investment in Commodity Pools Available on the Galaxy Plus Platform Presents Operational, Administrative Risk to Each Series  36
Each Series May Be Susceptible to Cyber Security Breaches  36
Taxation and Benefits Risks  36
You May Have Tax Liability Attributable to Your Investment in a Series Even if You Have Received No Distributions and Redeemed No Units, and Even if the Series Generated an Economic Loss.  37
You May Be Subject Tax on Gains that the Trust Never Realizes.  37
Partnership Treatment is not Assured, and if the Trust or any Series Is Not Treated as a Partnership, You Could Suffer Adverse Tax Consequences.  37
There is the Possibility of a Tax Audit Which Could Result in Additional Taxes to You.  37
You Will Likely Recognize Short-Term Capital Gain.  37
The IRS Could Challenge Allocations of Recognized Gains to Unitholders Who Redeem.  37
The IRS Could Take the Position that Deductions for Certain Trust Expenses Are Subject To Various Limitations.  37
The Investment of Benefit Plan Investors May Be Limited and/or Subject to Mandatory Redemption if Any or All of the Series (or Class of any Series) Are Deemed to Hold Plan Assets or if the Trading Advisors Have Fiduciary Relationships with Certain Investing Benefit Plan Investors, and Benefit Plan Investors are Required to Consider their Fiduciary Responsibilities in Making an Investment Decision.  38
Foreign Investors May Face Exchange Rate Risk and Local Tax Consequences.  38
Regulatory Risks  38

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TABLE OF CONTENTS
(Continued)

 

Regulation of the Commodity Interest Markets is Extensive and Constantly Changing; Future Regulatory Developments are Impossible to Predict, but May Significantly and Adversely Affect the Trust.  38
The Series Are Subject to Speculative Position Limits.  38
CFTC Registrations Could Be Terminated, Which Could Adversely Affect the Trust or a Series.  39
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS  40
FRONTIER FUNDS  41
THE OFFERING  42
PAST PERFORMANCE OF THE SERIES  44
THE TRUSTEE  49
THE MANAGING OWNER AND CPO  50
GEMINI ALTERNATIVE FUNDS  55
TRADING LIMITATIONS, POLICIES AND SWAPS  57
THE CLEARING BROKERS  61
ADMINISTRATOR  73
TRANSFER AGENT  74
ACTUAL AND POTENTIAL CONFLICTS OF INTEREST  75
FEES AND EXPENSES  78
Summary Table of Fees and Expenses  78
WHO MAY SUBSCRIBE  87
Investor Suitability  87
Minimum Purchases  87
Net Worth and Income Requirements  87
Subscriber Category Requirements  88
Fundamental Knowledge  88
Ineligible Investors  88
ERISA Considerations  88
Discretionary Accounts  90
Compliance with Anti-Money Laundering Laws  90
HOW TO SUBSCRIBE  91

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TABLE OF CONTENTS
(Continued)

 

Ways to Subscribe  91
When a Subscription Becomes Final  91
Representations and Warranties of Investors in the Subscription Agreement and Power of Attorney  92
PLAN OF DISTRIBUTION  93
Minimum Subscription Requirements  93
Offering  93
Subscription Effective Dates  93
Calculation of Number of Units Purchased  93
The Distribution Agents  93
Other Arrangements with FINRA Member Firms  94
Limitation on Underwriting Compensation  94
Service Fees  94
Account Start-Up, Platform Access, Account Maintenance and Technology Fees and Expense Reimbursements  95
Wholesaling Arrangements  95
SEGREGATED ACCOUNTS  98
SUMMARY OF AGREEMENTS  99
ADVISORY AGREEMENTS  99
BROKERAGE AGREEMENTS  100
SELLING AGENT AGREEMENT  101
TRUST AGREEMENT  102
U.S. FEDERAL INCOME TAX CONSEQUENCES  112
The Tax Status of the Trust and the Series  112
Taxation of the Series’ Income and Losses  112
Character of the Series’ Income, Gains and Losses  113
Deductibility of Capital Losses  113
Effect of At Risk and Passive-Activity Loss Rules  114
Organizational and Syndication Expenses  114
Cash Distributions, Redemptions and Exchanges of Units  114
Limitation on Deductibility of Investment Advisory Expenses  114

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TABLE OF CONTENTS
(Continued)

 

Limitation on Deductibility of Investment Interest  114
Fund Audit Procedures  115
Tax Shelter Regulations  115
Tax-Exempt Limited Owners  115
Foreign Limited Owners  115
Backup Withholding  116
PRIVACY POLICIES  117
LEGAL MATTERS  118
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  119
EXPERTS  120

 

APPENDICES TO PART ONE  FRONTIER DIVERSIFIED APP-1
FRONTIER DIVERSIFIED FUND  FRONTIER DIVERSIFIED APP-2
FRONTIER MASTER FUND  FRONTIER MASTERS APP-2
FRONTIER LONG/SHORT COMMODITY FUND  FRONTIER LONG/SHORT COMMODITY APP-2

 

STATEMENT OF ADDITIONAL INFORMATION  SAI-1
THE NON-MAJOR COMMODITY TRADING ADVISORS  SAI-2
THE FUTURES MARKETS  SAI-4
GLOSSARY OF TERMS  SAI-7
BENEFITS TO INVESTING IN THE TRUST  SAI-11
FUND PERFORMANCE  SAI-12
MONTHLY PERFORMANCE ATTRIBUTION BY SECTOR  SAI-21
FUND EXPOSURE BY FUTURES STRATEGY  SAI-23
MONTHLY TOP AND BOTTOM PERFORMANCE ATTRIBUTION BY FUTURES STRATEGY  SAI-26
CORRELATIONS  SAI-29
DESCRIPTION OF INDICES REFERENCED IN THIS STATEMENT OF ADDITIONAL INFORMATION  SAI-31
SECOND AMENDED AND RESTATED DECLARATION OF TRUST  EXHIBIT A-1
SUBSCRIPTION INFORMATION  EXHIBIT B-1
EXCHANGE REQUEST FOR  EXHIBIT C-1
CLASS 1 UNITS REQUEST FOR REDEMPTION  EXHIBIT D-1

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TABLE OF CONTENTS
(Continued)

 

REQUEST FOR ADDITIONAL SUBSCRIPTION  EXHIBIT E-1
CLASS 1 APPLICATION FOR TRANSFER OF OWNERSHIP / RE-REGISTRATION FORM  EXHIBIT F-1
PRIVACY NOTICE  EXHIBIT G-1

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The Series of Frontier Funds at a Glance
   
Series Trading/Galaxy Plus Platform Commodity Pools/Reference Programs
   
   
Frontier
Diversified
Major Commodity Trading Advisors, Galaxy Plus Platform Commodity Pools and/or Reference Programs  
     
  Aspect Capital Limited Aspect Core Diversified Program (accessed via Galaxy Plus Fund – Aspect Feeder Fund (532) LLC)
  Crabel Capital Management, LLC Crabel Multi-Product Program
  Emil van Essen LLC Multi-Strategy Program (accessed via Galaxy Plus Fund – Emil Van Essen STP Feeder Fund (516) LLC)
  FORT, L.P. Global Contrarian Program (accessed via Galaxy Plus Fund – FORT Contrarian Feeder Fund (510) LLC)
  H2O AM LLP H2O Force 10 Program
  Quantitative Investment Management, LLC Global Program (accessed via Galaxy Plus Fund – QIM Feeder Fund (526) LLC)
  QuantMetrics Capital Management LLP QM Futures Program (accessed via Galaxy Plus Fund – QuantMetrics Feeder Fund (527) LLC)
  Quest Partners LLC Quest Tracker Index Program (accessed via Galaxy Plus Fund – Quest Feeder Fund (517) LLC); Quest Fixed Income Tracker Index (accessed via Galaxy Plus Fund – Quest FIT Feeder Fund (531) LLC)
  Welton Investment Partners, LLC Welton GDP Program (accessed via Galaxy Plus Fund – Welton GDP Feeder Fund (538) LLC)
  Winton Capital Management Ltd. Winton Diversified Macro Strategies Program
     
  Non-Major Commodity Trading Advisors, Galaxy Plus Platform Commodity Pools and/or Reference Programs  
     
  Doherty Advisors, LLC Discretionary Relative Value Volatility Program (accessed via Galaxy Plus Fund – Doherty Feeder Fund (528) LLC)
  Landmark Trading Company Landmark Trading Program (accessed via Galaxy Plus Fund –  LRR Feeder Fund (522) LLC)

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Series Trading/Galaxy Plus Platform Commodity Pools/Reference Programs
   
   
Frontier Masters Major Commodity Trading Advisors, Galaxy Plus Platform Commodity Pools and/or Reference Programs  
     
  Emil van Essen LLC Multi-Strategy Program (accessed via Galaxy Plus Fund – Emil Van Essen STP Feeder Fund (516) LLC)
  Transtrend B.V. Diversified Trend Program—Enhanced Risk/USD (accessed via Galaxy Plus Fund – TT Feeder Fund (531) LLC)
  Welton Investment Partners, LLC Welton GDP Program (accessed via Galaxy Plus Fund – Welton GDP Feeder Fund (538) LLC)
  Winton Capital Management Ltd. Winton Diversified Macro Strategies Program
  Quest Partners LLC Quest Fixed Income Tracker Index (accessed via Galaxy Plus Fund – Quest FIT Feeder Fund (531) LLC)

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Series

 

Trading/Galaxy Plus Platform Commodity Pools/Reference Programs

 

  

Series Trading/Galaxy Plus Platform Commodity Pools/Reference Programs
   
   
Frontier Long/Short Commodity Major Commodity Trading Advisors, Galaxy Plus Platform Commodity Pools and/or Reference Programs  
     
  Emil van Essen LLC Multi-Strategy Program (accessed via Galaxy Plus Fund – Emil Van Essen STP Feeder Fund (516) LLC)
  JE Moody & Company LLC JEM Commodity Relative Value Program
  Quest Partners LLC Quest Fixed Income Tracker Index (accessed via Galaxy Plus Fund – Quest FIT Feeder Fund (531) LLC)
  Red Oak Commodity Advisors, Inc. Fundamental Trading (accessed via Galaxy Plus Fund – LRR Feeder Fund (522) LLC)
  Rosetta Capital Management, LLC Rosetta Trading Program (accessed via Galaxy Plus Fund – LRR Feeder Fund (522) LLC)
  Welton Investment Partners, LLC Welton GDP Program (accessed via Galaxy Plus Fund – Welton GDP Feeder Fund (538) LLC)
     
  Non-Major Commodity Trading Advisors, Galaxy Plus Platform Commodity Pools and/or Reference Programs  
     
  Doherty Advisors, LLC Discretionary Relative Value Volatility Program (accessed via Galaxy Plus Fund – Doherty Feeder Fund (528) LLC)
  Landmark Trading Company Landmark Trading Program (accessed via Galaxy Plus Fund –  LRR Feeder Fund (522) LLC)

 

A commodity trading advisor (“CTA”) that may be allocated 10% or more of the assets of a series, including through investments in trading companies managed by the managing owner and/or one or more commodity pools available through the Galaxy Plus Platform, is referred to as a major CTA. A non-major CTA is a CTA whose allocation, through such trading companies or commodity pools, will be less than 10% of a series’ assets. Each CTA that is allocated assets of a series is referred to herein as a “trading advisor.” Chesapeake Capital Corporation (“Chesapeake”), a CTA which the Funds have previously accessed through the Galaxy Plus Fund platform, was no longer an advisor to any Galaxy Plus Fund as of December 31, 2017. None of the Funds currently have any investment exposure to Chesapeake.

 

A reference program refers to a commodity trading program in which the exposure to such program is through a swap or other derivative instrument. A reference program whose exposure may be 10% or more of a series’ nominal assets is referred to as a major reference program. A non-major reference program is a reference program whose exposure will be less than 10% of a series’ nominal assets.

 

The trust will not own any of the investments or indices referenced by any swap or other derivative instrument. The counterparty is not the trading advisor of the reference program. The managing owner may add, replace or substitute trading advisors, reference programs, or invest in, or redeem from, commodity pools available on the Galaxy Plus Platform, in its sole discretion, without prior notice to or consent of investors. The managing owner in the future may also allocate assets to trading companies or accounts in other similar managed account platforms.

xvi

 

SUMMARY

 

This summary highlights certain information contained elsewhere in this prospectus. The remainder of this prospectus contains more detailed information. You should read the entire prospectus, including the appendix for each series, the Statement of Additional Information, all exhibits to the prospectus, and all documents incorporated herein by reference before deciding to invest in any series. 

 

The Trust Frontier Funds is a Delaware statutory trust (formed on August 8, 2003) that is currently publicly offering units in three separate series. Each series engages in the speculative trading of a diversified portfolio of futures, forwards (including interbank foreign currencies), swaps and options contracts and/or other derivative instruments. The purpose of each series is to seek capital appreciation while attempting to control risk and volatility.  Frontier Fund Management LLC, the managing owner of the trust, has delegated its commodity pool operator responsibilities to Wakefield Advisors LLC, a registered commodity pool operator, and allocates the assets of each series to a diverse group of experienced commodity trading advisors through investments in one or more trading companies managed by the managing owner and in one or more commodity pools through the “Galaxy Plus Platform” sponsored and operated by Gemini.  The managing owner in the future may also allocate assets to trading companies or accounts in other similar managed account platforms. In addition, the managing owner, from time to time, may enter into swaps, other derivatives or other investments platforms similar to those described herein with respect to certain reference trading programs. There are a number of factors that would determine whether to allocate to trading advisors versus entering into swaps. These factors include but are not limited to whether a trading advisor accepts separately managed accounts or is only available on third party platforms, costs such as management fees where the fees may vary for separately managed accounts versus third party platforms, minimum account sizing where a managed account would require larger investments than those on third party platforms and liquidity is generally similar for managed accounts and third party platforms but may vary and become a factor. Each series, which currently invests its assets in both trading companies managed by the managing owner and in commodity pools offered through the Galaxy Plus Platform, expects to ultimately allocate all of its assets to such commodity pools, in addition to entering into any swaps or other derivative instruments with respect to certain reference trading programs.  The managing owner expects to liquidate each trading company it manages once no further assets of the series are invested in such trading company.  Units are available for subscription on each business day at the then current net asset value per unit. The trust has offered other series in the past and may offer additional series in the future.

 

Since each series has a unique trading and investment strategy, you should review the information relating to each series and its trading and investment strategy. See “Appendices to Part I” for additional information regarding each series and its trading and investment strategy.

 

The trust will terminate on December 31, 2053 (unless terminated earlier in certain circumstances). See “Summary of Agreements—Trust Agreement.” The principal offices of the trust and the managing owner are located at 25568 Genesee Trail Road, Golden, Colorado, 80401, and their telephone number is (303) 454-5500. The trust and each series of the trust is a multi-advisor pool as defined in Commodity Futures Trading Commission (“CFTC”) Rule 4.10(d)(2).

 

The Managing Owner and CPO Frontier Fund Management LLC is a limited liability company formed in the state of Delaware in November 2016. The managing owner has delegated its commodity pool operator responsibilities with respect to the trust and each series to Wakefield pursuant to the Commodity Pool Operator Delegation Agreement between the managing owner and Wakefield. Wakefield has been registered with the CFTC as a commodity pool operator since January 7, 2013, and has been a member of the National Futures Association (“NFA”) since that date.  The managing owner is ultimately responsible for the selection, retention and termination of the trading advisors and investments in, and divestments from, one or more commodity pools offered through the Galaxy Plus Platform, each of which is advised by an individual trading advisor. The managing owner is also responsible for entering into, or   

 1

  terminating, the swap reference trading programs on behalf of each series. See “The Managing Owner and CPO.”

 

The managing owner will maintain a minimum of 1% interest with respect to the publicly registered units of each series of the trust at all times. See “The Managing Owner—Managing Owner’s Commitments—Minimum Purchase Commitment.” The managing owner has agreed to accept liability for the obligations of each series that exceed that series’ net assets.

 

The managing owner and/or Wakefield, as applicable, with respect to each series, will:

 

    engage in the speculative trading of a diversified portfolio of futures, forwards (including interbank foreign currencies) and options contracts and/or other derivative instruments, which may also be effected through the investments in, or divestments from, trading companies managed by the managing owner and/or one or more commodity pools available on the Galaxy Plus Platform, each of which will be advised by an individual trading advisor, and enter into one or more swap contracts, and may, from time to time, engage in cash and spot transactions;

 

    maintain a portion of such series’ assets at the trust level for cash management;

 

    maintain separate, distinct records for each series, and account for its assets separately from the other series and the other trust assets; and

 

   

calculate the net asset value of its units separately from the other series.

       
The Units Each series is available in two classes. Class 1 (and, in the case of the Frontier Long/Short Commodity Fund, class 1a) units are subject to an initial service fee equal to up to 2.0% of the purchase price and, after the first year, an ongoing annual service fee of up to 2.0% of the net asset value of your units, which is payable either monthly or quarterly (as agreed with the selling agent). The initial service fee will generally be prepaid by the managing owner to the applicable selling agent and will be reimbursed by the applicable series over the first 12 months of your investment. Class 2 (and, in the case of the Frontier Long/Short Commodity Fund, class 2a) units are not subject to an initial service fee and will only be offered to investors who invest through approved selling agents who are separately compensated by the investor directly. See “Fees and Expenses—Service Fees.” Class 2 and 2a units may be subject to ongoing service fees for certain administrative services provided by the selling agents in an amount equal to 0.25% annually of the net asset value of each unit (an additional amount of up to 0.25% of the net asset value may be paid by the managing owner), payable at the end of each month.

 

Class 1 and 1a units and class 2 and 2a units will be re-designated as class 3 or class 3a units, respectively, of such series, for administrative purposes as of any business day when the managing owner determines in its sole discretion that the service fee limit will be reached. The service fee limit applicable to each unit sold pursuant to this prospectus is reached upon the earlier of when (i) the aggregate initial and ongoing service fees received by the selling agent with respect to such unit equals 9% of the purchase price of such unit or (ii) the aggregate underwriting compensation (determined in accordance with FINRA Rule 2310) paid in respect of such unit totals 10% of the purchase price of such unit. There are no service fees or redemption fees associated with the class 3 or 3a units.

 

  Class 3 and 3a units are not offered directly to investors and have been registered, and will be maintained, under federal and state securities laws to administer the designation of class 1, 1a, 2 and 2a units that have reached the service fee limit as class 3 or 3a units. See “Plan of Distribution.”
   
  The percentage return (and associated dollar amount) that your investment must earn in the indicated series, after taking into account estimated interest income, in order to

 2

  break-even after one year is as follows (please see the “Break-Even Analysis” on page 19): Frontier Diversified Fund: Class 1 – 7.63% ($76.33); Class 2 – 5.32% ($53.18); Class 3 – 4.99% ($49.87); Frontier Masters Fund: Class 1 – 11.49% ($114.86); Class 2 – 9.30% ($92.99); Class 3 – 8.99% ($89.86); and Frontier Long/Short Commodity Fund: Class 1a – 10.73% ($107.31); Class 2a – 8.53% ($85.29); Class 3a – 8.21% ($82.14).
 
The offering of units is subject to federal and state securities laws and regulations, federal laws and regulations relating to investments in commodities and related products, and the rules of FINRA and NFA.

 

The Series The trust publicly offers units in three separate series: Frontier Diversified Fund, Frontier Masters Fund and Frontier Long/Short Commodity Fund. The trust has offered other series in the past and may offer additional series and/or units in the future.

 

The trust allocates the assets of each series to one or more of the trading advisors or reference programs described below through either the use of one or more trading companies formed in the state of Delaware and managed by the managing owner, or investments in one or more commodity pools offered through the Galaxy Plus Platform. The managing owner may add, replace or substitute trading advisors, reference programs, commodity pools or invest in, or redeem from, one or more commodity pools available on the Galaxy Plus Platform, in its sole discretion, without prior notice to or consent of investors. The managing owner in the future may also allocate assets to trading companies or accounts in other similar managed account platforms. Chesapeake Capital Corporation, or Chesapeake, a CTA which the Funds have previously accessed through the Galaxy Plus Fund platform, was no longer an advisor to any Galaxy Plus Fund as of December 31, 2017. None of the Funds currently have any investment exposure to Chesapeake.

 

The actual allocation among trading advisors for each series, including through investments in commodity pools available on the Galaxy Plus platform, will vary based upon the relative trading performance of the trading advisors and/or reference programs, and the managing owner may otherwise vary such percentages from time to time in its sole discretion. Each series permits its trading advisor(s) to trade the assets allocated to it using notional equity (funds allocated to an account in excess of actual funds deposited in the account) in order to keep each series’ annual return volatility consistent with its applicable volatility target range as set forth in the appendix for the applicable series attached hereto. The trading advisors retained by the commodity pools on the Galaxy Plus Platform are also expected to conduct their trading using notional equity.

 

A portion of the assets of a series may be committed as initial margin for strategic investments in one or more swaps or other derivative instruments. The trust will not own any of the investments or indices referenced by any swap or other derivative instrument. Although the series will not be directly invested in any fund or program with respect to a swap or other derivative instrument, the assets of such series are subject to the credit risk of the counterparty with respect to any swap or other derivative instrument. See “Risk Factors—Risks Relating to Trading and the Markets—OTC Transactions Are Subject to Little, if Any, Regulation and May Be Subject to the Risk of Counterparty Default.”

 

The total amount of assets of a series allocated to trading advisors, including through investments in commodity pools available on the Galaxy Plus Platform, and/or reference programs, including (i) actual funds deposited in accounts directed by the trading advisors or deposited as margin in respect of swaps or other derivative instruments referencing a reference program plus (ii) any notional equity allocated to the trading advisors, including through investments in commodity pools available on the Galaxy Plus platform, and any reference programs, is referred to herein as the “nominal assets” of the series. Investors should note that, at any given time, the nominal assets of a series may exceed the net asset value of such series depending on the amount of notional equity that is being utilized. The managing owner expects that the nominal assets of each series will generally be maintained at a level in excess of the net asset value of such series and such excess may be substantial to the

 3

extent the managing owner deems necessary to achieve the desired level of volatility.

 

You should review the appendix for each series in Part I for additional information.

 

Frontier Diversified Fund The current major commodity trading advisors, including those advising commodity pools on the Galaxy Plus Platform and/or reference programs for the Frontier Diversified Fund are:

 

Aspect Capital Limited;

 

Crabel Capital Management, LLC;

 

Emil van Essen LLC;

 

FORT, L.P.;

 

H2O AM LLP;

 

Quantitative Investment Management, LLC;

 

QuantMetrics Capital Management LLP;

 

Quest Partners LLC;

 

Welton Investment Partners, LLC; and

 

Winton Capital Management Ltd.

 

The managing owner anticipates that up to 30% of the assets of the Frontier Diversified Fund may be allocated to each of the major commodity trading advisors, commodity pools on the Galaxy Plus Platform and/or reference programs at any time. See “Risk Factors—Risks Relating to the Trust and the Offering of Units—The Managing Owner May Adjust the Leverage Employed by a Trading Advisor to Maintain the Target Rate of Volatility.”

 

See the appendix for the Frontier Diversified Fund attached to Part I of this prospectus for more information regarding the Frontier Diversified Fund.

 

Frontier Masters Fund The current major commodity trading advisors, including those advising commodity pools on the Galaxy Plus Platform and/or reference programs for the Frontier Masters Fund are:

 

Emil van Essen LLC;

 

Transtrend B.V.;

 

Welton Investment Partners, LLC;

 

Winton Capital Management Ltd.; and

 

Quest Partners LLC.

 

The managing owner anticipates that up to 40% of the assets of the Frontier Masters Fund may be allocated to each of the major commodity trading advisors, commodity pools on the Galaxy Plus Platform and/or reference programs at any time. See “Risk Factors—Risks Relating to the Trust and the Offering of Units— The Managing Owner May Adjust the Leverage Employed by a Trading Advisor to Maintain the Target Rate of Volatility.”

 

See the appendix for the Frontier Masters Fund attached to Part I of this prospectus for more information regarding the Frontier Masters Fund.

 

Frontier Long/Short Commodity Fund The current major commodity trading advisors, commodity pools on the Galaxy Plus Platform and/or reference programs for the Frontier Long/Short Commodity Fund are:

 

Emil van Essen LLC;

 

JE Moody & Company LLC;

 

Quest Partners LLC;

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Red Oak Commodity Advisors, Inc.;

 

Rosetta Capital Management, LLC; and

 

Welton Investment Partners, LLC.

 

The managing owner anticipates that up to 30% of the assets of the Frontier Long/Short Commodity Fund may be allocated to each of the major commodity trading advisors, commodity pools on the Galaxy Plus Platform and/or reference programs at any time. See “Risk Factors—Risks Relating to the Trust and the Offering of Units— The Managing Owner May Adjust the Leverage Employed by a Trading Advisor to Maintain the Target Rate of Volatility.”

 

  See the appendix for the Frontier Long/Short Commodity Fund attached to Part I of this prospectus for more information regarding the Frontier Long/Short Commodity Fund.

 

Investment Risks Units of each series are speculative securities and you could lose all or substantially all of your investment in a series. In particular, you should be aware that:

 

Past performance is not necessarily indicative of future results.

 

Futures, forwards and options trading is speculative, volatile and highly leveraged. Due to the volatile nature of the commodities markets and the high degree of leverage to be employed by each series of the trust, a relatively small change in the price of a contract can cause significant losses for a series.

 

There is no secondary market for the units and the transfer of units is restricted. If you redeem all or a portion of your class 1 or 1a units before the end of 12 full months following your purchase, you will be charged a redemption fee of up to 2.0% of the purchase price of the units being redeemed.

 

The incentive nature of the compensation to be paid to the trading advisors may encourage the trading advisors to take riskier or more speculative positions.

 

Each of the trust’s series relies on the trading advisors selected by the managing owner for success, including through its investments in commodity pools on the Galaxy Plus Platform.

 

The assets of each series will be substantially invested in commodity pools offered through the Galaxy Plus Platform advised by independent trading advisors. Each series’ performance depends substantially upon the performance of these commodity pools, the adherence of the commodity pools to their selected strategies and the effectiveness of those strategies.

 

Your annual tax liability may exceed cash distributions to you.

 

Each series is subject to substantial charges. You will sustain losses if a series in which you are invested is unable to generate sufficient trading profits to offset its fees and expenses. See “Break-Even Analysis” on page 19.

 

You will have limited voting rights and no control over the trust’s business.

 

Actual and potential conflicts of interest exist among the managing owner and the trading advisors. Other conflicts of interest may exist as well. See “Actual and Potential Conflicts of Interest.”

 

Each of the trust’s series is subject to, and invests a portion of its assets in commodity pools that are subject to, risks related to the operation and administration of the Galaxy Plus Platform by officers and employees of Gemini.

 

The Trading Companies For administrative and operational reasons, the trust currently allocates a portion of the assets of each series to trading advisors and/or reference programs through the use of one or more trading companies managed by the managing owner. The trading companies are limited liability companies formed in Delaware. The assets of each trading company are generally segregated from each other trading company. Certain trading companies have entered into contractual arrangements with one or more independent CTAs that will manage all or a portion of such trading company’s assets and make the trading decisions with respect to the assets of each series invested in such trading company. Certain other trading companies have entered into swaps or other over-the-counter derivative instruments with independent counterparties. The

 5

 

trading companies currently utilized by the trust are as follows: Frontier Trading Company I LLC, Frontier Trading Company II LLC, Frontier Trading Company XXXIV, LLC, Frontier Trading Company XXXV, LLC, Frontier Trading Company XXXVII, Frontier Trading Company XXXVIII and Frontier Trading Company XXXIX, LLC. In lieu of on-going investments in the trading companies, each series expects to ultimately allocate all of its assets to such commodity pools available on the Galaxy Plus Platform, in addition to entering into any swaps or other derivative instruments with respect to certain reference trading programs. The managing owner expects to liquidate each trading company it manages once no further assets of the series are invested in such trading company.

 

See “—Organizational Charts.” For additional disclosure regarding the risks and potential conflicts of interest associated with investment through the trading companies, please see “Risk Factors—Trading Company Allocations” and “Actual and Potential Conflicts of Interest—Trading Companies.”

 

Galaxy Plus Managed Account Platform

 

 

 

The trust currently allocates a portion of assets of each series to one or more commodity pools available on the Galaxy Plus Platform, an unaffiliated, third-party managed account platform sponsored, maintained and administrated by Gemini, a wholly owned subsidiary of NorthStar Financial Services Group, LLC.

 

Each commodity pool is advised by an individual trading advisor. Each series expects to ultimately allocate all of its assets to such commodity pools available on the Galaxy Plus Platform. As of the date of this Prospectus, the commodity pool operator and sponsor of each commodity pool on the Galaxy Plus Platform is Gemini Alternative Funds, LLC.

 

The commodity pools available on the Galaxy Plus Platform currently utilized by the trust are as follows: Galaxy Plus Fund – Aspect Feeder Fund (532), LLC, Galaxy Plus Fund – Doherty Feeder Fund (528) LLC, Galaxy Plus Fund – Emil van Essen STP Feeder Fund (516) LLC, Galaxy Plus Fund – FORT Contrarian Feeder Fund (510) LLC, Galaxy Plus Fund – LRR Feeder Fund (522) LLC, Galaxy Plus Fund – QIM Feeder Fund (526) LLC, Galaxy Plus Fund – QuantMetrics Feeder Fund (527) LLC, Galaxy Plus Fund – Quest Feeder Fund (517) LLC, Galaxy Plus Fund – Quest FIT Feeder Fund (535) LLC, Galaxy Plus Fund – TT Feeder Fund (531) LLC and Galaxy Plus Fund – Welton GDP Feeder Fund (538) LLC.

 

The Trustee Wilmington Trust Company, a Delaware banking corporation, serves as the trust’s trustee. The trustee delegated to the managing owner all of the power and authority to manage the business and affairs of the trust and has only nominal duties (such as accepting service of legal process on behalf of the trust and making filings under the Delaware Statutory Trust Act, or the Trust Act) and liabilities to the trust.

 

The Clearing Brokers

Morgan Stanley & Co. LLC acts as a futures clearing broker for Frontier Trading Company II LLC for the Frontier Diversified Fund and the Frontier Master’s Fund, although other brokers may serve as futures clearing brokers for any of the trading companies in the future.

 

In addition, Deutsche Bank AG London serves as the foreign exchange counterparty (the “FX Counterparty”) for the trading companies that trade over-the-counter (“OTC”) foreign currencies. The futures clearing brokers and the FX Counterparty are collectively referred to as the clearing brokers. The clearing brokers will execute and clear the futures, options and OTC foreign currency transactions, as applicable, and perform certain administrative services for each trading company.

 

Gemini, as the operator and administrator of the commodity pools available on the Galaxy Plus Platform has sole discretion over the selection, retention and monitoring of the clearing brokers that provide services to the commodity pools on the Galaxy Plus Platform.

 6

Independent Administrator The trust and the managing owner have appointed Gemini Hedge Fund Services, LLC (the “independent administrator”) to act as an independent, third party administrator for the trust and its trading companies in certain capacities related to accounting and financial bookkeeping. The managing owner itself provides registrar and other administrative services to the trust and its trading companies.
   

Independent Transfer Agent

 

The trust and the managing owner have appointed Gemini Fund Services, LLC (the “transfer agent”) to act as an independent, third party transfer agent for the trust and provide administrative services in certain capacities related to sales and commissions processing.
   
The Selling Agents The managing owner appoints broker-dealers that are registered under the Exchange Act and are members of FINRA as selling agents to assist in the making of offers and sales of units.  The selling agents are not required to sell any specific number or dollar amount of units but will use their best efforts to sell the units offered. As compensation for their services, selling agents receive service fees, as described below.  

 

Liabilities You Assume You generally cannot lose more than your investment in any series in which you invest, and you will not be subject to the losses or liabilities of any series in which you have not invested. You may incur liability in excess of your investment in any series in which you invest (i) in the event the trust is required to make payments to any federal, state or local or any foreign taxing authority in respect of your allocable share of trust income, in which case you shall be liable for the repayment of such amounts plus interest thereon; (ii) to indemnify the trust if the trust incurs losses (including expenses) as a result of any claim or legal action to which the trust is subject which arises out of your obligations or liabilities unrelated to the trust’s business; (iii) to indemnify the trust and each unitholder against any losses or damages (including tax liabilities or loss of tax benefits) arising as a result of any transfer or purported transfer of your unit in violation of the trust agreement; and (iv) if the subscription agreement you delivered in connection with your purchase of units contains misstatements. See “Summary of Agreements—Trust Agreement—Liabilities” for a more complete explanation.

 

Limitation of Liabilities The debts, liabilities, obligations, claims and expenses of a particular series will be enforceable against the assets of such series only, and not against the assets of the trust generally or the assets of any other series, except to the extent described in the sections titled “Risk Factors—Trading Company Allocations” and “Actual and Potential Conflicts of Interest—Trading Companies.”  

 

Who May Subscribe An investment in the trust is speculative and involves a high degree of risk. The trust is not suitable for all investors. An investment in the trust should represent only a limited portion of your overall portfolio. To subscribe in the units of any series:

 

You must have at a minimum: (1) a net worth (exclusive of your home, home furnishings and automobiles) of at least $250,000 or (2) a net worth (exclusive of your home, home furnishings and automobiles) of at least $70,000 and an annual gross income of at least $70,000. A significant number of states impose substantially higher suitability standards than the minimums described above. Before investing, you should review the minimum suitability requirements for your state of residence which are described in “State Suitability Requirements” in “SUBSCRIPTION INFORMATION” attached to this prospectus as Exhibit B. These suitability requirements are regulatory minimums only. Just because you meet such requirements does not mean that an investment in the units is a suitable investment for you.

 

You may not invest more than 10% of your net worth (exclusive of your home, furnishings and automobiles) in any series or combination of series. Additionally, if you are a Kentucky resident, you may not invest more than 10% of your liquid net worth in any series or combination of series, or in any shares of the trust’s affiliate non-publicly traded commodity pool programs.

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Plans subject to Section 4975 of the Internal Revenue Code of 1986, as amended (the “Code”), including IRAs, Keogh plans covering no common law employees, and employee benefit plans not subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), may not invest more than 10% of the subscriber’s and their participants’ net worth (exclusive of home, home furnishings and automobiles) in any series or combination of series.

