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EX-32.02 - EX-32.02 - ML Transtrend DTP Enhanced FuturesAccess LLCa10-15314_5ex32d02.htm
EX-31.02 - EX-31.02 - ML Transtrend DTP Enhanced FuturesAccess LLCa10-15314_5ex31d02.htm
EX-31.01 - EX-31.01 - ML Transtrend DTP Enhanced FuturesAccess LLCa10-15314_5ex31d01.htm
EX-32.01 - EX-32.01 - ML Transtrend DTP Enhanced FuturesAccess LLCa10-15314_5ex32d01.htm

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2010

 

OR

 

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                to               

 

Commission File Number 0-52384

 

ML TRANSTREND DTP ENHANCED FUTURESACCESS LLC

(Exact Name of Registrant as

specified in its charter)

 

Delaware

 

30-0408288

(State or other jurisdiction of

 

(IRS Employer Identification No.)

incorporation or organization)

 

 

 

c/o Merrill Lynch Alternative Investments LLC

Four World Financial Center, 10th Floor

250 Vesey Street

New York, New York 10080

(Address of principal executive offices)

(Zip Code)

 

212-449-3517

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer o

 

Accelerated filer o

 

 

 

Non-accelerated filer x

 

Small reporting company o

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).  Yes o  No x

 

As of June 30, 2010, 173,684,462 units of limited liability company interest were outstanding.

 

 

 



 

ML TRANSTREND DTP ENHANCED FUTURESACCESS LLC

 

QUARTERLY REPORT FOR JUNE 30, 2010 ON FORM 10-Q

 

Table of Contents

 

 

 

 

PAGE

 

 

 

 

 

PART I

 

 

 

 

 

 

Item 1.

Financial Statements

 

1

 

 

 

 

Item 2.

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

 

17

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

26

 

 

 

 

Item 4.

Controls and Procedures

 

31

 

 

 

 

 

PART II

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

31

 

 

 

 

Item 1A.

Risk Factors

 

31

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

32

 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

33

 

 

 

 

Item 4.

(Removed and Reserved)

 

33

 

 

 

 

Item 5.

Other Information

 

33

 

 

 

 

Item 6.

Exhibits

 

33

 



 

PART I - FINANCIAL INFORMATION

 

Item 1.   Financial Statements

 

ML TRANSTREND DTP ENHANCED FUTURESACCESS LLC

(a Delaware Limited Liability Company)

 

STATEMENTS OF FINANCIAL CONDITION

(unaudited)

 

 

 

June 30,

 

December 31 ,

 

 

 

2010

 

2009

 

ASSETS:

 

 

 

 

 

Equity in commodity futures trading accounts:

 

 

 

 

 

Cash (including restricted cash of $18,266,516 for 2010 and $25,737,325 for 2009)

 

$

242,651,003

 

$

236,868,172

 

Net unrealized profit on open futures contracts

 

3,662,022

 

2,439,651

 

Cash and cash equivalents

 

284,812

 

34,980

 

Other assets

 

22,651

 

22,826

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

246,620,488

 

$

239,365,629

 

 

 

 

 

 

 

LIABILITIES AND MEMBERS’ CAPITAL:

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

Brokerage commissions payable

 

$

 

$

68,556

 

Sponsor and Advisory fees payable

 

398,181

 

381,285

 

Redemptions payable

 

831,502

 

1,523,104

 

Net unrealized loss on open futures contracts

 

580,454

 

1,293,154

 

Other liabilities

 

121,121

 

198,844

 

 

 

 

 

 

 

Total liabilities

 

1,931,258

 

3,464,943

 

 

 

 

 

 

 

MEMBERS’ CAPITAL:

 

 

 

 

 

Members’ Interest (173,684,462 Units and 171,805,932 Units outstanding; unlimited Units authorized)

 

244,689,230

 

235,900,686

 

Total members’ capital

 

244,689,230

 

235,900,686

 

 

 

 

 

 

 

TOTAL LIABILITIES AND MEMBERS’ CAPITAL

 

$

246,620,488

 

$

239,365,629

 

 

 

 

 

 

 

NET ASSET VALUE PER UNIT:

 

 

 

 

 

 

 

 

 

 

 

Class A

 

$

1.1659

 

$

1.1440

 

Class C

 

$

1.0959

 

$

1.0807

 

Class D

 

$

0.9341

 

$

0.9097

 

Class I

 

$

1.1612

 

$

1.1369

 

Class DS

 

$

1.4310

 

$

1.3936

 

Class DT

 

$

1.5017

 

$

1.4551

 

 

See notes to financial statements.

 

1



 

ML TRANSTREND DTP ENHANCED FUTURESACCESS LLC

(a Delaware Limited Liability Company)

 

STATEMENTS OF OPERATIONS

(unaudited)

 

 

 

For the three
months ended

 

For the three
months ended

 

For the six
months ended

 

For the six
months ended

 

 

 

June 30, 2010

 

June 30, 2009

 

June 30, 2010

 

June 30, 2009

 

TRADING PROFIT (LOSS):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Realized, net

 

$

9,009,729

 

$

(741,211

)

$

9,234,126

 

$

532,672

 

Change in unrealized, net

 

(16,109,439

)

1,833,803

 

1,935,071

 

(4,844,681

)

Brokerage commissions

 

(332,182

)

(299,500

)

(745,312

)

(491,292

)

 

 

 

 

 

 

 

 

 

 

Total trading profit (loss)

 

(7,431,892

)

793,092

 

10,423,885

 

(4,803,301

)

 

 

 

 

 

 

 

 

 

 

INVESTMENT INCOME:

 

 

 

 

 

 

 

 

 

Interest

 

(1,422

)

4,721

 

(1,964

)

21,225

 

 

 

 

 

 

 

 

 

 

 

EXPENSES:

 

 

 

 

 

 

 

 

 

Management fee

 

1,089,143

 

945,476

 

2,164,020

 

1,836,956

 

Sponsor fee

 

110,876

 

110,834

 

218,764

 

209,152

 

Performance fee

 

 

 

 

326

 

Other

 

116,429

 

120,578

 

250,843

 

249,307

 

Total expenses

 

1,316,448

 

1,176,888

 

2,633,627

 

2,295,741

 

 

 

 

 

 

 

 

 

 

 

NET INVESTMENT LOSS

 

(1,317,870

)

(1,172,167

)

(2,635,591

)

(2,274,516

)

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS)

 

$

(8,749,762

)

$

(379,075

)

$

7,788,294

 

$

(7,077,817

)

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS) PER UNIT:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of Units outstanding

 

 

 

 

 

 

 

 

 

Class A

 

2,568,659

 

1,698,737

 

2,449,040

 

1,368,420

 

Class C

 

13,920,043

 

12,536,784

 

14,197,259

 

11,854,683

 

Class D

 

2,000,000

 

978,915

 

2,000,000

 

978,915

 

Class I

 

525,587

 

619,923

 

496,732

 

548,304

 

Class DS

 

113,851,251

 

79,775,228

 

115,888,285

 

75,444,534

 

Class DT

 

39,134,043

 

46,915,623

 

41,194,694

 

48,659,257

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per weighted average Unit

 

 

 

 

 

 

 

 

 

Class A

 

$

(0.0493

)

$

(0.0085

)

$

0.0149

 

$

(0.0490

)

Class C

 

$

(0.0491

)

$

(0.0096

)

$

0.0107

 

$

(0.0574

)

Class D

 

$

(0.0348

)

$

(0.0015

)

$

0.0244

 

$

(0.0391

)

Class I

 

$

(0.0455

)

$

(0.0079

)

$

0.0070

 

$

(0.0426

)

Class DS

 

$

(0.0519

)

$

(0.0054

)

$

0.0454

 

$

(0.0545

)

Class DT

 

$

(0.0496

)

$

0.0035

 

$

0.0555

 

$

(0.0449

)

 

See notes to financial statements.

 

2


 


 

ML TRANSTREND DTP ENHANCED FUTURESACCESS LLC

(a Delaware Limited Liability Company)

 

STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL

For the six months ended June 30, 2010 and 2009

(unaudited) (in Units)

 

 

 

Members’ Capital
December 31, 2008

 

Subscriptions

 

Redemptions

 

Members’ Capital June
30, 2009

 

Members’ Capital
December 31, 2009

 

Subscriptions

 

Redemptions

 

Members’ Capital
June 30, 2010

 

Class A

 

937,456

 

948,011

 

 

1,885,467

 

2,271,823

 

753,755

 

(283,186

)

2,742,392

 

Class C

 

10,398,395

 

3,265,422

 

(1,190,611

)

12,473,206

 

14,482,763

 

2,459,183

 

(2,919,973

)

14,021,973

 

Class D

 

978,915

 

 

 

978,915

 

2,000,000

 

 

 

2,000,000

 

Class I

 

780,147

 

503,957

 

(621,521

)

662,583

 

502,000

 

153,050

 

(103,423

)

551,627

 

Class DS

 

67,285,671

 

19,276,302

 

 

86,561,973

 

109,221,404

 

14,500,728

 

(7,658,580

)

116,063,552

 

Class DT

 

51,421,530

 

 

(7,605,638

)

43,815,892

 

43,327,942

 

351,090

 

(5,374,114

)

38,304,918

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Members’ Units

 

131,802,114

 

23,993,692

 

(9,417,770

)

146,378,036

 

171,805,932

 

18,217,806

 

(16,339,276

)

173,684,462

 

 

See notes to financial statements.

