Attached files
| file | filename |
|---|---|
| 10-K/A - ML TREND-FOLLOWING FUTURES FUND L.P. | efc10-181_fm10ka.htm |
| EX-32.01 - ML TREND-FOLLOWING FUTURES FUND L.P. | efc10-181_ex3201.htm |
| EX-13.03 - ML TREND-FOLLOWING FUTURES FUND L.P. | efc10-181_ex1303.htm |
| EX-13.04 - ML TREND-FOLLOWING FUTURES FUND L.P. | efc10-181_ex1304.htm |
| EX-31.01 - ML TREND-FOLLOWING FUTURES FUND L.P. | efc10-181_ex3101.htm |
| EX-13.05 - ML TREND-FOLLOWING FUTURES FUND L.P. | efc10-181_ex1305.htm |
| EX-13.02 - ML TREND-FOLLOWING FUTURES FUND L.P. | efc10-181_ex1302.htm |
| EX-32.02 - ML TREND-FOLLOWING FUTURES FUND L.P. | efc10-181_ex32021.htm |
| EX-31.02 - ML TREND-FOLLOWING FUTURES FUND L.P. | efc10-181_ex3102.htm |
EXHIBIT 13.01
| ML TREND-FOLLOWING
FUTURES FUND L.P.
(A
Delaware Limited Liability Company)
|
||
|
Financial
Statements for the years ended
December
31, 2008, 2007 and 2006
and
Report of Independent Registered Public Accounting
Firm
|
ML
TREND-FOLLOWING FUTURES FUND L.P.
(A DELAWARE LIMITED
PARTNERSHIP)
TABLE OF
CONTENTS
|
Page
|
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
1
|
|
FINANCIAL
STATEMENTS:
|
|
|
Statements
of Financial Condition as of December 31, 2008 and 2007
|
2
|
|
Statements
of Operations for the years ended December 31, 2008, 2007 and
2006
|
3
|
|
Statements
of Changes in Partners’ Capital for the years ended December 31, 2008,
2007
and 2006
|
|
|
|
4
|
|
Financial
Data Highlights for the years ended December 31, 2008, 2007 and
2006
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5
|
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Notes
to Financial Statements
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6
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ML
TREND-FOLLOWING FUTURES FUND L.P.
(A DELAWARE LIMITED
PARTNERSHIP)
STATEMENTS
OF FINANCIAL CONDITION
DECEMBER
31, 2008 AND 2007
|
2008
|
2007
|
|||||||
|
ASSETS:
|
||||||||
|
Equity
in commodity futures trading accounts:
|
||||||||
|
Cash
|
$ | 251,804 | $ | 225,042 | ||||
|
Investments
in Portfolio Funds (cost $264,645,269 for 2008 and $347,355,241 for
2007.)
|
353,161,083 | 369,982,077 | ||||||
|
Due
from Portfolio Funds
|
11,064,145 | 17,014,386 | ||||||
|
Accrued
interest
|
- | 59,180 | ||||||
|
TOTAL
ASSETS
|
$ | 364,477,032 | $ | 387,280,685 | ||||
|
LIABILITIES
AND PARTNERS’ CAPITAL
|
||||||||
|
LIABILITIES:
|
||||||||
|
Wrap
fee payable
|
$ | 1,213,435 | $ | 1,290,255 | ||||
|
Redemptions
payable
|
11,138,285 | 15,662,095 | ||||||
|
Other
|
250,804 | 209,053 | ||||||
|
Total
liabilities
|
12,602,524 | 17,161,403 | ||||||
|
PARTNERS’
CAPITAL:
|
||||||||
|
General
Partner (41,734 Units and 42,282 Units)
|
8,313,413 | 6,943,734 | ||||||
|
Limited
Partners (1,724,666 Units and 2,211,461 Units)
|
343,561,095 | 363,175,548 | ||||||
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Total
partners’ capital
|
351,874,508 | 370,119,282 | ||||||
|
TOTAL
LIABILITIES AND PARTNERS’ CAPITAL:
|
$ | 364,477,032 | $ | 387,280,685 | ||||
|
NET
ASSET VALUE PER UNIT
|
||||||||
|
(Based
on 1,766,400 and 2,253,743 Units outstanding, unlimited Units
authorized)
|
$ | 199.2043 | $ | 164.2243 | ||||
|
See
notes to financial statements.
|
||||||||
2
ML
TREND-FOLLOWING FUTURES FUND L.P.