 

Employee benefit plans subject to ERISA are subject to special suitability requirements and may not invest more than 10% of their assets in any series or combination of series.

 

See “Who May Subscribe” beginning on page 87 of the prospectus.

 

Minimum Subscription Amounts The minimum initial subscription in any one series is $1,000. If you are an individual retirement account, pension, profit-sharing, stock bonus, Keogh, welfare benefit or other employee benefit plan whether or not subject to ERISA or Section 4975 of the Code, each a Plan, an employee or family member of an employee of the managing owner or its affiliates, or a charitable organization, you have no minimum initial subscription requirements and are able to invest a lesser amount.

 

Existing limited owners may purchase additional units in increments of $100, or, if you are a Plan (including an IRA), an employee or family member of an employee of the managing owner or its affiliates, or a charitable organization, you have no minimum initial subscription requirements and are able to invest a lesser amount.

 

  If you are a resident of Texas, then your minimum initial subscription requirement is $5,000, or, if you are a Plan (including an IRA), an employee or family member of an employee of the managing owner or its affiliates, or a charitable organization (each, residing in Texas), then your minimum initial subscription requirement is $1,000.

 

How to Subscribe Investors will be able to subscribe for Units as of each Business Day (as defined below) by completing and submitting to the transfer agent (as defined below) a completed Subscription Agreement by 4:00 p.m. Eastern Standard Time.  The transfer agent may, in its sole discretion, reject any subscription in whole or in part for any reason.  A Subscription Agreement received by the transfer agent after 4:00 p.m. Eastern Standard Time will be deemed to be received on the immediately following Business Day.

 

Subscription Effective Dates The effective date of your subscription will generally be two business days after the day on which your subscription agreement or exchange request is received by the transfer agent. A subscription agreement or exchange request received by the transfer agent after 4:00 PM Eastern Standard Time will be deemed to be received on the immediately following business day. Business day means a day other than a Saturday, Sunday or other day when banks and/or securities exchanges in the city of New York or the city of Wilmington are authorized or obligated by law to close. The managing owner in its sole and absolute discretion may change such notice requirement upon written notice to you.

 

Transfer of Units The trust agreement restricts the transferability and assignability of the units. There is not now, nor is there expected to be, a secondary trading market for the units.

 

Exchange Privilege You may exchange your units of a series for units of another series. Class 1 or 1a units in any one series may only be exchanged for class 1 or 1a units in any other offered series; similarly, class 2 or 2a units in any one series may only be exchanged for class 2 or 2a units in any other offered series. You will be allowed to exchange your units in one series for units of another series only if units of the series being exchanged into are currently being offered for sale pursuant to this prospectus, are registered for sale in your state and only if there are a sufficient number of registered units of the series being exchanged into. Please confirm availability of a series prior to requesting an exchange. An exchange of units will be treated as a redemption of units of one series (with the related tax consequences) and the immediate purchase

 8

  of units of another series. See “U.S. Federal Income Tax Consequences.” No redemption fees or initial service fees will be charged with respect to exchanged units. Upon any exchange, each unit being purchased (exchanged into) will be subject to annual ongoing service fees as described above in “The Units” and such new units will be subject to a new service fee limit determined without regard to the amount of service fees previously charged with respect to your redeemed (exchanged out of) units.

 

Exchanges are made at the applicable series’ then-current net asset value per unit at the close of business on each day immediately preceding the day on which your exchange will become effective. An exchange will be effective on the day which occurs at least two business days after the transfer agent receives your exchange request. An exchange request received by the transfer agent after 4:00 PM Eastern Time on any business day will be deemed to be received on the immediately following business day for purposes of the foregoing. The managing owner, in its sole and absolute discretion, may change such requirements. See “Summary of Agreements—Trust Agreement—Exchange Privilege.”

 

Redemptions You may redeem your units, in whole or in part, on a daily basis. Your units will be redeemed one business day after the transfer agent’s receipt of your redemption request. A request for redemption received by the transfer agent after 4:00 PM Eastern Time on any business day will be deemed to be received on the immediately following business day. The managing owner, in its sole and absolute discretion, may change such notice requirement. Redemptions are made at the applicable series’ then-current net asset value per unit on the business day following the receipt of your redemption request. If you redeem all or a portion of your class 1 or 1a units on or before the end of 12 full months following the purchase of such units being redeemed, you will be charged a redemption fee of up to 2.0% of the purchase price of any units redeemed to reimburse the managing owner for the then-unamortized balance of the prepaid initial service fee. Redemption fees will be paid to the managing owner. See “Summary of Agreements—Trust Agreement—Redemption of Units.”

 

Distributions The managing owner does not currently intend to make any distributions of profits.

 

Income Tax Consequences It is expected that each of the trust’s series will be treated as a separate partnership for U.S. federal income tax purposes and, assuming that at least 90% of the gross income of each series has always constituted, and will continue to constitute, “qualifying income” within the meaning of Section 7704(d) of the Internal Revenue Code of 1986, as amended, (the “Code”), neither the trust nor any series will be a publicly traded partnership treated as a corporation for U.S. federal income tax purposes. See “U.S. Federal Income Tax Consequences—The Tax Status of the Trust and the Series.”

  

Important Information About This Prospectus This prospectus is part of a registration statement that was filed with the SEC on behalf of the trust by its managing owner. Before purchasing any units, you should carefully read this prospectus, together with the additional information incorporated by reference into this prospectus, including financial statement information, as described under the heading “Incorporation of Certain Information by Reference,” and information described under the heading “Where You Can Find More Information.”

 

You should assume that the information appearing in this prospectus, as well as information that was previously filed with the SEC and incorporated by reference hereto, is accurate as of the date of such document. You should be aware that each series’ performance information, financial condition and results of operations may have changed since that date.

 

Incorporation of Certain Information by Reference The U.S. Securities and Exchange Commission, or the SEC, allows the trust and each series to “incorporate by reference” into this prospectus certain information that it has filed with the SEC. This means that the trust and each series can disclose

 9

  important information to you by referring you to those documents without restating that information in this prospectus. The information incorporated by reference into this prospectus is considered to be part of this prospectus. We incorporate by reference into this prospectus the documents listed below, including their exhibits, except to the extent information in those documents differs from information contained in this prospectus:

 

Frontier Funds’ Quarterly Report on Form 10-Q for the quarter ended March 31, 2018, as filed with the SEC on May 15, 2018;

 

Frontier Funds’ Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, as filed with the SEC on August 14, 2018;

 

Frontier Funds’ Amended Quarterly Report on Form 10-Q for the quarter ended September 30, 2018, as filed with the SEC on November 20, 2018; and

 

Frontier Funds’ Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the SEC on April 2, 2018.

 

We will provide to any person to whom a copy of this prospectus is delivered, a copy of any or all of the information that we have incorporated by reference into this prospectus contained in the registration statement, but not delivered with this prospectus. We will provide this information upon written or oral request and at no cost to the requester. You may request this information by contacting the managing owner at: Frontier Fund Management LLC, 25568 Genesee Trail Road, Golden, Colorado 80401; Attention: Investor Relations, or by calling (303) 454-5500. You may also access these documents at the managing owner’s website at http://www.wakefieldfunds.com.

 

Where You Can Find More Information The trust filed its registration statement relating to this offering of units with the SEC. This prospectus is part of the registration statement, but the registration statement includes additional information. You may read and copy any of the materials the trust has filed with the SEC at the SEC’s Public Reference Room located at 100 F Street, N.E., Washington, D.C. 20549. For further information on the Public Reference Room, please call the SEC at 1-800-SEC-0330. These materials are also available to the public from the SEC’s website at http://www.sec.gov.

 10

Fees and Expenses

 

The fees and expenses related to an investment in a series are described below.

 

Series  Initial
Service
Fee (1)
  Ongoing
Service
Fee (2)
  Management
Fee (3)
  Incentive
Fee (4)
  Brokerage
Commission
and Investment
and Trading
Fees and
Expenses (5)
  Due
Diligence (6)
  Galaxy Plus
Managed
Account
Platform
Fee (7)
   %  %  %  %  %  %  %
Frontier                     
Diversified                     
Class 1  2  2  0.75  25  3.16  0.12  0.15
Class 2  0  0.25  0.75  25  3.16  0.12  0.15
Class 3 (8)  0  0  0.75  25  3.16  0.12  0.15
Frontier                     
Masters                     
Class 1  2  2  2  20  4.75  0.12  0.15
Class 2  0  0.25  2  20  4.75  0.12  0.15
Class 3 (8)  0  0  2  20  4.75  0.12  0.15
Frontier                     
Long/Short Commodity                     
Class 1a  2  2  2  20  3.86  0.12  0.15
Class 2a  0  0.25  2  20  3.86  0.12  0.15
Class 3a (8)  0  0  2  20  3.86  0.12  0.15

 

 

(1)Initial Service Fee—Class 1 and 1a units of each series are subject to an initial service fee of up to 2.0% of the purchase price. Except in the case of units issued as rebates, the initial service fee will be prepaid by the managing owner to the applicable selling agent and will be reimbursed by the applicable series over the first 12 months of your investment. See “Fees and Expenses—Service Fees—Class 1 and Class 1a—Initial Service Fee.” Since the managing owner is paying the initial service fee in full upon the sale of the units and is being reimbursed by the trust monthly in arrears over the following 12 months based upon the trust’s current net asset value, it bears the risk of the downside and enjoys the benefit of the upside potential of any difference between the amount of the initial service fee prepaid by it and the amount of the reimbursement. Class 2 and 2a units of each series are not subject to an initial service fee.

 

(2)Ongoing Service Fee—After the expiration of 12 months following the purchase of class 1 or 1a units, investors will be charged an annual ongoing service fee of up to 2.0% of the net asset value of each unit purchased. Such fee will be paid on a monthly or quarterly basis, depending on the selling agent. Investors who purchase class 2 or 2a units may be charged an ongoing service fee of 0.25% annually of the net asset value of each unit purchased, for the benefit of selling agents selling such units, payable at the end of each month. Ongoing service fees will be paid until such time as the 2.0% service fee limit is reached. See footnote 8 below.

 

(3)Management Fee—Each series will pay to the managing owner the referenced monthly management fee equal to a percentage of the nominal assets of the series as indicated. To the extent that a series invests in one or more commodity pools available on the Galaxy Plus Platform, the series will reduce the management fee payable to the managing owner by the amount paid by such commodity pools to their trading advisors. To the extent any related management fee is paid by a series, the managing owner will pay all or a portion of its management fee to such series. The managing owner shall waive its management fee attributable to nominal assets of swaps or other derivative instruments. Any management fee embedded in a swap or other derivative instrument may be greater or lower than the management fee that would otherwise be paid by the series to the managing owner. As of the date of this prospectus, for a series that has invested in a swap, a trading advisor does not receive any management fees directly from the series for such swap, and instead the relevant trading advisor receives compensation via the fees embedded in the swap. As of September 30, 2018, the management fee embedded in (i) swaps owned by Frontier Diversified Fund was 1.00% per annum, and (ii) swaps owned by Frontier Long/Short Commodity Fund was 1.50% per annum, and the managing owner has waived the entire management fee due to it from those series in respect of such series’ investment in swaps. In each case, the embedded management fee is accrued on the relevant notional amount of the swap. These embedded management fees may be higher or lower in the future. Each series will be charged a reduced management fee in respect of its investment in the Quest Fixed Income Tracker Index Program (“QFIT”), which is intended to act as a cash management and duration risk hedging program for the series’ cash management. The management fee applicable to investments in QFIT is equal to 0.25% of nominal assets allocated to QFIT. The management fee as a percentage of the applicable series’ net asset value will be greater than the percentage indicated above to the extent that the nominal assets of the series exceed its net asset value. The managing owner expects that the nominal assets of each series will generally be maintained at a level in excess of the net asset value of such series and such excess may be substantial to

 11

  the extent the managing owner deems necessary to achieve the desired level of volatility consistent with the series’ investment objectives.

 

(4)Incentive Fee—Each series will pay to the managing owner an incentive fee equal to the percentage indicated of new profits (net of certain fees and expenses) generated by each trading advisor for such series, including realized and unrealized gains and losses thereon, as of the close of business on the last day of each calendar month or quarter. To the extent that a series invests in one or more commodity pools available on the Galaxy Plus Platform, the series shall reduce the incentive fee payable to the managing owner by the amount of performance fees paid by such commodity pools to their trading advisors. To the extent any related incentive fee is paid by a series to a trading advisor, the managing owner will pay all or a portion of its incentive fee to such series. If the managing owner’s share of the incentive fee exceeds 10% of New High Net Trading Profits during the period, then the managing owner is obligated to return any amount in excess. The managing owner shall waive its incentive fee embedded in swaps or other derivative instruments. Any incentive fee embedded in a swap or other derivative instrument may be greater or lower than the incentive fee that would otherwise be paid by the series to the managing owner. As of the date of this prospectus, the trading advisor for a series that has invested in a swap does not receive any incentive fees directly from the series for such swap, and instead the relevant trading advisor receives compensation via the fees embedded in the swap. As of the date of this prospectus, the range of incentive fees (as a percentage of net New High Net Trading Profits on swaps) embedded in (i) swaps owned by Frontier Diversified Fund was 20-25% per annum of new trading profits earned by the relevant reference programs, and (ii) swaps owned by Frontier Long/Short Commodity Fund was 25.00% per annum of new trading profits earned by the relevant reference programs, and the managing owner has waived all incentive fees due to it from those series in respect of such series’ investment in swaps. These embedded incentive fees may be higher or lower in the future.

 

(5)Brokerage Commission and Investment and Trading Fees and Expenses—Each series pays the clearing brokers and/or the managing owner amounts equal to the percentage indicated of the nominal assets of such series allocated to the trading advisors, including through investments in commodity pools available on the Galaxy Plus Platform, and any reference programs annually for brokerage commissions and other investment and trading fees and expenses charged in connection with such series’ trading activities. The amount indicated is an estimate based upon historical experience. The clearing brokers and, to the extent applicable, introducing brokers, receive all brokerage commissions and applicable exchange fees, NFA fees, give up fees, pit brokerage fees and all other trading fees and expenses. The clearing brokers’ brokerage commissions and applicable fees currently average approximately $4.45 for the Frontier Diversified Fund, the Frontier Masters Fund and the Frontier Long/Short Commodity Fund, per round-turn trade. The aggregate amount paid by each series includes a fee to the managing owner of up to 2.25% of the nominal assets allocated to the trading advisors, including through investments in commodity pools available on the Galaxy Plus Platform, and any reference programs of the applicable series.

 

Brokerage commissions do not include fees or embedded expenses associated with swaps or other derivatives with respect to certain reference trading programs. A portion of each series’ assets may be used to enter into principal-to-principal OTC derivative contracts, including swaps, which are individually negotiated by the parties and priced by the counterparty and may include fees and expenses that are accounted for in the pricing under the applicable contract. Such indirect embedded expenses may not be identifiable or enumerated explicitly in confirms or other transaction documentation. Each series may pay a fee to a counterparty in respect of any swap or other derivative instrument of up to 0.50% of the notional amount of such swap or derivative instrument based upon prevailing interest rates as of the date of this prospectus. Investors should note that the cost of any investment in a swap or other derivative instrument may fluctuate from time to time. To the extent that interest rates increase above current levels, the cost of a Series’ investment in swaps or other derivative instruments is likely to increase.

 

(6)Due Diligence Expenses—The trust will pay for due diligence and custodial fees and expenses associated with the trading and custody of the assets allocable to such units. Such due diligence and custodial fees and expenses are not currently expected to exceed 0.12% of the net asset value of such units on an annual basis.

 

(7)Galaxy Plus Managed Account Platform Fee—Each series will pay to the Galaxy Plus Platform an amount equal to 0.15% per annum of the investment in the applicable commodity pool on the Galaxy Plus Platform by such series, determined on the basis of the nominal assets allocated to the trading advisor retained by such commodity pool. For those investments in trading advisors that are not accessed through the Galaxy Plus Platform, each series will pay to Gemini Alternative Funds, LLC an administration fee in the amount equal to 0.15% per annum for administration, accounting and risk reporting, determined on the basis of the nominal assets allocated to the trading advisor by such series.

 

(8)Class 3 and 3a units are not being offered by this prospectus. Class 1 and 1a units and class 2 and 2a units will be designated as class 3 or class 3a units, respectively, of such series, as applicable, for administrative purposes as of any business day when the managing owner determines, in its sole discretion, that the service fee limit with respect to such units has been reached, or it anticipates that the service fee limit applicable to such units will be reached on the following business day. The service fee limit applicable to each unit sold pursuant to this prospectus is reached upon the earlier of when (i) the aggregate initial and ongoing service fees received by the selling agent with respect to such unit equals 9% of the purchase price of such unit or (ii) the aggregate underwriting compensation (determined in accordance with FINRA Rule 2310) paid in respect of such unit totals 10% of the purchase price of such unit. There are no service fees or redemption fees associated with the class 3 or 3a units. See “Plan of Distribution.”

 12

Extraordinary Expenses

 

Each series is obligated to pay any extraordinary expenses it may incur. Extraordinary expenses will be determined in accordance with generally accepted accounting principles, and generally include events that are both unusual in nature and occur infrequently, such as litigation. The managing owner has the ability to waive or reimburse the Trust for certain expenses.

 

Managing Owner Fees and Expenses

 

The managing owner is responsible for the payment of all of the ordinary expenses for each series and the trading companies (including organizational costs, accounting, auditing, legal and routine operational and administrative expenses) associated with the organization of the trust and the offering of each series of units (except for any initial service fee) without reimbursement from any series, except that each series will reimburse the managing owner over the first 12 months for initial service fees advanced by it on behalf of the series to the selling agent. Initial and/or ongoing account start-up, platform access, account maintenance, and technology fees and expense reimbursements to certain selling agents will also be paid by the managing owner without reimbursement from any series. Expenses (including but not limited to accounting, auditing, legal and operational and administrative fees) of trading companies that are disregarded entities for tax purposes are ordinary expenses payable by the managing owner. Generally, expenses (including but not limited to accounting, auditing, legal and operational and administrative fees) of trading companies that are not disregarded entities for tax purposes and/or have members other than Frontier Funds (or any series of Frontier Funds) are not considered ordinary expenses of the trust and shall be indirectly borne by each applicable series.

 

Certain selling agents may be paid customary ongoing service fees for certain administrative services of up to 0.50% annually of the net asset value of the class 2 and 2a units of each series sold pursuant to this prospectus (of which 0.25% will be charged to holders of class 2 and 2a units), payable at the end of each month.

 

Redemptions Fees

 

Investors who redeem all or a portion of their class 1 or 1a units during the first 12 months following the effective date of their purchase will be subject to a redemption fee of up to 2.0% of the purchase price of any units redeemed to reimburse the managing owner for the then-unamortized balance of the prepaid initial service fee relating to such units. There are no initial service fees or redemption fees associated with the class 2, 2a, 3 or 3a units.

 

Organizational Charts

 

The following organizational charts showing the relationship among the various series, trading companies, commodity pools available on the Galaxy Plus Platform and trading advisors involved with this offering. The particular trading companies and Galaxy Plus Platform commodity pools in which the assets of each series are invested may vary from time to time.

 13

Frontier Diversified Fund

 

(GRAPHIC)

 

*CTA is accessed by an over-the-counter total return swap.

 14

Frontier Masters Fund

 

(GRAPHIC)

 15

Frontier Long/Short Commodity Fund

 

(GRAPHIC)

 

*CTA is accessed by an over-the-counter total return swap.

 16

Allocation of Assets among Trading Advisors and Commodity Pools

 

As of November 30, 2018, the allocation of the assets of the Frontier Diversified Fund between the trading advisors was as follows (however, the actual allocation among trading advisors for the Frontier Diversified Fund will vary based on the relative trading performance of the trading advisors and/or reference programs, and the managing owner may otherwise vary such percentages from time to time in its sole discretion):

 

Advisor

Allocation as of November 30, 2018
(expressed as a percentage of aggregate notional
exposure to commodity trading programs)

Aspect Capital Limited (accessed via Galaxy Plus Fund – Aspect Feeder Fund (532) LLC) 2%
Crabel Capital Management, LLC 5%
Doherty Advisors, LLC (accessed via Galaxy Plus Fund – Doherty Feeder Fund (528) LLC) 5%
Emil van Essen LLC (accessed via Galaxy Plus Fund – Emil Van Essen STP Feeder Fund (516) LLC) 17%
FORT, L.P. (accessed via Galaxy Plus Fund – FORT Contrarian Feeder Fund (510) LLC) 11%
H2O AM LLP 12%
Landmark Trading Company (accessed via Galaxy Plus Fund –  LRR Feeder Fund (522) LLC) 1%
Quantitative Investment Management, LLC (accessed via Galaxy Plus Fund – QIM Feeder Fund (526) LLC) 11%
QuantMetrics Capital Management LLP (accessed via Galaxy Plus Fund – QuantMetrics Feeder Fund (527) LLC) 9%
Quest Partners LLC (accessed via Galaxy Plus Fund – Quest Feeder Fund (517) LLC and Galaxy Plus Fund – Quest FIT Feeder Fund (531) LLC) 3%
Welton Investment Partners, LLC (accessed via Galaxy Plus Fund – Welton GDP Feeder Fund (538) LLC) 12%
Winton Capital Management Ltd. 12%

 

As of November 30, 2018, the allocation of the assets of the Frontier Masters Fund between the trading advisors and commodity pools available on the Galaxy Plus Platform was as follows (however, the actual allocation among trading advisors and commodity pools for the Frontier Masters Fund will vary based on the relative trading performance of the trading advisors and/or reference programs, as well as the investment performance of the commodity pools, and the managing owner may otherwise vary such percentages from time to time in its sole discretion):

 

Advisor

Allocation as of November 30, 2018
(expressed as a percentage of aggregate notional
exposure to commodity trading programs)

Emil van Essen LLC (accessed via Galaxy Plus Fund – Emil Van Essen STP Feeder Fund (516) LLC) 38%
Transtrend B.V. (accessed via Galaxy Plus Fund – TT Feeder Fund (531) LLC 11%
Welton Investment Partners, LLC (accessed via Galaxy Plus Fund – Welton GDP Feeder Fund (538) LLC) 25%
Winton Capital Management Ltd. 26%

 17

As of November 30, 2018, the allocation of the assets of the Frontier Long/Short Commodity Fund between the trading advisors and commodity pools available on the Galaxy Plus Platform was as follows (however, the actual allocation among trading advisors and commodity pools for the Frontier Long/Short Commodity Fund will vary based on the relative trading performance of the trading advisors and/or reference programs, as well as the investment performance of the commodity pools, and the managing owner may otherwise vary such percentages from time to time in its sole discretion):

 

Advisor

Allocation as of November 30, 2018
(expressed as a percentage of aggregate notional
exposure to commodity trading programs)

Emil van Essen LLC (accessed via Galaxy Plus Fund – Emil Van Essen STP Feeder Fund (516) LLC) 32%
JE Moody & Company LLC 16%
Landmark Trading Company (accessed via Galaxy Plus Fund –  LRR Feeder Fund (522) LLC) 7%
Red Oak Commodity Advisors, Inc. (accessed via Galaxy Plus Fund –  LRR Feeder Fund (522) LLC) 4%
Rosetta Capital Management, LLC (accessed via Galaxy Plus Fund –  LRR Feeder Fund (522) LLC) 20%
Welton Investment Partners, LLC (accessed via Galaxy Plus Fund – Welton GDP Feeder Fund (538) LLC) 21%

 18

BREAK-EVEN ANALYSIS

 

Following are tables that set forth the fees and expenses that you would incur on an investment of $1,000 in each class of each series of the trust and the amount that your investment must earn, after taking into account estimated interest income, in order to break-even after one year. The fees and expenses applicable to each series are described above. The footnotes below are an integral part of the Break-Even Analysis. The numbers appearing in the table below have been rounded for ease of analysis.

 

FRONTIER DIVERSIFIED FUND

 

                         
   Class 1   Class 2  

Class 3 (8)

 
   $   %   $   %   $   % 
Management Fee (1)    21.63    2.16    21.63    2.16    21.63    2.16 
Service Fee (2)    20.00    2.00    2.50    0.25    0.00    0.00 
Brokerage Commissions and Investment and Trading Fees and Expenses (3, 9)    31.56    3.16    31.56    3.16    31.56    3.16 
Incentive Fee (4)    6.84    0.68    1.19    0.12    0.39    0.04 
Less Interest income (5)    -8.36    -0.84    -8.36    -0.84    -8.36    -0.84 
Due Diligence and Custodial Fees and Expenses (6, 9)    1.20    0.12    1.20    0.12    1.20    0.12 
Redemption Fee (7)    0.00    0.00    0.00    0.00    0.00    0.00 
Galaxy Platform Fee (10)   3.02    0.30    3.02    0.30    3.02    0.30 
Gemini Administration Fee (11)   0.44    0.04    0.44    0.04    0.44    0.04 
Trading profit the series must earn for you to recoup your investment after one year    76.33    7.63    53.18    5.32    49.87    4.99 

 

FRONTIER MASTERS FUND

 

                         
  

Class 1 

  

Class 2 

  

Class 3 (8)

 
   $   %   $   %   $   % 
Management Fee (1)    45.60    4.56    45.60    4.56    45.60    4.56 
Service Fee (2)    20.00    2.00    2.50    0.25    0.00    0.00 
Brokerage Commissions and Investment and Trading Fees and Expenses (3, 9)    47.53    4.75    47.53    4.75    47.53    4.75 
Incentive Fee (4)    5.30    0.53    0.93    0.09    0.30    0.03 
Less Interest income (5)    -8.36    -0.84    -8.36    -0.84    -8.36    -0.84 
Due Diligence and Custodial Fees and Expenses (6, 9)    1.20    0.12    1.20    0.12    1.20    0.12 
Redemption Fee (7)    0.00    0.00    0.00    0.00    0.00    0.00 
Galaxy Platform Fee (10)   2.08    0.21    2.08    0.21    2.08    0.21 
Gemini Administration Fee (11)   1.51    0.15    1.51    0.15    1.51    0.15 
                               
Trading profit the series must earn for you to recoup your investment after one year    114.86    11.49    92.99    9.30    89.86    8.99 

 19

FRONTIER LONG/SHORT COMMODITY FUND

 

                         
   Class 1a   Class 2a  

Class 3a (8)

 
   $   %   $   %   $   % 
Management Fee (1)    47.00    4.70    47.00    4.70    47.00    4.70 
Service Fee (2)    20.00    2.00    2.50    0.25    0.00    0.00 
Brokerage Commissions and Investment and Trading Fees and Expenses (3, 9)    38.62    3.86    38.62    3.86    38.62    3.86 
Incentive Fee (4)    5.48    .55    0.96    0.10    0.31    0.03 
Less Interest income (5)    -8.36    -0.84    -8.36    -0.84    -8.36    -0.84 
Due Diligence and Custodial Fees and Expenses (6, 9)    1.20    0.12    1.20    0.12    1.20    0.12 
Redemption Fee (7)    0.00    0.00    0.00    0.00    0.00    0.00 
Galaxy Platform Fee (10)   3.37    0.34    3.37    0.34    3.37    0.34 
Gemini Administration Fee (11)   0.00    0.00    0.00    0.00    0.00    0.00 
Trading profit the series must earn for you to recoup your investment after one year    107.31    10.73    85.29    8.53    82.14    8.21 

 20

(1)The percentage figures indicated above reflect the estimated percentage of net asset value of the relevant series payable to the managing owner (or otherwise charged to the series indirectly through a swap or other derivative instruments) in respect of the management fee based upon the Relevant Rate of such management fee for such series and the estimated level of nominal assets for such series calculated as the average level of nominal assets allocated to CTAs (excluding any allocation in respect of QFIT) for such series at the end of each of the previous 12 months. The “Relevant Rate” of the management fee for each series is equal to the weighted average of (i) the management fee rate charged to the series by the managing owner as set forth herein on page 11 under the heading “Summary—Fees and Expenses” and (ii) the management fee embedded in any swaps or other derivative instruments owned by such series. The Relevant Rate of the management fee (based on nominal assets) for each series is 0.79% of nominal assets in respect of Frontier Diversified Fund, 2.00% of nominal assets in respect of Frontier Masters Fund and 1.95% of nominal assets in respect of Frontier Long/Short Commodity Fund. The estimated level of nominal assets allocated to CTAs (excluding any allocation in respect of QFIT) for each series is 272% of net asset value in respect of Frontier Diversified Fund, 226% of net asset value in respect of Frontier Masters Fund and 240% of net asset value in respect of Frontier Long/Short Commodity Fund.

 

The percentage figure indicated above also includes an estimated portion of the management fees that are charged in respect of QFIT based upon the reduced management fee rate of 0.25% per annum and an estimated allocation to QFIT calculated based upon the average level of nominal assets allocated to QFIT for such series at the end of each month since the managing owner began to allocate to QFIT in order to hedge its cash management investments in November 2013. The estimated level of nominal assets allocated to QFIT for each series is 1.75% of net asset value in respect of Frontier Diversified Fund, 2.30% of net asset value in respect of Frontier Masters Fund and 3.58% of net asset value in respect of Frontier Long/Short Commodity Fund. For further detail about management fees payable to the managing owner see footnote 3 on page 11 under the heading “Summary—Fees and Expenses” and on page 78 under the heading “Fees and Expenses.”

 

(2)See footnotes 1 and 2 on page 11 under the heading “Summary—Fees and Expenses” and on page 78 under the heading “Fees and Expenses.”

 

(3)See footnote 5 on page 12 under the heading “Summary—Fees and Expenses” and on page 79 under the heading “Fees and Expenses.”

 

(4)The figures above are calculated based upon the weighted average of (i) the incentive fee rate charged to the series by the managing owner as set forth herein on page 12 under “Summary—Fees and Expenses” and (ii) the weighted average incentive fee embedded in any swaps or other derivative instruments owned by such series. The resulting incentive fee rate (as a percentage of New High Net Trading Profits on swaps) utilized for each series is 21.45% of new trading profits in respect of Frontier Diversified Fund, 20.00% of new trading profits in respect of Frontier Masters Fund and 25.00% of new trading profits in respect of Frontier Long/Short Commodity Fund. A portion of the 2% initial service fee and ongoing service fee is not deductible on the incentive fee calculation with respect to certain trading advisors, thereby requiring class 1 to achieve trading profits in an amount that, after being reduced by a corresponding incentive fee, offsets such nondeductible portion. Otherwise, incentive fees are paid to trading advisors only on new trading profits earned by the trading advisor.

 

(5)Except for that portion of each trading company’s assets used as margin to maintain forward currency contract or swap positions and assets held at the trust level for cash management, the proceeds of the offering for each series will be deposited in cash in segregated accounts in the name of each relevant trading company at the clearing brokers in accordance with CFTC segregation requirements. The clearing brokers credit each trading company with 80% to 100% of the interest earned on its average net assets (other than those assets held in the form of U.S. government securities) on deposit with the clearing brokers each week. The managing owner also may invest non-margin assets in U.S. government securities which include any security issued or guaranteed as to principal or interest by the United States, or by a person controlled by or supervised by and acting as an instrumentality of the government of the United States pursuant to authority granted by Congress of the United States or any certificate of deposit for any of the foregoing, including U.S. Treasury bonds, U.S. Treasury bills and issues of agencies of the U.S. government, and certain cash items such as money market funds, certificates of deposit (under nine months) and time deposits.

 

Prior to September 25, 2017, up to twenty percent of interest income earned per annum by the trust was paid to the managing owner (or one or more brokers determined by the managing owner). Beginning on September 25, 2017, the managing owner shall waive its interest income, and interest income earned by the trust is retained for the benefit of each series.

 

Each of the trading companies currently holds substantially all cash deposits not used for margin with U.S. Bank National Association (“U.S. Bank”), although the managing owner may choose to hold the trading companies’ cash at other banks in its sole discretion.

 

(6)See footnote 6 on page 12 under the heading “Summary—Fees and Expenses” and on page 79 under the heading “Fees and Expenses.”

 21

(7)Investors who redeem all or a portion of their class 1 or 1a units during the first 12 months following the effective date of their purchase will be subject to a redemption fee of up to 2.0% of the purchase price of any units redeemed to reimburse the managing owner for the then-unamortized balance of the prepaid initial service fee relating to such units. There are no redemption fees associated with the class 2, 2a, 3 or 3a units. At the end of 12 months, no redemption fee will apply.

 

(8)Class 3 and Class 3a are not being offered to investors pursuant to this prospectus. See footnote 8 on page 12 under the heading “Summary—Fees and Expenses” and on page 79 under the heading “Fees and Expenses.”

 

(9)These fees and expenses may not be paid directly by the series; rather may be an element of the pricing of swap and derivative instruments. Such fees and expenses are estimated based on our historical experience.

 

(10)See footnote 7 on page 12 under the heading “Summary—Fees and Expenses” and on page 79 under the heading “Fees and Expenses.”

 

(11)Each series will pay to Gemini Alternative Funds, LLC an amount equal to 0.15% per annum for administration, accounting and risk reporting for investments by such series in trading advisors that are not accessed through the Galaxy Plus Platform, determined on the basis of the nominal assets allocated to the trading advisor by such series.

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RISK FACTORS

 

This section describes some of the principal risks that you will face if you invest in any series of the trust. All trading and investment activities take place at the trading company level or through a series’ investment in one or more commodity pools on the Galaxy Plus Platform, and since the trust invests substantially all of the assets of each series in one or more trading companies and/or commodity pools, each of the risks applicable to the trading companies and/or commodity pools flows through to the series.

 

You should carefully consider the risks and uncertainties described below, as well as all of the other information included in this prospectus, before you decide whether to purchase units in any series of the trust. The units in each series are highly speculative and involve a high degree of risk. You should not invest in the units unless you can afford to lose all of your investment.

 

Risks Relating to the Trust and the Offering of Units

 

Possible Total Loss of an Investment in a Series of the Trust.

 

You could lose all or substantially all of your investment in any series of the trust. Neither the trust nor the trust’s trading advisors nor Gemini have any ability to control or predict market conditions. The investment approach utilized on behalf of each series of the trust may not be successful, and there is no guarantee that the strategies employed by each series will be successful. Additionally, each series of the trust is not guaranteed as to principal, so you are not assured of any minimum return.

 

You Should Not Rely on Past Performance of the Managing Owner or the Trading Advisors in Deciding to Purchase Units in any Series.

