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EXCEL - IDEA: XBRL DOCUMENT - ML Transtrend DTP Enhanced FuturesAccess LLCFinancial_Report.xls

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-K

 

x  Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the fiscal year ended: December 31, 2011

 

or

 

o  Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Commission file number: 0-52701

 

ML TRANSTREND DTP ENHANCED FUTURESACCESS LLC

(Exact name of registrant as specified in its charter)

 

Delaware

 

30-0408288

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

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)

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Securities registered pursuant to Section 12(g) of the Act: Classes A, C, D, I and M Units of Limited Liability Company Interest

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o  No x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.  Yes o  No x

 

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

 

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

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

 

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

 

Large accelerated filer o

 

Accelerated filer o

 

 

 

Non-accelerated filer x

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

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

 

The Units of the limited liability company interest of the registrant are not publicly traded. Accordingly, there is no aggregate market value for the registrant’s outstanding equity that is readily determinable.

 

As of February 29, 2012 Units of limited liability company interest with an aggregate Net Asset Value of $211,397,260 were outstanding and held by non-affiliates.

 

Documents Incorporated by Reference

 

The registrant’s 2011 Annual Report and Reports of Independent Registered Public Accounting Firms, the annual report to security holders for the year ended December 31, 2011, is incorporated by reference into Part II, Item 8, and Part IV hereof and filed as an Exhibit herewith. Copies of the annual report are available free of charge by contacting Alternative Investments Client Services at 1-866-MER-ALTS.

 

 

 



 

ML TRANSTREND DTP ENHANCED FUTURESACCESS LLC

 

ANNUAL REPORT FOR 2011 ON FORM 10-K

 

Table of Contents

 

 

 

PAGE

 

PART I

 

 

 

 

Item 1.

Business

1

 

 

 

Item 1A.

Risk Factors

9

 

 

 

Item 1B.

Unresolved Staff Comments

18

 

 

 

Item 2.

Properties

18

 

 

 

Item 3.

Legal Proceedings

18

 

 

 

Item 4.

Mine Safety Disclosures

18

 

 

 

 

PART II

 

 

 

 

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

18

 

 

 

Item 6.

Selected Financial Data

20

 

 

 

Item 7.

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

28

 

 

 

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

40

 

 

 

Item 8.

Financial Statements and Supplementary Data

44

 

 

 

Item 9.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

44

 

 

 

Item 9A.

Controls and Procedures

44

 

 

 

Item 9B.

Other Information

45

 

 

 

 

PART III

 

 

 

 

Item 10.

Directors, Executive Officers and Corporate Governance

46

 

 

 

Item 11.

Executive Compensation

48

 

 

 

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

48

 

 

 

Item 13.

Certain Relationships and Related Transactions, and Director Independence

49

 

 

 

Item 14.

Principal Accounting Fees and Services

50

 

 

 

 

PART IV

 

 

 

 

Item 15.

Exhibits, Financial Statement Schedules

51

 



 

PART I

 

Item 1:   Business

 

(a)           General Development of Business:

 

ML Transtrend DTP Enhanced FuturesAccess LLC (the “Fund”) was organized under the Delaware Limited Liability Company Act on March 8, 2007 and commenced trading activities in April 2007.  The Fund engages in the speculative trading of commodities.

 

Merrill Lynch Alternative Investments LLC (“MLAI”) is the sponsor (“Sponsor”) and manager (“Manager”) of the Fund.  MLAI is an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. (“ML & Co.”).  Merrill Lynch is a wholly-owned subsidiary of Bank of America.  MLAI is an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. (“ML & Co.”).  ML & Co. is a wholly-owned subsidiary of Bank of America Corporation (“Bank of America”).  Bank of America and its affiliates are sometimes referred to herein as (“BAC”).

 

The Fund is part of the Merrill Lynch FuturesAccessSM Program (“FuturesAccess”), which has been sponsored and designed by MLAI to make available different managed futures and other commodity trading funds (the “FuturesAccess Funds”) to qualified investors.

 

Transtrend B.V (“Transtrend” or the “Trading Advisor”) is the trading advisor of the Fund.  The Trading Advisor is not registered under the Investment Advisers Act of 1940.  The Trading Advisor trades the Transtrend Diversified Trend Program — Enhanced Risk Profile (the “Trading Program”) for the Fund.  The Trading Program is systematic and is based on quantitative analysis. The Trading Program trades futures, options, options on futures, swaps, swaps on futures, and forward contracts on various commodities, see “Trading Advisor’s Trading Program,” below.