(A DELAWARE LIMITED
PARTNERSHIP)
STATEMENTS
OF OPERATIONS
FOR THE
YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
|
2008
|
2007
|
2006
|
||||||||||
|
TRADING
PROFIT (LOSS):
|
||||||||||||
|
Realized
|
$ | 20,765,365 | $ | (64,586,271 | ) | $ | (158,576,895 | ) | ||||
|
Change
in unrealized
|
65,888,978 | 15,318,537 | 12,136,031 | |||||||||
|
Total
trading profit (loss)
|
86,654,343 | (49,267,734 | ) | (146,440,864 | ) | |||||||
|
INVESTMENT
INCOME:
|
||||||||||||
|
Interest
|
10,654 | 13,909,510 | 51,861,211 | |||||||||
|
EXPENSES:
|
||||||||||||
|
Brokerage
commissions
|
- | 15,400,942 | 61,808,517 | |||||||||
|
Administrative
and filing fees
|
361,539 | 961,273 | 2,937,327 | |||||||||
|
Wrap
fee
|
14,868,130 | 9,947,043 | - | |||||||||
|
Other
Expenses
|
- | 25,000 | 1,450,000 | |||||||||
|
Total
expenses
|
15,229,669 | 26,334,258 | 66,195,844 | |||||||||
|
NET
INVESTMENT (INCOME) LOSS
|
(15,219,015 | ) | (12,424,748 | ) | (14,334,633 | ) | ||||||
|
PROFIT
(LOSS) BEFORE MINORITY INTEREST
|
||||||||||||
|
AND
PROFIT SHARE ALLOCATION
|
71,435,328 | (61,692,482 | ) | (160,775,497 | ) | |||||||
|
Minority
interest
|
- | 18,048 | 29,872 | |||||||||
|
NET
PROFIT (LOSS)
|
$ | 71,435,328 | $ | (61,674,434 | ) | $ | (160,745,625 | ) | ||||
|
NET
PROFIT (LOSS) PER UNIT:
|
||||||||||||
|
Weighted
average number of General Partner
and
Limited Partner Units outstanding
|
$ | 2,029,868 | 3,220,807 | 5,604,599 | ||||||||
|
Net
proftit (loss) per weighted average General Partner and Limited Partner
Unit
|
$ | 35.19 | $ | (19.15 | ) | $ | (28.68 | ) | ||||
|
|
||||||||||||
See notes
to financial statements.
3
ML
TREND-FOLLOWING FUTURES FUND L.P.
(A DELAWARE LIMITED
PARTNERSHIP)
STATEMENTS
OF CHANGES IN PARTNERS’ CAPITAL
FOR THE
YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
|
Units
|
General
Partner
|
Limited
Partners
|
Total
|
|||||||||||||
|
PARTNERS’
CAPITAL,
|
||||||||||||||||
|
December
31, 2005
|
6,005,530 | $ | 12,613,943 | $ | 1,221,537,583 | $ | 1,234,151,526 | |||||||||
|
Subscriptions
|
652,497 | 4,888 | 126,252,532 | 126,257,420 | ||||||||||||
|
Net
Profit (Loss)
|
- | (1,731,789 | ) | (159,013,836 | ) | (160,745,625 | ) | |||||||||
|
Redemptions
|
(2,146,211 | ) | (2,682,276 | ) | (404,677,983 | ) | (407,360,259 | ) | ||||||||
|
PARTNERS’
CAPITAL,
|
||||||||||||||||
|
December
31, 2006
|
4,511,816 | 8,204,766 | 784,098,296 | 792,303,062 | ||||||||||||
|
Subscriptions
|
224,986 | - | 36,094,976 | 36,094,976 | ||||||||||||
|
Net
Profit (Loss)
|
- | (573,924 | ) | (61,100,510 | ) | (61,674,434 | ) | |||||||||
|
Redemptions
|
(2,483,059 | ) | (687,108 | ) | (395,917,214 | ) | (396,604,322 | ) | ||||||||
|
PARTNERS’
CAPITAL,
|
||||||||||||||||
|
December
31, 2007
|
2,253,743 | 6,943,734 | 363,175,548 | 370,119,282 | ||||||||||||
|
Subscriptions
|
96,444 | - | 17,442,303 | 17,442,303 | ||||||||||||
|
Net
Profit (Loss)
|
- | 1,369,679 | 70,065,649 | 71,435,328 | ||||||||||||
|
Redemptions
|
(583,787 | ) | - | (107,122,405 | ) | (107,122,405 | ) | |||||||||
|
PARTNERS’
CAPITAL,
|
||||||||||||||||
|
December
31, 2008
|
1,766,400 | $ | 8,313,413 | $ | 343,561,095 | $ | 351,874,508 | |||||||||
|
See
notes to financial statements.