 

The performance of any series of the trust is entirely unpredictable, and the past performance of other entities managed by the managing owner and the trading advisors is not necessarily indicative of a series’ or a trading company’s future results. The Galaxy Plus Platform is newly established and the commodity pools offered on the platform have only recently begun operations or have not commenced operations and have no performance history. No assurance can be given that the managing owner will succeed in meeting the investment objectives of any series. The managing owner believes that the past performance of the trading advisors may be of interest to prospective investors, but encourages you to look at such information as an example of the respective objectives of the managing owner and each trading advisor rather than as any indication that the investment objectives of any series will be achieved. Past performance is not indicative of future results.

 

Neither the Trust nor any of the Trading Companies nor any of the Commodity Pools on the Galaxy Plus Platform is a Registered Investment Company.

 

Neither the trust nor any of the trading companies nor any of the commodity pools on the Galaxy Plus Platform is an investment company subject to the Investment Company Act. Accordingly, you do not have the protections afforded by that statute. For example, the Investment Company Act requires investment companies to have a majority of disinterested directors and regulates the relationship between the investment company and its investment adviser.

 

You Should Not Rely on Past Performance of any Series in Deciding to Purchase Units in any Other Series.

 

You and other investors will invest in different series with different trading strategies. Each series’ assets are valued and accounted for separately from every other series. Consequently, the past performance of one series has no bearing on the past performance of another series. You should not, for example, consider the Frontier Diversified Fund’s past performance in deciding whether to invest in any other series. Past performance is not indicative of future results.

 

Certain Restrictions on Redemption and Transfer of the Units Will Apply.

 

Investors may redeem units daily on one business day notice, but certain restrictions on redemption and transfer will apply. For example, if you invest in class 1 or 1a units and redeem all or a portion of such units on or before the end of the 12 full months following the purchase of such units, you will be charged a redemption fee of up to 2.0% of the purchase price of any such units being redeemed. Also, transfers of units are permitted only with the prior written consent of the managing owner and provided that conditions specified in the trust agreement are satisfied. There is no secondary market for the units and none is expected to develop.

 

Redemptions May Be Temporarily Suspended.

 

The managing owner may temporarily suspend redemptions for some or all of the series for up to 30 days if the effect of any redemption, either alone or in conjunction with other redemptions, would be to impair the trust’s ability to operate in pursuit of its objectives (for example, if the managing owner believes a redemption, if allowed, would materially advantage one investor over another

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investor). The managing owner anticipates suspending redemptions only under extreme circumstances, such as a natural disaster, force majeure, act of war, terrorism or other event which results in the closure of financial markets. During any suspension of redemptions, a redeeming limited owner invested in a series for which redemptions were suspended would remain subject to market risk with respect to such series.

 

An Unanticipated Number of Redemption Requests over a Short Period of Time Could Result in Losses.

 

Substantial redemptions of units could require a series to liquidate investments more rapidly than otherwise desirable in order to raise the necessary cash to fund the redemptions, which could result in losses. Illiquidity in the markets could make it difficult to liquidate positions on favorable terms, which could result in additional losses. It may also be difficult for the series to achieve a market position appropriately reflecting a smaller equity base.

 

Reserves for Contingent Liabilities May Be Established Upon Redemption, and the Trust May Withhold a Portion of Your Redemption Amount.

 

When you redeem your units, the trust may find it necessary to set up a reserve for undetermined or contingent liabilities and withhold a certain portion of your redemption amount. This could occur, for example, if (i) some of the positions of the series in which you were invested were illiquid, (ii) there are any assets which cannot be properly valued on the redemption date, or (iii) there is any pending transaction or claim by or against the trust involving, or which may affect, your capital account or your obligations.

 

You Have Limited Rights, and You Cannot Prevent the Trust from Taking Actions Which Could Cause Losses.

 

You will exercise no control over the trust’s day-to-day business. Therefore, the trust will take certain actions and enter into certain transactions or agreements without your approval. For example, the trust may retain a trading advisor for a series in which you are invested, and such trading advisor may ultimately incur losses for the series. As a limited owner, you will have no ability to influence the hiring, retention or firing of such trading advisor. However, certain actions, such as termination or dissolution of a series, may only be taken upon the affirmative vote of limited owners holding units representing at least a majority (over 50%) of the net asset value of the series (excluding units owned by the managing owner and its affiliates). See “Summary of Agreements—Trust Agreement.”

 

You Will Not Be Able to Review Any Series’ Holdings on a Daily Basis, and You May Suffer Unanticipated Losses.

 

The trading advisors make trading decisions on behalf of the assets of each series. While the trading advisors receive daily trade confirmations from the clearing brokers of each transaction entered into on behalf of each series for which they manage the trading, each series’ trading results are only reported to investors monthly in summary fashion. Accordingly, an investment in the units does not offer investors the same transparency that a personal trading account offers. As a result, you may suffer unanticipated losses.

 

You Will Not Be Aware of Changes to Trading Programs or Investments into, or Divestments from, any Commodity Pools on the Galaxy Plus Platform.

 

Because of the proprietary nature of each trading advisor’s trading programs, you generally will not be advised if adjustments are made to a trading program or to allocations made to one or more commodity pools on the Galaxy Plus Platform in order to accommodate additional assets under management or for any other reason.

 

The Trust Could Terminate Before You Achieve Your Investment Objective, Causing Potential Loss of Your Investment or Upsetting Your Investment Portfolio.

 

Unforeseen circumstances, including substantial losses or withdrawal of the trust’s managing owner, could cause the trust to terminate before its stated termination date of December 31, 2053. The trust’s termination would cause the liquidation and potential loss of your investment and could upset the overall maturity and timing of your investment portfolio.

 

The Managing Owner May Allocate Nominal Assets in Respect of a Series that are in Excess of the Net Asset Value of such Series.

 

At any given time, the nominal assets of a series may exceed the net asset value of such series depending on the amount of notional equity that is being utilized, including through investments in the commodity pools available on the Galaxy Plus Platform. The managing owner expects that the nominal assets of each series will generally be maintained at a level in excess of the net asset value of such series and such excess may be substantial to the extent the managing owner deems necessary to achieve the desired level of volatility. The managing owner also expects each of the trading advisors to the commodity pools on the Galaxy Plus Platform to maintain nominal assets at a level in excess of the net asset value of such commodity pool. To the extent that nominal assets of a series or commodity pool are in excess of net asset value, investors should understand that the applicable series or commodity pool will experience greater volatility as measured by net asset value than it would if the nominal assets were maintained at a level equal to net

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asset value. In such case, any losses to the series or commodity pool will be greater as measured by a percentage of net asset value, as compared to the percentage loss incurred in respect of nominal assets. Consequently, the allocation of nominal assets in excess of a series’ or commodity pool’s net asset value will magnify exposure to the swings in market prices of futures, forwards, options or other assets held by a trading company, commodity pool or referenced by a swap or other derivative instrument and result in increased volatility, and potentially greater losses. You may lose all or substantially all of your investment in a series.

 

The Managing Owner May Adjust the Leverage Employed by a Trading Advisor through a Trading Company to Maintain the Target Rate of Volatility.

 

In its sole discretion, the managing owner may modify the allocations between the trading advisors used by a particular series at any time, including adding new trading advisors or terminating current trading advisor relationships, and the managing owner may also increase or decrease the amount of leverage employed by a specific trading advisor by allocating notional funds to a particular trading advisor in accordance with the managing owner’s proprietary management program. The managing owner may increase or decrease the notional equity allocated to one or more individual trading advisors over time in order to adjust the annual volatility for a series within the target volatility range disclosed for such series.

 

To the extent that the managing owner increases the leverage employed by a particular trading advisor to maintain the target volatility of a series, either by increasing the actual funds which are traded by the trading advisor at a leverage of greater than 1x or by allocating notional amounts to one or more trading advisors, the specific risks associated with the relevant trading advisors will be greater for the affected series. As the notional equity under management of a specific trading advisor increases, the diversification benefits attributable to a multi-advisor pool will be decreased to an extent, since the trading advisor will manage a greater percentage of the notional exposure of the series. Since the managing owner may change the applicable leverage used by a particular trading advisor at any time, the diversification of risks between the trading advisors is variable.

 

Each Series may be Charged Substantial Fees and Expenses Regardless of Profitability.

 

Each series is charged brokerage charges, over-the-counter (or OTC) dealer spreads and related transaction fees and expenses, and management fees in all cases regardless of whether any series’ activities are profitable. In addition, the managing owner charges each series an incentive fee based on a percentage of the new trading profits generated by each trading advisor for such series or the profits generated by such series’ investment in commodity pools on the Galaxy Plus Platform. Such incentive fee is reduced by an amount equal to any performance fees paid by the commodity pool to its trading advisors, and to the extent any related incentive fee is paid by the series to a trading advisor, the managing owner will pay all or a portion of its incentive fee to the series. As a result of the fact that incentive fees are calculated separately for each trading advisor and commodity pool on the Galaxy Plus Platform to which the series has allocated assets and each series allocates assets to multiple trading advisors and/or commodity pools, it is possible that substantial incentive fees may be paid out of the net assets of a series during periods in which such series has no net new trading profits or in which such series actually loses money. In addition, each series must earn new trading profits and interest income sufficient to cover these fees and expenses in order for it to be profitable.

 

Investors should note that the management fee payable to the managing owner is based on nominal assets rather than net asset value. Therefore, the management fee will be greater as a percentage of a series’ net asset value to the extent that the nominal assets of such series exceed its net asset value. The managing owner expects that the nominal assets of each series will generally be maintained at a level in excess of the net asset value of such series and such excess may be substantial to the extent the managing owner deems necessary to achieve the desired level of volatility. In addition, basing the management fee on nominal assets may result in the managing owner receiving a higher management fee than if it was based on net asset value. This method of calculating the management fee payable to the managing owner may differ from how other commodity pools that are similar to the trust calculate their management fees. See “Fees and Expenses” and “Break-Even Analysis.”

 

There are Certain Risks Associated with Investments in Trading Companies and Commodity Pools Available on the Galaxy Plus Platform.

 

Certain of the trading companies and commodity pools on the Galaxy Plus Platform may be organized as series limited liability companies. This means that, under the Delaware Limited Liability Company Act, the assets of one series are not available to pay the liabilities of another series or the trading company as a whole. This statute has not been tested in a court of law in the United States. In the event series limited liability is not enforceable, a segregated series could be obligated to pay the liabilities of another series or the trading company. In addition, each of the trust’s series is subject to, and invests a portion of its assets in commodity pools that are subject to, risks related to the operation and administration of the Galaxy Plus Platform by officers and employees of Gemini.

 

Each series invests in trading companies that, although they are organized as series limited liability companies, allocate assets to more than one commodity trading advisor without the establishment of separate series with segregated liabilities. For these trading companies, losses incurred by one commodity trading advisor may negatively impact the trading company as a whole, as the assets

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allocated to a different commodity trading advisor may be made available to pay the liabilities of the commodity trading advisor that has incurred the loss. Since each of the Frontier Diversified Fund, the Frontier Masters Fund and the Frontier Long/Short Commodity Fund currently invests in such trading companies, this could indirectly cause the assets of one series to be used to pay the liabilities of another series. For trading companies that allocate assets to more than one commodity trading advisor, a series may be allowed to allocate a portion of its assets to a particular commodity trading advisor accessed by the trading company, rather than to the trading company as a whole.

 

Conflicts of Interest Exist in the Structure and Operation of the Trust.

 

A number of actual and potential conflicts of interest exist in the operation of the trust’s business. The managing owner, the trading advisors, the independent administrator, the independent transfer agent, the clearing brokers, the trustee and their respective principals are all engaged in other investment activities, and are not required to devote substantially all of their time to the trust’s business. See “Actual and Potential Conflicts of Interest.”

 

Each Series May Incur Higher Fees and Expenses Upon Renewing Existing or Entering into New Contractual Relationships.

 

The clearing agreements between the clearing brokers and the trading companies generally are terminable by the clearing brokers once the clearing broker has given the trading company the required notice. Upon termination of a clearing agreement, the managing owner may be required to renegotiate that agreement or make other arrangements for obtaining clearing. The services of the clearing brokers may not be available, or even if available, these services may not be available on the terms as favorable as those contained in the expired or terminated clearing agreements.

 

Each Series May Be Subject to Indirect Fees and Expenses Associated with Investments in Swaps or Other Derivative Instruments.

 

A portion of each series’ assets may be used to enter into principal-to-principal OTC derivative contracts, including swaps, which are individually negotiated by the parties and priced by the counterparty and may include fees and expenses that are accounted for in the pricing under the applicable contract. Such indirect embedded expenses may not be identifiable or enumerated explicitly in confirms or other transaction documentation. Each series may pay a fee to a counterparty in respect of any swap or derivative instruments of up to 0.50% of the notional amount of such swap or derivative instrument. Any management fee or incentive fees embedded in a swap or other derivative instrument may be greater or less than the management fee or incentive fees that would otherwise be charged to the series by the managing owner. As of the date of this prospectus, the management fee embedded in (i) swaps owned by Frontier Diversified Fund is 1.00% per annum, and (ii) swaps owned by Frontier Long/Short Commodity Fund is 1.50% per annum, and the managing owner has waived the entire management fee due to it from those series in respect of such series’ investment in swaps. In each case, the embedded management fee is accrued on the relevant notional amount of the swap. As of the date of this prospectus, the range of incentive fees (as a percentage of New High Net Trading Profits on swaps) embedded in (1) swaps owned by Frontier Diversified Fund is 20-25% per annum of new trading profits earned by the relevant reference programs, and (2) swaps owned by Frontier Long/Short Commodity Fund is 25.00% per annum of new trading profits earned by the relevant reference programs, and the managing owner has waived all incentive fees due to it from those series in respect of such series’ investment in swaps. These embedded management and incentive fees may be higher or lower in the future.

 

The Failure or Bankruptcy of One of its Futures Clearing Brokers, Central Clearing Brokers, Banks, Counterparties or Other Custodians Could Result in a Substantial Loss of One or More Series’ Assets.

 

The trust is subject to the risk of insolvency of an exchange, clearinghouse, central clearing broker, commodity broker, and counterparties with whom the trading companies trade. Trust assets could be lost or impounded in such an insolvency during lengthy bankruptcy proceedings. Were a substantial portion of the trust’s capital tied up in a bankruptcy, the managing owner might suspend or limit trading, perhaps causing a series to miss significant profit opportunities. The trust is subject to the risk of the inability or refusal to perform on the part of the counterparties with whom contracts are traded. In the event that the clearing brokers are unable to perform their obligations, the trust’s assets are at risk and investors may only recover a pro rata share of their investment, or nothing at all.

 

Exchange-traded futures and futures-styled option contracts are marked to market on a daily basis, with variations in value credited or charged to the trust’s account on a daily basis. The clearing brokers, as futures commission merchants for the trust’s exchange-traded contracts, are required, pursuant to CFTC regulations, to segregate from their own assets, and for the sole benefit of its commodity customers, all funds held by such clients with respect to exchange-traded futures and futures-styled options contracts, including an amount equal to the net unrealized gain on all open futures and futures-styled options contracts. Similar requirements apply with respect to funds held in connection with cleared swap contracts. Bankruptcy law applicable to all U.S. futures brokers requires that, in the event of the bankruptcy of such a broker, all property held by the broker, including certain property specifically traceable to the trust, will be returned, transferred, or distributed to the broker’s customers only to the extent of each customer’s pro rata share of the assets held by such futures broker. The managing owner will attempt to limit the trust’s deposits and transactions to well-capitalized

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institutions in an effort to mitigate such risks, but there can be no assurance that even a well-capitalized, major institution will not become bankrupt.

 

In the event of a shortfall in segregated customer funds held by the futures commission merchant, the series’ assets on account with the futures commission merchant may be at risk in the event of the futures commission merchant’s bankruptcy or insolvency, and in such event, the series may only recover a portion of the available customer funds. If no property is available for distribution, the series would not recover any of its assets. With respect to a series’ OTC uncleared swaps, prior to the implementation of the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, as amended (the “Dodd-Frank Act”), there was no requirement to segregate funds held with respect to such contracts. There is now a requirement to segregate funds held as variation margin posted by a party engaging in uncleared swaps with a swap dealer or major swap participant; moreover, a party engaging in uncleared swaps with a swap dealer or major swap participant can ask that the initial margin posted by such party be held with an independent third-party custodian. Generally, the party requesting segregation will pay the costs of such custodial arrangement. There may also be costs and delays involved in negotiating the custodial arrangement and related contractual terms.

 

With respect to transactions a series enters into that are not traded on an exchange, there are no daily settlements of variations in value and there is no requirement to segregate funds held with respect to such accounts. Thus, the funds that a series invests in such transactions may not have the same protections as funds used as margin or to guarantee exchange-traded futures and options contracts. If the counterparty becomes insolvent and a series has a claim for amounts deposited or profits earned on transactions with the counterparty, the series’ claim may not receive a priority. Without a priority, the trust is a general creditor and its claim will be paid, along with the claims of other general creditors, from any monies still available after priority claims are paid. Even funds of the trust that the counterparty keeps separate from its own operating funds may not be safe from the claims of other general and priority creditors. There are no limitations on the amount of allocated assets a portfolio manager can trade on foreign exchanges or in forward contracts.

 

You May Not Be Able to Establish a Basis for Liability Against a Trading Advisor, a Clearing Broker or a Swap Counterparty.

 

Each trading advisor, clearing broker, and swap counterparty acts only as a trading advisor, clearing broker or swap counterparty, respectively, to the applicable series and/or trading company. These parties do not act as trading advisors, clearing brokers, or swap counterparties to you. Therefore, you have no contractual privity with the trading advisors, the clearing brokers, or any swap counterparty. Due to this lack of contractual privity, you may not be able to establish a basis for liability against a trading advisor, clearing broker, or swap counterparty.

 

The Managing Owner is Leanly Staffed and Relies Heavily on its Key Personnel to Manage the Trust’s Trading Activities. The Loss of Such Personnel Could Adversely Affect the Trust.

 

In managing and directing the day-to-day activities and affairs of the trust, the managing owner relies heavily on its principals. The managing owner is leanly staffed, although there are back-up personnel for every key function. If any of the managing owner’s key persons were to leave or be unable to carry out his or her present responsibilities, it may have an adverse effect on the management of the trust.

 

The Trust and the Managing Owner Have Been Represented by Unified Counsel, and Neither the Trust Nor the Managing Owner Will Retain Independent Counsel to Review this Offering.

 

In connection with this offering, the trust and the managing owner have been represented by unified counsel, and the offering and this prospectus have only been reviewed by such unified counsel. To the extent that the trust, the managing owner or you could benefit from further independent review, such benefit will not be available unless you separately retain such independent counsel.

 

Risks Relating to Trading and the Markets

 

Futures Interests Trading is Speculative and Volatile.

 

The rapid fluctuations in the market prices of futures, forwards, and options make an investment in any of the series volatile. Volatility is caused by, among other things: changes in supply and demand relationships; weather; agriculture, trade, fiscal, monetary and exchange control programs; domestic and foreign political and economic events and policies; and changes in interest rates. The trading advisors’ technical trading methods may not take account of these factors except as they may be reflected in the technical input data analyzed by the trading advisors. In addition, governments from time to time intervene, directly and by regulation, in certain markets, often with the intent to influence prices directly. The effects of governmental intervention may be particularly significant at certain times in the financial instrument and currency markets, and this intervention may cause these markets to move rapidly.

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Each series’ performance will be volatile, and a series could lose all or substantially all of its assets. The multi-advisor feature of each series, along with its investments in commodity pools on the Galaxy Plus Platform, may reduce the return volatility relative of the performance of single-advisor investment funds.

 

Options Trading Can Be More Volatile and Expensive than Futures Trading.

 

Options are derivatives that give the purchaser the option to buy (call) or sell (put) an underlying asset from or to a counterparty at a specified price (the strike price) on or before an expiration date. Certain trading advisors may purchase or write (i.e., sell) put and call options on an underlying reference it is otherwise permitted to invest in. By investing in options, the series are exposed to the risk that it may be required to buy or sell the underlying reference at a disadvantageous price on or before the expiration date. If a series sells a put option, the series may be required to buy the underlying reference at a strike price that is above market price, resulting in a loss. If a series sells a call option, the series may be required to sell the underlying reference at a strike price that is below market price, resulting in a loss. If a series sells a call option that is not covered (it does not own the underlying reference), the series’ losses are potentially unlimited. Options may involve economic leverage, which could result in greater volatility in price movement. Options may be traded on a securities exchange or in the over-the-counter market. At or prior to maturity of an options contract, a series may enter into an offsetting contract and may incur a loss to the extent there has been adverse movement in options prices. Options can increase a series’ risk exposure to underlying references and their attendant risks such as credit risk, market risk, foreign currency risk and interest rate risk, while also exposing the Fund to correlation risk, counterparty risk, hedging risk, leverage risk, liquidity risk, pricing risk and volatility risk.

 

Certain trading advisors may trade options on futures. Although successful options trading requires many of the same skills as successful futures trading, the risks involved are somewhat different. Successful options trading requires a trader to accurately assess near-term market volatility, because that volatility is immediately reflected in the price of outstanding options. Correct assessment of market volatility can therefore be of much greater significance in trading options than it is in many long-term futures strategies. If market volatility is incorrectly predicted, the use of options can be extremely expensive.

 

Trading Swaps Creates Distinctive Risks.

 

The series may trade in certain swaps. Unlike futures and options on futures contracts, most swap contracts currently are not traded on or cleared by an exchange or clearinghouse. The CFTC currently requires only a limited class of swap contracts (certain interest rate and credit default swaps) to be cleared and executed on an exchange or other organized trading platform. In accordance with the Dodd-Frank Act, the CFTC will determine in the future which other classes of swap contracts will be required to be cleared and executed on an exchange or other organized trading platform. Until such time as these transactions are cleared, the series will be subject to a greater risk of counterparty default on its swaps. Because swaps do not generally involve the delivery of underlying assets or principal, the amount payable upon default and early termination is usually calculated by reference to the current market value of the contract. Swap dealers and major swap participants require the series to deposit initial margin and variation margin as collateral to support such series’ obligation under the swap agreement but may not themselves provide collateral for the benefit of any series. If the counterparty to such a swap defaults, the series would be a general unsecured creditor for any termination amounts owed by the counterparty to the series as well as for any collateral deposits in excess of the amounts owed by the series to the counterparty, which would result in losses to the series.

 

There are no limitations on daily price movements in swaps. Speculative position limits are not currently applicable to swaps, but in the future, may be applicable for swaps on certain commodities. In addition, participants in the swap markets are not required to make continuous markets in the swaps they trade, and determining a market value for calculation of termination amounts can lead to uncertain results.

 

Trading of swaps has been and will continue to be subject to substantial change under the Dodd-Frank Act and related regulatory action. Under the Dodd-Frank Act, many commodity swaps will be required to be cleared through central clearing parties and executed on exchanges or other organized trading platforms. Security-based swaps will be subject to similar requirements. Additional regulatory requirements will apply to all swaps, whether subject to mandatory clearing or not. These include margin, collateral and capital requirements, reporting obligations, speculative position limits for certain swaps, and other regulatory requirements. Swaps which are not offered for clearing by a clearinghouse will continue to be traded bi-laterally. Such bi-lateral transactions will remain subject to many of the risks discussed in the preceding paragraphs.

 

Swap counterparties may hold collateral in U.S. or non-U.S. depositories. Non-U.S. depositories are not subject to U.S. regulation. The series’ assets held in these depositories are subject to the risk that events could occur which would hinder or prevent the availability of these funds for distribution to customers, including the series. Such events may include actions by the government of the jurisdiction in which the depository is located including expropriation, taxation, moratoria and political or diplomatic events.

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The Trading on Behalf of Each Series Will Be Margined, Which Means that Sharp Declines in Prices Could Lead to Large Losses.

 

Because the amount of margin funds necessary to be deposited with a futures clearing broker to enter into a futures, forward contract or option position is typically about 2% to 10% of the total value of the contract, each trading advisor may take positions on behalf of a series with face values equal to several times such series’ net asset value. These low margin requirements provide a large amount of leverage. As a result of margining, even a small movement in the price of a contract can cause major losses. Any purchase or sale of a futures or forward contract or option position may result in losses that substantially exceed the amount invested. If severe short-term price declines occur, such declines could force the liquidation of open positions with large losses. Margin is normally monitored through the margin-to-equity ratio employed by each trading advisor. Under normal circumstances, the trading advisors will vary between a 10% to 30% margin-to-equity ratio. In addition, OTC transactions present risks in addition to those associated with exchange-traded contracts, as discussed immediately below.

 

The Unregulated Nature of Uncleared Trades in the OTC Markets, Such as Off-Exchange Forex, Creates Counterparty Risks that Do Not Exist in Futures Trading on Exchanges or in Cleared Swaps.

 

Unlike futures contracts and cleared swaps, uncleared trades, such as forward contracts, some swaps, off-exchange forex and some OTC “spot” contracts, are entered into between private parties off an exchange or other trading platform and are not subject to clearing. As a result, the performance of those contracts is not guaranteed by an exchange or its clearinghouse and the series is at risk with respect to the ability of the counterparty to perform on the contract, including the creditworthiness of the counterparty. Trading of foreign exchange spot contracts of foreign exchange forwards and foreign exchange swaps (as such terms are defined in the Dodd-Frank Act), and of uncleared swaps is not regulated or is subject to limited regulation; therefore, there are limited or no specific standards or regulatory supervision of trade pricing and other trading activities that occur in those markets.

 

Foreign Currency and Spot Contracts Historically Were Not Regulated When Traded Between Certain “Eligible Contract Participants” and Are Subject to Credit Risk.

 

Each series may trade forward contracts in foreign currencies and may engage in spot commodity transactions (transactions in physical commodities). These contracts, unlike futures contracts and options on futures, historically were not regulated by the CFTC when traded between certain “eligible contract participants,” as defined in the Commodity Exchange Act, as amended (the “CE Act”). On July 21, 2010, the President signed into law major financial services reform legislation in the form of the Dodd-Frank Act. The Dodd-Frank Act includes foreign currency forwards and foreign currency swaps (as such terms are defined in the Dodd-Frank Act) in the definition of “swap.” The CFTC has been granted authority to regulate all swaps, but grants the U.S. Treasury Department the discretion to exempt foreign currency forwards and foreign currency swaps from all aspects of the Dodd-Frank Act other than reporting, recordkeeping and business conduct rules for swap dealers and major swap participants. In November 2012, Treasury determined that those transactions can be carved out of the swap category, and they are subject only to the noted categories of the Dodd-Frank Act requirements. Therefore, the series will not receive the full benefit of CFTC regulation for certain of their foreign currency trading activities.

 

The percentage of each series’ positions that are expected to constitute foreign currency forwards and foreign currency swaps can vary substantially from month to month.

 

Trading on Foreign Exchanges Presents Greater Risks to the Series than Trading on U.S. Exchanges.

 

Each series trades on exchanges located outside the United States. Trading on U.S. exchanges is subject to CFTC regulation and oversight, including, for example, minimum capital requirements for commodity brokers, segregation of customer funds, regulation of trading practices on the exchanges, prohibitions against trading ahead of customer orders, prohibitions against filling orders off exchanges, prescribed risk disclosure statements, testing and licensing of industry sales personnel and other industry professionals, and recordkeeping requirements, and other requirements and restrictions for the purpose of preventing price manipulation and other disruptions to market integrity, avoiding systemic risk, preventing fraud and promoting innovation, competition and financial integrity of transactions. Trading on foreign exchanges is not regulated by the CFTC or any other U.S. governmental agency or instrumentality and may be subject to regulations that are different from those to which U.S. exchange trading is subject, provide less protection to investors than trading on U.S. exchanges, and may be less vigorously enforced than regulations in the U.S. The CFTC has no power to compel the enforcement of the rules of a foreign exchange or applicable foreign laws. Therefore, the series will not receive any benefit of U.S. government regulation for these trading activities.

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Trading on foreign exchanges involves some risks that trading on U.S. exchanges does not, such as:

 

Lack of Investor Protection Regulation

 

The rights of the series in the event of the insolvency or bankruptcy of a non-U.S. market or broker are likely to differ from rights that the series would have in the United States and these rights may be more limited than in the case of failures of U.S. markets or brokers.

 

Possible Governmental Intervention

 

Generally, foreign brokers are not subject to the jurisdiction of the CFTC or any other U.S. regulator. In addition, the series’ assets held outside of the United States to margin transactions on foreign exchanges are held in accordance with the client assets protection regime and the insolvency laws of the applicable jurisdiction. A foreign government might halt trading in a market and/or take possession of the series’ assets maintained in its country in which case the assets may never be recovered. The managing owner and the series might have little or no notice that such events were happening. In such circumstances, the managing owner may not be able to obtain the series’ assets.

 

Relatively New Markets

 

Some foreign exchanges on which the series trade may be in developmental stages so that prior price histories may not be indicative of current price patterns.

 

Exchange-Rate Exposure

 

The series are valued in U.S. dollars. Contracts on foreign exchanges are usually traded in the local currency. The series’ assets held in connection with contracts priced and settled in a foreign currency may be held in a foreign depository in accounts denominated in a foreign currency. Changes in the value of the local currency relative to the U.S. dollar could cause losses to the series even if the contract traded is profitable.

 

Assets Held in Accounts at U.S. Banks May Not Be Fully Insured.

 

The assets of each trading company that are deposited with commodity brokers or their affiliates may be placed in deposit accounts at U.S. banks. The Federal Deposit Insurance Corporation (FDIC) generally insures all deposit accounts of any one accountholder held at any one insured U.S. bank for up to $250,000 in the aggregate. If the funds in an account can be traced back to multiple individual co-owners, then each co-owner may be separately entitled to up to $250,000 in coverage. This $250,000 maximum amount of deposit insurance coverage was made permanent by the Dodd-Frank Act. Uninsured depositors also may receive funds in the event of a receivership of the bank holding the deposit accounts, but uninsured depositors have a lower priority in respect of payment than insured depositors or certain other creditors, and frequently there are insufficient funds in a receivership estate to pay off uninsured depositors fully or at all. If the FDIC were to become receiver of an insured U.S. bank holding deposit accounts that were established by a commodity broker or one of its affiliates, then it is uncertain whether the commodity broker, the affiliate involved, the trading company, the series involved, or the investor would be able to reclaim cash in the deposit accounts in the full amount.

 

Exchanges of Futures for Physicals May Adversely Affect Performance.

 

Certain trading advisors may engage in exchanges of futures for physicals for client accounts. An exchange of futures for physicals is a transaction permitted under the rules of many futures exchanges in which two parties holding futures positions may close out their positions without making an open, competitive trade on the exchange. Generally, the holder of a short futures position buys the physical commodity, while the holder of a long futures position sells the physical commodity. The prices at which such transactions are executed are negotiated between the parties. If a trading advisor engaging in exchanges of futures for physicals were prevented from such trading as a result of regulatory changes, the performance of client accounts of such trading advisor could be adversely affected.

 

Cash Flow Needs May Cause Positions to Be Closed Which May Cause Substantial Losses.

 

Certain trading advisors may trade options on futures. Futures contract gains and losses are marked-to-market daily for purposes of determining margin requirements. Option positions generally are not marked-to-market daily, although short option positions will require additional margin if the market moves against the position. Due to these differences in margin treatment between futures and options, there may be periods in which positions on both sides must be closed down prematurely due to short term cash flow needs. If this occurs during an adverse move in a spread or straddle relationship, then a substantial loss could occur.

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Your Investment Could Be Illiquid.

 

A trading advisor may not always be able to liquidate its commodity interest positions at the desired time or price. It is difficult to execute a trade at a specific price when there is a relatively small volume of buy and sell orders in a market. A market disruption, such as a foreign government taking political actions that disrupt the market in its currency or in a major export, can also make it difficult to liquidate a position. Alternatively, limits imposed by futures exchanges or other regulatory organizations, such as speculative position limits and daily price fluctuation limits, may contribute to a lack of liquidity with respect to some commodity interests. There is no secondary market for the units and none is expected to develop.

 

The Trading Advisors’ Trading is Subject to Execution Risks.

 

Although the trading advisors generally will purchase and sell actively traded contracts, orders may not be executed at or near the desired price, particularly in thinly traded markets, in markets that lack trading liquidity, or because of applicable “daily price fluctuation limits,” “speculative position limits” or market disruptions. If market illiquidity or disruptions occur, major losses could result.

 

An Investment in Units May Not Diversify an Overall Portfolio.

 

Historically, managed futures have performed in a manner largely independent from the general equity and debt markets. If, however, a series does not perform in a non-correlated manner with respect to the general financial markets or does not perform successfully, you will obtain little or no diversification benefits by investing in the units. An investment in any series of the trust could increase, rather than reduce your overall portfolio losses during periods when the trust and the equity and debt markets decline in value. There is no way of predicting whether the trust will lose more or less than stocks and bonds in declining markets. You should therefore not consider the units to be a hedge against losses in your core stock and bond portfolios. Past performance is not indicative of future results.

 

Markets or Positions May Be Correlated and May Expose a Series to Significant Risk of Loss.

 

Different markets traded or individual positions held by a series of units may be highly correlated to one another at times. Accordingly, a significant change in one such market or position may affect other such markets or positions. The trading advisors cannot always predict correlation. Correlation may expose such series of units both to significant risk of loss and significant potential for profit.

 

The Trading Advisors’ Positions May Be Concentrated From Time to Time, Which May Render Each Series Susceptible to Larger Losses than if the Positions Were More Diversified.

 

One or more of the trading advisors may from time to time cause a series to hold a few, relatively large positions in relation to its assets. Consequently, a loss in any such position could result in a proportionately greater loss to such series than if the series’ assets had been spread among a wider number of instruments.

 

Turnover in Each Series’ Portfolio May Be High, Which Could Result in Higher Brokerage Commissions and Transaction Fees and Expenses.

 

Each trading advisor will make certain trading decisions on the basis of short-term market considerations. The portfolio turnover rate may be substantial at times, either due to such decisions or to market conditions, and this could result in one or more series incurring substantial brokerage commissions and other transaction fees and expenses.

 

There Are Certain Risks Associated with the Trust’s Investment in U.S. Government Debt Securities.