 

3


 


 

ML TRANSTREND DTP ENHANCED FUTURESACCESS LLC

(a Delaware Limited Liability Company)

 

STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL

For the six months ended June 30, 2010 and 2009

(unaudited)

 

 

 

Members’ Capital
December 31, 2008

 

Subscriptions

 

Redemptions

 

Net Income
(Loss)

 

Members’ Capital
June 30, 2009

 

Members’ Capital
December 31, 2009

 

Subscriptions

 

Redemptions

 

Net Income
(Loss)

 

Members’ Capital
June 30, 2010

 

Class A

 

$

1,297,666

 

$

1,277,228

 

$

 

$

(66,992

)

$

2,507,902

 

$

2,598,931

 

$

880,547

 

$

(318,432

)

$

36,387

 

$

3,197,433

 

Class C

 

13,734,797

 

4,245,684

 

(1,548,155

)

(680,528

)

15,751,798

 

15,651,574

 

2,731,982

 

(3,168,087

)

151,676

 

15,367,145

 

Class D

 

1,205,010

 

 

 

(38,202

)

1,166,808

 

1,819,381

 

 

 

48,875

 

1,868,256

 

Class I

 

1,069,315

 

676,867

 

(848,756

)

(23,288

)

874,138

 

570,784

 

180,541

 

(114,253

)

3,455

 

640,527

 

Class DS

 

111,764,376

 

31,559,917

 

 

(4,111,686

)

139,212,607

 

152,211,382

 

20,047,176

 

(11,428,432

)

5,261,888

 

166,092,014

 

Class DT

 

88,263,960

 

 

(12,895,720

)

(2,157,121

)

73,211,119

 

63,048,634

 

516,790

 

(8,327,582

)

2,286,013

 

57,523,855

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Members’ Capital

 

$

217,335,124

 

$

37,759,696

 

$

(15,292,631

)

$

(7,077,817

)

$

232,724,372

 

$

235,900,686

 

$

24,357,036

 

$

(23,356,786

)

$

7,788,294

 

$

244,689,230

 

 

See notes to financial statements.

 

4


 


 

ML TRANSTREND DTP ENHANCED FUTURESACCESS LLC

(A Delaware Limited Liability Company)

 

FINANCIAL DATA HIGHLIGHTS

FOR THE THREE MONTHS ENDED JUNE 30, 2010 (unaudited)

 

The following per Unit data and ratios have been derived from information provided in the financial statements.

 

 

 

Class A

 

Class C

 

Class D

 

Class I

 

Class DS

 

Class DT

 

Per Unit Operating Performance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, beginning of period

 

$

1.2139

 

$

1.1439

 

$

0.9689

 

$

1.2077

 

$

1.4843

 

$

1.5538

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Realized and net change in unrealized trading profit (loss)

 

(0.0353

)

(0.0332

)

(0.0283

)

(0.0352

)

(0.0433

)

(0.0454

)

Brokerage commissions

 

(0.0016

)

(0.0015

)

(0.0013

)

(0.0015

)

(0.0020

)

(0.0021

)

Interest income

 

(0.0000

)

(0.0000

)

(0.0000

)

(0.0000

)

(0.0000

)

(0.0000

)

Expenses

 

(0.0111

)

(0.0133

)

(0.0052

)

(0.0098

)

(0.0080

)

(0.0046

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, end of period

 

$

1.1659

 

$

1.0959

 

$

0.9341

 

$

1.1612

 

$

1.4310

 

$

1.5017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return: (a)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total return before Performance fees

 

-3.95

%

-4.19

%

-3.59

%

-3.85

%

-3.59

%

-3.35

%

Performance fees

 

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

Total return after Performance fees

 

-3.95

%

-4.19

%

-3.59

%

-3.85

%

-3.59

%

-3.35

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios to Average Members’ Capital:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses (excluding Performance fees)

 

0.92

%

1.17

%

0.54

%

0.82

%

0.54

%

0.30

%

Performance fees

 

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

Expenses (including Performance fees)

 

0.92

%

1.17

%

0.54

%

0.82

%

0.54

%

0.30

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income (loss)

 

-0.92

%

-1.17

%

-0.55

%

-0.82

%

-0.55

%

-0.30

%

 


(a) The total return calculations are based on compounded monthly returns and is calculated for each class taken as a whole. An individual members’ return may vary from these returns based on timing of capital transactions.

 

See notes to financial statements.

 

5



 

ML TRANSTREND DTP ENHANCED FUTURESACCESS LLC

(A Delaware Limited Liability Company)

 

FINANCIAL DATA HIGHLIGHTS

FOR THE SIX MONTHS ENDED JUNE 30, 2010 (unaudited)

 

The following per Unit data and ratios have been derived from information provided in the financial statements.

 

 

 

Class A

 

Class C

 

Class D

 

Class I

 

Class DS

 

Class DT

 

Per Unit Operating Performance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, beginning of period

 

$

1.1440

 

$

1.0807

 

$

0.9097

 

$

1.1369

 

$

1.3936

 

$

1.4551

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Realized and net change in unrealized trading profit (loss)

 

0.0470

 

0.0443

 

0.0375

 

0.0468

 

0.0574

 

0.0600

 

Brokerage commissions

 

(0.0035

)

(0.0033

)

(0.0028

)

(0.0035

)

(0.0043

)

(0.0045

)

Interest income

 

(0.0000

)

(0.0000

)

(0.0000

)

(0.0000

)

(0.0000

)

(0.0000

)

Expenses

 

(0.0216

)

(0.0258

)

(0.0103

)

(0.0190

)

(0.0157

)

(0.0089

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, end of period

 

$

1.1659

 

$

1.0959

 

$

0.9341

 

$

1.1612

 

$

1.4310

 

$

1.5017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return: (a)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total return before Performance fees

 

1.92

%

1.41

%

2.69

%

2.12

%

2.69

%

3.20

%

Performance fees

 

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

Total return after Performance fees

 

1.92

%

1.41

%

2.69

%

2.12

%

2.69

%

3.20

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios to Average Members’ Capital:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses (excluding Performance fees)

 

1.86

%

2.36

%

1.11

%

1.66

%

1.11

%

0.60

%

Performance fees

 

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

Expenses (including Performance fees)

 

1.86

%

2.36

%

1.11

%

1.66

%

1.11

%

0.60

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income (loss)

 

-1.86

%

-2.36

%

-1.11

%

-1.66

%

-1.11

%

-0.60

%

 


(a) The total return calculations are based on compounded monthly returns and is calculated for each class taken as a whole. An individual members’ return may vary from these returns based on timing of capital transactions.

 

See notes to financial statements.

 

6



 

ML TRANSTREND DTP ENHANCED FUTURESACCESS LLC

(A Delaware Limited Liability Company)

 

FINANCIAL DATA HIGHLIGHTS

FOR THE THREE MONTHS ENDED JUNE 30, 2009 (unaudited)

 

The following per Unit data and ratios have been derived from information provided in the financial statements.

 

 

 

Class A

 

Class C

 

Class D

 

Class I

 

Class DS *

 

Class DT **

 

Per Unit Operating Performance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, beginning of period

 

$

1.3368

 

$

1.2724

 

$

1.1934

 

$

1.3245

 

$

1.6103

 

$

1.6683

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Realized and change in unrealized trading profit (loss)

 

0.0076

 

0.0073

 

0.0068

 

0.0076

 

0.0092

 

0.0095

 

Brokerage commissions

 

(0.0018

)

(0.0017

)

(0.0016

)

(0.0017

)

(0.0021

)

(0.0022

)

Interest income

 

0.0000

 

0.0000

 

0.0000

 

0.0000

 

0.0000

 

0.0000

 

Expenses

 

(0.0125

)

(0.0151

)

(0.0067

)

(0.0111

)

(0.0092

)

(0.0047

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, end of period

 

$

1.3301

 

$

1.2629

 

$

1.1919

 

$

1.3193

 

$

1.6082

 

$

1.6709

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return: (a)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total return before Performance fees

 

-0.50

%

-0.75

%

-0.13

%

-0.40

%

-0.40

%

0.12

%

Performance fees

 

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

Total return after Performance fees

 

-0.50

%

-0.75

%

-0.13

%

-0.40

%

-0.40

%

0.12

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios to Average Members’ Capital:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses (excluding Performance fees)

 

0.94

%

1.19

%

0.56

%

0.84

%

0.84

%

0.31

%

Performance fees

 

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

Expenses (including Performance fees)

 

0.94

%

1.19

%

0.56

%

0.84

%

0.84

%

0.31

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income (loss)

 

-0.94

%

-1.19

%

-0.56

%

-0.84

%

-0.56

%

-0.31

%

 


*Class DS and was previously known as Class D-SM.

**Class DT was previously known as Class D-TF.

(a) The total return calculations are based on compounded monthly returns and is calculated for each class taken as a whole. An individual members’ return may vary from these returns based on timing of capital transactions.

 

See notes to financial statements.

 

7



 

ML TRANSTREND DTP ENHANCED FUTURESACCESS LLC

(A Delaware Limited Liability Company)

 

FINANCIAL DATA HIGHLIGHTS

FOR THE SIX MONTHS ENDED JUNE 30, 2009 (unaudited)

 

The following per Unit data and ratios have been derived from information provided in the financial statements.

 

 

 

Class A

 

Class C

 

Class D

 

Class I

 

Class DS *

 

Class DT **

 

Per Unit Operating Performance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, beginning of period

 

$

1.3842

 

$

1.3209

 

$

1.2310

 

$

1.3707

 

$

1.6610

 

$

1.7165

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Realized and change in unrealized trading profit (loss)

 

(0.0257

)

(0.0245

)

(0.0230

)

(0.0255

)

(0.0310

)

(0.0321

)

Brokerage commissions

 

(0.0029

)

(0.0028

)

(0.0026

)

(0.0029

)

(0.0035

)

(0.0037

)

Interest income

 

0.0001

 

0.0001

 

0.0001

 

0.0001

 

0.0002

 

0.0002

 

Expenses

 

(0.0256

)

(0.0308

)

(0.0136

)

(0.0231

)

(0.0185

)

(0.0100

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, end of period

 

$

1.3301

 

$

1.2629

 

$

1.1919

 

$

1.3193

 

$

1.6082

 

$

1.6709

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return: (a)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total return before Performance fees

 

-3.91

%

-4.39

%

-3.19

%

-3.71

%

-3.71

%

-2.70

%

Performance fees

 

-0.01

%

-0.01

%

0.00

%

-0.05

%

-0.05

%

0.00

%

Total return after Performance fees

 

-3.92

%

-4.40

%

-3.19

%

-3.76

%

-3.76

%

-2.70

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios to Average Members’ Capital:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses (excluding Performance fees)

 

1.87

%

2.37

%

1.12

%

1.67

%

1.67

%

0.62

%

Performance fees

 

0.01

%

0.01

%

0.00

%

0.05

%

0.05

%

-0.01

%

Expenses (including Performance fees)

 

1.88

%

2.38

%

1.12

%

1.72

%

1.72

%

0.61

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income (loss)

 

-1.87

%

-2.37

%

-1.11

%

-1.71

%

-1.11

%

-0.60

%

 


*Class DS and was previously known as Class D-SM.