|
||||||||||||||||
4
ML
TREND-FOLLOWING FUTURES FUND L.P.
(A DELAWARE LIMITED
PARTNERSHIP)
FINANCIAL
DATA HIGHLIGHTS
FOR THE
YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
The
following per Unit data and ratios have been derived from information provided
in the financial statements.
|
Per Unit
Operating Performance:
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
Net
asset value, beginning of year
|
$ | 164.22 | $ | 175.61 | $ | 205.50 | ||||||
|
Realized
and unrealized change in trading profit (loss)
|
42.48 | (7.05 | ) | (27.39 | ) | |||||||
|
Interest
income
|
0.01 | 3.52 | 9.28 | |||||||||
|
Minority
interest in Profit (loss)
|
- | - | (1) | 0.01 | ||||||||
|
Expenses
(2)
|
(7.51 | ) | (7.86 | ) | (11.79 | ) | ||||||
|
Net
asset value, end of year
|
$ | 199.20 | $ | 164.22 | $ | 175.61 | ||||||
|
Total
Return:
|
||||||||||||
|
Total
return
|
21.30 | % | -6.48 | % | -14.55 | % | ||||||
|
Ratios to Average Net Assets: (2),(3)
|
||||||||||||
|
Expenses
|
4.14 | % | 5.22 | % | 6.30 | % | ||||||
|
Net
investment profit (loss)
|
-4.14 | % | -2.46 | % | -1.36 | % | ||||||
|
(1)
Minority interest is less than $0.01.
|
||||||||||||
|
(2)
Includes the impact of brokerage commission
expense.
|
||||||||||||
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(3)
The ratios do not reflect the proportionate share of income and
expense of the Portfolio Funds.
|
||||||||||||
|
See
notes to financial statements.
|
||||||||||||
5
ML
TREND-FOLLOWING FUTURES FUND L.P.
(A DELAWARE LIMITED
PARTNERSHIP)
NOTES TO
FINANCIAL STATEMENTS
|
1.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Organization
ML
TrendFollowing Futures Fund L.P. (the “Partnership”) was organized under the
Delaware Revised Uniform Limited Partnership Act on December 11, 1995 and
commenced trading on July 15, 1996. The Partnership operates as
a “fund of funds”, allocating and reallocating its capital, under the discretion
of Merrill Lynch Alternative Investments LLC (“MLAI”) the general partner of the
Partnership, among four underlying FuturesAccess Funds (each a “Portfolio Fund”
and collectively the “Portfolio Funds”) (See Note 2).
On April
20, 2007, MLAI issued an announcement regarding a restructuring of the
Partnership, effective June 1, 2007. As part of the restructuring the
following occurred:
|
●
|
The
Partnership changed its name to ML Trend-Following Futures Fund
L.P.
|
|
●
|
The
Partnership’s assets were reinvested in MLAI-sponsored Portfolio Funds: ML
Aspect FuturesAccess LLC (“Aspect”), ML Chesapeake FuturesAccess LLC
(“Chesapeake”), ML Transtrend DTP Enhanced FuturesAccess LLC
(“Transtrend”) and ML Winton FuturesAccess LLC
(“Winton”). These Portfolio Funds employ a variety of
systematic models with an emphasis on a style of investment commonly
referred to as “diversified trend following” and the Partnership no longer
utilized the services of John W. Henry & Company, Inc. (“JWH®”)
as a commodity trading advisor.
|
|
●
|
The
Portfolio Funds are a group of commodity pools sponsored by MLAI, each of
which places substantially all of its assets in a managed futures and
forward trading account managed by a single or multiple commodity trading
advisors. Each of the Portfolio Funds implements a different
trading strategy; and
|
|
●
|
On
May 7, 2007, the Partnership was deregistered under the Securities Act of
1933, as amended, but retained its registration under the Securities Act
of 1934, as amended.
|
Effective
January 1, 2009, Merrill Lynch & Co., Inc. became a wholly-owned subsidiary
of Bank of America Corporation pursuant to a merger agreement.