 

With respect to the portion of the Trust’s assets apportioned for cash management, the Trust may invest in U.S. government securities which include any security issued or guaranteed as to principal or interest by the United States, or by a person controlled by or supervised by and acting as an instrumentality of the government of the United States pursuant to authority granted by Congress of the United States or any certificate of deposit for any of the foregoing, including U.S. Treasury bonds, U.S. Treasury bills and issues of agencies of the U.S. government (such as Ginnie Mae, Fannie Mae, or Freddie Mac). U.S. government securities are subject to market risk, interest rate risk and credit risk. Securities, such as those issued or guaranteed by Ginnie Mae or the U.S. Treasury, that are backed by the full faith and credit of the United States are guaranteed only as to the timely payment of interest and principal when held to maturity and the market prices for such securities will fluctuate. Notwithstanding that these securities are backed by the full faith and credit of the United States, circumstances could arise that would prevent the payment of interest or principal. This would result in losses to the Trust. Securities issued or guaranteed by U.S. government-related organizations, such as Fannie Mae and Freddie Mac, are not backed by the full faith and credit of the U.S. government and no assurance can be given that the U.S. government would provide financial support. Therefore, U.S. government-related organizations may not have the funds to meet their payment obligations in the future.

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The Trust’s Investment in U.S. Government Debt Securities Will Be Subject to Interest Rate Risk.

 

The Trust’s cash management pool includes investments in U.S. government debt securities that change in value based on changes in interest rates. If rates increase, the value of these investments generally declines. On the other hand, if rates fall, the value of these investments generally increases. U.S. government securities with greater interest rate sensitivity and longer maturities tend to produce higher yields, but are subject to greater fluctuations in value. Usually, the changes in the value of fixed income securities will not affect cash income generated, but may affect the value of your investment. Given the current low interest rate environment, the risk associated with rising rates is heightened.

 

The Hedging Program Directed by Quest May Not Perform to Minimize Risk as Intended.

 

Each series of the Trust has allocated a portion of its assets to the Quest Fixed Income Tracker Index Program (“QFIT”), which is intended to act as a cash management and duration risk hedging program for the series’ cash management. To the extent that QFIT does not properly hedge the performance of the series’ cash management investments in U.S. government debt securities, there is a risk that the series will be subject to higher losses because the program did not perform as intended. Although the series’ allocations to QFIT are intended to minimize risk, there is no guarantee that such strategy will be effective. To the extent that a series is allocated to QFIT in order to hedge its cash management investments, it will incur charges and expenses associated with QFIT and its trading. Each series will be charged a reduced management fee in respect of its investment in QFIT equal to 0.25% of nominal assets allocated to QFIT.

 

Investments in Reference Programs Through a Swap or Other Derivative Instrument May Not Always Replicate Exactly Performance of the Relevant CTA Trading Program(s).

 

Frontier Diversified Fund and Frontier Long/Short Commodity Fund each invest in reference programs through total return swaps with Deutsche Bank AG. Such swaps reference an index comprised of shares in segregated investment portfolios directed by CTAs selected by the managing owner. It is possible that the underlying index in respect of any swap owned by a series may not fully replicate the performance of the relevant CTA programs in respect of other accounts traded by such CTAs. Further, the calculation of the underlying index for such swaps will include a deduction for a fee payable to the swap counterparty. Each of these deductions will mean that the return of such investment will be less than would be the case if no fees were deducted. See “TRADING LIMITATIONS, POLICIES AND SWAPS – Swaps.”

 

Risks Relating to the Trading Advisors

 

Specific Risks Associated with a Multi-Advisor Commodity Pool.

 

Each series is a multi-advisor commodity pool. Each of the trading advisors makes trading decisions independently of the other trading advisors. Thus:

 

(a)it is possible that the trust could hold opposite positions in the same or similar futures, forwards, and options, thereby offsetting any potential for profit from these positions;

 

(b)because the trading advisors trading for each series will be acting independently, such series could buy and sell the same futures contract, thereby incurring additional expenses but with no net change in its holdings;

 

(c)the trading advisors may compete, from time to time, for the same trades or other transactions, increasing the cost to such series of making trades or transactions or causing some of them to be foregone altogether;

 

(d)even though the margin requirements resulting from each trading advisor’s trading for any series ordinarily will be met from such trading advisor’s allocated net assets of such series, a trading advisor for such series may incur losses of such magnitude that the series is unable to meet margin calls from the allocated net assets of trading advisor. If losses of such magnitude were to occur, the clearing brokers for the trading company or trading companies in which such series invests its assets may require liquidations and contributions from the allocated net assets of another trading advisor for such series; and

 

(e)the trading advisors’ trading programs have some similarities which may mitigate the positive effect of having multiple trading advisors for each series. For example, in periods where one trading advisor experiences a draw-down, it is possible that these similarities will cause the other trading advisors to also experience a draw-down.

 

There Are Disadvantages to Making Trading Decisions Based on Fundamental Analysis.

 

Certain trading advisors will base their decisions on trading strategies which utilize in whole or in part fundamental analysis of underlying market forces. Fundamental analysis attempts to examine factors external to the trading market which affect the supply and

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demand for a particular commodity interest in order to predict future prices. Such analysis may not result in profitable trading because certain trading advisors may not have knowledge of all factors affecting supply and demand or may incorrectly interpret the information they do have. Furthermore, prices may often be affected by unrelated or unexpected factors and fundamental analysis may not enable the trading advisor to determine whether its previous decisions were incorrect in sufficient time to avoid substantial losses. In addition, fundamental analysis assumes that commodity markets are inefficient— i.e., that commodity prices do not always reflect all available information—which some market analysts dispute.

 

There Are Disadvantages to Making Trading Decisions Based on Technical Analysis.

 

Many of the trading advisors may base their trading decisions on trading strategies that use mathematical analyses of technical factors relating to past market performance rather than fundamental analysis. The buy and sell signals generated by a technical, trend-following trading strategy are derived from a study of actual daily, weekly and monthly price fluctuations, volume variations and changes in open interest in the markets. The profitability of any technical, trend-following trading strategy depends upon the occurrence in the future of significant, sustained price moves in some of the markets traded. A danger for trend-following traders is whip-saw markets, that is, markets in which a potential price trend may start to develop but reverses before an actual trend is realized. A pattern of false starts may generate repeated entry and exit signals in technical systems, resulting in unprofitable transactions. In the past, there have been prolonged periods without sustained price moves. Presumably these periods will continue to occur. Periods without sustained price moves may produce substantial losses for trend-following trading strategies. Further, any factor that may lessen the prospect of these types of moves in the future, such as increased governmental control of, or participation in, the relevant markets, may reduce the prospect that any trend-following trading strategy will be profitable in the future.

 

Discretionary Decision Making May Result in Missed Opportunities or Losses.

 

Because each of the trading advisors’ strategies involves some discretionary aspects in addition to analysis of technical factors, certain trading advisors may occasionally use discretion in investing the assets of a series. For example, the trading advisors often use discretion in selecting contracts and markets to be followed. In exercising such discretion, such trading advisor may take positions opposite to those recommended by the trading advisor’s trading system or signals. Discretionary decision making may also result in a trading advisor’s failing to capitalize on certain price trends or making unprofitable trades in a situation where another trader relying solely on a systematic approach might not have done so. Furthermore, such use of discretion may not enable the series to avoid losses, and in fact, such use of discretion may cause the series to forego profits which it may have otherwise earned had such discretion not been used.

 

Increased Competition from Other Systematic Traders Could Reduce the Trading Advisors’ Profitability.

 

There has been a dramatic increase in the amount of assets managed pursuant to trading systems like those that some of the trading advisors may employ. This means increased trading competition among a larger number of market participants for transactions at favorable prices, which could operate to the detriment of some or all series by preventing the trading advisors from effecting transactions at the desired prices. It may become more difficult for the trading advisors to implement their trading strategies if other commodity trading advisors using technical systems are attempting to initiate or liquidate commodity interest positions at the same time as the trading advisors. The more competition there is for the same positions, the more costly and harder they will be to acquire.

 

The Incentive Fees Could Be an Incentive to the Trading Advisors to Make Riskier Investments.

 

The managing owner pays each trading advisor incentive fees based on the new trading profits earned by it for the applicable series, including unrealized appreciation on open positions. Accordingly, it is possible that the managing owner will pay an incentive fee on new trading profits that do not become realized. Also, because the trading advisors are compensated based on the new trading profits earned, each of the trading advisors has a financial incentive to make investments that are riskier than might be made if a series’ assets were managed by a trading advisor that did not receive the same type of performance-based compensation.

 

The Risk Management Approaches of One or All of the Trading Advisors May Not Be Fully Effective, and a Series May Incur Losses.

 

The mechanisms employed by each trading advisor to monitor and manage the risks associated with its trading activities on behalf of the series for which it trades may not succeed in mitigating all identified risks. Even if a trading advisor’s risk management approaches are fully effective, it cannot anticipate all risks that it may face. If one or more of the trading advisors fails to identify and adequately monitor and manage all of the risks associated with its trading activities, the series for which it trades may suffer losses.

 

Increases in Assets Under Management of any of the Trading Advisors Could Lead to Diminished Returns.

 

We believe that none of the trading advisors intends to limit the amount of additional equity that it may manage, and each will continue to seek major new accounts. However, the rates of returns achieved by a trading advisor often diminish as the assets under its

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management increase. This can occur for many reasons, including the inability of the trading advisor to execute larger position sizes at desired prices and because of the need to adjust the trading advisor’s trading program to avoid exceeding speculative position limits. These limits are established by the CFTC and the exchanges on the number of speculative futures and options contracts in a commodity that one trader may own or control. Furthermore, if the trading advisors for a series, including through a commodity pool on the Galaxy Plus Platform, cannot manage any additional allocations from the trust, the managing owner may add additional trading advisors for the series, or invest in other commodity pools advised by other trading advisors, who may have less experience or less favorable performance than the existing trading advisors to the trading companies and commodity pools.

 

Each Series Relies on its Trading Advisors for Success, and if a Trading Advisor’s Trading is Unsuccessful, the Series May Incur Losses.

 

The trading advisors to each trading company in which a series invests will make the commodity trading decisions for that series. Therefore, the success of each series depends on the judgment and ability of the trading advisors. A trading advisor’s trading for any series may not prove successful under all or any market conditions. If a trading advisor’s trading is unsuccessful, the applicable series may incur losses. Similarly, the success of each series that invests in commodity pools on the Galaxy Plus Platform is subject to the performance of the trading advisors retained by those commodity pools. The success of each series that invests in swaps also largely depends on the judgment and ability of the commodity trading advisors whose trading programs are referenced by swaps in which such series invests.

 

There Are Disadvantages Associated with Terminating or Replacing Trading Advisors, Trading Programs or Reference Trading Programs.

 

A trading advisor generally is required to recoup previous trading losses in its trading program or a reference trading program, as applicable, before it can earn performance-based compensation. However, the managing owner and/or Wakefield may elect to replace a trading advisor, or any trading program or reference trading program, that has a “loss carryforward.” In that case, the trust would lose the “free ride” of any potential recoupment of the prior losses of such trading advisor, trading program or reference trading program. In addition, the new trading advisor, trading program or reference trading program, or an existing trading advisor in respect of a new trading program or reference program, would earn performance-based compensation on the first dollars of investment profits.

 

It is also possible that (i) the advisory agreement with any trading advisor, once it expires, will not be renewed on the same terms as the current advisory agreement for that trading advisor, (ii) if assets of any series allocated to a particular trading advisor, trading program or reference trading program are reallocated to a new or different trading advisor, trading program or reference trading program, the new or different trading advisor, with respect to its applicable trading program or reference trading program, will not manage the assets on terms as favorable to the series as those previously negotiated, (iii) the addition of a new trading advisor, trading program or reference trading program and/or the removal of one of the current trading advisors, trading programs or reference trading programs may cause disruptions in trading as assets are reallocated, or (iv) the services of a replacement trading advisor, in respect of a trading program, reference program or otherwise, may not be available. There is severe competition for the services of qualified trading advisors, and the managing owner may not be able to retain replacement or additional trading advisors on acceptable terms. The effect of the replacement of, or the reallocation of assets away from, a trading advisor, trading program or reference trading program therefore could be significant.

 

The Managing Owner’s Allocation of the Trust’s Assets Among Trading Advisors May Result in Less than Optimal Performance by the Trust.

 

The managing owner may reallocate assets among the trading advisors in a series upon termination of a trading advisor or retention of a new trading advisor, including through divestments out of, or investments into commodity pools on the Galaxy Plus Platform, or at the commencement of any month. Consequently, the net assets for such series may be allocated among the trading advisors in a different manner than the currently anticipated allocations. The managing owner’s allocation of assets of any such series may adversely affect the profitability of the trading of such series. For example, a trading advisor for a series may experience a high rate of return but may be managing only a small percentage of the net assets of such series. In this case, the trading advisor’s performance could have a minimal effect on the net asset value of the series.

 

Each Trading Advisor Advises Other Clients and May Achieve More Favorable Results for its Other Accounts.

 

Each of the trading advisors currently manages other trading accounts, and each will remain free to manage additional accounts, including its own accounts, in the future. A trading advisor may vary the trading strategies it employs from those used for its other managed accounts, or its other managed accounts may impose a different cost structure than that of the series for which it trades. Consequently, the results any trading advisor achieves for the series for which it trades may not be similar to those achieved for other accounts managed by the trading advisor or its affiliates at the same time. Moreover, it is possible that those other accounts managed by

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the trading advisor or its affiliates may compete with the series for which it trades for the same or similar positions in the commodity interest markets and that those other accounts may make trades at better prices than the series for which it trades.

 

A trading advisor may also have a financial incentive to favor other accounts because the compensation received from those other accounts exceeds, or may in the future exceed, the compensation that it receives from managing the account of the series for which it trades. Because records with respect to other accounts are not accessible to investors in the units, investors will not be able to determine if any trading advisor is favoring other accounts.

 

The Managing Owner Places Significant Reliance on the Trading Advisors and Their Key Personnel; the Loss of Such Personnel Could Adversely Affect a Series.

 

The managing owner relies on the trading advisors to achieve trading gains for each series, entrusting each of them with the responsibility for, and discretion over, the investment of their allocated portions of the trust’s assets. The trading advisors, in turn, are dependent on the services of a limited number of persons to develop and refine their trading approaches and strategies and execute the trading transactions. The loss of the services of any trading advisor’s principals or key employees, or the failure of those principals or key employees to function effectively as a team, may have an adverse effect on that trading advisor’s ability to manage its trading activities successfully, or may cause the trading advisor to cease operations entirely. This, in turn, could negatively impact one or more series’ performance. Each of the trading advisors is wholly- (or majority-) owned and controlled, directly or indirectly, by single individuals who have major roles in developing, refining and implementing the trading advisor’s trading strategies and operating its business. The death, incapacity or other prolonged unavailability of such individuals likely would greatly hinder these trading advisors’ operations, and could result in their ceasing operations entirely, which could adversely affect the value of your investment.

 

The Success of Each Series Depends on the Ability of the Personnel of its Trading Advisors to Accurately Implement Their Trading Systems, and Any Failure to Do So Could Subject a Series to Losses.

 

The trading advisors’ computerized trading systems rely on the trading advisors’ personnel to accurately process the systems’ outputs and execute the transactions called for by the systems. In addition, each trading advisor relies on its staff to properly operate and maintain the computer and communications systems upon which its trading systems rely. Execution and operation of each trading advisor’s systems is therefore subject to human errors. Any failure, inaccuracy or delay in implementing any of the trading advisors’ systems and executing transactions could impair the trading advisor’s ability to identify profit opportunities and benefit from them. It could also result in decisions to undertake transactions based on inaccurate or incomplete information. This could cause substantial losses.

 

Stop-loss Orders May Not Prevent Large Losses.

 

Certain of the trading advisors may use stop-loss orders. Such stop-loss orders may not effectively prevent substantial losses, and depending on market factors at the time, may not be able to be executed at such stop-loss levels. No risk control technique can assure that large losses will be avoided.

 

Risks Relating to the Galaxy Plus Platform

 

The Success of Each Series Depends on the Performance of the Commodity Pools Available on the Galaxy Plus Platform in Which Each Series Invests

 

The assets of each series are substantially invested in commodity pools offered through the Galaxy Plus Platform, and accordingly, each series’ performance depends substantially upon the performance of each such commodity pool. Factors that may significantly affect a commodity pool’s performance include the investment strategies selected for it by Gemini and/or such commodity pool’s trading advisor in their sole discretion, the commodity pool’s adherence to the selected strategies, the effectiveness of such strategies and the specific trading activities of the commodity pool’s trading advisor, including the trading advisor’s selection of financial instruments. Each commodity pool on the Galaxy Plus Platform is advised by an independent trading advisor. As a result, many of the risks outlined above with respect to the trading advisors of each series will also apply to the trading advisors of each commodity pool.

 

The Galaxy Plus Platform is Recently Established and has a Limited Operating History and the Commodity Pools Have Limited or No Operating History or Track Record

 

The Galaxy Plus Platform was formed in April 2015 and has a limited history of operations. The commodity pools offered on the platform are recently established with a limited operating history or, in some cases, newly established with no operating history. There is a limited performance history, or in some cases, no performance history, to serve as a factor in evaluating an investment in the commodity pools on the Galaxy Plus Platform.

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A Series May be One of Multiple Investors in each Commodity Pool on the Galaxy Plus Platform

 

The Galaxy Plus Platform allows multiple investors to subscribe for interests in its commodity pools. Investors other than a series could cause a commodity pool to take, or omit to take, actions that may adversely affect the performance of, or value of a series investments in, a commodity pool.

 

A Series May Incur Losses Related to Other Investors’ Large Redemptions from, or Investments into, a Commodity Pool on the Galaxy Plus Platform

 

A commodity pool may experience relatively large redemptions or investments related to actions of other investors in the commodity pool. In the event of such redemptions or investments, a trading advisor to the commodity pool could be required to sell futures, options or other investments or to invest cash at a time when it is not advantageous to do so, harming the performance of a series.

 

The Galaxy Plus Platform Operates Independently from Each Series, the Trust and the Managing Owner

 

The commodity pools on the Galaxy Plus Platform operate independently from each series, the trust and the managing owner. The managing owner will have no control over, or involvement in, the operation and administration of the commodity pools. Gemini, as the sponsor of the commodity pools, may make operational and administrative decisions that could adversely affect the performance of the commodity pool and the value of a series’ investment in the commodity pool.

 

The Galaxy Plus Platform and Gemini May Limit the Ability of a Series to Invest in, or Divest From, a Commodity Pool

 

The Galaxy Plus Platform and/or its sponsor, Gemini, will have the ability to restrict investments into, or divestments from, any of the commodity pools on the Galaxy Plus Platform. The success of each series depends upon the ability to select trading advisors on the Galaxy Plus Platform through investments into, or divestments from, one or more commodity pools. If investments into or out of a commodity pool are limited or restricted by the Galaxy Plus Platform and/or its sponsor, Gemini, the performance of a series may be adversely affected,

 

Cessation of, or Changes to, the Operation of the Galaxy Plus Platform Could Adversely Impact the Performance of a Series

 

Unlike the trading companies managed by the managing owner, the on-going business operations of the Galaxy Plus Platform are administered by Gemini. If Gemini ceases operating, or effects administrative or other changes to, the Galaxy Plus Platform, a series may no longer be able to access one or more trading advisors available through commodity pools on the Galaxy Plus Platform. The inability to gain exposure to trading advisors through the Galaxy Plus Platform may materially affect the performance of a series.

 

Investment in Commodity Pools Available on the Galaxy Plus Platform Presents Operational, Administrative Risk to Each Series

 

Each series is subject to certain risks related to the operation and administration of the Galaxy Plus Platform by Gemini as a result of its investment in one or more commodity pools on the Galaxy Plus Platform. The investment of each series in a commodity pool may be adversely affected due to possible human error or fraud on the part of an employee or agent of Gemini, prohibited trading activity by a commodity pool’s trading advisors due to a lack of internal controls or failed trading systems, Gemini’s noncompliance with applicable laws, rules and regulations and external events such as service provider failure, hardware or software failure or acts of god.

 

Each Series May Be Susceptible to Cyber Security Breaches

 

In addition, as the use of technology increases, each series may be more susceptible to operational risks through breaches in cyber security. A breach in cyber security refers to both intentional and unintentional events that may cause the series to lose proprietary information or operational capacity or suffer data corruption. As a result, each series may incur regulatory penalties, reputational damage, additional compliance costs associated with corrective measures, and/or financial loss. In addition, cyber security breaches of the series’ third-party service providers or issuers in which the series invest may also subject the series to many of the same risks associated with direct cyber security breaches.

 

Taxation and Benefits Risks

 

You are strongly urged to consult your own tax advisor and counsel about the possible tax consequences to you of an investment in the trust. Tax consequences may differ for different investors, and you could be affected by changes in the tax laws.

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You May Have Tax Liability Attributable to Your Investment in a Series Even if You Have Received No Distributions and Redeemed No Units, and Even if the Series Generated an Economic Loss.

 

If a series has profit for a taxable year (as determined for federal income tax purposes), the profit will be includible in your taxable income, whether or not cash or other property is actually distributed to you by the series. The managing owner does not intend to make any distributions from any series. Accordingly, your liability for federal income taxes as well as other taxes on your allocable share of a series’ profits will exceed the amount of distributions to you, if any, for a taxable year. As such, you must be prepared to satisfy any tax liability from redemptions of units or other sources. In addition, a series may have capital losses from trading activities that cannot be deducted against the series’ interest income, so that you may be subject to pay taxes on interest income even if the series generates a net economic loss for a taxable year.

 

You May Be Subject Tax on Gains that the Trust Never Realizes.

 

Because a substantial portion of the trust’s open positions are “marked-to-market” at the end of each taxable year, all or a portion of your tax liability for each taxable year may be based on unrealized gains that the trust may never actually realize.

 

Partnership Treatment is not Assured, and if the Trust or any Series Is Not Treated as a Partnership, You Could Suffer Adverse Tax Consequences.

 

It is expected that each of the trust’s series will be treated as a separate partnership for federal income tax purposes and, assuming that at least 90% of the gross income of each series each taxable year has always constituted and will continue to constitute “qualifying income” within the meaning of Section 7704(d) of the Code, neither the trust nor any series will be a publicly traded partnership treated as a corporation. The managing owner believes that it is likely, but not certain, that the series will meet this income test. The trust has not requested, and does not intend to request, a ruling from the Internal Revenue Service (the “IRS”) concerning its tax treatment or the tax treatment of any series.

 

If the trust or a series were to be treated as a corporation for federal income tax purposes, the net income of the trust or the series would be subject to tax at corporate income tax rates, thereby substantially reducing its distributable cash; you would not be allowed to deduct losses of the trust or a series; and distributions to you, other than liquidating distributions, would constitute dividends to the extent of the current or accumulated earnings and profits of the trust or the series and would be taxable as such. See “U.S. Federal Income Tax Consequences.”

 

There is the Possibility of a Tax Audit Which Could Result in Additional Taxes to You.

 

The trust’s tax returns may be audited by a taxing authority, and such an audit could result in adjustments to the trust’s returns. If an audit results in an adjustment, you may be compelled to file amended returns and to pay additional taxes plus interest and penalties.

 

You Will Likely Recognize Short-Term Capital Gain.

 

Profits on futures contracts traded in regulated U.S. and some foreign exchanges, foreign currency contracts traded in the interbank market, and U.S. and some foreign exchange-traded options on commodities treated as section 1256 contracts under the Code are generally treated as short-term capital gain to the extent of 40% of gains with respect to section 1256 contracts. Special rules apply in the case of mixed straddles (generally, offsetting positions where some, but not all, of the positions are marked-to-market). These special rules could have the effect of limiting the amount of gain treated as long-term capital gain.

 

The IRS Could Challenge Allocations of Recognized Gains to Unitholders Who Redeem.

 

The trust agreement provides that recognized gains may be specially allocated for tax purposes to redeeming limited owners. If the IRS were to successfully challenge such allocations, each remaining limited owner’s share of recognized gains would be increased.

 

The IRS Could Take the Position that Deductions for Certain Trust Expenses Are Subject To Various Limitations.

 

Non-corporate taxpayers are subject to certain limitations for deductions for “investment advisory expenses” for federal income tax and alternative minimum tax purposes. The IRS could argue that certain expenses of the trust are investment advisory expenses.

 

Prospective investors should discuss with their tax advisers the tax consequences of an investment in any series of the trust.

 37

 

The Investment of Benefit Plan Investors May Be Limited and/or Subject to Mandatory Redemption if Any or All of the Series (or Class of any Series) Are Deemed to Hold Plan Assets or if the Trading Advisors Have Fiduciary Relationships with Certain Investing Benefit Plan Investors, and Benefit Plan Investors are Required to Consider their Fiduciary Responsibilities in Making an Investment Decision.

 

Special considerations apply to investments in the trust by individual retirement accounts, pension, profit-sharing, stock bonus, Keogh, welfare benefit and other employee benefit plans whether or not subject to ERISA or Section 4975 of the Code (each, a “Plan”). A Plan that is subject to Part 4 of Subtitle B of Title I of ERISA or Section 4975 of the Code, or any entity whose underlying assets include plan assets by reason of a plan’s investment in such entity is referred to as a “Benefit Plan Investor.” While the assets of the trust or any series (and class of any series) are intended not to constitute plan assets with respect to any Benefit Plan Investors, the United States Department of Labor (“DOL”), IRS or a court could disagree. If the DOL, IRS or a court were to find that the assets of some or all of the series (or class of any series) are the assets of Benefit Plan Investors, the managing owner and the trading advisors to such series (or class) may be fiduciaries, and certain transactions in or by the trust could be prohibited. For example, if the trust were deemed to hold “plan assets” within the meaning of 29 C.F.R. § 2510.3-101, the trading advisors may have to refrain from directing certain transactions that are currently contemplated. Furthermore, whether or not the trust is deemed to hold plan assets, if a Benefit Plan Investor has certain relationships with the managing owner, one or more trading advisors, the selling agents or a clearing broker, investment in a series may be limited or prohibited. In the event that, for any reason, the assets of any series (or class of any series) might be deemed to be “plan assets,” and if any transactions would or might constitute prohibited transactions under ERISA or the Code and an exemption for such transaction or transactions is not available or cannot be obtained (or the managing owner determines not to seek such exemption), the managing owner reserves the right, upon notice to, but without the consent of any limited owner, to mandatorily redeem units held by any limited owner that is a Benefit Plan Investor. Furthermore, whether or not a series (or class of any series) are plan assets, Benefit Plan Investors should consider their fiduciary responsibilities before making a decision to invest in a series (or class of any series) and Plan investors who are not subject to ERISA may be subject to similar responsibilities under state, local, or non-U.S. law. See “Who May Subscribe—ERISA Considerations.”

 

Foreign Investors May Face Exchange Rate Risk and Local Tax Consequences.

 

Foreign investors should note that the units are denominated in U.S. dollars and that changes in the rates of exchange between currencies may cause the value of their investment to decrease.

 

Regulatory Risks

 

Regulation of the Commodity Interest Markets is Extensive and Constantly Changing; Future Regulatory Developments are Impossible to Predict, but May Significantly and Adversely Affect the Trust.

 

The futures, options on futures and security futures markets are subject to comprehensive statutes, regulations and margin requirements. With respect to traditional futures exchanges, 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 limits and the suspension of trading. The regulation of commodity interest transactions in the United States is a rapidly changing area of law and is subject to ongoing modification by governmental and judicial action. In addition, various national governments have expressed concern regarding the disruptive effects of speculative trading in the currency markets and the need to regulate the derivatives markets in general. The effect of any future regulatory change is impossible to predict, but could be substantial and adverse.

 

The Series Are Subject to Speculative Position Limits.

 

U.S. futures exchanges have established speculative position limits (referred to as “position limits”) on the maximum net long or net short position which any person or group of persons may hold or control in particular futures and options on futures. Most exchanges also limit the amount of fluctuation in commodity futures contract prices on a single trading day. Therefore, a trading advisor may have to modify its trading instructions or reduce the size of its position in one or more futures or options contracts in order to avoid exceeding such position limits, which could adversely affect the profitability of the series. The futures exchange may amend or adjust these position limits or the interpretation of how such limits are applied, adversely affecting the profitability of the series. In addition, in October 2011, the CFTC adopted rules governing position limits on futures (and options on futures) on a number of agricultural, energy and metals commodities, as well as on swaps that perform a significant price discovery function with respect to those futures and options. In September 2012, the CFTC’s rules were vacated by the United States District Court for the District of Columbia and remanded to the CFTC for further consideration. The CFTC initially proposed revised position limits rules late in 2013 and reproposed further revised position limits rules late in 2016 with respect to speculative positions in 25 core physical commodity futures contracts and their “economically equivalent” futures, options, and swaps. The comment period for the rules closed in February 2017. The date for the CFTC’s final rules is unknown. It is possible that these rules may take effect in some form. If so, these rules could have an adverse effect on a series’ trading.

 38

CFTC Registrations Could Be Terminated, Which Could Adversely Affect the Trust or a Series.

 

If the CE Act registrations or NFA memberships of the managing owner, the registered trading advisors to the trading companies or commodity pools, or Gemini were no longer effective, these entities would not be able to act for the trust, or in the case of Gemini, act for the commodity pools, which could adversely affect the trust or such series.

 

The foregoing risk factors are not a complete explanation of all the risks involved in purchasing interests in a fund that invests in the highly speculative, highly leveraged trading of futures, forwards and options.

 

You should read this entire prospectus before determining to subscribe for units.

 39

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This prospectus includes “forward-looking statements” within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended (referred to as the Securities Act) and Section 21E of the Securities Exchange Act of 1934, as amended (referred to as the Exchange Act) that reflect the managing owner’s current expectations about the future results, performance, prospects and opportunities of the trust. All statements other than statements of historical fact included in this prospectus may constitute forward-looking statements. The managing owner has tried to identify these forward-looking statements by using words such as “may,” “will,” “expect,” “anticipate,” “believe,” “intend,” “should,” “estimate,” “foresee,” “continue,” “plan” or the negative of those terms or similar expressions. These forward-looking statements are based on information currently available to the managing owner and are subject to a number of risks, uncertainties and other factors, both known, such as those described in “Risk Factors” and elsewhere in this prospectus, and unknown, that could cause the trust’s actual results, performance, prospects or opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. Although the managing owner believes that the expectations and underlying assumptions reflected in these forward-looking statements are reasonable, there can be no assurance that these expectations or underlying assumptions ultimately will prove to have been correct. Important factors that could cause actual results to differ materially from projected or forecasted results or stated expectations are disclosed in this prospectus, including under the heading “Risk Factors.”

 

You should not place undue reliance on any forward-looking statements. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the managing owner or any other person that the objective and expectations of the trust will be achieved. Except as expressly required by the federal securities laws, the managing owner undertakes no obligation to publicly update or revise any forward-looking statements or the risks, uncertainties or other factors described in this prospectus, as a result of new information, future events or changed circumstances or for any other reason after the date of this prospectus.

 40

FRONTIER FUNDS

 

The Trust

 

The trust was formed on August 8, 2003, under the Delaware Statutory Trust Act, as amended. The trust and each series of the trust is a multi-advisor pool as defined in CFTC Rule 4.10(d)(2). The sole trustee of the trust is Wilmington Trust Company, which delegated its duty and authority for the management of the business and affairs of the trust to Frontier Fund Management LLC, the managing owner. Wilmington Trust Company will have limited liability as set forth in the trust agreement. Each series engages in the speculative trading of a diversified portfolio of futures, forwards (including interbank foreign currencies), swaps and options contracts and/or other derivative instruments. The purpose of each series is to seek capital appreciation while attempting to control risk and volatility. Frontier Fund Management LLC, the managing owner of the trust, has delegated its commodity pool operator responsibilities to Wakefield Advisors LLC, a registered commodity pool operator, and allocates the assets of each series to a diverse group of experienced commodity trading advisors and/or, from time to time, enters into swaps or other derivative instruments with respect to certain reference trading programs. Units are available for subscription on each business day at the then current net asset value per unit. The trust has offered other series in the past and may offer additional series in the future.

 

Since each series has a unique trading strategy, you should review the information relating to each series and its trading strategy (see Appendices to Part Ifor additional information regarding each series and its trading strategy).

 

The trust will terminate on December 31, 2053 (unless terminated earlier in certain circumstances). See “Summary of Agreements—Trust Agreement.” The principal offices of the trust and the managing owner are located at 25568 Genesee Trail Road, Golden, Colorado, 80401, and their telephone number is (303) 454-5500.

 

The Managing Owner and CPO

 

Frontier Fund Management LLC serves as the managing owner of the trust. The managing owner was incorporated in Delaware in November, 2016. The managing owner has delegated its commodity pool operator responsibilities to Wakefield Advisors LLC pursuant to the Commodity Pool Operator Delegation Agreement between the managing owner and Wakefield Advisors LLC, which has been registered with the CFTC as a commodity pool operator since January 7, 2013, and has been a member of the NFA since that date. The managing owner’s main business office is located at 25568 Genesee Trail Road, Golden, Colorado 80401, telephone (303) 454-5500. The books and records of the trust are kept at the principal offices of the managing owner. The managing owner is ultimately responsible for the selection, retention and termination of the trading advisors and reference programs on behalf of each series. For more information regarding the managing owner, see the section entitled “The Managing Owner and CPO.”

 41

THE OFFERING

 

The Units

 

Purchasers of units of a series will become limited owners of the trust. The Trust Act provides that, except as otherwise provided in the trust agreement, unitholders in a Delaware statutory trust will have the same limitation of liability as do stockholders of private corporations organized under the General Corporation Law of the State of Delaware. The trust agreement confers substantially the same limited liability, and contains substantially the same limited exceptions thereto, as would a limited partnership agreement for a Delaware limited partnership engaged in like transactions as the trust. Pursuant to the trust agreement, the managing owner of the trust is generally liable for obligations of a series in excess of that series’ assets. Limited owners do not have any such liability except as set forth in the trust agreement. See “Summary of Agreement—Trust Agreement—Liabilities.”