**Class DT was previously known as Class D-TF.

(a) The total return calculations are based on compounded monthly returns and is calculated for each class taken as a whole. An individual members’ return may vary from these returns based on timing of capital transactions.

 

See notes to financial statements.

 

8


 


 

ML TRANSTREND DTP ENHANCED FUTURESACCESS LLC

(a Delaware Limited Liability Company)

 

NOTES TO FINANCIAL STATEMENTS

(unaudited)

 

1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

ML Transtrend DTP Enhanced FuturesAccess LLC (the “Fund”), a Merrill Lynch FuturesAccess Program (the “Program”) fund, was organized under the Delaware Limited Liability Company Act on March 8, 2007 and commenced trading activities on April 2, 2007. The Fund issues new units of limited liability company interest (“Units”) at Net Asset Value per Unit (see Item 2 for discussion of net asset value and net asset value per unit for subscriptions and redemptions purposes hereinafter referred to as Net Asset Value and Net Asset Value per Unit) as of the beginning of each calendar month. The Fund engages in the speculative trading of commodity futures contracts, options on futures and forward contracts on a wide range of commodities. Transtrend B.V. (“Transtrend” or “trading advisor”) is the trading advisor of the Fund.

 

Merrill Lynch Alternative Investments LLC (“MLAI” or the “Sponsor”) is the Sponsor of the Fund. MLAI is an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. (“Merrill Lynch”). Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S”), a wholly-owned subsidiary of Merrill Lynch, is the Fund’s commodity broker. On September 15, 2008, Merrill Lynch entered into an Agreement and Plan of Merger (as amended by Amendment No. 1 dated as of October 21, 2008, the “Merger Agreement”) with Bank of America Corporation (“Bank of America”). Pursuant to the Merger Agreement, on January 1, 2009, a wholly-owned subsidiary of Bank of America merged with and into Merrill Lynch, with Merrill Lynch continuing as the surviving corporation and a subsidiary of Bank of America.

 

The Program is a group of commodity pools sponsored by MLAI (each pool is a “Program Fund” or collectively, “Program Funds”) each of which places substantially all of its assets in a managed futures or forward trading account managed by a single or multiple commodity trading advisors. Each Program Fund is generally similar in terms of fees, Classes of Units and redemption rights.  Each of the Program Funds implements a different trading strategy.

 

The Fund offers six Classes of Units:  Class A, Class C, Class D, Class DS, Class DT and Class I.  Each Class of Units, except for Class DT offered at $1.1117, was offered at $1.00 per Unit during the initial offering period and subsequently is offered at Net Asset Value per Unit.  The six Classes of Units are subject to different sponsor fees.

 

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 or any of its affiliates or by any bank.  Interests are subject to investment risks, including the possible loss of the full amount invested.

 

In the opinion of management, these interim financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the financial position of the Fund as of June 30, 2010 and the results of its operations for the three and six months ended June 30, 2010 and 2009.  However, the operating results for the interim period may not be indicative of the results for the full year.

 

9



 

Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been omitted. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Fund’s Annual Report on Form 10-K filed with the Securities and Exchange Commission for the period ended December 31, 2009. Certain prior year items have been reclassified to conform to the current year presentation.

 

Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

 

10


 


 

2.               CONDENSED SCHEDULE OF INVESTMENTS

 

The Fund’s investments, defined as Net unrealized profit (loss) on open contracts on the Statements of Financial Condition, as of June 30, 2010 and December 31, 2009, are as follows:

 

June 30, 2010

 

 

 

Long Positions

 

Short Positions

 

Net Unrealized

 

 

 

 

 

Commodity Industry

 

Number of

 

Unrealized

 

Percent of

 

Number of

 

Unrealized

 

Percent of

 

Profit (Loss)

 

Percent of

 

 

 

Sector

 

Contracts

 

Profit (Loss)

 

Members’ Capital

 

Contracts

 

Profit (Loss)

 

Members’ Capital

 

on Open Positions

 

Members’ Capital

 

Maturity Dates

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agriculture

 

193

 

$

(107,893

)

-0.04

%

(910

)

$

(303,430

)

-0.12

%

$

(411,323

)

-0.16

%

August 2010 - July 2011

 

Currencies

 

788

 

(803,906

)

-0.33

%

(736

)

(792,684

)

-0.32

%

(1,596,590

)

-0.65

%

September 2010

 

Energy

 

147

 

(434,485

)

-0.18

%

(167

)

(1,541

)

0.00

%

(436,026

)

-0.18

%

July 2010 - January 2011

 

Interest rates

 

6,323

 

5,264,022

 

2.15

%

(1,772

)

(321,808

)

-0.13

%

4,942,214

 

2.02

%

July 2010 - March 2013

 

Metals

 

724

 

(4,972,674

)

-2.03

%

(618

)

5,766,911

 

2.36

%

794,237

 

0.33

%

July 2010 - April 2011

 

Stock indices

 

950

 

(797,751

)

-0.33

%

(162

)

586,807

 

0.24

%

(210,944

)

-0.09

%

July 2010 - September 2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

$

(1,852,687

)

-0.76

%

 

 

$

4,934,255

 

2.03

%

$

3,081,568

 

1.27

%

 

 

 

December 31, 2009

 

 

 

Long Positions

 

Short Positions

 

Net Unrealized

 

 

 

 

 

Commodity Industry

 

Number of

 

Unrealized

 

Percent of

 

Number of

 

Unrealized

 

Percent of

 

Profit (Loss)

 

Percent of

 

 

 

Sector

 

Contracts

 

Profit (Loss)

 

Members’ Capital

 

Contracts

 

Profit (Loss)

 

Members’ Capital

 

on Open Positions

 

Members’ Capital

 

Maturity Dates

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agriculture

 

675

 

$

512,058

 

0.22

%

(292

)

$

(132,212

)

-0.06

%

$

379,846

 

0.16

%

February 10 - December 10

 

Currencies

 

1,308

 

(670,422

)

-0.28

%

(854

)

1,521,277

 

0.64

%

850,855

 

0.36

%

April 10

 

Energy

 

494

 

(135,491

)

-0.06

%

(67

)

(277,177

)

-0.12

%

(412,668

)

-0.18

%

February 10 - December 10

 

Interest rates

 

4,183

 

(1,938,988

)

-0.82

%

(1,837

)

429,159

 

0.18

%

(1,509,829

)

-0.64

%

March 10 - December 12

 

Metals

 

759

 

3,324,393

 

1.41

%

(376

)

(3,024,951

)

-1.28

%

299,442

 

0.13

%

January 10 - April 10

 

Stock indices

 

2,214

 

1,538,851

 

0.65

%

 

 

0.00

%

1,538,851

 

0.65

%

January 10 - March 10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

$

2,630,401

 

1.12

%

 

 

$

(1,483,904

)

-0.63

%

$

1,146,497

 

0.49

%

 

 

 

No individual contract’s unrealized profit or loss comprised greater than 5% of the Partners’ Capital as of June 30, 2010 and December 31, 2009.

 

11


 


 

3.               FAIR VALUE OF INVESTMENTS

 

The Financial Accounting Standards Board (“FASB”) issued the Accounting Standards Codification (“ASC”) which provides authoritative guidance on fair value measurement. This guidance defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.

 

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). All investments (including derivative financial instruments and derivative commodity instruments) are held for trading purposes.  The investments are recorded on trade date and open contracts are recorded at fair value (described below) at the measurement date. Investments denominated in foreign currencies are translated into U.S. dollars at the exchange rates prevailing at the measurement date.  Gains or losses are realized when contracts are liquidated.  Unrealized gains or losses on open contracts are included in Equity in commodity futures trading account.  Any change in net unrealized gain or loss from the preceding period is reported in the Statements of Operations.

 

The fair value measurement guidance established a hierarchal 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.

 

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 the fair market value measurement guidance, the Fund does not adjust the quoted price for these investments even in situations where the Fund 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.

 

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

 

12



 

significance of a particular input to the Fair Value Measurement in its entirety requires judgment, and considers factors specific to the investment.

 

Following is a description of the valuation methodologies used for investments, as well as the general classification of such investments pursuant to the valuation hierarchy.

 

Exchange traded investments are fair valued by the Fund by using the reported closing price on the primary exchange where it trades such investments.  These closing prices are observed through the clearing broker and third party pricing services. For non-exchange traded investments, quoted values and other data provided by nationally recognized independent pricing sources are used as inputs into its process for determining fair values.

 

The independent pricing sources obtain market quotations and actual transaction prices for securities that have quoted prices in active markets. Each source has its own proprietary method for determining the fair value of securities that are not actively traded. In general, these methods involve the use of “matrix pricing” in which the independent pricing source uses observable market inputs including, but not limited to, investment yields, credit risks and spreads, benchmarking of like securities, broker-dealer quotes, reported trades and sector groupings to determine a reasonable fair market value.

 

The Fund has determined that Level I securities would include all of its futures and options contracts where it believes that quoted prices are available in an active market.

 

Where the Fund believes that quoted market prices are not available or that the market is not active, fair values are estimated by using quoted prices of securities with similar characteristics, pricing models or matrix pricing and these are generally classified as Level II securities. The Fund determined that Level II securities would include its forward contracts.

 

The Fund’s net unrealized profit (loss) on open forward and futures contracts by the above fair value hierarchy levels as of June 30, 2010, and December 31, 2009 are as follows:

 

Net unrealized profit (loss)
on open contracts

 

Total

 

Level I

 

Level II

 

Level III

 

 

 

 

 

 

 

 

 

 

 

Futures

 

 

 

 

 

 

 

 

 

Long

 

$

(1,852,687

)

3,369,516

 

(5,222,203

)

 

Short

 

$

4,934,255

 

(784,669

)

5,718,924

 

 

 

 

 

$

3,081,568

 

$

2,584,847

 

$

496,721

 

$

 

 

 

 

 

 

 

 

 

 

 

Forwards

 

 

 

 

 

 

 

 

 

Long

 

$

 

 

 

 

Short

 

$

 

 

 

 

 

 

$

 

$

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

June 30, 2010

 

$

3,081,568

 

$

2,584,847

 

$

496,721

 

$

 

 

13



 

Net unrealized profit (loss)
on open contracts

 

Total

 

Level I

 

Level II

 

Level III

 

 

 

 

 

 

 

 

 

 

 

Futures

 

 

 

 

 

 

 

 

 

Long

 

$

2,630,401

 

2,630,401

 

 

 

Short

 

$

(1,483,904

)

(1,483,904

)

 

 

 

 

$

1,146,497

 

$

1,146,497

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

Forwards

 

 

 

 

 

 

 

 

 

Long

 

$

 

 

 

 

Short

 

$

 

 

 

 

 

 

$

 

$

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

December 31, 2009

 

$

1,146,497

 

$

1,146,497

 

$

 

$

 

 

The Fund’s volume of trading forward and futures as of the period and year ended June 30, 2010 and December 31, 2009, respectively, are representative of the activity throughout these periods.