 

The Fund issues units of limited liability company interest (“Units”) which are privately offered pursuant to Regulation D of the Securities Act of 1933, as amended (the “Securities Act”).

 

The Fund calculates the Net Asset Value per unit of each Class of Units as of the 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.  MLAI is authorized to make all net asset value determinations.

 

As of December 31, 2011, the Net Asset Value of the Fund was $221,046,309. As of December 31, 2011, the Net Asset Value per Unit was $1.1801 for Class A, $1.0927 for Class C, $0.9670 for Class D, $1.1823 for Class I, $1.4814 for Class DS and $1.5771 for Class DT.  As of December 31, 2011, no Class M Units were issued.

 

Since the Fund began trading activities, the highest month-end Net Asset Value per Unit for Class A was $1.3886 (February 28, 2009) and the lowest was $1.0780 (September 30, 2007).  The highest month-end Net Asset Value per Unit for Class C was $1.3228 (February 28, 2009) and the lowest was $0.9228 (August 31, 2007).  The highest month-end Net Asset Value per Unit for Class D was $1.2380 (February 28, 2009) and the lowest was $0.8612 (January 31, 2010).  The highest month-end Net Asset Value per Unit for Class I was $1.3760 (February 28, 2009) and the lowest was $1.0475 (November 30, 2007). The highest month-end Net Asset Value per Unit for Class DS was $1.6705 (February 28, 2009) and the lowest was $1.0532 (April 30, 2007).  The highest month-end Net Asset Value per Unit for Class DT was $1.7663 (April 30, 2011) and the lowest was $1.0950 (August 31, 2007).

 

(b)           Financial Information about Segments:

 

The Fund’s business constitutes only one segment for financial reporting purposes, i.e., a speculative “commodity pool”. The Fund does not engage in sales of goods or services.

 

1



 

(c)           Narrative Description of Business:

 

Advisory Agreement Term

 

The advisory agreement will continue in effect until December 31, 2012.  Thereafter, the advisory agreement will be automatically renewed for successive one-year periods, on the same terms, unless terminated by either the Trading Advisor or the Fund upon 90 days’ notice to the other party. The advisory agreement may, however, be terminated at any time pursuant to any of the following: (i) the Trading Advisor may terminate the advisory agreement upon notice to the Fund and MLAI in the event that (a) the Fund or MLAI appoints a clearing broker other than a Merrill Lynch affiliate without the prior consent of the Tranding Advisor, or (b) MLAI overrides a trading instruction of the Trading Advisor (other than with respect to MLAI overriding a trade (x) as necessary or advisable for the protection of the Fund or (y) as necessary to fund distributions or redemptions, to pay Fund expenses, or to comply with speculative position limits); and (ii) the Fund and/or MLAI, on the one hand, or the Trading Advisor, on the other, may terminate the advisory agreement as a result of a material breach of the advisory agreement by the other party, after notice of such material breach is provided to the breaching party and such material breach has not been cured within 10 days following the giving of such notice.  The advisory agreement will also terminate immediately if the Fund is terminated and dissolved as determined by MLAI.

 

Trading Advisor’s Trading Program

 

The Trading Program, trades the following instruments on U.S. and non-U.S. exchanges and markets:  futures, options, options on futures, swaps, swaps on futures, and forward contracts on currencies, interest rates, interest rate instruments, commodities, equity-related indices and instruments, and other indices, in all cases traded on regulated markets, such as exchanges, and/or over-the-counter (“OTC”) markets. The instruments that the Trading Advisor trades may also include other derivative, margined instruments, traded on regulated and/or OTC markets.  The Trading Program does not currently trade OTC foreign exchange (“F/X”) and derivatives on individual stocks for the Fund.

 

The applied principles of risk management play a dominant role in the Trading Advisor’s trading methodology.  The Trading Program is designed to pursue capital growth within the limits of a defined risk tolerance.  The Trading Program is essentially based on quantitative analysis of signaled price behavior of instruments traded and therefore not on fundamental analysis.

 

The Trading Program is systematic by nature and requires a consistent application.  Discretionary inputs are not essential to the effectiveness of the program.