 

Each series is available in two classes. Class 1 (and, in the case of the Frontier Long/Short Commodity Fund, class 1a) units are subject to an initial service fee equal to up to 2.0% of the purchase price and, after the first year, an ongoing annual service fee of up to 2.0% of the net asset value of your units, which is payable either monthly or quarterly (as agreed with the selling agent). Except in the case of units issued as rebates, the initial service fee will be prepaid by the managing owner to the applicable selling agent and will be reimbursed by the applicable series over the first 12 months of your investment. See “Fees and Expenses—Service Fees—Class 1 and Class 1a—Initial Service Fee.” Class 2 (and, in the case of the Frontier Long/Short Commodity Fund, class 2a) units are not subject to an initial service fee and will only be offered to investors who invest through approved selling agents who are separately compensated by the investor directly. Class 2 and 2a units may be subject to ongoing service fees for certain administrative services provided by the selling agents in an amount equal to 0.25% annually of the net asset value of each unit (an additional amount of up to 0.25% may be paid by the managing owner), payable at the end of each month. See “Fees and Expenses” for a description of all fees and expenses applicable to the trust.

 

Class 1 and 1a units and class 2 and 2a units will be redesignated as class 3 or class 3a units, respectively, of such series, for administrative purposes as of any business day when the managing owner determines in its sole discretion that the service fee limit will be reached. The service fee limit applicable to each unit sold pursuant to this prospectus is reached upon the earlier of when (i) the aggregate initial and ongoing service fees received by the selling agent with respect to such unit equals 9% of the purchase price of such unit or (ii) the aggregate underwriting compensation (determined in accordance with FINRA Rule 2310) paid in respect of such unit totals 10% of the purchase price of such unit. There are no service fees or redemption fees associated with the class 3 or 3a units.

 

In order to purchase class 2 units or class 2a units of any series, you must have an arrangement with a selling agent where you directly compensate such selling agent for services rendered in connection with investments, including an investment in the trust (this type of arrangement is commonly referred to as a “wrap-account”). If you do not have such an arrangement with a selling agent, then you will only be able to purchase class 1 or 1a units in any series, which will result in you being charged higher service fees. Whether you have such an arrangement with a selling agent will depend on your relationship with such selling agent. Neither the trust nor the managing owner has any control over the type of arrangement you have with a selling agent.

 

Class 3 and 3a units are not offered directly to investors and have been registered, and will be maintained, under federal and state securities laws to administer the redesignation of class 1, 1a, 2 and 2a units that have reached the service fee limit. See “Plan of Distribution.”

 

The offering of units is subject to federal and state securities laws and regulations, federal laws and regulations relating to investments in commodities and related products, and the rules of FINRA and NFA.

 

The Series

 

As of the date of this prospectus, the assets of each series may be invested in a combination of one or more trading companies and one or more commodity pools available on the Galaxy Plus Platform, with ultimately all assets of each series being allocated to such commodity pools available on the Galaxy Plus Platform. The managing owner expects to liquidate each trading company it manages once no further assets of the series are invested in such trading company. The assets of certain trading companies are traded by only one trading advisor, while the assets of certain other trading companies are traded by multiple trading advisors. Some of the trading companies may also invest in swaps. With respect to the commodity pools available on the Galaxy Plus Platform, each such commodity pool is managed and operated by Gemini. Organizational charts depicting the relationships between the series, the commodity pools available on the Galaxy Plus Platform, the trading companies and the trading advisors as of the date of this prospectus are set forth above under “Summary—Organizational Charts” beginning on page 13. The trading advisors were selected based upon the managing owner’s evaluation of each trading advisor’s past performance, trading portfolios and strategies, as well as how each trading advisor’s performance, portfolios and strategies complement and differ from those of the other trading advisors. The commodity pools were selected based upon the managing owner’s evaluation of the trading advisors retained by such commodity pools. Except with respect to that portion of each series’ assets held at the trust level for cash management purposes, the managing owner will invest the balance of the

 42

proceeds from the continuous offering of the units of the series in either the applicable trading companies for each such series or one or more commodity pools on the Galaxy Plus Platform, and all proceeds will initially be available for commodities trading purposes. For each offered series, the percentage of series assets allocated to the cash management pool, as of September 30, 2018, is as follows: Frontier Diversified Fund: 9.92%; Frontier Masters Fund: 4.93%; and Frontier Long/Short Commodity Fund: 5.02%. The trading advisors and Gemini Alternative Funds, LLC are not affiliated with the trust, the trustee or the managing owner. Depending on the level of investment by a series in commodity pools on the Galaxy Plus Platform, such commodity pools may be deemed from time to time to be affiliates of the trust. If a trading advisor’s trading reaches a level where certain position limits restrict its trading, such trading advisor will modify its trading instructions for the series and its other accounts in a good faith effort to achieve an equitable treatment of all accounts. None of the trading advisors nor any of their principals currently have any beneficial interest in the trust, but some or all of them may acquire an interest in the trust in the future. For a summary of the advisory agreements entered into with each trading advisor, see “Summary of Agreements—Advisory Agreements.” With respect to each series, the managing owner may employ leverage at two possible levels. First, the managing owner may strategically employ notional equity at the overall portfolio level by strategically allocating an amount of assets to the trading advisors, including through investments in one of more commodity pools on the Galaxy Plus Platform, in excess of such series’ net assets, thereby increasing the overall leverage of such series’ portfolio. Second, the managing owner may allocate notional equity among various trading advisors, including through investments in one of more commodity pools on the Galaxy Plus Platform, that employ varying amounts of leverage within their individual trading programs. See the Frontier Diversified Fund Appendix, Frontier Masters Fund Appendix and Frontier Long/Short Commodity Fund Appendix, as applicable.

 

For a description of each series’ trading advisors and their principals, as well as a general description of the trading strategies and trading portfolios each such trading advisor will employ in its trading on behalf of the trust, and the past performance of such trading advisors, see the appendix for such series. The descriptions in the appendices were derived by the managing owner principally from information provided by each trading advisor. Because the trading advisors’ trading programs are proprietary, the descriptions in each appendix are of necessity and general in nature.

 43

PAST PERFORMANCE OF THE SERIES

 

Set forth in Capsules I-V below is the performance record of trading of each currently offered series of the trust for the last five years (or since inception, as applicable) and year-to-date ended November 30, 2018.

 

CAPSULE I
Series Frontier Diversified Fund Class 1 Frontier Diversified Fund Class 2
Type of pool Publicly-Offered; Multi-Advisor; Publicly-Offered; Multi-Advisor;
Not Principal-Protected Not Principal-Protected
Inception of trading 9-Jun-09 9-Jun-09
Aggregate subscriptions(1) $126,230,600  $127,553,391 
Current capitalization(1) $1,701,903  $7,684,733 
Worst monthly % drawdown since inception(1)(2) -10.18% (February 2018) -10.06% (February 2018)
Worst month-end peak-to-valley drawdown since inception(1)(3) -27.75% (February 2011 to August 2013) -24.52% (February 2011 to August 2013)
Monthly performance    
Month 2018 2017 2016 2015 2014 2013 2018 2017 2016 2015 2014 2013
January 2.04% -0.31% 6.34% 11.76% -4.38% -0.56% 2.19% -0.21% 6.48% 11.92% -4.24% -0.42%
February -10.18% 3.01% 3.35% 0.79% 2.65% -1.15% -10.06% 3.15% 3.50% 0.93% 2.79% -1.01%
March -0.14% -0.21% -6.71% 3.35% -3.18% 0.46% 0.01% -0.07% -6.58% 3.51% -3.04% 0.60%
April 1.43% 0.80% -3.41% -6.58% -1.95% 3.70% 1.58% 0.94% -3.28% -6.44% -1.81% 3.85%
May -3.04% 0.13% 0.29% 2.16% 4.31% -5.15% -2.90% 0.28% 0.44% 2.31% 4.46% -5.01%
June 3.36% -7.22% 2.92% -8.04% 2.51% -6.69% 3.51% -7.09% 3.07% -7.90% 2.67% -6.56%
July -1.91% 0.58% 1.74% 5.67% -1.51% -5.75% -1.76% 0.73% 1.88% 5.83% -1.36% -5.60%
August -2.77% 2.47% -2.52% -8.74% 8.96% -3.65% -2.63% 2.62% -2.37% -8.61% 9.11% -3.52%
September 1.13% -4.39% -1.10% 4.99% 2.98% 0.57% 1.28% -4.25% -0.95% 5.14% 3.13% 0.72%
October -4.78% 6.84% -2.55% -3.51% 2.59% 3.72% -4.64% 7.00% -2.31% -3.37% 2.74% 3.88%
November 2.70% -1.93% 0.14% 7.85% 10.68% 5.84% 2.85% -1.79% 0.28% 8.01% 10.82% 5.99%
December   0.91% 2.92% -5.12% 3.88% 1.55%   1.06% 3.08% -4.98% 4.04% 1.71%
Year -12.25% (11 Months) -0.02% 0.79% 2.15% 29.84% -7.73% -10.83% (11 Months) 1.69% 2.58% 3.95% 32.14% -6.10%

 

 

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 44

 

CAPSULE II
Series Frontier Diversified Fund Class 3
Type of pool Publicly-Offered; Multi-Advisor;
Not Principal-Protected(4)
Inception of trading 25-Feb-14
Aggregate subscriptions(1)(1a) $28,947,970 
Current capitalization(1) $6,926,651 
Worst monthly % drawdown since inception(1)(2) -10.04% (February 2018)
Worst month-end peak-to-valley drawdown since inception(1)(3) -18.86% (April 2015 - October 2018)
Monthly performance  
Month 2018 2017 2016 2015 2014
January 2.21% -0.19% 6.51% 11.94% --
February -10.04% 3.17% 3.52% 0.95% 1.53%
March 0.03% -0.04% -6.56% 3.53% -3.02%
April 1.60% 0.97% -3.26% -6.42% -1.79%
May -2.88% 0.30% 0.46% 2.33% 4.48%
June 3.53% -7.06% 3.09% -7.88% 2.69%
July -1.74% 0.75% 1.90% 5.85% -1.34%
August -2.61% 2.64% -2.35% -8.59% 9.13%
September 1.30% -4.23% -0.93% 5.17% 3.16%
October -4.62% 7.02% -2.28% -3.35% 2.76%
November 2.87% -1.76% 0.30% 8.03% 10.85%
December   1.08% 3.11% -4.96% 4.07%
Year -10.63% (11 Months) 1.96% 2.83% 4.21% 36.58% (11 Months)

 

 

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 45

CAPSULE III
Series Frontier Masters Fund Class 1 Frontier Masters Fund Class 2
Type of pool Publicly-Offered; Multi-Advisor; Publicly-Offered; Multi-Advisor;
Not Principal-Protected Not Principal-Protected
Inception of trading 9-Jun-09 9-Jun-09
Aggregate subscriptions(1) $63,858,077  $34,517,140 
Current capitalization(1) $1,539,164  $1,338,597 
Worst monthly % drawdown since inception(1)(2) -16.49% (February 2018) -16.37% (February 2018)
Worst month-end peak-to-valley drawdown since inception(1)(3) -30.83% (April 2015 - October 2018) -26.37% (April 2015 - October 2018)
Monthly performance    
Month 2018 2017 2016 2015 2014 2013 2018 2017 2016 2015 2014 2013
January 3.09% -0.39% 7.34% 8.23% -5.08% 0.48% 3.24% -0.26% 7.49% 8.38% -4.94% 0.63%
February -16.49% 4.83% 3.18% -1.93% 2.01% -1.89% -16.37% 4.97% 3.33% -1.80% 2.15% -1.76%
March -0.49% -3.98% -4.80% 3.73% -1.82% 1.94% -0.34% -3.83% -4.66% 3.89% -1.68% 2.08%
April -1.32% -0.52% -5.02% -6.19% -0.02% 4.35% -1.18% -0.38% -4.89% -6.05% 0.12% 4.51%
May -2.41% -2.69% -1.14% -0.86% 4.19% -6.11% -2.27% -2.54% -3.23% -0.72% 4.34% -5.97%
June 4.93% -7.61% 9.72% -7.86% 2.24% -4.82% 5.08% -7.48% 9.88% -7.72% 2.39% -4.70%
July -3.54% 2.15% 3.57% 7.09% -5.01% -2.52% -3.40% 2.30% 3.71% 7.25% -4.87% -2.37%
August 1.95% 8.23% -3.26% -7.50% 10.44% -4.63% 2.10% 8.39% -3.11% -7.36% 10.60% -4.49%
September -0.79% -11.11% -0.86% 3.98% 3.65% -0.24% -0.34% -10.99% -0.71% 4.12% 3.81% -0.09%
October -8.65% 10.51% -4.61% -4.93% 2.39% 2.25% -8.52% 10.67% -4.48% -4.79% 2.55% 2.40%
November 6.37% -1.12% -0.79% 8.72% 8.72% 3.72% 6.52% -0.98% -0.64% 8.88% 8.86% 3.86%
December   5.63% 0.13% -3.63% 3.62% -1.46%   5.79% 0.29% -3.49% 3.78% -1.31%
Year -17.68% (11 Months) 1.72% -0.06% -3.21% 26.98% -9.18% -16.35% (11 Months) 3.49% 1.72% -1.50% 29.23% -7.57%

 

 

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 46

 

CAPSULE IV
Series Frontier Long/Short Commodity Fund Class 1a Frontier Long/Short Commodity Fund Class 2a
Type of pool Publicly-Offered; Multi-Advisor; Publicly-Offered; Multi-Advisor;
Not Principal-Protected Not Principal-Protected
Inception of trading 9-Jun-09 9-Jun-09
Aggregate subscriptions(1) $27,744,872  $16,500,989 
Current capitalization(1) $22,531  $228,091 
Worst monthly % drawdown since inception(1)(2) -9.29% (February 2018) -9.18% (February 2018)
Worst month-end peak-to-valley drawdown since inception(1)(3) -55.52% (May 2011 to October 2018) -48.56% (May 2011 to October 2018)
Monthly performance    
Month 2018 2017 2016 2015 2014 2013 2018 2017 2016 2015 2014 2013
January 9.62% 4.87% 4.44% 15.25% -5.67% 0.86% 9.79% 5.05% 4.59% 15.41% -5.53% 1.01%
February -9.29% 2.12% 0.71% -1.40% -2.72% -2.68% -9.18% 2.26% 0.86% -1.27% -2.59% -2.55%
March -3.75% -2.42% -7.14% 5.05% -3.14% 1.31% -3.61% -2.27% -7.00% 5.21% -3.00% 1.45%
April -0.16% -4.63% 3.30% -8.03% 1.59% -0.09% -0.02% -4.49% 3.96% -7.90% 1.74% 0.06%
May -7.34% -5.23% -3.37% -1.84% -2.17% -3.03% -7.20% -5.09% -1.18% -1.71% -2.03% -2.89%
June -1.73% -4.57% -1.65% -1.65% 1.03% -4.50% -1.59% -5.16% -1.64% -1.50% 1.18% -4.37%
July -2.18% 4.88% -4.16% -2.26% 12.03% -1.94% -2.04% 5.04% -4.46% -2.11% 12.20% -1.78%
August -6.07% 2.99% 0.55% -5.23% 4.48% -4.09% -5.93% 3.15% 0.83% -5.09% 4.63% -3.95%
September 1.78% -7.85% 0.19% -0.97% 7.36% -0.39% 1.92% -7.71% 0.37% -0.83% 7.53% -0.24%
October -5.32% -7.80% 2.43% -7.31% -0.54% -0.51% -5.18% -7.67% 2.61% -7.18% -0.40% -0.36%
November 1.86% -3.70% 5.16% 5.44% 5.70% -1.28% 2.00% -3.57% 5.31% 5.59% 5.84% -1.14%
December   10.06% -4.08% -1.36% -7.51% 0.86%   10.22% -3.93% -1.21% -7.37% 1.02%
Year -21.53% (11 Months) -12.32% -2.13% -6.29% 9.05% -14.60% -20.28% (11 Months) -11.43% -0.51% -4.63% 10.97% -13.09%

 

 

 

 

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

 47

 

                                                   CAPSULE V                
Series Frontier Long/Short Commodity Fund Class 3a Frontier Masters Fund Class 3
Type of pool Publicly-Offered; Multi-Advisor; Publicly-Offered; Multi-Advisor;
Not Principal-Protected(4) Not Principal-Protected(4)
Inception of trading 17-Jun-13 16-Dec-13
Aggregate subscriptions(1)(1a) $2,766,592  $16,837,913 
Current capitalization(1) $411,723  $3,282,266 
Worst monthly % drawdown since inception(1)(2) -11.40% (February 2018) -16.36% (February 2018)
Worst month-end peak-to-valley drawdown since inception(1)(3) -42.15% (April 2015 – August 2018) -25.80% (April 2015 - October 2018)
Monthly performance    
Month 2018 2017 2016 2015 2014 2013 2018 2017 2016 2015 2014 2013
January 9.83% 5.08% 4.61% 15.44% -5.51% -- 3.26% -0.24% 7.51% 8.41% -4.92% --
February -11.40% 2.28% 0.88% -1.25% -2.57% -- -16.36% 4.99% 3.35% -1.78% 2.17% --
March -3.06% -2.25% -6.99% 5.24% -2.98% -- -0.32% -3.81% -4.64% 3.91% -1.66% --
April 0.17% -4.47% 2.38% -7.88% 1.76% -- -1.15% -0.36% -4.87% -6.03% 0.15% --
May -7.43% -5.07% -0.71% -1.69% -2.01% -- -2.25% -2.52% -3.20% -0.70% 4.36% --
June -1.62% -2.59% -0.95% -1.48% 1.20% -2.24% 5.10% -7.46% 9.90% -7.70% 2.41% --
July -2.09% 5.03% -2.42% -2.09% 12.22% -1.76% -3.38% 2.32% 3.73% 7.27% -4.85% --
August -6.13% 3.17% 0.34% -5.07% 4.65% -3.93% 2.13% 8.42% -3.09% -7.34% 10.62% --
September 2.03% -7.70% 0.06% -0.81% 7.55% -0.22% -0.32% -10.97% -0.69% 4.15% 3.83% --
October -1.33% -7.65% 2.75% -7.16% -0.38% -0.34% -8.50% 10.70% -4.59% -4.77% 2.57% --
November 2.02% -3.55% 5.33% 5.62% 5.86% -1.13% 6.54% -0.96% -0.62% 8.91% 8.88% --
December   10.25% -3.91% -1.19% -7.35% 1.04%   5.81% 0.31% -3.47% 3.81% 4.43%
Year -18.77% (11 Months) -8.85% 0.69% -4.39% 11.25% -8.33%   (7 months) -16.17% (11 Months) 3.76% 1.97% -1.25% 29.54% 4.43%  (less than 1 month)

 

 

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

 

(1)“Aggregate subscriptions,” “Current capitalization,” “Worst monthly % drawdown since inception,” “Worst month-end peak-to-valley drawdown since inception” and “Monthly performance” are provided for each offered class of investors and include subscriptions and capitalization through November 30, 2018.

 

(1a)“Aggregate Subscriptions” amount reflects redesignated Class 1 and 1a units, where applicable, that have reached the service fee limit as determined by the managing owner pursuant to this prospectus.

 

(2)“Worst monthly % drawdown since inception” means losses experienced in the net asset value per unit over the specified period and is calculated by dividing the net change in the net asset value per unit by the beginning net asset value per unit for the relevant period. “Decline” is measured on the basis of monthly returns only, and does not reflect intra-month figures.

 

(3)“Worst month-end peak-to-valley drawdown since inception” is the largest percentage decline in the net asset value per unit over the specified period. This need not be a continuous decline, but can be a series of positive and negative returns where the negative returns are larger than the positive ones.

 

(4)The pool is “Publicly-Offered”; however, Class 3 or 3a units, as applicable, are only available for holders of redesignated Class 1 and 1a units, as applicable, that have reached the service fee limit as determined by the managing owner pursuant to this prospectus.

 48

THE TRUSTEE

 

Wilmington Trust Company, a Delaware banking corporation, is the sole trustee of the trust. The trustee’s principal offices are located at 1100 N. Market Street, Rodney Square North, Wilmington, Delaware 19890. The trustee is not affiliated with the managing owner or any of the trading advisors, and the trustee’s duties and liabilities with respect to the offering of the units and the administration of the trust are limited to its express obligations under the trust agreement. The trustee will accept service of legal process upon the trust in the State of Delaware. See “Summary of Agreements—Trust Agreement—Trustee.” Limited owners will be notified by the managing owner of any change in the trust’s trustee.

 49

THE MANAGING OWNER AND CPO

 

Frontier Fund Management LLC serves as the managing owner. The managing owner was incorporated in Delaware in November, 2016. The managing owner has delegated its commodity pool operator responsibilities to Wakefield Advisors LLC pursuant to the Commodity Pool Operator Delegation Agreement between the managing owner and Wakefield Advisors LLC, which has been registered with the CFTC as a commodity pool operator since January 7, 2013, and has been a member of the NFA since that date. The directors and officers of the Managing Owner and Wakefield are Patrick J. Kane, Patrick F. Hart III and Michael B. Egan II.

 

Patrick Kane—Mr. Kane’s biography appears below under the caption “Principals of the Managing Owner and Wakefield

 

Patrick Hart—Mr. Hart’s biography appears below under the caption “Principals of the Managing Owner and Wakefield

 

Michael Egan—Mr. Egan’s biography appears below under the caption “Principals of the Managing Owner and Wakefield

 

Under the Commodity Pool Operator Delegation Agreement, Wakefield Advisors LLC does not receive any fees or remuneration from the managing owner in connection with the performance of its obligations thereunder. The Commodity Pool Operator Delegation Agreement is effective until terminated by either the managing owner or Wakefield Advisors LLC, or until Wakefield Advisors LLC is no longer registered as a CPO (unless excluded or exempt from CPO registration under the CE Act). The managing owner remains jointly and severally liable with Wakefield Advisors LLC for violations of the CE Act, and Commodity Futures Trading Commission regulations thereunder (CPO Regulations). However, Wakefield Advisors LLC will indemnify the managing owner from and against any and all loss, liability, damage, penalty, fine, cost, and expense (including attorneys’, accountants’, experts’, and other professionals’ fees and expenses incurred in investigation or defense of any and all demands, claims, actions, suits, or arbitrations) actually and reasonably incurred by the managing owner, based upon, arising out of or from, or in any way in connection with, any act, activity, conduct, performance, omission, or non-performance by the Wakefield Advisors LLC of any of its functions as CPO or which violates the CE Act or CPO Regulations in connection with its functions as CPO.

 

The managing owner’s main business office is located at 25568 Genesee Trail Road, Golden, Colorado 80401, telephone (303) 454-5500. The books and records of the trust are kept at the office of the managing owner. The managing owner will maintain a minimum of 1% interest with respect to the publicly registered units of each series of the trust at all times. The managing owner has agreed to accept liability for the obligations of each series that exceed that series’ net assets.

 

In accordance with the trust agreement, which accompanies this prospectus, the managing owner and Wakefield have the authority to make trading decisions for the trust; therefore, the principals of the managing owner and Wakefield, whose background information is listed below, are the trading principals of the managing owner, Wakefield and the trust. The trading principals of the trust, on behalf of the managing owner and Wakefield, have delegated this responsibility to the trust’s trading advisors.

 

The past performance for each currently offered series of the trust may be found on pages 44-48 under the heading “Past Performance of the Series.” For all performance information, past performance is not necessarily indicative of future results, and the footnotes to each performance capsule are an integral part of such performance capsule.

 

Management of the Trust

 

The managing owner will manage each series’ business and affairs, but will not (except in certain limited, and essentially emergency, situations) direct the trading activities for any series. The managing owner will be responsible for the renewal of the advisory agreements entered into with the various trading advisors accessed through the trading companies, as well as for the selection of additional and/or substitute trading advisors. See “Summary of Agreements—Advisory Agreements.” The managing owner is also responsible for investing in, and divesting from, one or more commodity pools available on the Galaxy Plus Platform, each of which is advised by an individual trading advisor as well as selecting other similar investment platforms offering similar commodity pools. However, the managing owner is not involved in the selection, retention or termination of any trading advisors retained by such commodity pools. In addition, the managing owner selected the trustee and is responsible for determining whether to retain or replace the trustee.

 

The managing owner intends to provide various fund features including, but not limited to, institutional quality asset allocation with institutional pricing and unit series and classes available for the institutional investor.

 

The managing owner will be directly responsible for (i) preparing monthly and annual reports to the limited owners, (ii) filing reports required by the CFTC, SEC and any other federal or state agencies or self-regulatory organizations and (iii) calculating the net asset value of each series and all fees and expenses, if any, to be paid by each series. The managing owner provides suitable facilities and procedures for handling and executing redemptions, exchanges, transfers and distributions (if any), and the orderly liquidation of each series. The managing owner is responsible for selecting the FCMs, OTC foreign exchange counterparties and swap counterparties for each trading company. In managing each series’ business and affairs, the managing owner may contract with, and rely upon information, research and advice provided by third parties.

 50

Retention of Affiliates

 

The managing owner may retain affiliates to provide certain administrative services necessary to the prudent operation of the trust and each series so long as the managing owner has made a good faith determination that:

 

the affiliate that it proposes to engage is qualified to perform such services;

 

the terms and conditions of the agreement with the affiliate are no less favorable than could be obtained from equally qualified unaffiliated third parties; and

 

the maximum period covered by any such agreement shall not exceed one year, and shall be terminable without penalty upon 60 days prior written notice by the trust.

 

The fees of any such affiliates will be paid by the managing owner or an affiliate.

 

Notification of Decline in Net Asset Value

 

If the estimated net asset value per unit of any series declines, as of the end of any business day, to less than 50% of the net asset value per unit of that series as of the end of the immediately preceding valuation point, then the managing owner will notify the limited owners of that series within seven business days of such decline. The notice will include a description of the limited owners’ voting and redemption rights.

 

Maximum Contract Term

 

The trust or any series of the trust is prohibited from entering into any contract with the managing owner or its affiliates which has a term of more than one year and which is not terminable by the trust without penalty upon 60 days prior written notice.

 

Managing Owner Participation in Trust Income and Losses

 

So long as the managing owner is acting as the managing owner of the trust, it is required to maintain at least a 1% interest with respect to the publicly registered units of the trust, and in return will receive units designated as “General Units” of each series in which it invests such funds. The managing owner will participate in the income and losses of any series proportionally in keeping with the ratio of its ownership of General Units of any series to the total number of units of that series, on the same basis as the limited owners of that series.

 

Selection and Replacement of Trading Advisors and Commodity Pools Available on the Galaxy Plus Platform

 

The managing owner is responsible on behalf of each series for the selection, retention and termination of the trading advisors and reference programs, as well as the investment in commodity pools on the Galaxy Plus Platform. The actual allocation among trading advisors for each series will vary based upon the relative trading performance of the trading advisors, Galaxy Plus Platform commodity pools and/or reference programs, and the managing owner may otherwise vary such percentages from time to time in its sole discretion. The managing owner will adjust its allocations and rebalance the portfolio of any series among trading advisors to maintain weightings that it believes will most likely achieve capital growth while seeking to target the appropriate level of risk (volatility) within the investment guidelines of the relevant series. Each series, which currently invests its assets in both trading companies managed by the managing owner and in commodity pools available through the Galaxy Plus Platform, expects to ultimately allocate all of its assets to such commodity pools, in addition to entering into any swaps or other derivative instruments with respect to certain reference trading programs.

 

The managing owner utilizes certain quantitative and qualitative analysis in connection with the identification, evaluation and selection of the trading advisors. Research team members regularly interact with trading advisors throughout the due diligence and monitoring process. Only those programs that have met strict quantitative and qualitative review are considered as potential managers of client assets. Following is a summary of the quantitative and qualitative analysis:

 

Quantitative Analysis

 

The managing owner portfolio management team applies a variety of statistical measures towards the evaluation of current and historical advisor performance data. Statistical measures may include, but are not limited to: (1) risk/reward analysis, (2) time window analysis, (3) risk analysis, (4) correlation analysis, (5) statistical analysis and (6) peer group analysis.

 51

Qualitative Analysis

 

Although quantitative analysis statistically identifies the top performing trading advisors, qualitative analysis also plays a key role in the trading advisor evaluation and final selection process. Each trading advisor on the managing owner’s short list undergoes qualitative review by the managing owner’s portfolio management team, as well as on going monitoring. This analysis generally includes, but is not limited to: (1) preliminary information and due diligence, (2) background review, (3) due diligence questionnaires and (4) written review and periodic updates. This information allows a review of each advisor’s trading philosophy and systems and other relevant information.

 

Multi-Manager Approach

 

A multi-manager approach to portfolio management provides diversification of trading advisors and access to broader global markets. Portfolios comprised of multiple trading advisors can provide diversification across trading methodologies, trading time horizons, and markets traded resulting in more consistent performance returns and overall lower volatility.

 

The managing owner is also responsible for the selection of, for investment purposes by each series, one or more commodity pools available on the Galaxy Plus Platform, each of which is advised by an individual trading advisor. However, the managing owner is not involved in the selection, retention or termination of any trading advisors retained by such commodity pools. The actual allocation among the commodity pools on the Galaxy Plus Platform for each series will vary based upon the relative performance of the commodity pools, and the managing owner may otherwise vary such percentages from time to time in its sole discretion.

 

Fiduciary Responsibilities

 

Accountability

 

Pursuant to the Trust Act, the trustee has delegated to the managing owner responsibility for the management of the business and affairs of the trust and each series, and it has neither a duty to supervise or monitor the managing owner’s performance nor liability for the acts or omissions of the managing owner. The trustee retains a statutory fiduciary duty to the trust only for the performance of the express obligations it retains under the trust agreement, which are limited to the making of certain filings under the Trust Act and the acceptance of process on behalf of the trust in the State of Delaware. The trustee owes no other duties to the trust or any series. The managing owner is accountable to each limited owner as a fiduciary and must exercise good faith and fairness in all dealings affecting the trust. Under the Trust Act, if, in law or equity, the trustee or the managing owner has duties (including fiduciary duties) to the trust or to the limited owners, and liabilities relating to those duties, (i) the trustee and the managing owner will not be liable for their good faith reliance on the provisions of the trust agreement, and (ii) the trustee’s and the managing owner’s duties and liabilities may be expanded or restricted by the express provisions of the trust agreement. The managing owner may not contract away its fiduciary obligations.

 

Legal Proceedings

 

Neither the managing owner nor Wakefield are involved in, nor have they been involved in the past with, any legal proceedings.

 

Managing Owner’s Commitments

 

Minimum Purchase Commitment

 

As described above under “The Managing Owner—Managing Owner Participation in Trust Income and Losses,” so long as the managing owner is acting as the managing owner of the trust, it is required to maintain at least a 1% interest with respect to the publicly registered units of the trust and in return will receive General Units of each series in which the managing owner invests such funds. The managing owner’s investment may be in only one series, or divided into various series in any proportion, at the managing owner’s discretion. In no event shall such contribution be less than that required by the NASAA Guidelines. The General Units may only be purchased by the managing owner and may be subject to no advisory fees or advisory fees at reduced rates. Otherwise, the General Units hold the same rights as the units owned by limited owners. The managing owner will make such purchases as are necessary to effect this requirement. In addition to the General Units the managing owner receives in respect of its minimum purchase commitment, the managing owner may purchase units in any series as a limited owner. See “Plan of Distribution—Offering.” All units purchased by the managing owner are held for investment purposes only and not for resale.

 

As of September 30, 2018, the managing owner owned at least 1% in net asset value of the outstanding units of the trust. Wakefield and its principals own an indirect beneficial interest in the trust through their ownership of the managing owner.

 52

Net Worth Commitment

 

The managing owner’s net worth is in excess of the minimum net worth requirements under the NASAA Guidelines. The managing owner has agreed that so long as the managing owner remains the managing owner of the trust, it will not take or voluntarily permit to be taken any affirmative action to reduce the managing owner’s net worth below any regulation-required amounts.

 

Principals of the Managing Owner and Wakefield

 

The directors and officers of the Managing Owner and Wakefield are as follows:

 

Patrick J. Kane
Chairman and Director, Wakefield Advisors, LLC
Chairman, Chief Financial Officer, Chief Accounting Officer and Managing Member, Frontier Fund Management, LLC

 

Patrick Kane has served as Chairman of Wakefield since co-founding the firm in January 2012. Mr. Kane has been listed with the NFA as a principal and registered with the CFTC as an associated person of Wakefield since January 7, 2013. The firm serves as Investment Advisor to the Wakefield family of mutual funds sponsored and launched on the Wakefield Alternative Series Trust platform which is registered under the Investment Company Act of 1940, as amended, and organized as a Delaware statutory trust. Mr. Kane was appointed as the Chief Financial Officer and Chief Accounting Officer of the Managing Owner, effective January 31, 2018. Prior to co-founding the adviser, Mr. Kane was the head of alternative investments at Oppenheimer Asset Management until June 2011, overseeing approximately $3 billion in hedge funds and private equity investments. Mr. Kane joined Oppenheimer in 2001 as a senior member of the fund of hedge funds team. Mr. Kane has worked in the alternative investments industry since 1989. Prior to joining Oppenheimer in 2001, Mr. Kane worked for Dunbar Capital Management, a boutique fund of funds manager. Mr. Kane previously worked for Brandywine Asset Management, an alternative investment firm in Thornton, PA. At Brandywine, he was the Director of Trading, responsible for all trading on the managed futures and statistical arbitrage market-neutral equity hedge funds. Before that, he worked for Tricon Investments, an energy focused hedge fund, based in Somerset, NJ. Mr. Kane is also a member of the investment subcommittee that serves the University of Scranton endowment. Mr. Kane holds a Bachelor of Science in Accounting from the University of Scranton.

 

Patrick F. Hart III
Chief Executive Officer, President, Director and Managing Member, Wakefield Advisors, LLC
Chief Executive Officer, Frontier Fund Management, LLC

 

Patrick F. Hart III co-founded and is President and Chief Executive Officer of Wakefield where he has been listed with the NFA as a principal and registered with the CFTC as an associated person since December 4, 2012 and January 7, 2013 respectively. He also serves as the firm’s Chief Compliance Officer. Mr. Hart has been involved in the alternative investment industry for over thirty years, having specialized in the design, implementation and management of structured hedge fund and managed futures products for private and institutional clients worldwide. Mr. Hart is also the Chief Executive Officer and President of Three Palms, LLC (est. June 2003) which provides consulting services. Further, he is founder, Chief Executive Officer and Managing Partner of Hart Financial Group, LLC, a registered commodity pool operator, where he has been registered with the CFTC as an associated person and listed with the NFA as a principal since August 26, 1998.