 

There were no significant transfers to or from Level I or II during the quarter and period ended June 30, 2010.

 

The Fund engages in the speculative trading of futures, options on futures and forward contracts on a wide range of commodities. Such contracts meet the definition of a derivative as noted in the guidance for derivatives and hedging activities. The fair value amounts of and the gains and losses on derivative instruments is disclosed in the Statements of Financial Condition and Statements of Operations, respectively. There are no credit related contingent features embedded in these derivative contracts.

 

The following table indicates the trading gains and losses, by commodity industry sector on derivative instruments for each of the three month and six month periods ended June 30, 2010 and 2009:

 

 

 

For the three months ended

 

For the six months ended

 

 

 

June 30, 2010

 

June 30, 2010

 

Commodity Industry Sector

 

Gain (loss) from trading

 

Gain (loss) from trading

 

 

 

 

 

 

 

Agriculture

 

$

(2,675,089

)

$

(2,634,062

)

Currencies

 

(4,525,290

)

1,980,610

 

Energy

 

(10,196,949

)

(4,528,564

)

Interest rates

 

16,540,115

 

22,344,603

 

Metals

 

2,070,554

 

2,297,046

 

Stock indices

 

(8,313,051

)

(8,290,436

)

 

 

 

 

 

 

Total

 

$

(7,099,710

)

$

11,169,197

 

 

14



 

 

 

For the three months ended

 

For the six months ended

 

 

 

June 30, 2009

 

June 30, 2009

 

Commodity Industry Sector

 

Gain (loss) from trading

 

Gain (loss) from trading

 

 

 

 

 

 

 

Agriculture

 

$

2,623,275

 

$

392,283

 

Currencies

 

5,593,632

 

4,416,757

 

Energy

 

(4,016,377

)

(1,267,747

)

Interest rates

 

(2,247,233

)

(5,486,570

)

Metals

 

(1,629,932

)

(2,125,233

)

Stock indices

 

769,227

 

(241,499

)

 

 

 

 

 

 

Total

 

$

1,092,592

 

$

(4,312,009

)

 

The Fund is subject to the risk of insolvency of a counterparty, an exchange, a clearinghouse or MLPF&S.  Fund assets could be lost or impounded during lengthy bankruptcy proceedings.  Were a substantial portion of the Fund’s capital tied up in a bankruptcy or other similar types of proceedings, MLAI might suspend or limit trading, perhaps causing the Fund to miss significant profit opportunities.  There are increased risks in dealing with unregulated trading counterparties including the risk that assets may not benefit from the protection afforded to “customer funds” deposited with regulated dealers and brokers.

 

4.               MARKET AND CREDIT RISKS

 

The nature of this Fund 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 Fund’s Net unrealized profit (loss) on such derivative instruments as reflected in the Statements of Financial Condition.  The Fund’s exposure to market risk is influenced by a number of factors, including the relationships among the derivative instruments held by the Fund 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.

 

MLAI has procedures in place intended to control market risk exposure, although there can be no assurance that they will, in fact, succeed in doing so.  These procedures focus primarily on monitoring the trading of Transtrend, calculating the Net Asset Value of the Fund as of the close of business on each day and reviewing outstanding positions for over-concentrations.  While MLAI does not intervene in the markets to hedge or diversify the Fund’s market exposure, MLAI may urge Transtrend to reallocate positions in an attempt to avoid over-concentrations.  However, such interventions are expected to be unusual.  It is expected that MLAI’s basic risk control procedures will consist of the ongoing process of advisor monitoring, with the market risk controls being applied by Transtrend.

 

15



 

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 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 Statements of Financial Condition. The Fund attempts to mitigate this risk by dealing exclusively with Merrill Lynch entities as clearing brokers.

 

The Fund, in its normal course of business, enters into various contracts, with MLPF&S acting as its commodity broker.  Pursuant to the brokerage arrangement 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 Equity in commodity futures trading accounts in the Statements of Financial Condition.

 

Indemnifications

 

In the normal course of business, the Fund has entered, or may in the future enter into agreements that obligate the Fund to indemnify third parties, including affiliates of the Fund, for breach of certain representations and warranties made by the Fund. No claims have actually been made with respect to such indemnities and any quantification would involve hypothetical claims that have not been made. Based on the Fund’s experience, MLAI expected the risk of loss to be remote and, therefore, no provision has been recorded.

 

5.               RECENT ACCOUNTING PRONOUNCEMENTS

 

In January 2010, the FASB issued an update to the fair value measurements disclosure. Pursuant to this update, additional disclosures in the financial statements relating to transfers in and out of Levels 1 and 2 fair value measurements and separate disclosure of purchases, sales, issuances, and settlements in Level 3 roll forward, will be required. In addition, this update provides clarifications on i) the level of aggregation of classes of assets and liabilities disclosed in the fair value measurement disclosures and ii) disclosures relating to the inputs and valuation techniques for Level 2 and Level 3 fair value measurements. The new disclosures and clarifications of existing disclosures are effective for annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the Level 3 roll forward which are effective for fiscal years beginning after December 15, 2010. This update further enhances the fair value disclosures and the Sponsor has determined that the adoption of this update on January 1, 2010, did not have a material impact to the Fund’s financial statements.

 

6.               SUBSEQUENT EVENTS

 

Management has evaluated the impact of subsequent events on the Fund and has determined that there were no subsequent events that require adjustments to, or disclosure in, the financial statements.

 

16


 


 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

MONTH-END NET ASSET VALUE PER UNIT

 

MLAI believes that the Net Asset Value used to calculate subscription and redemption value and to report performance to investors throughout the period is a useful performance measure for the investors of the Fund. Therefore, the charts below referencing Net Asset Value and performance measurements are based on the Net Asset Value for financial reporting purposes.

 

The Fund calculates the Net Asset Value per unit of each class of units as of the close of business on the last business day of each calendar month and such other dates as MLAI may determine in its discretion. The Fund’s “Net Asset Value” as of any calculation date will generally equal the value of the Fund’s account under the management of its trading advisor as of such date, plus any other assets held by the Fund, minus accrued brokerage commissions, sponsor’s, management and performance fees, organizational expense amortization and any operating costs and other liabilities of the Fund.

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS A

 

 

 

Jan.

 

Feb.

 

Mar.

 

Apr.

 

May

 

June

 

2009

 

$

1.3808

 

$

1.3886

 

$

1.3368

 

$

1.3365

 

$

1.3550

 

$

1.3301

 

2010

 

$

1.0816

 

$

1.0975

 

$

1.2139

 

$

1.2405

 

$

1.1682

 

$

1.1659

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS C

 

 

 

Jan.

 

Feb.

 

Mar.

 

Apr.

 

May

 

June

 

2009

 

$

1.3165

 

$

1.3228

 

$

1.2724

 

$

1.2710

 

$

1.2876

 

$

1.2629

 

2010

 

$

1.0209

 

$

1.0351

 

$

1.1439

 

$

1.1680

 

$

1.0990

 

$

1.0959

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS D

 

 

 

Jan.

 

Feb.

 

Mar.

 

Apr.

 

May

 

June

 

2009

 

$

1.2296

 

$

1.2380

 

$

1.1935

 

$

1.1946

 

$

1.2127

 

$

1.1919

 

2010

 

$

0.8612

 

$

0.8749

 

$

0.9689

 

$

0.9914

 

$

0.9348

 

$

0.9341

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS I

 

 

 

Jan.

 

Feb.

 

Mar.

 

Apr.

 

May

 

June

 

2009

 

$

1.3678

 

$

1.3760

 

$

1.3246

 

$

1.3247

 

$

1.3435

 

$

1.3193

 

2010

 

$

1.0754

 

$

1.0915

 

$

1.2077

 

$

1.2346

 

$

1.1631

 

$

1.1612

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS DS

 

 

 

Jan.

 

Feb.

 

Mar.

 

Apr.

 

May

 

June

 

2009

 

$

1.6591

 

$

1.6705

 

$

1.6103

 

$

1.6119

 

$

1.6363

 

$

1.6082

 

2010

 

$

1.3193

 

$

1.3403

 

$

1.4843

 

$

1.5188

 

$

1.4321

 

$

1.4310

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS DT

 

 

 

Jan.

 

Feb.

 

Mar.

 

Apr.

 

May

 

June

 

2009

 

$

1.7163

 

$

1.7296

 

$

1.6688

 

$

1.6719

 

$

1.6986

 

$

1.6709

 

2010

 

$

1.3787

 

$

1.4019

 

$

1.5538

 

$

1.5912

 

$

1.5016

 

$

1.5017

 

 

17



 

Liquidity and Capital Resources

 

The Fund does not engage in the sale of goods or services.  The Fund’s assets are its (i) equity in its trading account, consisting of cash and cash equivalents and (ii) interest receivable. Because of the low margin deposits normally required in commodity futures trading relatively small price movements may result in substantial losses to the Fund.  While substantial losses could lead to a material decrease in liquidity, no such material losses occurred during the first quarter of 2010 and there was no impact on the Fund’s liquidity.

 

The Fund’s capital consists of the capital contributions of the members as increased or decreased by gains or losses on trading, expenses, interest income, redemptions of Redeemable Units and distributions of profits, if any.

 

For the six months ended June 30, 2010, Fund capital increased 3.73% from $235,900,686 to $244,689,230.  This increase was attributable to the net gain from operations of $7,788,294, coupled with the redemption of 16,339,276 Redeemable Units resulting in an outflow of $23,356,786.  The cash outflow was offset with cash inflow of $24,357,036 due to subscription of 18,217,806 units.  Future redemptions could impact the amount of funds available for investment in commodity contract positions in subsequent months.