 

The applied market approach does not forecast markets or price levels but participates in a systematic and dynamic way in signaled price patterns.  The trading systems of the Trading Program are designed to profit from recurring, non-random characteristics of price behavior in markets.  In all trading systems there are elements which identify and respect the dominant market direction.  The trading systems exploit directional price movement of single instruments and of intra-market and inter-market combinations of instruments.

 

While the Trading Advisor generally will not use discretionary inputs in trading client accounts, in the event of exceptional market circumstances the Trading Advisor may use discretion in an attempt to limit risk to a position or an account.  The use of discretion by the Trading Advisor may have a positive or negative impact on the performance of the Fund.

 

The Trading Program may hold positions in different instruments with one or more trading systems.  The simultaneous application of diverging trading systems, each with a positive profit expectancy over the course of time, can contribute to a different timing of both purchase and sale transactions, thus enhancing smoother performance characteristics when compared to a single trading system.  However, the profitability of trading systems, individually or in combination, cannot be guaranteed and the Fund may incur substantial losses.

 

The Trading Program has two risk profiles:  the Standard Risk Profile and the Enhanced Risk Profile, investable in various currencies.  The Enhanced Risk Profile is approximately 1.5 times the leverage of the Standard Risk Profile.  The Trading Advisor will trade the Trading Program - Enhanced Risk Profile (USD) on behalf of the Fund.  The Trading Program can at any time be net long, short or neutral in any given market.

 

Once the acceptable portfolio components have been defined for an account, the Trading Advisor determines the relative proportions of all components within the portfolio on the basis of signaled correlation over the course

 

2



 

of time, which is re computed from time to time.  Correlation analysis contributes to the estimation of the risk to the portfolio of trends of particular instruments reversing at the same time.

 

The allocation to instruments, i.e., the determination of portfolio components and their relative proportions, varies over the course of time, because, among other reasons, of changes to the list of instruments traded in the Trading Program and because of observed changes in price behavior, correlation and market liquidity.

 

The risk-estimate used by the Trading Advisor is trade-based and takes volatility into account.  This implies an internal risk evaluation by the applied trading systems, which may lead to adjustments of position sizes during the lifetime of a position.  The initial risk evaluation determines the position size at the time of entry.  Signaled price behavior may lead to a gradual addition to or reduction of the initial position.  Significantly adverse price behavior may lead to a partial or full exit for all or a portion of the position, as applicable.  The Trading Advisor reserves the right to temporarily reduce individual or overall position sizes under extreme market conditions of any kind.  These extreme conditions may be real or perceived.  It is possible that such reductions, which have the sole intention of reducing risk, will reduce the profitability which could have been achieved otherwise.

 

The entry/exit tools used by the Trading Advisor may contain both proprietary trend-following and contra-trend elements and include techniques of dynamic profit targets and dynamic stop levels for individual trades.  The trading systems act at specific times or time intervals and upon specific price levels during a market session or during the day.

 

Forward Contracts and Counterparties

 

Markets

 

Although the Trading Advisor’s Trading Program is continually evolving, there were no fundamental or material changes to the Trading Program during the 2011 fiscal year.

 

Currently, the only forward contracts entered into by the Fund are currency forwards.  Merrill Lynch International Bank Ltd. (“MLIB”) is the only counterparty to these forward contracts.  MLIB is an affiliate of Bank of America.  In the future the Fund may enter into other types of forwards and/or use other counterparties.  The standard terms of forward contracts entered into by the Fund are the term, the currency, the exchange rate, the principal amount and, in some cases the definition of a “disruption event,” i.e., a contingency pricing and settlement mechanism if an event occurs that causes the unavailability of the relevant exchange rate.  Forwards are governed by International Swaps and Derivatives Association documentation, and, in some cases, also by EMTA, Inc. documentation.

 

Employees

 

The Fund has no employees.

 

Use of Proceeds and Cash Management Income

 

Subscription Proceeds

 

The Fund’s cash is used as security for and to pay the Fund’s trading losses as well as its expenses and redemptions. The primary use of the proceeds of the sale of the Units is to permit Transtrend to trade on a speculative basis in a wide range of different futures and forwards markets on behalf of the Fund.  While being used for this purpose, the Fund’s assets are also generally available for cash management, as more fully described below under “Cash Assets”.