 

Previous affiliations of Mr. Hart include PyxisGFS, which he co-founded in October 2010. Pyxis provided administration, accounting and reporting services to alternative investment managers and funds. Northfield Trading, LP where he was listed with the NFA as a principal and registered with the CFTC as an associated person of the trading advisor from March 22, 2007 to December 31, 2014. From June 5, 2009 through October 5, 2013 Mr. Hart was listed with the NFA as a principal, and from July 21, 2009 through October 5, 2013 he was registered with the CFTC as an associated person, with the trading advisory firm Strategic Capital Management, LLC. At the same firm’s affiliated commodity pool operator, Strategic Fund Management, he was listed with the NFA as a principal from July 6, 2009 through May 20, 2013 and registered with the CFTC as an associated person from August 11, 2009 through May 20, 2013. Mr. Hart was also listed with the NFA as a principal of the commodity trading advisor, Seven Trust Global Advisors, LLC, from January 17, 2008 to March 18, 2011 and registered with the CFTC as an associated person from April 3, 2007 through March 18, 2011. At the same firm’s affiliated commodity pool operator, CTP Fund Management, LLC, he was listed with the NFA as a principal from January 17, 2008 to June 17, 2011 and registered with the CFTC as an associated person from April 3, 2008 through June 17, 2011.

 

Mr. Hart served nine years on the Introducing Broker Advisory Committee of the National Futures Association, or NFA. Additionally, he has served periodically on the NFA Arbitration and Nominating Committees since 1988. Mr. Hart has been a frequent guest speaker at international conferences and symposiums on the topic of alternative investment strategies. Moreover, Mr. Hart has contributed to numerous articles in leading investment publications and is a contributing author to the “Handbook of Managed Futures—Performance, Evaluation and Analysis” (McGraw-Hill 1997). Mr. Hart received a B.S. in Economics from Colorado State University in 1983. Mr.

 53

Hart is registered with Foreside Fund Services, LLC which is not affiliated with Wakefield or its affiliates. He holds FINRA Series 7, 63, and the CFTC/NFA Series 3 registrations.

 

Michael B. Egan II
Executive Vice-President, Wakefield Advisors, LLC
Secretary, Frontier Fund Management, LLC

 

Michael B. Egan II has served as Executive Vice President of Wakefield since its founding in 2012 and has been listed with the NFA as a principal since October 4, 2018 and registered with the CFTC as an associated person since October 27, 2017. Mr. Egan brings more than 26 years of alternative investment experience with a focus on commodity trading advisor research and multi-advisor portfolio construction. As a member of Wakefield’s portfolio management team, Mr. Egan is involved in day-to-day portfolio and risk management for all of Wakefield’s funds’ offerings as well as the development and structuring of new products. In addition, Mr. Egan has also served as Research Director of Three Palms, LLC since its founding in June 2003. He also serves as President of Hart Financial Group, LLC, a registered Commodity Pool Operator, where he has been listed with the NFA as a principal since April 29, 2015 and registered with the CFTC as an associated person since May 17, 2006. Mr. Egan was also registered with the CFTC as an associated person of the Commodity Trading Advisor Seven Trust Global Advisors, LLC from July 8, 2008 through March 18, 2011. From January 1991 through April 2009, Mr. Egan was the Director of Research for Hart Asset Management Group, Inc. (formerly Hart-Bornhoft Group, Inc.), a registered Commodity Pool Operator and Commodity Trading Advisor and was listed with the NFA as a principal from December 16, 1998 through April 8, 2009. Mr. Egan received a Bachelor of Science degree in Finance from Colorado State University in 1990 and he is licensed with the NFA and CFTC and holds a Series 3 certification.

 

Wakefield Holdings, LLC

 

Wakefield Holdings, LLC has been listed with the NFA as a principal of Wakefield since February 2014.

 54

GEMINI ALTERNATIVE FUNDS

 

Gemini Alternative Funds, LLC was formed on August 28, 2013 and is a Nebraska Limited Liability Company. Gemini is located at 209 W. Jackson Boulevard, #804, Chicago, IL 60606, and is a National Futures Association (“NFA”) member and is registered with the Commodity Futures Trading Commission (“CFTC”) as a commodity pool operator and a commodity trading advisor under NFA identification #0467333 with an effective date of registration of October 24, 2013.

 

Principals of Gemini

 

The managers and officers of Gemini are as follows:

 

Victoria L. Adams – Ms. Adams joined Gemini in October 2013 and is the Director of Alternative Funds Operations and Chief Compliance Officer. In those capacities, she reports directly to Mr. David Young. Ms. Adams has been listed with the NFA as a principal of Gemini since February 21, 2014. Prior to that, she was the Chief of Staff and Chief Compliance Officer at AlphaMetrix Group, LLC, the parent company of now-defunct commodity asset manager and managed account platform AlphaMetrix, LLC, from December 2010 through September 2013, where she led the human resources function and managed the legal and compliance department.

 

Alexander Gonzalez – Mr. Gonzalez joined Gemini Alternative Funds, LLC in July 2018 as its Director of Finance and Accounting. Mr. Gonzalez has been listed as a NFA principal of Gemini since October 3, 2018. Prior to his role with Gemini, Mr. Gonzalez was the Chief Financial Officer at Chicago Equity Partners, LLC from July 2014 through November 2016. From January 2012 to July 2014, Mr. Gonzalez was the Director of Accounting at Emil van Essen, LLC, a Chicago based Commodity Trading Advisor. Prior to that he was a Controller for Gladius Investment Group from July 2011 through January 2012. Mr. Gonzales was a Senior Manager at AlphaMetrix360, LLC, the administration subsidiary of AlphaMetrix Group, LLC from August 2007 to August 2011. Mr. Gonzalez was a Deputy Manager, Financial Accounting at Custom House Fund Services (Ireland) Ltd. from May 2005 to August 2007. Mr. Gonzalez holds a Bachelor’s Degree from Loyola University, A Masters in Accounting from De Paul University and completed his MBA from the University of Chicago Booth School of Business in 2018.

 

William J. Strait – Mr. Strait has been a member of Gemini’s board of managers since April 2018 and has been listed as a NFA principal of Gemini since May 9, 2018. Mr. Strait has served as Secretary and General Counsel of Gemini since May 2014. Gemini is a wholly-owned subsidiary of NorthStar Financial Services Group, LLC (“NorthStar”), and Mr. Strait holds various officer positions with other NorthStar subsidiaries (each a sister company to Gemini) as follows: (i) April 2018 to present: President and Secretary of Northern Lights Distributors, LLC; Secretary of Gemini Fund Services, LLC; Secretary and General Counsel of Northern Lights Compliance Services, LLC and Blu Giant, LLC; and an investment adviser representative of CLS Investments, LLC; (ii) May 2014 to present: General Counsel of Gemini Fund Services, LLC and Northern Lights Distributors, LLC; and Secretary and General Counsel of Gemini Hedge Fund Services, LLC; and (iii) October 2012 to April 2018: attorney for both CLS Investments, LLC and NorthStar. In his role as President of Northern Lights Distributors, LLC, Mr. Strait is responsible for management of the day to day operations of that company. In his role as General Counsel for the various NorthStar subsidiaries, Mr. Strait manages the legal department and has general oversight responsibility with respect to all legal matters pertaining to those companies. In his role as Secretary for the various NorthStar subsidiaries, Mr. Strait is responsible for taking minutes at all board of manager’ meetings and for maintaining the companies’ board books. Northern Lights Distributors, LLC is a registered broker-dealer and FINRA member, principally engaged in the business of providing distribution services to the registered investment company clients of Gemini Fund Services, LLC. Northern Lights Compliance Services, LLC provides the registered investment company clients of Gemini Fund Services, LLC with chief compliance officer services. Blu Giant, LLC is a financial printer, which services the financial printing EDGAR filing needs of Gemini Fund Services, LLC’s registered investment company clients. CLS Investments, LLC, is a registered investment adviser and is in the business of providing investment advice to its clientele. Prior to joining the NorthStar organization, Mr. Strait was employed from June 1998 to October 2012 by Scudder Law Firm, P.C., L.L.O. as an attorney and partner. Mr. Strait holds Series 7, Series 24, and Series 65 designations.

 

David J. Young – Mr. Young joined Gemini in August 2013 as its President and has been listed with the NFA as a principal since October 4, 2013 and registered with the CFTC as an associated person of Gemini since October 24, 2013. He became a member of Gemini’s board of managers in April 2018. Mr. Young holds a Series 3 and Series 34 designation. Mr. Young previously held the position of Chief Operations Officer at AlphaMetrix Group, LLC, the parent company of now-defunct commodity asset manager and managed account platform AlphaMetrix, LLC, where he oversaw the operations of AlphaMetrix360, LLC, an affiliate of AlphaMetrix Group, LLC from March 2010 through August 2013.

 

M. Daniel Applegarth – Mr. Applegarth has been a member of Gemini’s board of managers since April 2018 and has been listed with the NFA as a principal since May 18, 2018. Mr. Applegarth joined NorthStar as it Controller in October 2006 and was promoted to Chief Financial Officer in January 2010. In January 2007, he also became a financial and operations principal with Gemini’s sister company, Northern Lights Distributors, LLC.

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Kevin J. HesselbirgMr. Hesselbirg has been a member of Gemini’s board of managers since April 2018 and has been listed with the NFA as a principal since May 10, 2018. Since April 2017, he has served as Chief Executive Officer of Gemini’s sister company, Gemini Fund Services, LLC. He served as the Chief Executive Officer of Gemini’s sister company, Gemini Hedge Fund Services, LLC, from April 2017 until his resignation from the position in April 2018. Prior to joining Gemini, Mr. Hesselbirg was self-employed as a consultant from January 2016 until March 2017. From February 2013 until December 2015, he served as Chief Executive Officer of Primatics Financial Holdings, Inc., a provider of risk and finance solutions for the banking sector, which was sold in 2016 to SS&C Technologies Holdings, Inc. From May 1999 until December 2012, Mr. Hesselbirg worked for OpenLink Financial, LLC, a software developer of financial, energy and trading and risk management solutions, where he started as Chief Financial Officer and later earned promotions to Chief Operations Officer and Chief Executive Officer.

 

Julie A. LaneMs. Lane has been a member of Gemini’s board of managers since April 2018 and has been listed with the NFA as a principal since May 9, 2018. Ms. Lane joined NorthStar in February 2017 as its Vice President of Human Resources. Since March 2018, she has served as a registered representative of Gemini’s sister company, Northern Lights Distributors, LLC. Prior to joining NorthStar, Ms. Lane served from May 2012 until February 2017 as Director of Human Resources of Cosentry.net, LLC, a management services company that was sold in March 2016 to Tierpoint, LLC, a technology and data center services company. Additionally, Ms. Lane served from December 2011 until April 2012 as Vice President of Human Resources of Consumers, Contractors & Carriers Network, LLC d/b/a 3C Network, a now defunct technology and business solutions provider.

 

Michael J. Wagner – Mr. Wagner has been a member of Gemini’s board of managers since April 2018. He has been listed with the NFA as a principal since May 9, 2018. Mr. Wagner has served as President of Gemini’s sister company, Northern Lights Compliance Services, LLC, since April 2006.

 

Kevin E. Wolf – Mr. Wolf has been a member of Gemini’s board of managers since April 2018 and has been listed with the NFA as a principal since May 11, 2018. Mr. Wolf joined Gemini’s sister company, Gemini Fund Services, LLC, in May 2008, serving as Executive Vice President until April 2012 when he was promoted to President.

 

William S. Wostoupal – Mr. Wostoupal has been a member of Gemini’s board of managers since April 2018 and has been listed with the NFA as a principal since May 11, 2018. Since January 2018, he has served as Executive Vice President of National Sales of Gemini’s sister company, Gemini Fund Services, LLC. Previously, he served as Executive Vice President of Sales and Business Development of NorthStar, a position he held from December 2004 until January 2018, and as President of Gemini’s sister company, Northern Lights Distributors, LLC, a position he occupied from March 2013 until March 2018. Additionally, from November 2001 until December 2004, Mr. Wostoupal served as Vice President of Sales of Gemini’s sister company, Orion Advisor Services, LLC.

 

Northstar Financial Services Group, LLC – NorthStar exists to innovate and develop products and services, strengthen our partners, and provide tools and resources to empower investment advisors. With over 900 employees and more than $780 Billion in assets under administration as of June 30, 2018, NorthStar is a holding company for several subsidiaries, including Gemini Fund Services, LLC, an SEC-registered transfer agent and fund administrator; Gemini Hedge Fund Services, LLC, a hedge fund administrator; CLS Investments, LLC, an SEC-registered investment adviser; Orion Advisor Services, LLC, a back-office service bureau and portfolio management system for investment advisors; Northern Lights Compliance Services, LLC, a provider of chief compliance officer services for mutual funds and investment advisers; Northern Lights Distributors, LLC, a FINRA-member mutual fund distributor; and Blu Giant, LLC, a financial printer. NorthStar provides accounting, human resources, marketing, and sales leadership for all its subsidiaries. Northstar has been listed with the NFA as a principal since September 17, 2013.

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TRADING LIMITATIONS, POLICIES AND SWAPS

 

The following limitations and policies are applicable to the trust as a whole and to each series individually to the extent any series is invested in a trading company managed by the managing owner. The managing owner will have no discretion over, or other involvement in, the establishment and implementation of the following limitations and policies in respect of the commodity pools offered through the Galaxy Plus Platform. The application of these limitations and policies will be identical for all series of the trust and each trading advisor. A trading advisor sometimes may be prohibited from taking positions for a series that it would otherwise prefer to acquire because of the need to comply with these limitations and policies. The managing owner will monitor compliance with the trading limitations and policies set forth below, and it may impose such additional restrictions upon the trading activities of any trading advisor (through modification of the limitations and policies) as it, in good faith, deems appropriate and in the best interests of each series, subject to the terms of the applicable advisory agreement. See “Summary of Agreements—Advisory Agreements.”

 

The managing owner will not approve a material change in the following trading limitations and policies for any series without obtaining the prior written approval of limited owners holding units representing at least a majority (over 50%) of the net asset value of such series (excluding units owned by the managing owner and its affiliates). However, without obtaining such approval, the managing owner may impose additional limitations on the trading or investment activities of each series or on the types of instruments in which a trading advisor can invest if the managing owner determines that additional limitations are necessary to assure that 90% of the trust’s income is Qualifying Income or are in the best interests of a series.

 

Trading Limitations

 

No series of the trust will: (i) engage in pyramiding its commodities positions (i.e., use unrealized profits on existing positions to provide margin for the acquisition of additional positions in the same or a related commodity), but may take into account open trading equity on existing positions in determining generally whether to acquire additional commodities positions; (ii) borrow or loan money (except with respect to the deposit on margin (or its equivalent) with respect to the initiation or maintenance of the series’ commodities and swap positions or obtaining lines of credit for the trading of forward currency contracts; provided, however, that each series of the trust is prohibited from incurring any indebtedness on a non-recourse basis); (iii) permit rebates to be received by the managing owner or its affiliates, or permit the managing owner or any affiliate to engage in any reciprocal business arrangements that would circumvent the foregoing prohibition; (iv) permit any trading advisor to share in any portion of the commodity brokerage fees paid by a series of the trust; (v) commingle its assets with the property of another person, except as permitted by law; or (vi) permit the churning of its commodity accounts.

 

The trust, with respect to each series, will conform in all respects to the rules, regulations and guidelines of the markets on which its trades are executed.

 

Trading Policies

 

Subject to the foregoing limitations, each trading advisor has agreed to materially abide by the trading policies of the series of the trust, which currently are as follows:

 

(1)Series’ funds generally will be invested in contracts that are traded in sufficient volume which, at the time such trades are initiated, are reasonably expected to permit entering and liquidating positions.

 

(2)Stop or limit orders may, in a trading advisor’s discretion, be given with respect to initiating or liquidating positions in order to attempt to limit losses or secure profits. If stop or limit orders are used, however, no assurance can be given that the clearing brokers will be able to liquidate a position at a specified stop or limit order price, due to either the volatility of the market or the inability to trade because of market limitations.

 

(3)A trading advisor, on behalf of the applicable trading company, may occasionally make or accept delivery of a commodity including, without limitation, currencies. A trading advisor also may engage in “EFP” transactions (i.e., an exchange of futures for physical transaction, as permitted on the relevant exchange) involving currencies and metals and other commodities. Any trading company that constitutes an “eligible contract participant” (as such term is defined in Section 1(a)(12) of the CE Act) may engage in swaps, including through which it obtains exposure to reference programs or funds managed by commodity trading advisors.

 

(4)A trading advisor may, from time to time, employ trading techniques such as spreads, straddles and conversions.

 

(5)A trading advisor will not initiate open futures or option positions that would result in net long or short positions requiring as margin or premium for outstanding positions in excess of 3.5% to 20% of the notional amount of any contract managed by the trading advisor, or in excess of 20% to 66% of the combined notional amount of all contracts managed by the trading

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 advisor. Under certain market conditions, such as where there is an inability to liquidate open commodities positions because of daily price fluctuations, the managing owner may be required to commit margin or pay premiums in excess of the foregoing limits and in such case the managing owner will cause the trading advisor to reduce its open futures and option positions to comply with these limits before initiating new commodities positions.

 

(6)If transactions are effected for a trading company in the forward markets, the only forward markets that will be permitted to be utilized are the interbank foreign currency markets and the London Metal Exchange. The utilization of other forward markets requires the consent of the managing owner.

 

Swaps

 

In addition to the allocations to the trading advisors, certain series of the trust will strategically invest a portion or all of their assets in total return swaps and other derivative contracts and instruments selected at the direction of the managing owner. In particular, the trust will invest in dbSelect. dbSelect is an investment platform offered by Deutsche Bank AG for accessing liquid alternative strategies, including managed futures, currency, global macro, volatility arbitrage and commodity strategies. With more than 100 programs to choose from, daily liquidity and a highly efficient cost structure, dbSelect has attracted $3.8 billion in assets under management from pension funds, fund of funds, private banks, insurance companies and others. The platform’s managed accounts are only notionally funded providing the flexibility for investors to post varying amounts of cash collateral to achieve a given level of exposure to programs offered by commodity trading advisors. Investments in the platform are made through collateralized total return swaps.

 

Certain series of the trust will strategically invest a portion or all of their assets in total return swaps, selected at the direction of the managing owner. Total return swaps are privately negotiated contracts designed to provide investment returns linked to those produced by one or more investment products or indices. The managing owner is responsible for the construction of each index as the index manager. In a typical total return swap, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on one or more particular predetermined investments, indices or instruments. The gross returns to be exchanged or “swapped” between the parties are calculated with respect to a “notional amount” (i.e., the amount or value of the underlying asset used in computing the particular interest rate, return, or other amount to be exchanged) in a particular investment, index, or in a “basket” of securities.

 

Each series’ investment in swaps will likely differ substantially over time due to cash flows, portfolio management decisions and market movements. The swaps serve to diversify the investment holdings of each series and to provide access to programs and advisors that would not be otherwise available to the series, and are not used for hedging purposes.

 

Each total return swap is entered into pursuant to an International Swaps and Derivatives Association, Inc. Master Agreement (“ISDA Master Agreement”) between Deutsche Bank AG and the related trading company and the managing owner. The ISDA Master Agreement maintains provisions for general obligations, representations, agreements, collateral and events of default or termination. Events of termination include conditions that may entitle counterparties to elect to terminate early and cause settlement of all outstanding transactions under the applicable ISDA Master Agreement. Any election to early terminate could be material to the financial statements.

 

Each ISDA Master Agreement and their related confirmations have termination dates between August 2, 2023 and August 8, 2023. Additionally, each swap has a management fee that is paid to Deutsche Bank AG between 0.35% and 0.50% of the swap’s notional value that is in addition to the management fee that is paid to any commodity trading advisor referenced in the swap.

 

The trading companies are required to maintain a collateral deposit for the benefit of Deutsche Bank AG in amounts ranging from 10% to 20% of the swap’s notional value pursuant to provisions of the ISDA Master Agreement and related confirmations.

 

As of June 30, 2018, approximately 10.8% of the trust’s assets were deposited with over-the-counter counterparties to initiate and maintain swaps and is recorded as collateral within the swap fair value within the Statements of Financial Condition.

 

A reference index is created by Deutsche Bank AG, acting through its London branch, which acts as the index sponsor and index administrator. The managing owner, under a contract with the index sponsor, acts as the index manager and as such, constructs the index composition and the weighting of trading allocations to each commodity trading advisor’s program based on the managing owner’s investment goals and strategies. The index administrator controls the operation of the index administrative process including all stages and processes involved in the production and dissemination of the index. The index manager provides the index sponsor with the initial index composition and the weightings of trading allocations to each commodity trading advisor’s program based on the managing owner’s investment goals and strategies, taking into account such factors as (i) the participating shares in a reference share class, (ii) notional cash holdings and (iii) any unallocated notional position in such index. The index weightings may be adjusted at the direction of the index manager. Neither Deutsche Bank AG nor the trading advisors exercise discretion in connection with construction and rebalancing of the indices. The index administrator calculates position value and each index closing level is calculated in relation to each index business day generally as the sum of cash holdings and the index profit amount (calculated using change in the index closing levels as well as change in cash and notional amounts).

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The managing owner follows a procedure in selecting well-established financial institutions which the managing owner, in its sole discretion, considers to be reputable, reliable, financially responsible and well established to act as swap counterparties. The procedure includes due diligence review of documentation on all new and existing financial institution counterparties prior to initiation of the relationship, and quarterly ongoing review during the relationship, to ensure that counterparties meet the managing owner’s minimum credit requirements, the counterparty average rating being no less than an investment grade rating as defined by the rating agencies.

 

The series may strategically invest assets in one or more swaps linked to certain underlying investments or indices at the direction of the managing owner. The trading company in which the assets of these series will be invested will not own any of the investments or indices referenced by any swap entered into by these series. In addition, neither the swap counterparty to the trading company of these series nor any advisor referenced by any such swap is a trading advisor to these series.

 

The index is linked to the performance of certain Transactions (as defined below) which are over the counter foreign exchange and currency option transactions (each an “OTC FX Transaction”) and exchange traded futures and options in relation to, without limitation, any commodity, metal, financial instrument, currency, interest rate or index traded on certain exchanges (each an “On-Exchange Transaction” and, together with OTC FX Transactions, each a “Transaction”) in each case selected by an commodity trading advisor.

 

The Transactions will be undertaken by a number of segregated portfolios maintained by affiliates of Deutsche Bank AG, the index sponsor. The index sponsor, through the affiliates, will issue a different class of participating shares in relation to each segregated portfolio. A share value will be calculated and reflect the performance of the relevant Transactions in each segregated portfolio.

 

Each Transaction is undertaken solely by the relevant commodity trading advisor on behalf of a segregated portfolio, in each case following a strategy (the “Strategy”) determined solely by the commodity trading advisor. If the Transactions in a segregated portfolio perform well and increase in value, this will have a positive effect on the share value in relation to that segregated portfolio, or, if they perform badly, a negative effect. The share values of the different segregated portfolios are reflected in the calculation of the index.

 

The index is “notional” in nature. This means that the index sponsor is not obliged to hold participating shares in order to calculate the index. The index needs merely to reflect the value of the shares of the segregated portfolio. An index closing level is calculated in relation to each index business day by the index sponsor.

 

Swap Overview

 

Swaps are privately negotiated contracts designed to provide investment returns linked to those produced by one or more investment products or indices. In a typical swap, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on one or more particular predetermined investments or instruments. The gross returns to be exchanged or “swapped” between the parties are calculated with respect to a “notional amount” (i.e., the amount or value of the underlying asset used in computing the particular interest rate, return, or other amount to be exchanged) in a particular investment, or in a “basket” of commodities or other investments representing a particular index. Swaps may also be structured like call options. Each series’ investment in swaps will likely differ substantially over time due to cash flows, portfolio management decisions and market movements.

 

Swap Counterparties

 

The managing owner follows a procedure in selecting well-established financial institutions which the managing owner, in its sole discretion, considers to be reputable, reliable, financially responsible and well established, to act as swap counterparties. The managing owner selects swap counterparties on the basis of the quantitative and qualitative selection criteria established by the managing owner from time to time in its sole discretion. The managing owner evaluates prospective swap counterparties pursuant to the following factors:

 

its reputation, experience and policies;

 

the stability of its business structure and operations;

 

the experience and integrity of its professionals;

 

the quality of its risk management procedures and internal controls;

 

how its business strategy relates to the strategies of the relevant series;

 

the swap terms and conditions that it offers;

 

its ability to provide timely and accurate reporting; and

 

such other evaluations and analyses as the managing owner may deem appropriate.

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Generally, the managing owner will enter into swaps with financial institutions that have, or whose swap obligations are guaranteed by a parent company that has, a minimum long-term unsecured debt rating of BBB+ from Standard & Poor’s Corporation and Baa1 from Moody’s Investors Services, Inc. at the time of the establishment of the swap counterparty relationship.

 

Neither the trust nor any series is sponsored, endorsed, sold or promoted by any existing or future swap counterparty. In addition, no swap counterparty acts or will act as a trading advisor to any series of the trust. This prospectus has not been reviewed or approved by any existing or prospective swap counterparty.

 

Swap Documentation; Swap Risks

 

The documentation for each swap will be based upon the standard form ISDA Master Agreement (Multicurrency—Cross Border) and Credit Support Annex, with mutually agreed changes. A trading company which invests in swaps on behalf of a series may pledge a portion of such series’ assets to the swap counterparty as margin to secure the trading company’s obligations under the swap. The swap counterparty will have the right to deal with the pledged funds in any manner it chooses subject only to such trading company’s right of repayment upon, among other things, fulfillment of all of its obligations under the swap. The pledged funds may, but are not guaranteed to, bear interest.

 

Each swap generally will have a termination date of no more than five years from the date the swap is entered into, or the termination date. Upon the termination date, the trading company in which the assets of such series are invested may enter into a new swap. Each swap may be terminated by the swap counterparty prior to the termination date in certain circumstances, including (i) a failure of the trading company to pay under any swap (including a failure to pay margin) or certain other breaches on the part of such trading company, (ii) the occurrence of certain events of bankruptcy, insolvency or dissolution in relation to such trading company or (iii) changes to applicable law which have the effect of subjecting the swap counterparty to material loss due to the characterization of any payments under the swap, or of imposing or adversely modifying any material reserve, special deposit or similar requirement against assets or hedges incidental to the swap, or materially adversely affecting the amount of capital or increasing the amount of regulatory capital required in connection with the swap.

 

Payment upon the early termination of a swap in the event of a default by a trading company or upon an early termination event affecting a trading company could result in significant losses to the trading company in which the assets of such series will be invested.

 

Series which enter into swaps also face the risk of non-performance by a swap counterparty. Counterparties to swaps are generally a single bank or other financial institution rather than a clearing organization backed by a group of financial institutions. As a result, swap counterparty credit risk may result in significant losses.

 

Credit Default Swaps.

 

A credit default swap enables an investor to buy or sell protection against a credit event with respect to an issuer, such as an issuer’s failure to make timely payments of interest or principal on its debt obligations, bankruptcy or restructuring. The terms of the instrument are generally negotiated by the trust and the swap counterparty. A credit default swap may be embedded within a structured note or other derivative instrument.

 

Generally, if the trust buys credit protection using a credit default swap, the trust will make fixed payments to the counterparty and if a credit event occurs with respect to the applicable issuer, the trust will deliver the issuer’s defaulted bonds underlying the swap to the swap counterparty and the counterparty will pay the trust par for the bonds. If the trust sells credit protection using a credit default swap, generally the trust will receive fixed payments from the counterparty and if a credit event occurs with respect to the applicable issuer, the trust will pay the swap counterparty par for the issuer’s defaulted bonds and the swap counterparty will deliver the bonds to the trust. Alternatively, a credit default swap may be cash settled and the buyer of protection would receive the difference between the par value and the market value of the issuer’s defaulted bonds from the seller of protection. If the credit default swap is on a basket of issuers, the notional value of the swap is reduced by the amount represented by that issuer, and the fixed payments are then made on the reduced notional value.

 

Risks of Credit Default Swaps.

 

Credit default swaps are subject to credit risk of the underlying issuer and to counterparty credit risk. If the counterparty fails to meet its obligations, the trust may lose money. Credit default swaps are also subject to the risk that the trust will not properly assess the risk of the underlying issuer. If the trust is selling credit protection, there is a risk that a credit event will occur and that the trust will have to pay the counterparty. If the trust is buying credit protection, there is a risk that no credit event will occur and the trust will receive no benefit for the premium paid.

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THE TRUST AND ITS SERIES ARE NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY, AND NONE OF THE INFORMATION PRESENTED IN THIS PROSPECTUS HAS BEEN REVIEWED OR APPROVED BY, ANY SWAP COUNTERPARTY. INVESTORS IN ANY SERIES WHICH INVESTS IN SWAPS ARE NOT A PARTY TO, AND DO NOT HAVE ANY RIGHTS WITH RESPECT TO, SUCH SWAPS.

 

THE CLEARING BROKERS

 

Morgan Stanley & Co. LLC has entered into a futures brokerage agreement with Frontier Trading Company I LLC for the Frontier Diversified Fund. The managing owner, acting as agent for the trading companies in which the Frontier Diversified Fund, Frontier Long/Short Commodity Fund, and Frontier Masters Fund invests, has entered into foreign exchange prime brokerage agreements, or FX Prime Brokerage Agreement, with Deutsche Bank. The futures brokerage agreement and the FX Prime Brokerage Agreements are sometimes collectively referred to in this prospectus as the brokerage agreements. The managing owner, in its sole and absolute discretion, may add or replace clearing brokers for each trading company. The actual amount of trading conducted by the trading companies through each clearing broker is determined periodically by the managing owner taking into account such factors as (i) “best execution” of transactions, (ii) historical net prices (after markups, markdowns or other transaction-related compensation) on other transactions, (iii) the execution, clearance and settlement and error-correction capabilities of the clearing broker generally and in connection with securities or financial instruments of the types and in the amounts to be bought or sold, (iv) the clearing broker’s willingness to commit capital, (v) the clearing broker’s reliability and financial stability, (vi) the size of the transaction, (vii) availability of securities to borrow for short sales and (viii) the market for the security or financial instrument. At any given time, it is possible that certain clearing brokers are providing brokerage services for some, all, or none of the trading companies.

 

Deutsche Bank

 

Deutsche Bank AG, London Branch is the London branch of Deutsche Bank Aktiengesellschaft (Deutsche Bank AG). Deutsche Bank AG is a stock corporation organized under the laws of the Federal Republic of Germany.

 

Deutsche Bank AG is the parent company of a group consisting of banks, capital market companies, fund management companies, a property finance company, installment financing companies, research and consultancy companies and other German and non-German companies. Deutsche Bank AG offers a wide variety of investment, financial and related products and services to private individuals, corporate entities and institutional clients around the world.

 

Regulatory and Governmental Matters.

 

CFTC Case 15-40: On September 30, 2015, the CFTC issued an Order filing and simultaneously settling charges against Deutsche Bank AG, a global banking and financial services company and provisionally registered swap dealer, for failing to properly report its swaps transactions from in or about January 2013 until July 2015. The CFTC Order also finds that Deutsche Bank AG did not diligently address and correct the reporting errors until Deutsche Bank AG was notified of the CFTC’s investigation, and failed to have an adequate swaps supervisory system governing its swaps reporting requirements. The Order required Deutsche Bank AG to pay a $2.5 million civil monetary penalty and comply with undertakings to improve its internal controls to ensure the accuracy and integrity of its swaps reporting.

 

CFTC Case 18-06: On January 29, 2018, the CFTC issued an Order filing and simultaneously settling charges against Deutsche Bank AG and Deutsche Bank Securities Inc. (collectively, “DB”), requiring DB to pay a $30 million civil monetary penalty and to undertake remedial relief. The Order finds that from at least February 2008 and continuing through at least September 2014, Deutsche Bank AG, by and through certain precious metals traders, engaged in a scheme to manipulate the price of precious metals futures contracts by utilizing a variety of manual spoofing techniques with respect to precious metals futures contracts traded on the Commodity Exchange, Inc., and by trading in a manner to trigger customer stop-loss orders.

 

The Company

 

Reference is made to the Annual Report on Form 20-F for additional information and financial statements relating to Deutsche Bank AG.

 

Morgan Stanley & Co. LLC

 

On June 1, 2011, Morgan Stanley & Co. Incorporated converted from a Delaware corporation to a Delaware limited liability company. As a result of that conversion, Morgan Stanley & Co. Incorporated is now named Morgan Stanley & Co. LLC (“MS&Co.” or the “Company”).

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MS&Co. is a wholly-owned, indirect subsidiary of Morgan Stanley, a Delaware holding company. Morgan Stanley files periodic reports with the SEC as required by the Securities Exchange Act of 1934, which include current descriptions of material litigation and material proceedings and investigations, if any, by governmental and/or regulatory agencies or self-regulatory organizations concerning Morgan Stanley and its subsidiaries, including MS&Co. As a consolidated subsidiary of Morgan Stanley, MS&Co. does not file its own periodic reports with the SEC that contain descriptions of material litigation, proceedings and investigations. As a result, we refer you to the “Legal Proceedings” section of Morgan Stanley’s SEC 10-K filings for 2017, 2016, 2015, 2014 and 2013.

 

In addition to the matters described in those filings, in the normal course of business, each of Morgan Stanley and MS&Co. has been named, from time to time, as a defendant in various legal actions, including arbitrations, class actions, and other litigation, arising in connection with its activities as a global diversified financial services institution. Certain of the legal actions include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. Each of Morgan Stanley and MS&Co. is also involved, from time to time, in investigations and proceedings by governmental and/or regulatory agencies or self-regulatory organizations, certain of which may result in adverse judgments, fines or penalties. The number of these investigations and proceedings has increased in recent years with regard to many financial services institutions, including Morgan Stanley and MS&Co.

 

MS&Co. is a Delaware limited liability company with its main business office located at 1585 Broadway, New York, New York 10036. Among other registrations and memberships, MS&Co. is registered as a futures commission merchant and is a member of the National Futures Association.

 

Regulatory and Governmental Matters.

 

The Company has received subpoenas and requests for information from certain federal and state regulatory and governmental entities, including among others various members of the RMBS Working Group of the Financial Fraud Enforcement Task Force, such as the United States Department of Justice, Civil Division and several state Attorney General’s Offices, concerning the origination, financing, purchase, securitization and servicing of subprime and non-subprime residential mortgages and related matters such as residential mortgage backed securities (“RMBS”), collateralized debt obligations (“CDOs”), structured investment vehicles (“SIVs”) and credit default swaps backed by or referencing mortgage pass-through certificates. These matters, some of which are in advanced stages, include, but are not limited to, investigations related to the Company’s due diligence on the loans that it purchased for securitization, the Company’s communications with ratings agencies, the Company’s disclosures to investors, and the Company’s handling of servicing and foreclosure related issues.