 

Critical Accounting Policies

 

Statement of Cash Flows

 

The Fund is not required to provide a Statement of Cash Flows.

 

Investments

 

All investments (including derivatives) are held for trading purposes.  Investments are recorded on trade date and open contracts are recorded at fair value (as described below) at the measurement date.  Investments denominated in foreign currencies are translated into U.S. dollars at the exchange rates prevailing at the measurement date.  Gains or losses are realized when contracts are liquidated.  Unrealized gains or losses on open contracts are included as a component of equity in trading account on the Statements of Financial Condition.  Realized gains or losses and any change in net unrealized gains or losses from the preceding period are reported in the Statements of Operations and Statements of Members’ Capital.

 

Cash Equivalents

 

The Fund considered all highly liquid investments, with a maturity of three months or less when acquired, to be cash equivalents. Cash equivalents were recorded at amortized cost which approximated fair value (Level II see Note 3).  Cash was held at a nationally recognized financial institution.

 

Fair Value Measurements

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  The Fund did not apply the deferral allowed for nonfinancial assets and nonfinancial liabilities measured at fair value on a nonrecurring basis. For more information on our fair value, see Note 3, Fair Value of Investments.

 

18



 

Futures Contracts

 

The Fund trades futures contracts.  A futures contract is a firm commitment to buy or sell a specified quantity of investments, currency or a standardized amount of a deliverable grade commodity, at a specified price on a specified future date, unless the contract is closed before the delivery date or if the delivery quantity is something where physical delivery cannot occur (such as S&P 500 Index), whereby such contract is settled in cash.  Payments (“variation margin”) may be made or received by the Fund each business day, depending on the daily fluctuations in the value of the underlying contracts, and are recorded as unrealized gains or losses by the Fund.  When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed.  Because transactions in futures contracts require participants to make both initial margin deposits of cash or other assets and variation margin deposits, through the futures broker, directly with the exchange on which the contracts are traded, credit exposure is limited.  Realized gains (losses) and changes in unrealized gains (losses) on futures contracts are included in the Statements of Operations and Statements of Changes in Members’ Capital.

 

Forward Foreign Currency Contracts

 

Foreign currency contracts are those contracts where the Fund agrees to receive or deliver a fixed quantity of foreign currency for an agreed-upon price on an agreed future date.  Foreign currency contracts are valued daily, and the Fund’s net equity therein, representing unrealized gain or loss on the contracts as measured by the difference between the forward foreign exchange rates at the dates of entry into the contracts and the forward rates at the reporting date, is included in the Statements of Financial Condition.  Realized gains (losses) and changes in unrealized gains (losses) on foreign currency contracts are recognized in the period in which the contract is closed or the changes occur, respectively and are included in the Statements of Operations and Statements of Changes in Members’ Capital.

 

Interest Rates and Income

 

The Fund currently earns interest based on the prevailing Fed Funds rate plus a spread for short cash positions and minus a spread for long cash positions. The current short term interest rates have remained extremely low when compared with historical rates and thus has contributed negligible amounts to overall Fund performance.

 

Income Taxes

 

No provision for income taxes has been made in the accompanying financial statements as the Member is individually responsible for reporting income or loss based on such Member’s share of the Fund’s income and expenses as reported for income tax purposes.

 

The Fund follows the ASC guidance on accounting for uncertainty in income taxes.  This guidance provides how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements.  This guidance also requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Fund’s financial statements to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority.  Tax positions with respect to tax at the Fund level not deemed to meet the “more-likely-than-not” threshold would be recorded as a tax benefit or expense in the current year.  MLAI has analyzed the Fund’s tax positions and has concluded that no provision for income tax is required in the Fund’s financial statements. The following are the major tax jurisdictions for the Fund and the earliest tax year subject to examination: United States — 2007.

 

19



 

Results of Operations

 

January 1, 2010 through March 31, 2010

 

The Fund experienced a net trading profit before brokerage commissions and related fees of $18,268,907 for the first quarter of 2010.  The profits were primarily attributable to the Fund trading in currencies, interest rates, energy, metals, agriculture and stock indices sectors.

 

The currency sector posted profits to the Fund. Losses were posted to the Fund at the beginning of the first quarter as sales in Japanese yen versus various commodity-linked currencies performed badly due to the fall in commodity prices. The U.S. dollar unexpectedly appreciated against numerous other currencies and on balance this also delivered a negative contribution. Euro sales against the Russian ruble, the Turkish lira, the Mexican peso and the Australian dollar were however successful which was not enough to offset losses. The financial crisis in Greece and other Southern European countries pressed heavily on the euro in February. Therefore, sales of the euro against the Russian ruble, the Japanese yen, the Mexican peso and the Australian dollar resulted in profits being posted to the Fund in the middle of the quarter. The United Kingdom also had to face financial problems and sales in the British pound also resulted in profits being posted to the Fund. Positions in the Canadian dollar against the Japanese yen produced losses for the Fund which was not enough to offset profits. The search in the interest rate markets, resulting in different choices in different countries, ensured for many good trends in the currency markets. In particular, profits were achieved through the strength of the Mexican peso, the Canadian and Australian dollars, the South African rand and the Russian ruble. Many Asian currencies, such as those from Indonesia, Malaysia, India and the Philippines, also performed very well. The quarter ended with profits being posted to the Fund.

 

The interest rate sector posted profits to the Fund.  During the month of January, interest rates fell in both Europe and the United States. The sector was positioned correctly expecting lower interest rates in the United Kingdom, Germany and the United States which resulted in profits being posted to the Fund at the beginning of the first quarter. Increasing concerns about various economies in Europe resulted in European money market interest rates dropping during the month of February. The sector was positioned correctly anticipating declining interest rates and a flatter yield curve in Europe resulting in profits being posted to the Fund in the middle of the quarter. The global interest rate markets were dominated by a political quest to find the right balance. On the one hand, the quest was to stimulate the economy with low interest rates but with rising budget deficits; on the other hand, the quest was to strive to prevent new bubbles and implement (forced) tighter budget policy. Where this pursuit pointed to a certain direction, as in South Korea, Australia and Italy, gains were earned from the resulting trends. Elsewhere, the outcome was a variety of limited losses resulting in losses being posted to the Fund at the end of the quarter.

 

The energy sector posted profits to the Fund. Purchases of crude oil, gasoline, heating oil and gas oil all lost money after prices fell due to less favorable economic outlooks. Therefore, losses were posted to the Fund at the beginning of the quarter. Most energy market prices turned mid-February, so losses were felt on short positions in crude oil, gas oil and gasoline. Natural gas prices did however continue falling so short positions earned good results but not enough to offset losses being posted to the Fund in the middle of the quarter. Significantly lower electricity prices were seen in March and, associated with this, a decline in gas prices. On the opposite side, prices of crude oil and its derivatives in fact rose resulting in profits being posted to the Fund at the end of the quarter.

 

20



 

The metals sector posted profits to the Fund.  Various metal prices depreciated in January which led to losses on long positions in copper, aluminum and silver resulting in losses being posted to the Fund. Gold purchases were profitable but not enough to offset losses being posted to the Fund in the middle of the quarter. The commodity markets experienced a variety of different trends with base metals prices increasing resulting in profits. The quarter ended with profits being posted to the Fund

 

The agriculture sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the quarter. Long positions in corn performed disappointingly due to corn prices collapsing after it became known that the United States corn harvest in 2009 was higher than expected. These losses were partially compensated through gains earned with soybeans and wheat sales. With sugar prices continuing their rise in January, long positions were profitable. The increase in sugar prices came to an end in early February and existing long positions suffered. Short positions in soybeans also yielded a loss resulting in losses being posted to the Fund in the middle of the quarter. The commodity markets experienced a variety of different trends. Also, base metals and cattle prices increased, while the grain markets weakened. Through this mixture of trends and their diversifying character, the agriculture sector posted profits to the Fund at the end of the quarter.

 

Stock indices posted profits to the Fund.  The stock markets continued their way upwards during the beginning of 2010. The enthusiasm did waver after President Obama announced that banks’ abilities to take on risk would be restricted. A sizable correction followed, so profits already earned in several indices evaporated. The losses suffered were especially felt in Australia, South Korea, Hong Kong and Canada. The sector closed with losses being posted to the Fund in January. During the beginning of February the stock markets fell further, but then recovered and stabilized. Small losses were posted to the Fund with positions in the Australian, Swedish and Turkish indices. On the contrary, sales in the Italian index produced a small profit. In general there seemed to be a lack of clear trends in this sector which resulted in losses being posted to the Fund in the middle of the quarter. The returning confidence in a recovering global economy was accompanied by gently rising equity markets and a falling expected volatility. Profits were posted to the Fund through purchases in particular in the United States, Canada, Mexico, Japan, Thailand, Malaysia, Sweden, Hungary, Switzerland, United Kingdom, Germany and several European sector indices. Also, selling positions in the volatility index generated gains. The quarter ended with profits being posted to the Fund.

 

April 1, 2010 through June 30, 2010

 

The Fund experienced a net trading loss of $7,099,710 before commissions and related fees in the second quarter of 2010. The Fund’s profits were primarily attributable to the interest rate and metals sectors posting profits. The agriculture, currency, stock indices and energy sectors posted losses.

 

The interest rate sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the quarter as the unrest during the second half of April led to a flight to quality. The major trends in March continued in April: strong equities, a weak U.S dollar and euro and strong metals and liquid energy products. In the second half of April these trends were interrupted in response to major events. The events were the closing of European airports due to the volcano ash problems, the indictment against Goldman Sachs by the Securities and Exchange Commission and when Standard & Poor downgraded Greece and Portugal. Purchases of European and American government bonds offered protection against the sharp price fluctuations. Buys of Japanese and Korean state debt paper even generated profits. The money market interest rates showed a more variable picture with mixed results. During the extreme events in the first week of May, purchases of safe government bonds offered traditional protection as profits were posted to the Fund in the middle of the quarter. These positions not only provided a profit in the first week of May but also contributed through the month. The pessimistic mood in Europe was accompanied by a flight to government bonds, particularly non-

 

21



 

euro-denominated. Positions anticipating this development benefitted from the rising prices of British, American, Mexican, Japanese and Australian paper resulting in profits being posted to the Fund at the end of the quarter.