Interests
in the Fund are not insured or otherwise protected by the Federal Deposit
Insurance Corporation or any other government authority. Interests
are not deposits or other obligations of, and are not guaranteed by, Bank of
America Corporation or any of its affiliates or by any
bank. Interests are subject to investment risks, including the
possible loss of the full amount invested.
Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America (“U.S. GAAP”) requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
6
Revenue
Recognition
The
Portfolio Funds’ commodities, futures, options on futures and forward contract
transactions are recorded on the trade date and open contracts are reflected in
Net unrealized profit (loss) on open contracts in the Statements of Financial
Condition of the Partnership and each of the Portfolio Funds as the difference
between the original contract value and the market value (for those commodity
interests for which market quotations are readily available) or at fair
value. The change in unrealized profit (loss) on open contracts from
one period to the next is reflected in change in unrealized under trading profit
(loss) in the Statements of Operations of the Partnership and each of the
Portfolio Funds.
The
resulting change between cost and market value (net of subscription and
redemption activity in Portfolio Funds) is reflected in the Statements of
Operations as change in unrealized from the Investments in the Portfolio Funds.
In addition, when the Partnership redeems or partially redeems its interest in
the Portfolio Funds, it records realized (net profit or loss) for such interests
in the Statements of Operations of the Partnership.
Foreign Currency
Transactions
|
|
The
Partnership’s functional currency is the U.S. dollar; however, it
transacts business in currencies other than the U.S.
dollar. Assets and liabilities denominated in currencies other
than the U.S. dollar are translated into U.S. dollars at the rates in
effect at the dates of the Statements of Financial Condition of the
Partnership and each of the Portfolio Funds. Income and expense
items denominated in currencies other than the U.S. dollar are translated
into U.S. dollars at the rates in effect during the
period. Gains and losses resulting from the translation to U.S.
dollars are reported in Realized in the Statements of Operations of the
Partnership and each of the Portfolio
Funds.
|
|
|
Ongoing Offering
Costs, Operating Expenses and Selling
Commissions
|
|
|
Prior
to June 1, 2007, the Partnership’s brokerage commissions and
administrative fees constituted a single annual “wrap fee” not to exceed
6.5% of the Partnership’s average month-end Net Asset Value, which covered
all of the Partnership’s costs and expenses, other than bid-ask spreads
and certain trading fees as well as an annual filing fee payable to the
State of New Jersey and offering costs. After June 1, 2007, the
Partnership pays MLAI, wrap fee in the amount of 4.0% of the Partnership’s
average month-end Net Asset Value. Other than this 4.0% wrap fee, the only
direct expense of the Partnership is the annual New Jersey filing fee,
which is assessed on a per-partner basis with a maximum charge of $250,000
per year.
|
|
|
No
selling commissions have been or are paid directly by the Limited
Partners. All selling commissions are paid by
MLPF&S.
|
Cash
The
Partnership maintains cash at an unaffiliated bank for operational
purposes.
|
|
Income
Taxes
|
|
|
No
provision for income taxes has been made in the accompanying financial
statements as each Partner is individually responsible for reporting
income or loss based on such Partner’s respective share of the
Partnership’s income and expenses as reported for income tax
purposes.
|
7
|
|
Distributions
|
|
|
The
Limited Partners are entitled to receive, equally per Unit, any
distribution which may be made by the Partnership. No such
distributions have been declared for the years ended December 31, 2008,
2007 and 2006.
|
|
|
|
|
Subscriptions
|
|
|
Units
of the Partnership are offered as of the close of business at the end of
each month. Units are purchased as of the first business day of
any month at Net Asset Value, but the subscription request must be
submitted at least three calendar days before the end of the preceding
month. Subscriptions submitted less than three days before the
end of a month will be applied to Units subscriptions as of the beginning
of the second month after receipt, unless revoked by
MLAI.
|
Redemptions
Redemption
requests are accepted within the notice period. The Partnership does
not accept any redemption requests after the notice period. All
redemption requests received after the notice period will be processed for the
following month.