 

On February 25, 2015, the Company reached an agreement in principle with the United States Department of Justice, Civil Division and the United States Attorney’s Office for the Northern District of California, Civil Division (collectively, the “Civil Division”) to pay $2.6 billion to resolve certain claims that the Civil Division indicated it intended to bring against the Company. While the Company and the Civil Division have reached an agreement in principle to resolve this matter, there can be no assurance that the Company and the Civil Division will agree on the final documentation of the settlement.

 

In May 2014, the California Attorney General’s Office (“CAAG”), which is one of the members of the RMBS Working Group, indicated that it has made certain preliminary conclusions that the Company made knowing and material misrepresentations regarding RMBS and that it knowingly caused material misrepresentations to be made regarding the Cheyne SIV, which issued securities marketed to the California Public Employees Retirement System. The CAAG has further indicated that it believes the Company’s conduct violated California law and that it may seek treble damages, penalties and injunctive relief. The Company does not agree with these conclusions and has presented defenses to them to the CAAG.

 

On September 16, 2014, the Virginia Attorney General’s Office filed a civil lawsuit, styled Commonwealth of Virginia ex rel. Integra REC LLC v. Barclays Capital Inc., et al., against the Company and several other defendants in the Circuit Court of the City of Richmond related to RMBS. The lawsuit alleges that the Company and the other defendants knowingly made misrepresentations and omissions related to the loans backing RMBS purchased by the Virginia Retirement System (“VRS”). The complaint alleges VRS suffered total losses of approximately $384 million on these securities, but does not specify the amount of alleged losses attributable to RMBS sponsored or underwritten by the Company. The complaint asserts claims under the Virginia Fraud Against Taxpayers Act, as well as common law claims of actual and constructive fraud, and seeks, among other things, treble damages and civil penalties. On January 20, 2015, the defendants filed a demurrer to the complaint and a plea in bar seeking dismissal of the complaint.

 

In October 2014, the Illinois Attorney General’s Office (“IL AG”) sent a letter to the Company alleging that the Company knowingly made misrepresentations related to RMBS purchased by certain pension funds affiliated with the State of Illinois and demanding that the Company pay the IL AG approximately $88 million. The Company does not agree with these allegations and has presented defenses to them to the IL AG.

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On January 13, 2015, the NYAG, which is also a member of the RMBS Working Group, indicated that it intends to file a lawsuit related to approximately 30 subprime securitizations sponsored by the Company. NYAG indicated that the lawsuit would allege that the Company misrepresented or omitted material information related to the due diligence, underwriting and valuation of the loans in the securitizations and the properties securing them and indicated that its lawsuit would be brought under the Martin Act. The Company does not agree with NYAG’s allegations and has presented defenses to them to NYAG.

 

On June 5, 2012, the Company consented to and became the subject of an Order Instituting Proceedings Pursuant to Sections 6(c) and 6(d) of the CE Act, as amended, Making Findings and Imposing Remedial Sanctions by the CFTC to resolve allegations related to the failure of a salesperson to comply with exchange rules that prohibit off-exchange futures transactions unless there is an Exchange for Related Position (“EFRP”). Specifically, the CFTC found that from April 2008 through October 2009, the Company violated Section 4c(a) of the CE Act and CFTC Regulation 1.38 by executing, processing and reporting numerous off-exchange futures trades to the Chicago Mercantile Exchange (“CME”) and Chicago Board of Trade (“CBOT”) as EFRPs in violation of CME and CBOT rules because those trades lacked the corresponding and related cash, OTC swap, OTC option, or other OTC derivative position. In addition, the CFTC found that the Company violated CFTC Regulation 166.3 by failing to supervise the handling of the trades at issue and failing to have adequate policies and procedures designed to detect and deter the violations of the Act and Regulations. Without admitting or denying the underlying allegations and without adjudication of any issue of law or fact, the Company accepted and consented to entry of findings and the imposition of a cease and desist order, a fine of $5,000,000, and undertakings related to public statements, cooperation and payment of the fine. The Company entered into corresponding and related settlements with the CME and CBOT in which the CME found that the Company violated CME Rules 432.Q and 538 and fined the Company $750,000 and CBOT found that the Company violated CBOT Rules 432.Q and 538 and fined the Company $1,000,000.

 

On July 23, 2014, the SEC approved a settlement by MS&Co. and certain affiliates to resolve an investigation related to certain subprime RMBS transactions sponsored and underwritten by those entities in 2007. Pursuant to the settlement, MS&Co. and certain affiliates were charged with violating Sections 17(a)(2) and 17(a)(3) of the Securities Act, agreed to pay disgorgement and penalties in an amount of $275 million and neither admitted nor denied the SEC’s findings.

 

On April 21, 2015, the Chicago Board Options Exchange, Incorporated (CBOE) and the CBOE Futures Exchange, LLC (CFE) filed statements of charges against the Company in connection with trading by one of the Company’s former traders of EEM options contracts that allegedly disrupted the final settlement price of the November 2012 VXEM futures. CBOE alleged that the Company violated CBOE Rules 4.1, 4.2 and 4.7, Sections 9(a) and 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder. CFE alleged that the Company violated CFE Rules 608, 609 and 620. Both matters are ongoing.

 

On June 18, 2015, the Company entered into a settlement with the SEC and paid a fine of $500,000 as part of the MCDC Initiative to resolve allegations that the Company failed to form a reasonable basis through adequate due diligence for believing the truthfulness of the assertions by issuers and/or obligors regarding their compliance with previous continuing disclosure undertakings pursuant to Rule 15c2-12 in connection with offerings in which the Company acted as senior or sole underwriter.

 

On August 6, 2015, the Company consented to and became the subject of an order by the CFTC to resolve allegations that the Company violated CFTC Regulation 22.9(a) by failing to hold sufficient US Dollars in cleared swap segregated accounts in the United States to meet all US Dollar obligations to cleared swaps customers. Specifically, the CFTC found that while the Company at all times held sufficient funds in segregation to cover its obligations to its customers, on certain days during 2013 and 2014, it held currencies, such as euros, instead of US dollars, to meet its US dollar obligations. In addition, the CFTC found that the Company violated Regulation 166.3 by failing to have in place adequate procedures to ensure that it complied with Regulation 22.9(a). Without admitting or denying the findings or conclusions and without adjudication of any issue of law or fact, the Company accepted and consented to the entry of findings, the imposition of a cease and desist order, a civil monetary penalty of $300,000, and undertakings related to public statements, cooperation, and payment of the monetary penalty.

 

The Company is responding to a number of regulatory and governmental inquiries both in the U.S. and abroad related to its foreign exchange business. In addition, on June 29, 2015, the Company and a number of other financial institutions were named as respondents in a proceeding before Brazil’s Council for Economic Defense related to alleged anticompetitive activity in the foreign exchange market for the Brazilian Real. On June 13, 2018, the Firm entered into an agreement to settle a proceeding before Brazil’s Council for Economic Defense related to alleged anticompetitive activity in the foreign exchange market related to the Brazilian Real.

 

The Company, as well as other foreign exchange dealers, are defendants in In Re Foreign Exchange Benchmark Rates Antitrust Litigation, pending in the SDNY. On July 16, 2015, plaintiffs filed an amended complaint generally alleging that defendants engaged in a conspiracy to fix, maintain or make artificial prices for key benchmark rates, to manipulate bid/ask spreads, and, by their behavior in the over-the-counter market, to thereby cause corresponding manipulation in the foreign exchange futures market. Plaintiffs seek declaratory relief as well as treble damages in an unspecified amount. On December 16, 2016, the Company and plaintiffs reached an agreement in principle to settle the litigation with respect to the Company. After it is finalized by the parties, the settlement will be subject to court approval.

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CFTC Case 17-28: On September 28, 2017, the CFTC issued an Order filing and simultaneously settling charges against MS&Co. for failing to diligently supervise the reconciliation of exchange and clearing fees with the amounts it ultimately charged customers for certain transactions on the CME Group, ICE Futures US, and other exchanges. The Order finds that MS&Co. failed in certain respects to implement and maintain adequate systems and procedures for reconciling exchange and clearing fees from at least 2009 through April 2016. Morgan Stanley & Co. LLC is registered with the CFTC as a Futures Commission Merchant and a provisionally registered Swap Dealer. The CFTC Order required Morgan Stanley & Co. LLC to pay a $500,000 civil monetary penalty and cease and desist from violating the CFTC Regulation governing diligent supervision.

 

Other Litigation

 

On June 26, 2006, the public prosecutor in Parma, Italy brought criminal charges against certain present and former employees of the Company related to the bankruptcy of Parmalat in 2003. The trial commenced in September 2009 and the evidence phase concluded in January 2017. A verdict is expected during the course of 2017. While the Company is not a defendant in the criminal proceeding, certain investors have asserted civil claims against the Company related to the proceedings. These claims seek, among other relief, moral damages and loss of opportunity damages related to their purchase of approximately €327 million in bonds issued by Parmalat. In addition, on October 11, 2011, an Italian financial institution, Banco Popolare Societá Cooperativa (“Banco Popolare”), filed a civil claim against the Company in the Milan courts, styled Banco Popolare Societá Cooperativa v Morgan Stanley & Co. International plc & others (File number 63671/2011), related to its purchase of €100 million of bonds issued by Parmalat. The claim asserted by Banco Popolare alleges, among other things, that the Company was aware of Parmalat’s impending insolvency and conspired with others to deceive Banco Popolare into buying bonds by concealing both Parmalat’s true financial condition and certain features of the bonds from the market and Banco Popolare. Banco Popolare seeks damages of €76 million (approximately $80 million) plus damages for loss of opportunity and moral damages. The Company filed its answer on April 20, 2012, and the hearing on the parties’ final submissions is scheduled for March 20, 2018. On March 20, 2018, the hearing on the parties’ final submissions in Banco Popolare Societá Cooperativa v. Morgan Stanley & Co. International plc & others was adjourned to May 17, 2018. On May 17, 2018, the hearing for the parties’ final submissions was held in the case styled Banco Popolare Societá Cooperativa v. Morgan Stanley & Co. International plc & others.

 

On March 15, 2010, the Federal Home Loan Bank of San Francisco filed two complaints against the Company and other defendants in the Superior Court of the State of California. These actions are styled Federal Home Loan Bank of San Francisco v. Credit Suisse Securities (USA) LLC, et al., and Federal Home Loan Bank of San Francisco v. Deutsche Bank Securities Inc. et al., respectively. Amended complaints filed on June 10, 2010 allege that defendants made untrue statements and material omissions in connection with the sale to plaintiff of a number of mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The amount of certificates allegedly sold to plaintiff by the Company in these cases was approximately $704 million and $276 million, respectively. The complaints raise claims under both the federal securities laws and California law and seek, among other things, to rescind the plaintiff’s purchase of such certificates. On August 11, 2011, plaintiff’s federal securities law claims were dismissed with prejudice. The defendants filed answers to the amended complaints on October 7, 2011. On February 9, 2012, defendants’ demurrers with respect to all other claims were overruled. On December 20, 2013, plaintiff’s negligent misrepresentation claims were dismissed with prejudice. On January 26, 2015, as a result of a settlement with certain other defendants, the plaintiff requested and the court subsequently entered a dismissal with prejudice of certain of the plaintiff’s claims, including all remaining claims against the Company in the Federal Home Loan Bank of San Francisco v. Credit Suisse Securities (USA) LLC, et al. action. On February 18, 2015, the court entered an order setting a number of claims for trial throughout 2016. Claims against the Company have not yet been set for trial. At September 25, 2015, the current unpaid balance of the mortgage pass-through certificates at issue in these cases was approximately $61 million, and the certificates had incurred actual losses of approximately $1 million. Based on currently available information, the Company believes it could incur a loss for this action up to the difference between the $61 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against the Company, or upon sale, plus pre- and post-judgment interest, fees and costs. The Company may be entitled to be indemnified for some of these losses and to an offset for interest received by the plaintiff prior to a judgment.

 

On July 15, 2010, China Development Industrial Bank (“CDIB”) filed a complaint against the Company, styled China Development Industrial Bank v. Morgan Stanley & Co. Incorporated et al., which is pending in the Supreme Court of the State of New York, New York County (“Supreme Court of NY”). The complaint relates to a $275 million credit default swap referencing the super senior portion of the STACK 2006-1 CDO. The complaint asserts claims for common law fraud, fraudulent inducement and fraudulent concealment and alleges that the Company misrepresented the risks of the STACK 2006-1 CDO to CDIB, and that the Company knew that the assets backing the CDO were of poor quality when it entered into the credit default swap with CDIB. The complaint seeks compensatory damages related to the approximately $228 million that CDIB alleges it has already lost under the credit default swap, rescission of CDIB’s obligation to pay an additional $12 million, punitive damages, equitable relief, pre- and post-judgement interest, fees and costs. On February 28, 2011, the court denied the Company’s motion to dismiss the complaint. On June 27, 2018, the Firm in China Development Industrial Bank (“CDIB”) v. Morgan Stanley & Co. Incorporated et al. filed a motion for summary judgment and spoliation sanctions against CDIB.

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On October 15, 2010, the Federal Home Loan Bank of Chicago filed a complaint against the Company and other defendants in the Circuit Court of the State of Illinois, styled Federal Home Loan Bank of Chicago v. Bank of America Funding Corporation et al. A corrected amended complaint was filed on April 8, 2011. The corrected amended complaint alleges that defendants made untrue statements and material omissions in the sale to plaintiff of a number of mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans and asserts claims under Illinois law. The total amount of certificates allegedly sold to plaintiff by the Company at issue in the action was approximately $203 million. The complaint seeks, among other things, to rescind the plaintiff’s purchase of such certificates. The defendants filed a motion to dismiss the corrected amended complaint on May 27, 2011, which was denied on September 19, 2012. On December 13, 2013, the court entered an order dismissing all claims related to one of the securitizations at issue. After that dismissal, the remaining amount of certificates allegedly issued by the Company or sold to plaintiff by the Company was approximately $78 million. At September 25, 2015, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $52 million, and the certificates had not yet incurred actual losses. Based on currently available information, the Company believes it could incur a loss in this action up to the difference between the $52 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against the Company, plus pre- and post-judgment interest, fees and costs. The Company may be entitled to be indemnified for some of these losses and to an offset for interest received by the plaintiff prior to a judgment.

 

On April 20, 2011, the Federal Home Loan Bank of Boston filed a complaint against the Company and other defendants in the Superior Court of the Commonwealth of Massachusetts styled Federal Home Loan Bank of Boston v. Ally Financial, Inc. F/K/A GMAC LLC et al. An amended complaint was filed on June 29, 2012 and alleges that defendants made untrue statements and material omissions in the sale to plaintiff of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly issued by the Company or sold to plaintiff by the Company was approximately $385 million. The amended complaint raises claims under the Massachusetts Uniform Securities Act, the Massachusetts Consumer Protection Act and common law and seeks, among other things, to rescind the plaintiff’s purchase of such certificates. On May 26, 2011, defendants removed the case to the United States District Court for the District of Massachusetts. On October 11, 2012, defendants filed motions to dismiss the amended complaint, which were granted in part and denied in part on September 30, 2013. The defendants filed an answer to the amended complaint on December 16, 2013. Plaintiff has voluntarily dismissed its claims against the Company with respect to two of the securitizations at issue, such that the remaining amount of certificates allegedly issued by the Company or sold to plaintiff by the Company is approximately $358 million. At September 25, 2015, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $56 million, and the certificates had not yet incurred actual losses. Based on currently available information, the Company believes it could incur a loss in this action up to the difference between the $56 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against the Company, or upon sale, plus pre- and post-judgment interest, fees and costs. The Company may be entitled to be indemnified for some of these losses and to an offset for interest received by the plaintiff prior to a judgment.

 

On October 11, 2011, an Italian financial institution, Banco Popolare Societá Cooperativa (“Banco Popolare”), filed a civil claim against the Company in the Milan courts, styled Banco Popolare Societá Cooperativa v Morgan Stanley & Co. International plc & others, related to its purchase of €100 million of bonds issued by Parmalat. The claim asserted by Banco Popolare alleges, among other things, that the Company was aware of Parmalat’s impending insolvency and conspired with others to deceive Banco Popolare into buying bonds by concealing both Parmalat’s true financial condition and certain features of the bonds from the market and Banco Popolare. Banco Popolare seeks damages of €76 million (approximately $91 million) plus damages for loss of opportunity and moral damages. The Company filed its answer on April 20, 2012, and the hearing on the parties’ final submissions is scheduled for March 20, 2018.

 

On April 25, 2012, The Prudential Insurance Company of America and certain affiliates filed a complaint against the Company and certain affiliates in the Superior Court of the State of New Jersey, styled The Prudential Insurance Company of America, et al. v. Morgan Stanley, et al. On October 16, 2012, plaintiffs filed an amended complaint. The amended complaint alleges that defendants made untrue statements and material omissions in connection with the sale to plaintiffs of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly sponsored, underwritten and/or sold by the Company is approximately $1.073 billion. The amended complaint raises claims under the New Jersey Uniform Securities Law, as well as common law claims of negligent misrepresentation, fraud, fraudulent inducement, equitable fraud, aiding and abetting fraud, and violations of the New Jersey RICO statute, and includes a claim for treble damages. On March 15, 2013, the court denied the defendants’ motion to dismiss the amended complaint. On January 2, 2015, the court denied defendants’ renewed motion to dismiss the amended complaint. At September 25, 2015, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $581 million, and the certificates had not yet incurred actual losses. Based on currently available information, the Company believes it could incur a loss in this action up to the difference between the $581 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against the Company, or upon sale, plus pre- and post-judgment interest, fees and costs. The Company may be entitled to be indemnified for some of these losses and to an offset for interest received by the plaintiff prior to a judgment.

 

On August 7, 2012, U.S. Bank, in its capacity as trustee, filed a complaint on behalf of Morgan Stanley Mortgage Loan Trust 2006-4SL and Mortgage Pass-Through Certificates, Series 2006-4SL against the Company styled Morgan Stanley Mortgage Loan Trust

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2006-4SL, et al. v. Morgan Stanley Mortgage Capital Inc., pending in the Supreme Court of NY. The complaint asserts claims for breach of contract and alleges, among other things, that the loans in the trust, which had an original principal balance of approximately $303 million, breached various representations and warranties. The complaint seeks, among other relief, rescission of the mortgage loan purchase agreement underlying the transaction, specific performance and unspecified damages and interest. On August 8, 2014, the court granted in part and denied in part the defendants’ motion to dismiss the complaint. On December 2, 2016, the Company moved for summary judgment and the plaintiffs moved for partial summary judgment.

 

On August 8, 2012, U.S. Bank, in its capacity as trustee, filed a complaint on behalf of Morgan Stanley Mortgage Loan Trust 2006-14SL, Mortgage Pass-Through Certificates, Series 2006-14SL, Morgan Stanley Mortgage Loan Trust 2007-4SL and Mortgage Pass-Through Certificates, Series 2007-4SL against the Company styled Morgan Stanley Mortgage Loan Trust 2006-14SL, et al. v. Morgan Stanley Mortgage Capital Holdings LLC, as successor in interest to Morgan Stanley Mortgage Capital Inc. in the Supreme Court of NY. The complaint asserts claims for breach of contract and alleges, among other things, that the loans in the trusts, which had original principal balances of approximately $354 million and $305 million respectively, breached various representations and warranties. The complaint seeks, among other relief, rescission of the mortgage loan purchase agreements underlying the transactions, specific performance and unspecified damages and interest. On August 16, 2013, the court granted in part and denied in part the Company’s motion to dismiss the complaint. On December 1, 2017, the parties reached an agreement in principle to settle the litigation. On March 9, 2018, the parties in Morgan Stanley Mortgage Loan Trust 2006-14SL, et al. v. Morgan Stanley Mortgage Capital Holdings LLC, as successor in interest to Morgan Stanley Mortgage Capital Inc. entered into agreements to settle the litigation, which are subject to court approval.

 

On September 28, 2012, U.S. Bank, in its capacity as trustee, filed a complaint on behalf of Morgan Stanley Mortgage Loan Trust 2006-13ARX against the Company styled Morgan Stanley Mortgage Loan Trust 2006-13ARX v. Morgan Stanley Mortgage Capital Holdings LLC, as successor in interest to Morgan Stanley Mortgage Capital Inc., pending in the Supreme Court of NY. Plaintiff filed an amended complaint on January 17, 2013, which asserts claims for breach of contract and alleges, among other things, that the loans in the trust, which had an original principal balance of approximately $609 million, breached various representations and warranties. The amended complaint seeks, among other relief, declaratory judgment relief, specific performance and unspecified damages and interest. By order entered September 30, 2014, the court granted in part and denied in part the Company’s motion to dismiss the amended complaint, which the plaintiff appealed. On August 11, 2016, the Appellate Division, First Department reversed in part the trial court’s order that granted the Company’s motion to dismiss. On December 13, 2016, the Appellate Division granted the Company’s motion for leave to appeal to the New York Court of Appeals. The Company filed its opening letter brief with the Court of Appeals on February 6, 2017.

 

On December 14, 2012, Royal Park Investments SA/NV filed a complaint against the Company, certain affiliates, and other defendants in the Supreme Court of NY, styled Royal Park Investments SA/NV v. Merrill Lynch et al. On October 24, 2013, plaintiff filed a new complaint against the Company in the Supreme Court of NY, styled Royal Park Investments SA/NV v. Morgan Stanley et al., alleging that defendants made material misrepresentations and omissions in the sale to plaintiff of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly sponsored, underwritten and/or sold by the Company to plaintiff was approximately $597 million. The complaint raises common law claims of fraud, fraudulent inducement, negligent misrepresentation, and aiding and abetting fraud and seeks, among other things, compensatory and punitive damages. The plaintiff filed an amended complaint on December 1, 2015. On April 12, 2017, the Supreme Court of the State of New York granted the Company’s motion to dismiss the amended complaint. On May 12, 2017, plaintiff filed a notice of appeal from that decision.

 

On January 10, 2013, U.S. Bank, in its capacity as trustee, filed a complaint on behalf of Morgan Stanley Mortgage Loan Trust 2006-10SL and Mortgage Pass-Through Certificates, Series 2006-10SL against the Company styled Morgan Stanley Mortgage Loan Trust 2006-10SL, et al. v. Morgan Stanley Mortgage Capital Holdings LLC, as successor in interest to Morgan Stanley Mortgage Capital Inc., pending in the Supreme Court of NY. The complaint asserts claims for breach of contract and alleges, among other things, that the loans in the trust, which had an original principal balance of approximately $300 million, breached various representations and warranties. The complaint seeks, among other relief, an order requiring the Company to comply with the loan breach remedy procedures in the transaction documents, unspecified damages, and interest. On August 8, 2014, the court granted in part and denied in part the Company’s motion to dismiss the complaint.

 

On May 3, 2013, plaintiffs in Deutsche Zentral-Genossenschaftsbank AG et al. v. Morgan Stanley et al. filed a complaint against the Company, certain affiliates, and other defendants in the Supreme Court of NY. The complaint alleges that defendants made material misrepresentations and omissions in the sale to plaintiffs of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly sponsored, underwritten and/or sold by the Company to plaintiff was approximately $634 million. The complaint alleges causes of action against the Company for common law fraud, fraudulent concealment, aiding and abetting fraud, negligent misrepresentation, and rescission and seeks, among other things, compensatory and punitive damages. On June 10, 2014, the court granted in part and denied part of the defendants’ motion to dismiss the complaint. The Company perfected its appeal from that decision on June 12, 2015. On June 20, 2017, the Appellate Division, First Department (Appellate Division”), affirmed the order granting in part and denying in part the Company’s motion to dismiss. On October

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3, 2017, the Appellate Division denied the Company’s motion for leave to appeal that decision. On June 26, 2018, the parties in Deutsche Zentral-Genossenschaftsbank AG et al. v. Morgan Stanley et al. entered into an agreement to settle the litigation.

 

On May 17, 2013, the plaintiff in IKB International S.A. in Liquidation, et al. v. Morgan Stanley, et al. filed a complaint against the Company and certain affiliates in the Supreme Court of NY. The complaint alleges that defendants made material misrepresentations and omissions in the sale to plaintiff of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly sponsored, underwritten and/or sold by the Company to plaintiff was approximately $133 million. The complaint alleges causes of action against the Company for common law fraud, fraudulent concealment, aiding and abetting fraud, and negligent misrepresentation, and seeks, among other things, compensatory and punitive damages. On October 29, 2014, the court granted in part and denied in part the Company’s motion to dismiss. All claims regarding four certificates were dismissed. After these dismissals, the remaining amount of certificates allegedly issued by the Company or sold to plaintiff by the Company was approximately $116 million. On August 26, 2015, the Company appealed from the portion of the Court’s decision denying the Company’s motion to dismiss the complaint.

 

On July 2, 2013, Deutsche Bank, in its capacity as trustee, became the named plaintiff in Federal Housing Finance Agency, as Conservator for the Federal Home Loan Mortgage Corporation, on behalf of the Trustee of the Morgan Stanley ABS Capital I Inc. Trust, Series 2007-NC1 (MSAC 2007-NC1) v. Morgan Stanley ABS Capital I Inc., and filed a complaint in the Supreme Court of NY under the caption Deutsche Bank National Trust Company, as Trustee for the Morgan Stanley ABS Capital I Inc. Trust, Series 2007-NC1 v. Morgan Stanley ABS Capital I, Inc. On February 3, 2014, the plaintiff filed an amended complaint, which asserts claims for breach of contract and breach of the implied covenant of good faith and fair dealing and alleges, among other things, that the loans in the trust, which had an original principal balance of approximately $1.25 billion, breached various representations and warranties. The amended complaint seeks, among other relief, specific performance of the loan breach remedy procedures in the transaction documents, unspecified damages, rescission and interest. On April 12, 2016, the court granted in part and denied in part the Company’s motion to dismiss the amended complaint, dismissing all claims except a single claim alleging failure to notify, regarding which the motion was denied without prejudice. On December 9, 2016, the Company renewed its motion to dismiss that notification claim. On January 17, 2017, the First Department affirmed the lower court’s April 12, 2016 order. On April 13, 2017, the Appellate Division denied plaintiff’s motion for leave to appeal to the New York Court of Appeals. On March 8, 2018, the court denied the Firm’s renewed motion to dismiss the notification of claims in Deutsche Bank National Trust Company, as Trustee for the Morgan Stanley ABS Capital I Inc. Trust, Series 2007-NC1 v. Morgan Stanley ABS Capital I, Inc.

 

On July 8, 2013, U.S. Bank, in its capacity as trustee, filed a complaint against the Company styled U.S. Bank National Association, solely in its capacity as Trustee of the Morgan Stanley Mortgage Loan Trust 2007-2AX (MSM 2007-2AX) v. Morgan Stanley Mortgage Capital Holdings LLC, Successor-by-Merger to Morgan Stanley Mortgage Capital Inc. and GreenPoint Mortgage Funding, Inc., pending in the Supreme Court of NY. The complaint asserts claims for breach of contract and alleges, among other things, that the loans in the trust, which had an original principal balance of approximately $650 million, breached various representations and warranties. The complaint seeks, among other relief, specific performance of the loan breach remedy procedures in the transaction documents, unspecified damages and interest. On November 24, 2014, the court granted in part and denied in part the Company’s motion to dismiss the complaint.

 

On August 26, 2013, a complaint was filed against the Company and certain affiliates in the Supreme Court of NY, styled Phoenix Light SF Limited et al v. Morgan Stanley et al., which was amended on April 23, 2015. The amended complaint alleges that defendants made untrue statements and material omissions in the sale to plaintiffs, or their assignors, of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly issued by the Company and/or sold to plaintiffs or their assignors by the Company was approximately $344 million. The amended complaint raises common law claims of fraud, fraudulent inducement, aiding and abetting fraud, negligent misrepresentation and rescission based on mutual mistake and seeks, among other things, compensatory damages, punitive damages or alternatively rescission or rescissionary damages associated with the purchase of such certificates. On April 23, 2015, the court granted the Company’s motion to dismiss the amended complaint, and on May 21, 2015, the plaintiffs filed a notice of appeal of that order.

 

On September 23, 2013, the plaintiff in National Credit Union Administration Board v. Morgan Stanley & Co. Inc., et al. filed a complaint against the Company and certain affiliates in the United States District Court for the Southern District of New York. The complaint alleges that defendants made untrue statements of material fact or omitted to state material facts in the sale to the plaintiff of certain mortgage pass-through certificates issued by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly sponsored, underwritten and/or sold by the Company to plaintiffs was approximately $417 million. The complaint alleges causes of action against the Company for violations of Section 11 and Section 12(a)(2) of the Securities Act of 1933, violations of the Texas Securities Act, and violations of the Illinois Securities Law of 1953 and seeks, among other things, rescissory and compensatory damages. The defendants filed a motion to dismiss the complaint on November 13, 2013. On January 22, 2014, the court granted defendants’ motion to dismiss with respect to claims arising under the Securities Act of 1933 and denied defendants’ motion to dismiss with respect to claims arising under Texas Securities Act and the Illinois Securities Law of 1953. On November 17, 2014, the plaintiff filed an amended complaint. On December 15, 2014, defendants answered the amended complaint. At September 25, 2015, the

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current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $194 million, and the certificates had incurred actual losses of $31 million. Based on currently available information, the Company believes it could incur a loss in this action up to the difference between the $194 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against the Company, or upon sale, plus pre- and post-judgment interest, fees and costs. The Company may be entitled to be indemnified for some of these losses and to an offset for interest received by the plaintiff prior to a judgment.

 

On November 6, 2013, Deutsche Bank, in its capacity as trustee, became the named plaintiff in Federal Housing Finance Agency, as Conservator for the Federal Home Loan Mortgage Corporation, on behalf of the Trustee of the Morgan Stanley ABS Capital I Inc. Trust, Series 2007-NC3 (MSAC 2007-NC3) v. Morgan Stanley Mortgage Capital Holdings LLC, and filed a complaint in the Supreme Court of NY under the caption Deutsche Bank National Trust Company, solely in its capacity as Trustee for Morgan Stanley ABS Capital I Inc. Trust, Series 2007-NC3 v. Morgan Stanley Mortgage Capital Holdings LLC, as Successor-by-Merger to Morgan Stanley Mortgage Capital Inc. The complaint asserts claims for breach of contract and breach of the implied covenant of good faith and fair dealing and alleges, among other things, that the loans in the trust, which had an original principal balance of approximately $1.3 billion, breached various representations and warranties. The complaint seeks, among other relief, specific performance of the loan breach remedy procedures in the transaction documents, unspecified damages, rescission, interest and costs. On April 12, 2016, the court granted the Company’s motion to dismiss the complaint, and granted the plaintiff the ability to seek to replead certain aspects of the complaint. On January 17, 2017, the First Department affirmed the lower court’s order granting the motion to dismiss the complaint. On January 9, 2017, plaintiff filed a motion to amend its complaint. On April 13, 2017, the Appellate Division denied plaintiff’s motion for leave to appeal to the New York Court of Appeals. On March 8, 2018, the court granted plaintiff’s motion to amend its complaint to include failure to notify claims in Deutsche Bank National Trust Company, solely in its capacity as Trustee for Morgan Stanley ABS Capital I Inc. Trust, Series 2007-NC3 v. Morgan Stanley Mortgage Capital Holdings LLC, as Successor-by-Merger to Morgan Stanley Mortgage Capital Inc. On March 19, 2018, the firm filed an answer to plaintiff’s amended complaint.

 

On December 30, 2013, Wilmington Trust Company, in its capacity as trustee for Morgan Stanley Mortgage Loan Trust 2007-12, filed a complaint against the Company styled Wilmington Trust Company v. Morgan Stanley Mortgage Capital Holdings LLC et al., pending in the Supreme Court of NY. The complaint asserts claims for breach of contract and alleges, among other things, that the loans in the trust, which had an original principal balance of approximately $516 million, breached various representations and warranties. The complaint seeks, among other relief, unspecified damages, attorneys’ fees, interest and costs. On June 14, 2016, the court granted in part and denied in part the Company’s motion to dismiss the complaint. On July 11, 2017, the Appellate Division affirmed in part and reversed in part an order granting in part and denying in part the Company’s motion to dismiss. On September 26, 2017, the Appellate Division denied plaintiff’s motion for leave to appeal to the New York Court of Appeals. On June 8, 2018, the parties in Wilmington Trust Company v. Morgan Stanley Mortgage Capital Holdings LLC et al. reached an agreement in principle to settle the litigation.

 

On April 28, 2014, Deutsche Bank National Trust Company, in its capacity as trustee for Morgan Stanley Structured Trust I 2007-1, filed a complaint against the Company styled Deutsche Bank National Trust Company v. Morgan Stanley Mortgage Capital Holdings LLC, pending in the United States District Court for the Southern District of New York (“SDNY”). The complaint asserts claims for breach of contract and alleges, among other things, that the loans in the trust, which had an original principal balance of approximately $735 million, breached various representations and warranties. The complaint seeks, among other relief, specific performance of the loan breach remedy procedures in the transaction documents, unspecified compensatory and/or rescissory damages, interest and costs. On April 3, 2015, the court granted in part and denied in part the Company’s motion to dismiss the complaint. On January 10, 2018, the court reinstated plaintiff’s breach of contract claim based on failure to notify, which had been dismissed in its April 3, 2015 order. On January 25, 2018, the court denied the Company’s motion for summary judgment. On February 5, 2018, the Company filed a motion for judgment on the pleadings and a renewed motion for summary judgment. On April 4, 2018, the parties in Deutsche Bank National Trust Company, solely in its capacity as trustee for Morgan Stanley Structured Trust I 2007-1 v. Morgan Stanley Mortgage Capital Holdings LLC filed a stipulation voluntarily dismissing the action, with prejudice pursuant to a settlement.