 

The metals sector posted profits to the Fund. The prices of base metals did not show any recovery after the major events in April which posted losses for the Fund but were offset by existing long positions in precious metals resulting in profits being posted to the Fund at the beginning of the quarter. The month of May began with a very difficult first week, which ultimately determined the month-end result.  Concerns continued in April about the euro spilled over to the commodity markets in the beginning of May. The fear was that the instability in Europe would on a larger scale be harmful to economic growth. Purchases of gold and silver provided similar protection as bonds, protection against the sharp price fluctuations resulting in profits being posted to the Fund in middle of the quarter. Precious metals continued to appreciate in June resulting in profits being posted to the Fund at the end of the quarter.

 

The agriculture sector posted losses to the Fund. Sales in sugar and purchases in soybeans posted profits to the Fund which were offset by losses in short positions in corn and wheat resulting in losses posted to the Fund at the beginning of the quarter.  Losses were posted to the Fund in the middle of the quarter due to long positions in soybeans. The only true excitement in June was found in the coffee market. Reports regarding smaller than expected supplies drove prices up in two weeks time. This was unfavorable for a short position in Robusta coffee, but this loss was more than offset by gains on long positions in the Arabica flavor. Very nice trends were also seen in a few very small commodity markets, such as United States rice, European rapeseed and South African maize. These were profited from to the extent that the size of these markets allowed. Unfortunately the larger commodity markets offered fewer opportunities resulting in losses being posted to the Fund at the end of the quarter. Cotton prices fell immediately after new highs had been reached.

 

The currency sector posted losses to the Fund. Profits were posted to the Fund at the beginning of the quarter due to purchases of the Philippine peso and the Malaysian ringgit contributed to the result. In South America, a firm Brazilian real together with purchases in the Mexican peso also contributed to profits being posted to the Fund. Long positions in Turkish lira, Russian ruble and the Australian and New Zealand dollar also added to the overall positive result. Losses were posted to the Fund in the middle of the quarter. The carry trades were under the most pressure during the events in the first part of the month of May.  In the final weeks of May, purchases of the Brazilian real and Turkish lira and sales of Swiss francs contributing to limiting the losses posted to the Fund in the middle of the quarter. There were no major gains or losses recorded in any position during the month of June. For various reasons the trading programs did not or hardly participate in the rise of the Swiss franc against other European currencies, but they did participate in the British pound. In the other currency pairs, the outcome was exactly what a trend following strategy pursues in a sideways environment: a limited number of positions with a slight loss resulting in losses being posted to the Fund at the end of the quarter.

 

The stock indices posted losses to the Fund. Losses were posted to the Fund at the beginning of the quarter. The major events in the second half of April, the closing of European airports due to the volcano ash problems, the indictment against Goldman Sachs by the Securities and Exchange Commission and again, ten days later when Standard & Poor downgraded Greece and Portugal were strongly felt in the stock markets. Many equity indices, especially European, did not recover from these shocks and purchases generated losses to the Fund. Indices that showed more resistance, like Sweden, Turkey, Malaysia and Singapore, were able to remain profitable. The markets in the United States, especially in the small and midcap indices, showed the highest resilience. However, the profits could not fully offset the losses posted to the Fund in April.  Purchases of mostly non-euro equity markets suffered harshly in the first week of May. In the second

 

22



 

half of the month, a small portion of that loss was made up with more balanced positions but not enough to offset losses resulting in losses being posted to the Fund in the middle of the quarter. The limited positions held in the equity markets in June were the most affected by the varying moods. When optimism in Southeast Asia emerged, losses were suffered on short positions in Hong Kong and Singapore. When this optimism did not push onwards, carefully built up long positions in Europe were also hurt. In the last days of June, small profits on American short positions could not prevent the losses posted to the Fund at the end of the quarter.

 

The energy sector posted losses to the Fund. Purchases in liquid energy products and emission rights resulted in profits posted to the Fund at the beginning of the quarter. Due to the declining prices in the energy markets, which started in the beginning of May, purchases of crude oil, heating oil and gasoline provided the biggest contribution to the negative outcome of this sector resulting in losses posted to the Fund in the middle of the quarter. The downward trends in the oil markets, initialized in May, did not continue in June resulting in losses being posted to the Fund.

 

January 1, 2009 through March 31, 2009

 

The Fund experienced a net trading loss before brokerage commissions and related fees in the first quarter of 2009 of $5,404,601.  Losses were primarily attributable to the Fund’s energy sector posting gains while the metals, stock indices, currencies, agriculture and interest rate sectors posted losses.

 

The energy sector posted profits for the Fund. Natural gas prices trended downwards at the beginning of the quarter which the Fund took advantage of through various short positions resulting in profits being posted for the Fund. Profits continued to be posted to the Fund in the middle of the quarter mainly earned by natural gas and heating oil sales. Disappointing results from heating oil sales were more than compensated for through profits being posted to Fund at the end of the quarter resulting from natural gas sales.

 

The metals sector posted losses for the Fund. Sales in precious and base metals were basically uneventful except for aluminum which returned profits for the Fund at the beginning of the quarter. Profits were posted to the Fund in the middle of the quarter due to long positions in gold as investors were buying gold in mass due to their waning confidence in the financial system pushing prices upwards. The quarter ended with losses being posted to the Fund as previous sales of lead and zinc had negative results. Also, the price of gold could not hold its upward trend which led to additional losses.

 

Stock indices posted losses for the Fund.  Profits were posted to the Fund at the beginning of the quarter. New optimism almost let the stock markets stage a recovery, but too much doubt still persisted. These mixed sentiments and its translation to the markets was not an ideal environment for clear trends to flourish. Many existing positions remained short but, along with some new short positions, did not produce any noteworthy results. Profits were posted to the Fund in the middle of the quarter due to various short positions, especially in Europe. The main contributions came from Spain, Italy and Poland. Due to volatility in the markets losses were posted to the Fund at the end of the quarter. A sale in the pan-European utilities index added to the gains, while a losing position in Sweden was the only exception in Europe. Losses in Taiwan were more than compensated by profits in Australia and South Africa. After reaching new lows during the first few days of March, the stock markets showed a strong recovery. Sales in both geographic and industry orientated indices lost money. The poorest performers were China, South Korea, South Africa and Australia.

 

23



 

The currency sector posted losses for the Fund. Losses were posted to the Fund at the beginning of the quarter. Shortly after the year started, several trend reversals were seen as the U.S. dollar strengthened against various currencies. Some of these movements hurt existing positions, such as long positions in South African rand versus the U.S. dollar and the euro plus a long position in the Turkish lira against the U.S. dollar.  The Canadian dollar showed some extra strength in the beginning of January as it followed crude oil prices upwards. This had a negative impact on Canadian dollar sales versus the U.S. dollar and the euro. The Russian government tried to control the ruble’s depreciation during the month of January month by expanding its basket trading band but the currency still fell faster than desired. Therefore, ruble sales and also Hungarian forint sales, due to the Eastern European currencies still being associated with Russia, earned profits versus the euro.  Profits were posted to the Fund in the middle of the quarter. The weakness of the Swedish crown was taken advantage of through sales versus the Norwegian crown and the U.S. dollar. Emerging market currencies also felt pressure as sales in the Taiwan and Singapore dollars and the Colombian peso were also profitable for the Fund. The U.S. dollar appreciated against the currencies of the more developed countries with various positions earning gains as a consequence. The announced quantitative easing in the United States abruptly ended the upward march of the U.S. dollar. This movement was the most important cause of the losses being posted to the Fund at the end of the quarter. Purchases of U.S. dollars versus various emerging and developed currencies suddenly dropped. Euros sold against Hong Kong dollars did not deliver the desired result posting losses for the Fund. Sales of Turkish lira against euros, together with purchases of South African rand versus various other currencies proved to be the top positive exceptions which were not enough to offset the losses posted to the Fund.

 

The agriculture sector posted losses for the Fund. Losses were posted to the Fund at the beginning of the quarter due to volatility in the markets. Profits were posted to the Fund in the middle of the quarter. The Fund profited from the downward trends in wheat and soybeans. Sugar was one of the few commodities which ended the month higher which played out well for purchased positions. The quarter ended with losses being posted to the Fund. The financial market recovery, the weakening U.S. dollar and unrest amongst farmers in Argentina, an important agro-exporter, were the right ingredients for a turnaround in grain prices. Short positions in soybeans, soybean meal, corn and wheat suffered losses. Prices of gold and sugar could not hold their upward trend which led to additional losses being posted to the Fund.

 

The interest rate sector posted losses for the Fund. Losses were posted for the Fund at the beginning of the quarter. The interest rate markets looked to be following on from last year with their upward trends. However, considerations that the crisis was perhaps moving a step closer to being under control reversed these movements. Long capital market positions in Japan, United Kingdom, United States and Canada all suffered losses. Short positions in Europe also failed to add gains. Losses were posted to the Fund in the middle of the quarter. Downward pressure was placed on rates due to the somber outlook of the economy. On the other hand, upward pressure was put on rates due to serious questions being asked about the expensive financing plans of governments and their negative implications. A purchase of South Korean government debt generated a loss plus various positions in the British money market also did not bring the desired result. Losses were posted to the Fund at the end of the quarter. Although the market had considered an announcement of the U.S. Federal Reserve to use quantitative easing was still a surprise when they announced it. Interest rate markets reacted heavily whereby positions counting on lower rates in Europe than in the U.S. suffered losses. Purchases of government debt in Germany, Japan and South Korea booked a negative result and positions in Australia also posted losses for the Fund.

 

24



 

April 1, 2009 through June 30, 2009

 

The Fund experienced a net trading profit before brokerage commissions and related fees in the second quarter of 2009 of $ 1,092,592.  Profits were primarily attributable to the Fund’s currency, agriculture, and stock indices sectors posting gains while the metals, interest rates and energy sectors posted losses.