Dissolution of the
Partnership
The
Partnership may terminate if certain circumstances occur as set forth in the
offering memorandum, which include but are not limited to the
following:
(a)
Bankruptcy,
dissolution, withdrawal or other termination of the trading advisors of
this Partnership.
(b)
Any event
which would make unlawful the continued existence of this
Partnership.
(c)
Determination
by MLAI to liquidate or withdraw from the Partnership.
|
|
Indemnifications
|
|
|
In
the normal course of business, the Partnership enters into contracts and
agreements that contain a variety of representations and warranties and
which provide general indemnifications. The Partnership’s maximum exposure
under these arrangements is unknown, as this would involve future claims
that may be made against the Partnership that have not yet
occurred. The Partnership expects the risk of any future
obligation under these indemnifications to be
remote.
|
|
2.
|
INVESTMENTS
IN PORTFOLIO FUNDS
|
The four
Portfolio Funds in which the Partnership is invested as of December 31, 2008 and
2007 are: Winton, Aspect, Transtrend and Chesapeake. MLAI may in its discretion,
change the Portfolio Funds at any time. MLAI, also at its discretion may vary
the percentage of the Partnership’s total portfolio allocated to the different
Portfolio Funds. There is no pre-established range for the minimum and maximum
allocations that may be made to any given Portfolio Fund.
8
At
December 31, 2008, Investments in Portfolio Funds at fair value are as
follows:
|
Fair
Value
|
Percentage
of Partner's Capital
|
Profit
(Loss)
|
Management
|
Performance
|
Redemptions
Permitted
|
||||||||||||||||
|
ML
Winton FuturesAccess LLC
|
$ | 88,290,271 | 25.09 | % | $ | 19,067,176 | $ | (1,421,072 | ) | $ | (3,068,305 | ) |
Monthly
|
||||||||
|
ML Aspect
FuturesAccess LLC
|
88,290,270 | 25.09 | 25,131,209 | (1,429,262 | ) | (4,136,616 | ) |
Monthly
|
|||||||||||||
|
ML
Transtrend DTP Enhanced FuturesAccess
LLC
|
88,290,271 | 25.09 | 25,962,636 | (962,678 | ) | (6,414,299 | ) |
Monthly
|
|||||||||||||
|
ML
Chesapeake FuturesAccess LLC
|
88,290,271 | 25.09 | 16,493,322 | (936,971 | ) | (1,725,578 | ) |
Monthly
|
|||||||||||||
|
Total
Investment in Portfolio Funds at fair value (cost
$264,645,269)
|
$ | 353,161,083 | 100.36 | % | $ | 6,654,343 | |||||||||||||||
|
December
31, 2007
|
|||||||||||||||||||||
|
Fair
Value
|
Percentage
of Partners Capital
|
Profit
(Loss)
|
Management
|
Performance
|
Redemptions
Permitted
|
||||||||||||||||
|
ML
Winton FuturesAccess LLC
|
$ | 92,508,127 | 25.00 | % | $ | 11,721,847 | $ | 942,055 | $ | 1,546,686 |
Monthly
|
||||||||||
|
ML Aspect
FuturesAccess LLC
|
92,508,126 | 25.00 | 3,530,089 | 930,069 | 152,433 |
Monthly
|
|||||||||||||||
|
ML
Transtrend DTP Enhanced FuturesAccess
LLC
|
92,485,147 | 25.00 | 15,550,879 | 633,329 | 4,354,468 |
Monthly
|
|||||||||||||||
|
ML
Chesapeake FuturesAccess LLC
|
92,480,677 | 25.00 | (5,976,852 | ) | 611,746 | - |
Monthly
|
||||||||||||||
|
Total
Investment in Portfolio Funds at fair value (cost
$347,355,241)
|
$ | 369,982,077 | 100.00 | % | $ | 24,825,963 | |||||||||||||||
3.