 

On August 4, 2014, claims regarding two certificates were dismissed by stipulation. After these dismissals, the remaining amount of certificates allegedly issued by the Company or sold to plaintiff by the Company was approximately $644 million. On September 12, 2014, the Company filed a notice of appeal from the denial of the motion to dismiss. On January 12, 2015, the Company filed an amended answer to the complaint. At September 25, 2015, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $277 million, and the certificates had incurred actual losses of approximately $81 million. Based on currently available information, the Company believes it could incur a loss in this action up to the difference between the $277 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against the Company, or upon sale, plus pre- and post-judgment interest, fees and costs. The Company may be entitled to be indemnified for some of these losses.

 

On September 19, 2014, Financial Guaranty Insurance Company (“FGIC”) filed a complaint against the Company in the Supreme Court of NY, styled Financial Guaranty Insurance Company v. Morgan Stanley ABS Capital I Inc. et al. relating to a securitization issued by Basket of Aggregated Residential NIMS 2007-1 Ltd. The complaint asserts claims for breach of contract and alleges, among other things, that the net interest margin securities (“NIMS”) in the trust breached various representations and warranties. FGIC issued a

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financial guaranty policy with respect to certain notes that had an original balance of approximately $475 million. The complaint seeks, among other relief, specific performance of the NIMS breach remedy procedures in the transaction documents, unspecified damages, reimbursement of certain payments made pursuant to the transaction documents, attorneys’ fees and interest. On November 24, 2014, the Company filed a motion to dismiss the complaint, which the court denied on January 19, 2017. On February 24, 2017, the Company filed a notice of appeal of the denial of its motion to dismiss the complaint and perfected its appeal on November 22, 2017.

 

On September 23, 2014, FGIC filed a complaint against the Company in the Supreme Court of NY styled Financial Guaranty Insurance Company v. Morgan Stanley ABS Capital I Inc. et al. relating to the Morgan Stanley ABS Capital I Inc. Trust 2007-NC4. The complaint asserts claims for breach of contract and fraudulent inducement and alleges, among other things, that the loans in the trust breached various representations and warranties and defendants made untrue statements and material omissions to induce FGIC to issue a financial guaranty policy on certain classes of certificates that had an original balance of approximately $876 million. The complaint seeks, among other relief, specific performance of the loan breach remedy procedures in the transaction documents, compensatory, consequential and punitive damages, attorneys’ fees and interest. On January 23, 2017, the court denied the Company’s motion to dismiss the complaint. On February 24, 2017, the Company filed a notice of appeal of the denial of its motion to dismiss the complaint and perfected its appeal on November 22, 2017.

 

On October 20, 2014, a purported class action complaint was filed against the Company and other defendants styled Genesee County Employees’ Retirement System v. Bank of America Corporation et al. in the SDNY. The action was later consolidated with four similar actions in SDNY under the lead case styled Alaska Electrical Pension Fund v. Bank of America Corporation et al. A consolidated amended complaint was filed on February 2, 2015 asserting claims for alleged violations of the Sherman Act, breach of contract, breach of the implied covenant of good faith and fair dealing, unjust enrichment, and tortious interference with contract. The consolidated amended complaint alleges, among other things, that the defendants engaged in antitrust violations with regards to the process of setting ISDAfix, a financial benchmark and seeks treble damages, injunctive relief, attorneys’ fees and other relief. On March 28, 2016, the court granted in part and denied in part the defendants’ motion to dismiss the consolidated amended complaint. On February 7, 2017, the plaintiffs filed a second consolidated amended complaint. On February 2, 2018, the court denied a partial motion to dismiss that complaint. On November 3, 2017, the Company filed its opposition to plaintiffs’ motion for class certification. On June 22, 2018, the parties in Genesee County Employees’ Retirement System v. Bank of America Corporation et al. entered into an agreement to settle the litigation. The court granted preliminary approval of the settlement on June 26, 2018.

 

On January 23, 2015, Deutsche Bank National Trust Company, in its capacity as trustee, filed a complaint against the Company styled Deutsche Bank National Trust Company solely in its capacity as Trustee of the Morgan Stanley ABS Capital I Inc. Trust 2007-NC4 v. Morgan Stanley Mortgage Capital Holdings LLC as Successor-by-Merger to Morgan Stanley Mortgage Capital Inc., and Morgan Stanley ABS Capital I Inc., pending in the Supreme Court of NY. The complaint asserts claims for breach of contract and alleges, among other things, that the loans in the trust, which had an original principal balance of approximately $1.05 billion, breached various representations and warranties. The complaint seeks, among other relief, specific performance of the loan breach remedy procedures in the transaction documents, compensatory, consequential, rescissory, equitable and punitive damages, attorneys’ fees, costs and other related expenses, and interest. On December 11, 2015, the court granted in part and denied in part the Company’s motion to dismiss the complaint. On February 11, 2016, plaintiff filed a notice of appeal of that order, and the appeal was fully briefed on August 19, 2016.

 

Beginning in February of 2016, the Company was named as a defendant in multiple purported antitrust class actions now consolidated into a single proceeding in the United States District Court for the SDNY styled In Re: Interest Rate Swaps Antitrust Litigation. Plaintiffs allege, inter alia, that the Company, together with a number of other financial institution defendants violated U.S. and New York state antitrust laws from 2008 through December of 2016 in connection with their alleged efforts to prevent the development of electronic exchange-based platforms for interest rates swaps trading. Complaints were filed both on behalf of a purported class of investors who purchased interest rates swaps from defendants, as well as on behalf of two swap execution facilities that allegedly were thwarted by the defendants in their efforts to develop such platforms. The consolidated complaints seek, among other relief, certification of the investor class of plaintiffs and treble damages. On July 28, 2017, the court granted in part and denied in part the defendants’ motion to dismiss the complaints.

 

On April 1, 2016, the California Attorney General’s Office filed an action against the Company in California state court styled California v. Morgan Stanley, et al., on behalf of California investors, including the California Public Employees’ Retirement System and the California Teachers’ Retirement System. The complaint alleges that the Company made misrepresentations and omissions regarding RMBS and notes issued by the Cheyne SIV, and asserts violations of the California False Claims Act and other state laws and seeks treble damages, civil penalties, disgorgement, and injunctive relief. On September 30, 2016, the court granted the Company’s demurrer, with leave to replead. On October 21, 2016, the California Attorney General filed an amended complaint. On January 25, 2017, the court denied the Company’s demurrer with respect to the amended complaint.

 

On May 12, 2016, the Austrian state of Land Salzburg filed a claim against the Company in the Regional Court in Frankfurt, Germany, styled Land Salzburg v. Morgan Stanley & Co. International plc (the “German Proceedings”) seeking €209 million

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(approximately $220 million) plus interest, attorneys’ fees and other relief relating to certain fixed income and commodities derivative transactions which Land Salzburg entered into with the Company between 2005 and 2012. Land Salzburg has alleged that it had neither the capacity nor authority to enter into such transactions, which should be set aside, and that the Company breached certain advisory and other duties which the Company had owed to it. On April 28, 2016, the Company filed an action against Land Salzburg in the High Court in London, England styled Morgan Stanley Capital Services LLC and Morgan Stanley & Co. International plc v. Land Salzburg (the “English Proceedings”) in which the Company is seeking declarations that Land Salzburg had both the capacity and authority to enter into the transactions, and that the Company has no liability to Land Salzburg arising from them. On July 25, 2016, the Company filed an application with the Regional Court in Frankfurt to stay the German Proceedings on the basis that the High Court in London was first seized of the dispute between the parties and, pending determination of that application, filed its statement of defense on December 23, 2016. On December 8, 2016, Land Salzburg filed an application with the High Court in London challenging its jurisdiction to determine the English Proceedings.

 

On July 11, 2016, the Company received an invitation to respond to a proposed claim (“Proposed Claim”) by the public prosecutor for Court of Accounts for the Republic of Italy. The Proposed Claim relates to certain derivative transactions between the Republic of Italy and the Company. The transactions were originally entered into between 1999 and 2005, and were terminated in December 2011 and January 2012. The Proposed Claim alleges, inter alia, that the Company was acting as an agent of the Republic of Italy, that some or all of the derivative transactions were improper and that the termination of the transactions was also improper. The Proposed Claim indicates that, if a proceeding is initiated against the Company, the public prosecutor would be asserting administrative claims against the Company for €2.879 billion (approximately $3 billion). The Company does not agree with the Proposed Claim and presented its defenses to the public prosecutor.

 

On June 22, 2017, the public prosecutor for the Court of Accounts for the Republic of Italy filed a claim against the Company styled Case No. 2012/00406/MNV, which is pending in the Regional Prosecutor’s Office at the Judicial Section of the Court of Auditors for Lazio, Italy. The claim relates to certain derivative transactions between the Republic of Italy and the Company. The transactions were originally entered into between 1999 and 2005, and were restructured (and certain of the transactions were terminated) in December 2011 and January 2012. The claim alleges, inter alia, that the Company effectively acted as an agent of the state in connection with these transactions and asserts claims related to, among other things, whether the Ministry of Finance was authorized to enter into these transactions, whether the transactions were appropriate and whether the Company’s conduct related to the termination of certain transactions was proper. The prosecutor is seeking damages through an administrative process against the Company for €2.76 billion (approximately $3.3 billion). A hearing regarding this matter has been scheduled for April 19, 2018. On March 30, 2018, the Firm filed its defense to the claim brought by the public prosecutor for the Court of Accounts for the Republic of Italy in the matter styled Case number 2012/00406/MNV. A hearing was held on April 19, 2018. The timing of a decision is uncertain. On June 15, 2018, the Court of Accounts for the Republic of Italy in the matter styled Case number 2012/00406/MNV issued a decision declining jurisdiction and dismissing the claim against the Firm. On July 24, 2018, the Firm was served with an appeal by the public prosecutor.

 

In matters styled Case number 15/3637 and Case number 15/4353, the Dutch Tax Authority (“Dutch Authority”) is challenging in the District Court in Amsterdam the prior set-off by the Company of approximately €124 million (approximately $149 million) plus accrued interest of withholding tax credits against the Company’s corporation tax liabilities for the tax years 2007 to 2013. The Dutch Authority alleges that the Company was not entitled to receive the withholding tax credits on the basis, inter alia, that a Company subsidiary did not hold legal title to certain securities subject to withholding tax on the relevant dates. The Dutch Authority has also alleged that the Company failed to provide certain information to the Dutch Authority and keep adequate books and records. A hearing in this matter took place on September 19, 2017. On April 26, 2018, the District Court in Amsterdam issued a decision in matters styled Case number 15/3637 and Case number 15/4353 dismissing the Dutch Tax Authority’s claims. The Dutch Tax Authority has until June 7, 2018 to file any appeal. On June 6, 2018, the Dutch Tax Authority filed an appeal against the decision issued by the District Court in Amsterdam in matters styled Case number 15/3637 and Case number 15/4353.

 

On October 5, 2017, various institutional investors filed a claim against the Company and another bank in a matter styled Case number BS 99-6998/2017, in the City Court of Copenhagen, Denmark concerning their roles as underwriters of the initial public offering (“IPO”) in March 2014 of the Danish company OW Bunker A/S. The claim seeks damages of DKK 534,270,456 (approximately $86 million) plus interest in respect of alleged losses arising from investing in shares in OW Bunker, which entered into bankruptcy in November 2014. Separately, on November 29, 2017, another group of institutional investors joined the Company and another bank as defendants to pending proceedings in the High Court of Eastern Denmark against various other parties involved in the IPO in a matter styled Case number B-2073-16. The investors claim damages of DKK 767,235,885 (approximately $124 million) plus interest, from the Company and the other bank on a joint and several basis with the Defendants to these proceedings. Both claims are based on alleged prospectus liability; the second claim also alleges professional liability of banks acting as financial intermediaries. On June 8, 2018, the City Court of Copenhagen, Denmark ordered that the matters styled Case number BS 99-6998/2017 and Case number B-2073-16 be heard together before the High Court of Eastern Denmark. On June 29, 2018, the Firm filed its defense to the matter styled Case number B-2073-16.

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Settled Civil Litigation

 

On August 25, 2008, the Company and two ratings agencies were named as defendants in a purported class action related to securities issued by a structured investment vehicle called Cheyne Finance PLC and Cheyne Finance LLC (together, the “Cheyne SIV”). The case was styled Abu Dhabi Commercial Bank, et al. v. Morgan Stanley & Co. Inc., et al. The complaint alleged, among other things, that the ratings assigned to the securities issued by the Cheyne SIV were false and misleading, including because the ratings did not accurately reflect the risks associated with the subprime residential mortgage backed securities held by the Cheyne SIV. The plaintiffs asserted allegations of aiding and abetting fraud and negligent misrepresentation relating to approximately $852 million of securities issued by the Cheyne SIV. On April 24, 2013, the parties reached an agreement to settle the case, and on April 26, 2013, the court dismissed the action with prejudice. The settlement does not cover certain claims that were previously dismissed.

 

On December 23, 2009, the Federal Home Loan Bank of Seattle filed a complaint against the Company and another defendant in the Superior Court of the State of Washington, styled Federal Home Loan Bank of Seattle v. Morgan Stanley & Co. Inc., et al. The amended complaint, filed on September 28, 2010, alleges that defendants made untrue statements and material omissions in the sale to plaintiff of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly sold to plaintiff by the Company was approximately $233 million. The complaint raises claims under the Washington State Securities Act and seeks, among other things, to rescind the plaintiff’s purchase of such certificates. On January 23, 2017, the parties reached an agreement to settle the litigation.

 

On March 15, 2010, the Federal Home Loan Bank of San Francisco filed a complaint against the Company and other defendants in the Superior Court of the State of California styled Federal Home Loan Bank of San Francisco v. Deutsche Bank Securities Inc. et al. An amended complaint, filed on June 10, 2010, alleges that defendants made untrue statements and material omissions in connection with the sale to plaintiff of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The amount of certificates allegedly sold to plaintiff by the Company was approximately $276 million. The complaint raises claims under both the federal securities laws and California law and seeks, among other things, to rescind the plaintiff’s purchase of such certificates. On December 21, 2016, the parties reached an agreement to settle the litigation.

 

On July 9, 2010 and February 11, 2011, Cambridge Place Investment Management Inc. filed two separate complaints against the Company and/or its affiliates and other defendants in the Superior Court of the Commonwealth of Massachusetts, both styled Cambridge Place Investment Management Inc. v. Morgan Stanley & Co., Inc., et al. The complaints asserted claims on behalf of certain clients of plaintiff’s affiliates and allege that defendants made untrue statements and material omissions in the sale of a number of mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly issued by the Company and/or its affiliates or sold to plaintiff’s affiliates’ clients by the Company and/or its affiliates in the two matters was approximately $263 million. On February 11, 2014, the parties entered into an agreement to settle the litigation. On February 20, 2014, the court dismissed the action.

 

On October 25, 2010, the Company, certain affiliates and Pinnacle Performance Limited, a special purpose vehicle (“SPV”), were named as defendants in a purported class action related to securities issued by the SPV in Singapore, commonly referred to as “Pinnacle Notes.” The case is styled Ge Dandong, et al. v. Pinnacle Performance Ltd., et al. and was pending in the SDNY. On January 31, 2014, the plaintiffs filed a second amended complaint, which asserted common law claims of fraud, aiding and abetting fraud, fraudulent inducement, aiding and abetting fraudulent inducement, and breach of the implied covenant of good faith and fair dealing. On July 17, 2014, the parties reached an agreement to settle the litigation, which received final court approval on July 2, 2015.

 

On January 25, 2011, the Company was named as a defendant in The Bank of New York Mellon Trust, National Association v. Morgan Stanley Mortgage Capital, Inc., a litigation pending in the SDNY. The suit, brought by the trustee of a series of commercial mortgage pass-through certificates, alleges that the Company breached certain representations and warranties with respect to an $81 million commercial mortgage loan that was originated and transferred to the trust by the Company in 2007. The complaint seeks, among other things, to have the Company repurchase the loan and pay additional monetary damages, and interest. On February 17, 2017, the parties reached an agreement in principle to settle the litigation.

 

On July 5, 2011, Allstate Insurance Company and certain of its affiliated entities filed a complaint against the Company in the Supreme Court of NY, NY County, styled Allstate Insurance Company, et al. v. Morgan Stanley, et al. An amended complaint was filed on September 9, 2011, and alleges that the defendants made untrue statements and material omissions in the sale to the plaintiffs of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly issued and/or sold to the plaintiffs by the Company was approximately $104 million. The complaint raised common law claims of fraud, fraudulent inducement, aiding and abetting fraud, and negligent misrepresentation and seeks, among other things, compensatory and/or recessionary damages associated with the plaintiffs’ purchases of such certificates. On March 15, 2013, the court denied in substantial part the defendants’ motion to dismiss the amended complaint, which order the Company appealed on April 11, 2013. On May 3, 2013, the Company filed its answer to the amended complaint. On January 16, 2015, the parties reached an agreement to settle the litigation.

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On July 18, 2011, the Western and Southern Life Insurance Company and certain affiliated companies filed a complaint against the Company and other defendants in the Court of Common Pleas in Ohio, styled Western and Southern Life Insurance Company, et al. v. Morgan Stanley Mortgage Capital Inc., et al. An amended complaint was filed on April 2, 2012 and alleges that defendants made untrue statements and material omissions in the sale to plaintiffs of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The amount of the certificates allegedly sold to plaintiffs by the Company was approximately $153 million. On June 8, 2015, the parties reached an agreement to settle the litigation.

 

On September 2, 2011, the Federal Housing Finance Agency (“FHFA”), as conservator for Fannie Mae and Freddie Mac, filed 17 complaints against numerous financial services companies, including the Company and certain affiliates. A complaint against the Company and certain affiliates and other defendants was filed in the Supreme Court of NY, styled Federal Housing Finance Agency, as Conservator v. Morgan Stanley et al. The complaint alleges that defendants made untrue statements and material omissions in connection with the sale to Fannie Mae and Freddie Mac of residential mortgage pass-through certificates with an original unpaid balance of approximately $11 billion. The complaint raised claims under federal and state securities laws and common law and seeks, among other things, rescission and compensatory and punitive damages. On February 7, 2014, the parties entered into an agreement to settle the litigation. On February 20, 2014, the court dismissed the action.

 

On April 25, 2012, Metropolitan Life Insurance Company and certain affiliates filed a complaint against the Company and certain affiliates in the Supreme Court of NY, NY County styled Metropolitan Life Insurance Company, et al. v. Morgan Stanley, et al. An amended complaint was filed on June 29, 2012, and alleges that the defendants made untrue statements and material omissions in the sale to the plaintiffs of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly sponsored, underwritten, and/or sold by the Company was approximately $758 million. The amended complaint raised common law claims of fraud, fraudulent inducement, and aiding and abetting fraud and seeks, among other things, rescission, compensatory, and/or rescissionary damages, as well as punitive damages, associated with the plaintiffs’ purchases of such certificates. On April 11, 2014, the parties entered into a settlement agreement.

 

In re Morgan Stanley Mortgage Pass-Through Certificates Litigation, which had been pending in the SDNY, was a putative class action involving allegations that, among other things, the registration statements and offering documents related to the offerings of certain mortgage pass-through certificates in 2006 and 2007 contained false and misleading information concerning the pools of residential loans that backed these securitizations. On December 18, 2014, the parties’ agreement to settle the litigation received final court approval, and on December 19, 2014, the court entered an order dismissing the action.

 

On November 4, 2011, the Federal Deposit Insurance Corporation (“FDIC”), as receiver for Franklin Bank S.S.B, filed two complaints against the Company in the District Court of the State of Texas. Each was styled Federal Deposit Insurance Corporation as Receiver for Franklin Bank, S.S.B v. Morgan Stanley & Company LLC F/K/A Morgan Stanley & Co. Inc. and alleged that the Company made untrue statements and material omissions in connection with the sale to plaintiff of mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The amount of certificates allegedly underwritten and sold to plaintiff by the Company in these cases was approximately $67 million and $35 million, respectively. On July 2, 2015, the parties reached an agreement to settle the litigation.

 

On February 14, 2013, Bank Hapoalim B.M. filed a complaint against the Company and certain affiliates in the Supreme Court of NY, styled Bank Hapoalim B.M. v. Morgan Stanley et al. The complaint alleges that defendants made material misrepresentations and omissions in the sale to plaintiff of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly sponsored, underwritten and/or sold by the Company to plaintiff was approximately $141 million. On July 28, 2015, the parties reached an agreement to settle the litigation, and on August 12, 2015, the plaintiff filed a stipulation of discontinuance with prejudice.

 

On August 26, 2013, a complaint was filed against the Company and certain affiliates in the Supreme Court of NY, styled Phoenix Light SF Limited et al. v. Morgan Stanley et al., which was amended on April 23, 2015 and June 15, 2017. The amended complaint alleges that defendants made untrue statements and material omissions in the sale to plaintiffs, or their assignors, of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly issued by the Company and/or sold to plaintiffs or their assignors by the Company was approximately $344 million. The amended complaint raises common law claims of fraud, fraudulent inducement, aiding and abetting fraud, negligent misrepresentation and rescission based on mutual mistake and seeks, among other things, compensatory damages, punitive damages or alternatively rescission or rescissionary damages associated with the purchase of such certificates. On July 7, 2017, the court so-ordered a stipulation of partial discontinuance dismissing claims relating to certificates having an original face value of approximately $76 million. On January 3, 2018, the parties reached an agreement in principle to settle the litigation.

 

On June 2, 2015, the Company submitted to the Environmental Protection Agency (“EPA”) a self-disclosure that certain reformulated blendstock the Company blended and sold during 2013 and 2014 potentially did not meet the applicable volatile organic compound reduction standards of the EPA’s Phase II Reformulated Gasoline standard. On December 1, 2017, the parties reached an agreement to settle the litigation. On December 18, 2017, the final settlement of approximately $1 million was approved by the District Court for the Southern District of Texas.

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ADMINISTRATOR

 

The trust and the managing owner have appointed Gemini Hedge Fund Services, LLC (the “independent administrator”) to act as an independent, third party administrator for the trust and its trading companies in certain capacities related to accounting and financial bookkeeping. The managing owner itself provides registrar and other administrative services to the trust and its trading companies.

 

The independent administrator has been retained by the trust pursuant to an administrative services agreement (the “Administration Agreement”) to perform certain administrative services including the calculation of net asset value, trade reconciliation, audit support and other financial bookkeeping services. The independent administrator is organized as a limited liability company under the laws of the State of Nebraska and carries on the business of, among other things, providing administrative services to collective investments schemes.

 

Pursuant to the Administration Agreement, the independent administrator does not have any responsibility or authority to make investment decisions, nor render investment advice, with respect to the assets of any series of the trust. In addition, the independent administrator has no responsibility for monitoring compliance by any series of the trust with any investment policies or restrictions to which they are subject. The independent administrator accepts no responsibility or liability for any losses suffered by any series of the trust as a result of any breach of such policies or restrictions by such series.

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TRANSFER AGENT

 

The trust and the managing owner have appointed Gemini Fund Services, LLC (the “transfer agent”) to act as an independent, third party transfer agent for the trust and provide administrative services in certain capacities related to sales and commissions processing. The transfer agent has been retained by the trust pursuant to a technology and investor services agreement (the “Investor Services Agreement”) to perform investor and administration services and related services including, but not limited to, sales processing and commissions, distribution processing, transfer agent services, shareholder telephone support, tax reporting and processing, reinvestment agent servicing, and redemption agent servicing. The transfer agent is a limited liability company governed by the laws of the State of Nebraska. The transfer agent’s address is 17605 Wright Street, Suite 2, Omaha, NE 68130.

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ACTUAL AND POTENTIAL CONFLICTS OF INTEREST

 

Some of the parties involved with the operation and/or management of the trust or the trading companies, including the managing owner and Wakefield, have other relationships that may create disincentives to act in the best interests of the trust and its limited owners. The managing owner may have conflicts of interest in relation to its duties to the trust. However, the managing owner and Wakefield will, at all times, pay regard to their obligations to act in the best interests of the trust, and the managing owner and Wakefield will ensure that all such potential conflicts of interest are resolved fairly and in the interests of unit holders.

 

In evaluating these conflicts of interest, you should be aware that the managing owner and Wakefield have a responsibility to investors to exercise good faith and fairness in all dealings affecting the trust. The fiduciary responsibility of a managing owner of a Delaware statutory trust to other beneficial owners is a developing and changing area of the law and if you have questions concerning the duties of the managing owner, you should consult with your counsel. See “The Managing Owner—Fiduciary Responsibilities.”

 

Other Activities

 

Because the managing owner, Wakefield and their affiliates may engage from time to time in other activities in the normal course of business, including acting as managing owner, advisor or commodity pool operator to other similar statutory trusts and as investment manager of other investment funds, the managing owner’s, Wakefield’s and its officers’ and employees’ full efforts will not be devoted to the activities of the trust. This may create a conflict of interest with respect to the managing owner’s, Wakefield’s and its principals’ and employees’ commitment to the trust of its resources. The managing owner and Wakefield, however, intend to devote sufficient time to trust activities to properly manage the trust consistent with their fiduciary duties.

 

Ancillary Business Arrangements Between the Managing Owner, Certain Trading Advisors and/or Service Providers

 

The managing owner, Wakefield and some of the trading advisors and/or service providers may have business arrangements between them that do not directly relate to the trust’s business. For example, the managing owner or its affiliates may sponsor other investment funds which employ one or more of the trading advisors. Additionally, the managing owner may participate in other business relationships with the trading advisors and service providers that involve lending, credit, marketing or distribution services. The managing owner, Wakefield, trading advisor or service provider may be compensated directly, through an allocation of fees or soft dollars, such business arrangements may present a disincentive for the managing owner to terminate such trading advisors or service providers even though termination may be in the best interest of the series for which they trade.

 

In addition, the managing owner and Wakefield may have business arrangements between them and investment funds or trading advisors referenced by one or more swaps that do not directly relate to the trust’s business, and the managing owner and Wakefield may act as the investment manager of investment funds referenced by swaps entered into by one or more of the trading companies. Such business arrangements may present a disincentive to terminate such a swap even though termination may be in the best interest of the series that invests in such swap.

 

Relationship Between the Managing Owner and Gemini Alternative Funds, LLC

 

As stated above, Gemini sponsors and operates the Galaxy Plus Platform through which each series will access trading advisors. Certain affiliates of Gemini will also have separate business arrangements with the managing owner and Wakefield, as both the independent administrator and independent transfer agent are affiliated with Gemini. Such commercial relationships provide enhanced economic efficiencies to the managing owner and Wakefield. In addition, as disclosed elsewhere in this prospectus, the managing owner’s and Wakefield’s business relationships with Gemini, specifically its use of the Galaxy Plus Platform, results in additional fees being incurred by each series. This may create a conflict of interest for the managing owner and Wakefield between its duty to act in the best interests of each series and its pecuniary interest in minimizing its own costs and expenses.

 

Trading for Own Account

 

The officers, directors and employees of the managing owner, Wakefield and the trading advisors may from time to time trade in commodities for their own accounts. When Wakefield and its principals or the trading advisors and their principals trade from their own accounts, they may receive preferential treatment. These transactions might be effected when similar series trades are not executed or are executed at less favorable prices, or these persons or entities might compete with a series in bidding or offering on purchases or sales of contracts without knowing that the series also is so bidding or offering. Although limited owners will not be permitted to inspect such persons’ trading records in light of their confidential nature, the managing owner and Wakefield will have access to these records.

 

Since the clearing brokers are large futures commission merchants, handling substantial customer business in physical commodities and futures interests, it is possible that the clearing brokers will effect transactions for an officer, director or employee of

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the managing owner, Wakefield or a trading advisor, trading for their own accounts, ahead of or against a series entering into a comparable or the same transaction.

 

Management of Other Accounts by the Trading Advisors

 

The trading advisors are permitted, and have specifically indicated their intention, to manage and trade accounts for other investors (including other commodity pools) and to trade commodities for their own accounts and the accounts of their principals. They will continue to be free to do so, so long as each trading advisor’s ability to carry out its obligations and duties to the trading company for which it has trading responsibility under an advisory agreement is not materially impaired thereby. See “Summary of Agreements—Advisory Agreements.” The trading advisors might compete with the series in bidding or offering on purchases or sales of contracts through the same or a different trading program than that to be used for a series, and there can be no assurance that any such trades will be consistent with those of the series, or that the trading advisors or their principals will not be the other party to a trade entered into by any series. In addition, certain affiliates of the trading advisors operate commodity pools that may compete with the series. Pursuant to the advisory agreements, each trading advisor must treat the trading company for which it has trading responsibility equitably and provide the managing owner and Wakefield with access to information so that the managing owner and Wakefield can be assured of such equitable treatment. Limited owners, however, have no inspection rights. See “Summary of Agreements—Advisory Agreements.” In addition, because the financial incentives of a trading advisor in other accounts managed by it may exceed any incentives payable by a trading company, the trading advisor might have an incentive to favor those accounts over such trading company in trading. The trading advisor’s management of other clients’ accounts may increase the level of competition among other clients and a series for the execution of the same or similar transactions and affect the priority of order entry. All open positions held in the accounts owned or controlled by a trading advisor and its principals will be aggregated for purposes of applying speculative position limits in the United States. Thus, a series might be unable to enter into or hold certain positions if such positions, when added to contracts held for other accounts of that series’ trading advisor or for the trading advisor itself, would exceed the applicable speculative position limits.

 

No Distributions

 

The managing owner has discretionary authority over all distributions made by the trust. The managing owner currently does not intend to make any distributions. Greater management fees will be generated to the benefit of the managing owner and the trading advisors if the trust’s assets are not reduced by distributions to the limited owners.

 

Trading Companies

 

The terms of each trading company’s operating agreement are not the result of arm’s-length negotiations. Other pooled investment vehicles sponsored by the managing owner or one of its affiliates may access one or more trading advisors by investing in the trading company that allocates assets to such trading advisors and, as a result, may become parties to such operating agreement. The managing owner may have a conflict of interest between its duty to act in the best interests of each series and its pecuniary interest in the promotion and success of such other pooled investment vehicles.

 

In addition, in the case of trading companies that receive investments from more than one series of Frontier Funds, the managing owner may have an incentive to allocate the profits and losses disproportionately among the series.

 

Galaxy Plus Managed Account Platform

 

The managing owner currently allocates a portion of each series’ assets to one or more commodity pools offered through the Galaxy Plus Managed Account Platform. In certain situations, such series may constitute all or substantially all of the investments in one or more commodity pools on the Galaxy Plus Platform and may be considered to be an affiliate of such commodity pool. As an affiliate, the series, or the managing owner on behalf of such series, may have the ability to influence the operations or management of such commodity pool. The managing owner does not intend to exercise any discretion over the operation or management of any commodity pool offered through the Galaxy Plus Platform. The managing owner in the future may allocate assets to trading companies or accounts in other similar managed account platforms.

 

Selling Agents

 

The selling agents may receive prepaid initial service fees and ongoing service fees with respect to units sold by them. Therefore, they may have a conflict of interest in advising investors whether to purchase or redeem units.

 

In addition, your selling agent has a conflict of interest in advising you to exchange your units for units of a different series because your new units will be subject to a new service fee limit determined without regard to the amount of service fees previously charged with respect to your redeemed (exchanged out of) units, thereby potentially resulting in additional compensation to your selling agent.

 76

Exchange Committees and Industry Associations

 

Officers, directors and employees of the managing owner, the trading advisors, the clearing brokers and their respective affiliates from time to time may serve on various committees and boards of U.S. futures exchanges and the NFA and assist in making rules and policies of those exchanges and the NFA. In such capacities, they have a fiduciary duty to the exchanges on which they serve and the NFA and are required to act in the best interests of such organizations, even if such action may be adverse to the interests of the trust.

 

Management and Incentive Fees

 

Because the managing owner charges each series management and incentive fee which it uses to pay the trading advisor or trading advisors for such series, it has a conflict of interest between its duty to act in the best interests of each series and its pecuniary interest in selecting trading advisors which charge lower rates of fees, therefore increasing the portion of the fees retained by the managing owner.

 

The incentive fee arrangement between each series of units, the managing owner and the trading advisors may create an incentive for the trading advisors to make trading decisions that are more speculative or subject to a greater risk of loss than would be the case if no such arrangement existed.

 

Unified Counsel

 

In connection with this offering, the trust and the managing owner have been represented by unified counsel. To the extent that this offering could benefit by further independent review, such benefit will not be available.

 

Cash Management and Interest Income

 

Because twenty percent of interest income earned per annum by the Trust may be paid to the managing owner again at a later date, it has a conflict of interest between its duty to act in the best interests of each series and its pecuniary interest in selecting higher yielding investments for the Trust’s cash management pool, which may bear more risk. In general, U.S. government securities with greater interest rate sensitivity and longer maturities tend to produce higher yields. To the extent the Trust incurs losses in respect of any such investments, the managing owner will only share in such loss to the extent of its own investment in units of the Trust. The managing owner will maintain a minimum of 1% interest with respect to the publicly registered units of each series of the Trust at all times.

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FEES AND EXPENSES

 

Summary Table of Fees and Expenses

 

The fees and expenses related to an investment in a series are described below.

 

                      

Series

 

Initial
Service
Fee (1)

 

Ongoing
Service
Fee (2)

 

Management
Fee (3)

 

Incentive
Fee (4)

 

Brokerage
Commission
and Investment
and Trading
Fees and
Expenses (5)

 

Due
Diligence (6)

  Galaxy Plus
Managed
Account
Platform
Fee (7)
   %  %  %  %  %  %  %
Diversified                     
Class 1   2   2  0.75  25   3.16   0.12   0.15
Class 2   0   0.25  0.75  25   3.16   0.12   0.15
Class 3 (8)   0   0  0.75  25   3.16   0.12   0.15
Masters                     
Class 1   2   2  2  20   4.75   0.12   0.15
Class 2   0   0.25  2  20   4.75   0.12   0.15
Class 3 (8)   0   0  2  20   4.75   0.12   0.15
Long/Short Commodity                     
Class 1a   2   2  2  20   3.86   0.12   0.15
Class 2a   0   0.25  2  20   3.86   0.12   0.15
Class 3a (8)   0   0  2  20   3.86   0.12   0.15

 

 
(1)Initial Service Fee—Class 1 and 1a units of each series are subject to an initial service fee of up to 2.0% of the purchase price. Except in the case of units issued as rebates, the initial service fee will be prepaid by the managing owner to the applicable selling agent and will be reimbursed by the applicable series over the first 12 months of your investment. Since the managing owner is paying the initial service fee in full upon the sale of the units and is being reimbursed by the trust monthly in arrears over the following 12 months based upon the