 

The currency sector posted profits for the Fund. Profits were posted to the Fund at the beginning of the quarter due to currencies of various commodity rich countries as a rising trend in positions in South Africa, Russia, Australia, Brazil and Colombia against major currencies profited from this move. Purchases of Mexican pesos were initially beneficial however, at the end of April the pesos was strongly affected due to the fear of the Swine Flu outbreak. Also long positions in the Swiss franc and short positions in the Canadian dollar versus the euro proved unprofitable. Profits continued to be posted to the Fund in the middle of the quarter. Many currencies appreciated versus the U.S. dollar mainly caused by the increasing amount of debt of the U.S. government. In South America, buying of Colombian pesos, Brazilian real and Mexican pesos against the U.S. dollar posted profits for the Fund. The best earnings within the currency sector were achieved through the buying of “commodity” currencies such as the South African rand and Australian dollars versus various other currencies. Furthermore, long positions in the Russian ruble, the Swiss franc and the Hungarian forint also did well. The only significant loss felt was Turkish liras purchased with euros. The trend where emerging market currencies were appreciating against Western currencies continued its course at the end of the quarter. Profits were posted to the Fund at the end of the quarter with purchases of the Czech koruna, the Hungarian forint and the South African rand. The Swiss central bank intervention led to a sharp fall in the value of the Swiss franc, which was unfavorable for positions versus the U.S. dollar but favorable for short positions against other European currencies. British pounds bought with U.S. and Canadian dollars were also profitable for the Fund.

 

The agriculture sector posted profits for the Fund. Profits were posted to the Fund at the beginning of the quarter. Short positions in corn turned negative when the market price reversed after Russia and China declared an import stop for American pig meat. However, these losses were more than compensated for through profits from purchases in the soy complex and sales in hogs. Profits continued to be posted to the Fund in the middle of the quarter as sugar buying delivered profits. Corn sales caused losses but were more than made up for with purchases in soybeans and soybean meal. Profits continued to be posted to the Fund at the end of the quarter as long coffee positions experienced losses but were later compensated with gains achieved with short corn and wheat positions. Cattle sales experienced losses which were made up for through short positions in the lean hog markets.

 

The stock indices posted profits for the Fund. Profits were posted to the Fund at the beginning of the quarter as equity prices continued their course of recovery from the previous month. Long positions in Asia and North America, especially in Taiwan and South Korea generated profits to the Fund while short positions in Europe, mostly limited in size, posted losses to the Fund. Profits were posted to the fund in the middle of the quarter due to the majority of indices worldwide ended the month higher. In Asia, long positions in Taiwan and China made the highest contributions to the profit earned. Purchases of the Indian index also did well, partially due to the positive sentiment following the election results. In Europe, profits being posted to the Fund were achieved by purchases in the Netherlands and in the pan-European raw material sector index. Losses were posted to the Fund at the end of the quarter. In Asia, long positions in Hong Kong and China earned gains and short positions in Taiwan suffered losses. Losses were also posted to the Fund due to purchases of German indices and in the pan-European oil and gas sector indices.

 

25



 

The metals sector posted losses for the Fund. Losses were posted to the Fund at the beginning of the quarter.  Short positions in aluminum and nickel as well as a long position in silver produced losses. Profits were posted to the Fund in the middle of the quarter due to long positions in gold, tin and zinc. The quarter ended with losses being posted to the Fund due to gold purchases and aluminum sales both led to losses.

 

The interest rate sector posted losses for the Fund. Losses were posted to the Fund at the beginning of the quarter. The expectation of further buying of debt paper by the U.S. Federal Government could not outweigh the increasing strength shown in the equity markets. As such, various interest rate markets kept losing ground and this led to losses in long positions in the U.S. money and capital market products. South Korean government bonds however showed an uptrend, which resulted in profits being posted to the Fund. This uptrend could not outweigh the losses being posted to the Fund. Profits were posted to the Fund in the middle of the quarter. An improved economic outlook and the first creeping doubts regarding the credit ratings of the United States and the United Kingdom governments both led to a steepening of the interest rate curve. Various positions in the U.S. money markets played out successfully on this development. Purchases of South Korean and German long term government debt were therefore loss-makers. These losses were however more than compensated for by sales in Australian, U.S. and United Kingdom debt. Losses were posted to the Fund at the end of the quarter. The steepening trend of the interest rate curve accelerated during the first few days of June. Doubts over the economic situation however abruptly broke this trend. European positions anticipating a flattening of the curve were unfortunately not able to perform well. Purchases of American, British and German government bonds were loss-making. In the Pacific region, sales of Australian state bonds and later buying of Japanese obligations resulted in profits being posted to the Fund. Due to spawning doubts regarding the credit-worthiness of the American government, profits were earned with the relative weakness of the U.S. treasuries. However, this was not enough to outweigh the losses being posted to the Fund as the quarter ended.

 

The energy sector posted losses for the Fund. Profits were posted to the Fund at the beginning of the quarter resulting from sales of natural gas. Losses were posted to the Fund in the middle of the quarter Various fossil fuel prices rose this month as the U.S. dollar weakened and the economic outlook was perceived to be improving. Sales in natural gas and heating oil therefore suffered significant losses but were partially compensated with gasoline and crude oil buying. The quarter ended with losses being posted to the Fund due to sales in natural gas.

 

The Fund has no applicable off-balance sheet arrangements or tabular disclosure of contractual obligations of the type described in Items 303(a)(4) and 303(a)(5) of Regulation S-K.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Introduction

 

The Fund is a speculative commodity pool. The market sensitive instruments held by it are acquired for speculative trading purposes and all or substantially all of the Fund’s assets are subject to the risk of trading loss.  Unlike an operating company, the risk of market sensitive instruments is integral, not incidental, to the Fund’s main line of business.

 

Market movements result in frequent changes in the fair market value of the Fund’s open positions and, consequently, in its earnings and cash flow. The Fund’s market risk is influenced by a wide variety of factors, including the level and volatility of interest rates, exchange rates, equity price levels, the market value of financial instruments and contracts, the diversification effects among the Fund’s open positions and the liquidity of the markets in which it trades.

 

26


 


 

The Fund, under the direction of the trading advisors, rapidly acquires and liquidates both long and short positions in a wide range of different markets.  Consequently, it is not possible to predict how a particular future market scenario will affect performance, and the Fund’s past performance is not necessarily indicative of its future results.

 

Value at Risk is a measure of the maximum amount which the Fund could reasonably be expected to lose in a given market sector. However, the inherent uncertainty of the Fund’s speculative trading and the recurrence in the markets traded by the Fund of market movements far exceeding expectations could result in actual trading or non-trading losses far beyond the indicated Value at Risk or the Fund’s experience to date (i.e., “risk of ruin”). In light of the foregoing, as well as the risks and uncertainties intrinsic to all future projections, the quantifications included in this section should not be considered to constitute any assurance or representation that the Fund’s losses in any market sector will be limited to Value at Risk or by the Fund’s attempts to manage its market risk.

 

Quantifying The Fund’s Trading Value At Risk

 

Quantitative Forward-Looking Statements

 

The following quantitative disclosures regarding the Fund’s market risk exposures contain “forward-looking statement” within the meaning of the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934).  All quantitative disclosures in this section are deemed to be forward-looking statements for purposes of the safe harbor, except for statements of historical fact.

 

The Fund’s risk exposure in the various market sectors traded by Transtrend is quantified below in terms of Value at Risk.  Due to the Fund’s fair value accounting, any loss in the fair value of the Fund’s open positions is directly reflected in the Fund’s earnings (realized or unrealized) and cash flow (at least in the case of exchange-traded contracts in which profits and losses on open positions are settled daily through variation margin).

 

Maintenance margin requirements have been used by the Fund as the measure of its Value at Risk.  Maintenance margin requirements are set by exchanges to equal or exceed the maximum loss in the fair value of any given contract incurred in 95%-99% of the one-day time periods included in the historical sample (generally approximately one year) researched for purposes of establishing margin levels.  The maintenance margin levels are established by dealers and exchanges using historical price studies as well as an assessment of current market volatility (including the implied volatility of the options on a given futures contract) and economic fundamentals to provide a probabilistic estimate of the maximum expected near-term one-day price fluctuation.

 

In the case of market sensitive instruments which are not exchange-traded (almost exclusively currencies in the case of the Fund), the margin requirements for the equivalent futures positions have been used as Value at Risk.  In those rare cases in which a futures-equivalent margin is not available, dealers’ margins have been used.

 

100% positive correlation in the different positions held in each market risk category has been assumed.  Consequently, the margin requirements applicable to the open contracts have been aggregated to determine each trading category’s aggregate Value at Risk.  The diversification effects resulting from the fact that the Fund’s positions are rarely, if ever, 100% positively correlated have not been reflected.

 

27



 

The Fund’s Trading Value at Risk in Different Market Sectors

 

The following table indicates the average, highest and lowest trading Value at Risk associated with the Fund’s open positions by market category for the fiscal period. For the six months ended June 30, 2010 and 2009 the Fund’s average Month-end Net Asset Value was $241,770,462 and $221,317,748 respectively.

 

June 30, 2010

 

 

 

Average Value

 

% of Average

 

Highest Value

 

Lowest Value

 

Market Sector

 

at Risk

 

Capitalization

 

at Risk

 

at Risk

 

 

 

 

 

 

 

 

 

 

 

Agricultural Commodities

 

2,204,722

 

0.91

%

3,644,533

 

1,184,779

 

Currencies

 

7,273,969

 

3.01

%

12,294,354

 

3,996,697

 

Energy

 

8,316,525

 

3.44

%

13,186,378

 

4,060,278

 

Interest Rates

 

3,528,401

 

1.46

%

7,542,633

 

939,365

 

Metals

 

1,398,324

 

0.58

%

3,008,013

 

364,706

 

Stock Indices

 

2,936,046

 

1.21

%

4,603,316

 

1,454,327

 

 

 

 

 

 

 

 

 

 

 

Total

 

25,657,987

 

10.61

%

44,279,227

 

12,000,152

 

 

June 30, 2009

 

 

 

Average

 

% of Average

 

Highest Value

 

Lowest Value

 

Market Sector

 

Value at Risk

 

Capitalization

 

At Risk

 

At Risk

 

 

 

 

 

 

 

 

 

 

 

Agricultural Commodities

 

$

589,102

 

0.27

%

$

1,936,252

 

$

176,741

 

Currencies

 

501,562

 

0.23

%

1,112,839

 

98,339

 

Energy

 

761,212

 

0.34

%

1,310,961

 

147,133

 

Interest Rates

 

15,363,422

 

6.94

%

18,757,370

 

9,699,195

 

Metals

 

39,217

 

0.02

%

82,763

 

4,430

 

Stock Indices

 

695,206

 

0.31

%

1,574,200

 

54,488

 

 

 

 

 

 

 

 

 

 

 

TOTAL

 

$

17,949,721

 

8.11

%

$

24,774,385

 

$

10,180,326

 

 

28



 

Material Limitations on Value at Risk as an Assessment of Market Risk

 

The face value of the market sector instruments held by the Fund is typically many times the applicable maintenance margin requirement (maintenance margin requirements generally ranging between approximately 1% and 10% of contract face value) as well as many times the capitalization of the Fund.  The magnitude of the Fund’s open positions creates a “risk of ruin” not typically found in most other investment vehicles.  Because of the size of its positions, certain market conditions — unusual, but historically recurring from time to time — could cause the Fund to incur severe losses over a short period of time.  The foregoing Value at Risk table — as well as the past performance of the Fund — gives no indication of this “risk of ruin.”