FAIR VALUE OF INVESTMENTS
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards No. 157, Fair Value Measurement
(“FAS 157”). FAS 157 defines fair value, establishes a framework for measuring
fair value and expands disclosures about fair value measurements. The
Partnership adopted FAS 157 as of January 1, 2008. The adoption of FAS 157 did
not have a material impact on the Partnership’s financial
statements.
Fair
value of an investment is the amount that would be received to sell the
investment in an orderly transaction between market participants at the
measurement date (i.e. the exit price).
FAS 157
established a hierarchical disclosure framework which prioritizes and ranks the
level of market price observability used in measuring investments at fair value.
Market price observability is impacted by a number of factors, including the
type of investment and the characteristics specific to the investment.
Investments with readily available active quoted prices or for which fair value
can be measured from actively quoted prices generally will have a higher degree
of market price observability and a lesser degree of judgment used in measuring
fair value.
9
Investments
measured and reported at fair value are classified and disclosed in one of the
following categories:
Level I –
Quoted prices are available in active markets for identical investments as of
the reporting date. The type of investments included in Level I are publicly
traded investments. As required by FAS 157, the Partnership does not adjust the
quoted price for these investments even in situations where the Partnership
holds a large position and a sale could reasonably impact the quoted
price.
Level II
– Pricing inputs are other than quoted prices in active markets, which are
either directly or indirectly observable as of the reporting date, and fair
value is determined through the use of generally accepted and understood models
or other valuation methodologies. Investments which are generally included in
this category are investments valued using market data.
Level III
– Pricing inputs are unobservable and include situations where there is little,
if any, market activity for the investment. Fair value for these investments is
determined using valuation methodologies that consider a range of factors,
including but not limited to the nature of the investment, local market
conditions, trading values on public exchanges for comparable securities,
current and projected operating performance and financing transactions
subsequent to the acquisition of the investment. The inputs into the
determination of fair value require significant management judgment. Due to the
inherent uncertainty of these estimates, these values may differ materially from
the values that would have been used had a ready market for these investments
existed. Investments that are included in this category generally are privately
held debt and equity securities.
In
certain cases, the inputs used to measure fair value may fall into different
levels of the fair value hierarchy. In such cases, an investment’s level within
the fair value hierarchy is based on the lowest level of input that is
significant to the fair value measurement. MLAI’s assessment of the significance
of a particular input to the fair value measurement in its entirety requires
judgment, and considers factors specific to the investment.
The
following table summarizes the valuation of the Partnership’s investments by the
above FAS 157 fair value hierarchy levels as of December 31, 2008:
|
Total
|
Level
I
|
Level
II
|
Level
III
|
|||||
|
Net
unrealized profit (loss) on open contracts
|
$353,161,083
|
N/A
|
$353,161,083
|
N/A
|
4.
JOINT VENTURE AGREEMENT
|
|
The
Joint Venture Agreement between the Partnership and JWH®
was terminated on May 31, 2007. MLAI was the manager of the Joint
Venture, while JWH®
had sole discretion in determining the commodity futures, options on
futures and forward trades that were made on its behalf, which was subject
to the trading limitations outlined in the Joint Venture
Agreement.
|
|
|
Pursuant
to the Joint Venture Agreement, JWH®
and the Partnership shared in the profits of the Joint Venture based on
equity ownership provided that 20% of the Partnership’s allocable
quarterly New Trading Profits, as defined, were allocated to JWH®. Losses
were allocated to JWH®
and the Partnership based on equity
ownership.
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10
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5.
|
.RELATED
PARTY TRANSACTIONS
|
The
Partnership’s and the Portfolio Funds’ U.S. dollar assets are maintained at
MLPF&S. On assets held in U.S. dollars, Merrill Lynch credited
the Partnership and the Portfolio Funds’ with interest at the prevailing 91-day
U.S. Treasury bill rate. The Partnership and the Portfolio Funds are
credited with interest on any of its assets and net gains actually held by
MLPF&S in non-U.S. dollar currencies at a prevailing local rate received by
Merrill Lynch. Merrill Lynch may derive certain economic benefit in
excess of the interest which Merrill Lynch pays to the Partnership and the
Portfolio Funds, from possession of such assets.
Merrill
Lynch charged the Partnership and the Portfolio Funds’, at prevailing local
interest rates, for financing realized and unrealized losses on the
Partnership’s and each Portfolio Fund’s non-U.S. dollar-denominated
positions. Such amounts are netted against interest income due to the
insignificance of such amounts.
|
|
Prior
to June 1, 2007, the Partnership paid brokerage commissions to MLPF&S
at a flat monthly rate of .479 of 1% (a 5.75% annual rate) of the Joint
Venture’s month-end trading assets. The Joint Venture also paid MLAI a
monthly administrative fee of .021 of 1% (a 0.25% annual rate) of the
Joint Venture’s month-end trading assets. The Partnership reimbursed MLAI
for payment of the State of New Jersey annual filing fee that was assessed
on a per partner basis with a maximum of $250,000 per year which was paid
on its behalf. Month-end trading assets were not reduced for purposes of
calculating brokerage and administrative fees by any accrued brokerage
commissions, administrative fees, Profit Shares or other fees or
charges.
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|
|
MLAI
estimates that the round-turn equivalent commission rate charged to the
Joint Venture by MLPF&S for the period January 1, 2007 through May 31,
2007 was $166 and for the year ended December 31, 2006 was $182 (not
including, in calculating round-turn equivalents, forward contracts on a
futures-equivalent basis).
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|
|
Prior
to May 7, 2007 MLPF&S paid JWH®
annual consulting fees of 2% of the Partnership’s average month-end
assets, after reduction for a portion of the brokerage
commissions. The Partnership no longer pays consulting
fees.
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|
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Effective
June 1, 2007, no brokerage commission is charged to investors at the
Partnership level, although brokerage commissions are charged to investors
at the Portfolio Funds’ level, and investors will be indirectly subject to
their pro rata
share of such fees based on the investment of the Partnership in such
underlying Portfolio Funds. Brokerage commissions will be paid on the
completion or liquidation of a trade and are referred to as round-turn
commissions, which cover both the initial purchase (or sale) and the
subsequent offsetting sale (or purchase) of a commodity futures contract
(a “round turn” commission). A portion of the brokerage fees is
paid to Portfolio Funds executing brokers, which may not include
MLPF&S, as the commission for their execution services. The
“round-turn” commissions paid will not exceed $15 per round-turn, except
in the case of certain foreign contracts on which the rates may be as high
as $100 per round-turn due to the large size of the contracts
traded. In general, it is estimated that aggregate brokerage
commission charges will not exceed .75% and should equal approximately
0.50% per annum of each of the Portfolio Fund’s average month-end
assets.
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11
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6.
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ADVISORY
AGREEMENT
|
Each
Portfolio Fund implements a systematic-based managed future strategy under the
direction of its trading advisor which is listed below:
|
Portfolio
Fund
|
Advisor
|
Next
Renewal Date
of
Advisory Agreement
|
Management
Free Rate
|
|||
|
Aspect
|
Aspect
Capital Management
|
December 31, 2011 |
1.5%
|
|||
|
Chesapeake
|
Chesapeake
Capital Corporation
|
December 31, 2016 |
1%
|
|||
|
Transtrend
|
Transtrend
B.V.
|
December 31, 2009 |
1%
|
|||
|
Winton
|
Winton
Capital Management Limited
|
December 31, 2014 |
1.5%
|
|
|
The
advisory agreements shall be automatically renewed for successive
three-year periods, on the same terms, unless terminated by either the
Portfolio Fund or the respective advisor upon 90 days’ notice to the other
party. The advisors determine the commodity futures, options on
futures and forward contract trades to be made on behalf of their
respective Fund accounts, subject to certain trading policies and to
certain rights reserved by MLAI.
|
|
|
Performance
fees paid by the Portfolio Funds are calculated at the following rates of
any New Trading Profit, as defined, and earned by the respective
advisors:
|
|
Portfolio
Fund
|
Performance
Free Rate
|
|
|
Aspect
|
15%
|
|
|
Chesapeake
|
2-%
|
|
|
Transtrend
|
25%
|
|
|
Winton
|
15%
|
7.