 

Non-Trading Risk

 

Foreign Currency Balances; Cash on Deposit with MLPF&S

 

The Fund has non-trading market risk on its foreign cash balances not needed for margin. However, these balances (as well as the market risk they represent) are immaterial.

 

The Fund also has non-trading market risk on the approximately 90%-95% of its assets which are held in cash at MLPF&S or BlackRock. The value of this cash is not interest rate sensitive, but there is cash flow risk in that if interest rates decline so will the cash flow generated on these monies. This cash flow risk is immaterial.

 

Qualitative Disclosures Regarding Primary Trading Risk Exposures

 

The following qualitative disclosures regarding the Fund’s market risk exposures — except for (i) those disclosures that are statements of historical fact and (ii) the descriptions of how the Fund manages its primary market risk exposures — constitute forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. The Fund’s primary market risk exposures as well as the strategies used and to be used by MLAI and Transtrend for managing such exposures are subject to numerous uncertainties, contingencies and risks, any one of which could cause the actual results of the Fund’s risk controls to differ materially from the objectives of such strategies. Government interventions, defaults and expropriations, illiquid markets, the emergence of dominant fundamental factors, political upheavals, changes in historical price relationships, and an influx of new market participants, increased regulation and many other factors could result in material losses as well as in material changes to the risk exposures and the risk management strategies of the Fund. There can be no assurance that the Fund’s current market exposure and/or risk management strategies will not change materially or that any such strategies will be effective in either the short- or long-term. Investors must be prepared to lose all or substantially all of the time value of their investment in the Fund.

 

The following were the primary trading risk exposures of the Fund as of June 30, 2010, by market sector.

 

Interest Rates

 

Interest rate risk is the principal market exposure of the Fund.  Interest rate movements directly affect the price of derivative sovereign bond positions held by the Fund and indirectly the value of its stock index and currency positions. Interest rate movements in one country as well as relative interest rate movements between countries materially impact the Fund’s profitability. The Fund’s primary interest rate exposure is to interest rate fluctuations in the United States and the other G-7 countries.

 

29



 

However, the Fund also takes positions in the government debt of smaller nations e.g., Australia. MLAI anticipates that G-7 interest rates will remain the primary market exposure of the Fund for the foreseeable future.

 

Currencies

 

The Fund trades in a number of currencies. The Fund does not anticipate that the risk profile of the Fund’s currency sector will change significantly in the future. The currency trading Value at Risk figure includes foreign margin amounts converted into U.S. dollars with an incremental adjustment to reflect the exchange rate risk of maintaining Value at Risk in a functional currency other than U.S. dollars.

 

Stock Indices

 

The Fund’s primary equity exposure is to S&P 500, Nikkei and German DAX equity index price movements. The Fund is primarily exposed to the risk of adverse price trends or static markets in the major U.S., European and Asian indices.

 

Metals

 

The Fund’s metals market exposure is to fluctuations in the price of precious and non-precious metals.

 

Agricultural Commodities

 

The Fund’s primary agricultural commodities exposure is to agricultural price movements which are often directly affected by severe or unexpected weather conditions. Soybeans, grains, and livestock accounted for the substantial bulk of the Fund’s agricultural commodities exposure as of June 30, 2010. However, it is anticipated that the Fund will maintain an emphasis on cotton, grains and sugar, in which the Fund has historically taken its largest positions.

 

Energy

 

The Fund’s primary energy market exposure is to natural gas and crude oil price movements, often resulting from political developments in the Middle East. Oil prices can be volatile and substantial profits and losses have been and are expected to continue to be experienced in this market.

 

Qualitative Disclosures Regarding Non-Trading Risk Exposure

 

The following were the only non-trading risk exposures of the Fund as of June 30, 2010.

 

Foreign Currency Balances

 

The Fund’s primary foreign currency balances are in Japanese yen, Swedish krona and Euros.

 

U.S. Dollar Cash Balance

 

The Fund holds U.S. dollars only in cash at MLPF&S or BlackRock. The Fund has immaterial cash flow interest rate risk on its cash on deposit with MLPF&S in that declining interest rates would cause the income from such cash to decline.

 

30



 

Item 4. Controls and Procedures

 

MLAI, the Manager of ML Transtrend DTP Enhanced FuturesAccess LLC, with the participation of the Manager’s Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Act of 1934) with respect to the Fund as of the end of the period covered by this quarterly report, and, based on this evaluation, has concluded that these disclosure controls and procedures are effective. No change in internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) occurred during the quarter ended June 30, 2010 that has materially affected, or is reasonably likely to materially affect, the Fund’s internal control over financial reporting.

 

PART II - OTHER INFORMATION

 

Item 1.  Legal Proceedings

 

None.

 

Item 1A.  Risk Factors

 

There are no material changes from risk factors as previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2009, filed with the Securities and Exchange Commission on March 31, 2010.

 

31



 

Item 2.            Unregistered Sales of Equity Securities and Use of Proceeds

 

(a)   Issuance to accredited investors pursuant to Regulation D and Section 4(6) under the Securities Act.  The selling agent of the following Class of Units was MLPF&S.

 

CLASS A

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

Jan-10

 

$

48,749

 

42,613

 

$

1.1440

 

Feb-10

 

119,923

 

110,876

 

1.0816

 

Mar-10

 

65,325

 

59,521

 

1.0975

 

Apr-10

 

68,247

 

56,221

 

1.2139

 

May-10

 

210,735

 

169,879

 

1.2405

 

Jun-10

 

367,568

 

314,645

 

1.1682

 

Jul-10

 

97,835

 

83,914

 

1.1659

 

 

CLASS C

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

Jan-10

 

$

343,994

 

318,307

 

$

1.0807

 

Feb-10

 

102,999

 

100,890

 

1.0209

 

Mar-10

 

572,145

 

552,744

 

1.0351

 

Apr-10

 

358,997

 

313,836

 

1.1439

 

May-10

 

1,087,992

 

931,500

 

1.1680

 

Jun-10

 

265,855

 

241,906

 

1.0990

 

Jul-10

 

483,993

 

441,640

 

1.0959

 

 

CLASS D

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

Jan-10

 

$

 

 

$

0.9097

 

Feb-10

 

 

 

0.8612

 

Mar-10

 

 

 

0.8749

 

Apr-10

 

 

 

0.9689

 

May-10

 

 

 

0.9914

 

Jun-10

 

 

 

0.9348

 

Jul-10

 

 

 

0.9341

 

 

CLASS I

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

Jan-10

 

$

 

 

$

1.1369

 

Feb-10

 

9,999

 

9,298

 

1.0754

 

Mar-10

 

 

 

1.0915

 

Apr-10

 

90,544

 

74,972

 

1.2077

 

May-10

 

 

 

1.2346

 

Jun-10

 

79,998

 

68,780

 

1.1631

 

Jul-10

 

40,000

 

34,447

 

1.1612

 

 

CLASS DS

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

Jan-10

 

$

8,164,872

 

5,858,835

 

$

1.3936

 

Feb-10

 

5,399,875

 

4,092,985

 

1.3193

 

Mar-10

 

468,128

 

349,271

 

1.3403

 

Apr-10

 

 

 

1.4843

 

May-10

 

 

 

1.5188

 

Jun-10

 

6,014,301

 

4,199,637

 

1.4321

 

Jul-10

 

173,268

 

121,082

 

1.4310

 

 

CLASS DT

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

Jan-10

 

$

 

 

$

1.4551

 

Feb-10

 

116,743

 

84,676

 

1.3787

 

Mar-10

 

 

 

1.4019

 

Apr-10

 

 

 

1.5538

 

May-10

 

 

 

1.5912

 

Jun-10

 

400,047

 

266,414

 

1.5016

 

Jul-10

 

 

 

1.5017

 

 


(1) Beginning of the month Net Asset Value

 

Class A Units are subject to sales commission paid to MLPF&S ranging from 1.0% to 2.5%. Class D and Class I Units are subject to sales commissions up to 0.50%. The rate assessed to a given subscription is based upon the subscription amount. Sales commissions are directly deducted from subscription amount. Class C, Class DS and Class DT Units are not subject to any sales commissions.

 

(b)         None.

(c)          None.

 

32



 

Item 3.                                     Defaults Upon Senior Securities

 

None.

 

Item 4.                                     (Removed and Reserved)

 

Item 5.                                     Other Information

 

None.

 

Item 6.                                     Exhibits

 

The following exhibits are filed herewith to this Quarterly Report on Form 10-Q:

 

31.01 and

31.02                                             Rule 13a-14(a)/15d-14(a) Certifications

 

Exhibit 31.01

and 31.02                      Are filed herewith.

 

32.01 and

32.02                                             Section 1350 Certifications

 

Exhibit 32.01

and 32.02                      Are filed herewith.

 

33



 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

ML TRANSTREND DTP ENHANCED FUTURESACCESS LLC.

 

 

 

 

 

 

 

 

 

 

By:

MERRILL LYNCH ALTERNATIVE

 

 

 

INVESTMENTS LLC

 

 

 

(Manager)

 

 

 

 

 

 

 

 

Date: August 13, 2010

 

By:

/s/ JUSTIN C. FERRI

 

 

 

Justin C. Ferri

 

 

 

Chief Executive Officer, President and Manager

 

 

 

(Principal Executive Officer)

 

 

 

 

 

 

 

 

Date: August 13, 2010

 

By:

/s/ BARBRA E. KOCSIS

 

 

 

Barbra E. Kocsis

 

 

 

Chief Financial Officer

 

 

 

(Principal Financial and Accounting Officer)

 

34