WEIGHTED AVERAGE UNITS
|
|
The
weighted average number of Units outstanding was computed for purposes of
disclosing net income (loss) per weighted average Unit. The
weighted average Units outstanding for the years ended December 31, 2008,
2007 and 2006 equals the Units outstanding as of such date, adjusted
proportionately for Units sold and redeemed based on the respective length
of time each was outstanding during the
year.
|
12
8.
RECENT ACCOUNTING PRONOUNCEMENTS
In March
2008, the FASB released Statement of Financial Accounting Standards No. 161,
Disclosures about Derivative Instruments and Hedging Activities – an amendment
to FASB Statement No. 133 (“FAS 161”). FAS 161 requires qualitative disclosures
about objectives and strategies for using derivatives, quantitative disclosures
about fair value amounts of and gains and losses on derivative instruments, and
disclosures about credit-risk related contingent features in derivative
agreements. The application of FAS 161 is required for fiscal years beginning
after November 15, 2008 and interim periods within those fiscal years.
Currently, the Partnership and the Portfolio Funds are evaluating the
implications of FAS 161 on their respective financial statements.
In May
2008, the FASB issued Statement of Financial Accounting Standards No. 162,
“The Hierarchy of Generally
Accepted Accounting Principles” (“FAS 162”). FAS 162 identifies the
sources of accounting principles and the framework for selecting the accounting
principles used in preparing financial statements of nongovernmental entities
that are presented in conformity with U.S. GAAP. Currently, U.S. GAAP hierarchy
is provided in the American Institute of Certified Public Accountants U.S.
Auditing Standards (“AU”) Section 411, “The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles”. The
Partnership and the Portfolio Funds do not expect the adoption of FAS 162 to
have an impact on their respective financial statements.
9.
MARKET AND CREDIT RISKS
The
nature of this Partnership has certain risks, which cannot be presented on the
financial statements. The following summarizes some of those
risks.
Market
Risk
Derivative
instruments involve varying degrees of market risk. Changes in the
level or volatility of interest rates, foreign currency exchange rates or the
market values of the financial instruments or commodities underlying such
derivative instruments frequently result in changes in the Portfolio Funds’ Net
unrealized profit (loss) on such derivative instruments as reflected in the
Portfolio Funds’ Statement(s) of Financial Condition. The Portfolio
Funds’ exposure to market risk is influenced by a number of factors, including
the relationships among the derivative instruments held by the Portfolio Funds
as well as the volatility and liquidity of the markets in which the derivative
instruments are traded. Investments in foreign markets may also entail legal and
political risks.
Credit
Risk
The risks
associated with exchange-traded contracts are typically perceived to be less
than those associated with over-the-counter (non-exchange-traded) transactions,
because exchanges typically (but not universally) provide clearinghouse
arrangements in which the collective credit (in some cases limited in amount, in
some cases not) of the members of the exchange is pledged to support the
financial integrity of the exchange. In over-the-counter
transactions, on the other hand, traders must rely solely on the credit of their
respective individual counterparties. Margins, which may be subject
to loss in the event of a default, are generally required in exchange trading,
and counterparties may also require margin in the over-the-counter
markets.
The
credit risk associated with these instruments from counterparty nonperformance
is the net unrealized profit on open contracts, if any, included in the
Portfolio Funds’ Statements of Financial Condition. The Portfolio
Funds attempt to mitigate this risk by dealing exclusively with Merrill Lynch
entities as clearing brokers.
13
The
Portfolio Funds in their normal course of business, enter into various contracts
with MLPF&S acting as their commodity broker. Pursuant to the
brokerage agreement with MLPF&S (which includes a netting arrangement), to
the extent that such trading results in receivables from and payables to
MLPF&S, these receivables and payables are offset and reported as a net
receivable or payable and included in Net unrealized profit (loss) on open
contracts on the Portfolio Funds’ Statements of Financial
Condition.
14
* * * * * * * * * * *
To the
best of the knowledge and belief of the
undersigned,
the information contained in this
report is
accurate and complete.
/s/
Barbra E.
Kocsis
Barbra E.
Kocsis
Chief
Financial Officer
Merrill
Lynch Alternative Investments LLC
General
Partner of
ML
TREND-FOLLOWING FUTURES FUND L.P.
15