 

Market Sectors

 

Transtrend applies its proprietary systems to a broadly-diversified portfolio of futures and forward markets pursuant to their Transtrend DTP Enhanced Diversified Program. The Transtrend DTP Enhanced Diversified Program may trade in the following markets:  CBOT, CME, EUREX, IME, LME, LIFFE, MATIF, ME, MEFF, NYMEX, NZFOE, SFE, SIMEX, TIFFE, TSE and may expand to include trading in other markets.

 

The Fund’s commitments to different types of markets — U.S. and non-U.S., regulated and non-regulated — differ substantially from time to time, as well as over time.  The Fund has no policy restricting its relative commitment to any of these different types of markets.

 

3



 

CONDENSED SCHEDULE OF INVESTMENTS

 

The Fund’s investments, defined as Net unrealized profit (loss) on open contracts in the Statements of Financial Condition, as of December 31, 2011 and 2010 are as follows:

 

December 31, 2011

 

 

 

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

 

415

 

$

185,732

 

0.08

%

(1,463

)

$

(628,585

)

-0.28

%

$

(442,853

)

-0.20

%

January 12 - December 12

 

Currencies

 

551

 

273,422

 

0.12

%

(434

)

950,112

 

0.43

%

1,223,534

 

0.55

%

March 12

 

Energy

 

177

 

64,791

 

0.03

%

(1,005

)

3,491,388

 

1.58

%

3,556,179

 

1.61

%

January 12 - December 13

 

Interest rates

 

4,195

 

2,851,470

 

1.29

%

(2,341

)

(225,250

)

-0.10

%

2,626,220

 

1.19

%

March 12 - September 15

 

Metals

 

242

 

(1,005,397

)

-0.45

%

(386

)

1,437,831

 

0.65

%

432,434

 

0.20

%

January 12 - May 12

 

Stock indices

 

297

 

410,970

 

0.19

%

(182

)

(9,261

)

0.00

%

401,709

 

0.19

%

January 12 - May 12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

$

2,780,988

 

1.26

%

 

 

$

5,016,235

 

2.28

%

$

7,797,223

 

3.54

%

 

 

 

December 31, 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

 

1,833

 

$

2,141,844

 

0.84

%

(103

)

$

(88,116

)

-0.03

%

$

2,053,728

 

0.81

%

February 11 - February 12

 

Currencies

 

1,694

 

2,107,599

 

0.82

%

(1,210

)

2,412,863

 

0.94

%

4,520,462

 

1.76

%

March 11

 

Energy

 

657

 

1,274,637

 

0.50

%

(396

)

(1,182,550

)

-0.46

%

92,087

 

0.04

%

January 11 - November 11

 

Interest rates

 

2,190

 

174,275

 

0.07

%

(1,729

)

(474,801

)

-0.19

%

(300,526

)

-0.12

%

January 11 - December 13

 

Metals

 

667

 

5,050,247

 

1.97

%

(271

)

(2,467,106

)

-0.96

%

2,583,141

 

1.01

%

January 11 - October 11

 

Stock indices

 

2,533

 

189,573

 

0.07

%

(128

)

128,171

 

0.05

%

317,744

 

0.12

%

January 11 - May 11

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

$

10,938,175

 

4.27

%

 

 

$

(1,671,539

)

-0.65

%

$

9,266,636

 

3.62

%

 

 

 

No individual contract’s unrealized profit or loss comprised greater than 5% of Members’ Capital as of December 31, 2011 and 2010.

 

4



 

Market Types

 

The Fund trades on a variety of United States and foreign futures exchanges as well as “over-the-counter”.  Substantially all of the Fund’s off-exchange trading takes place in the highly liquid, institutionally-based currency forward markets.

 

Many of the Fund’s currency trades are executed in the spot and forward foreign exchange (“F/X”) markets (the “FX Markets”) where there are no direct execution costs.  Instead, the participants, banks and dealers in the FX markets, take a “spread” between the prices at which they are prepared to buy and sell a particular currency and such spreads are built into the pricing of the spot or forward contracts with the Fund.

 

Margin

 

When a futures or options on futures position is established, “initial margin” is calculated by the exchange on which the position is listed and deposited with a Futures Commission Merchant (“FCM”) that is a member of the clearinghouse through which transactions on the relevant exchange are cleared.  An FCM must, in turn, deposit initial margin with the clearinghouse, as calculated by the clearinghouse, to secure its obligations to the clearinghouse with respect to the positions of its customers.  The amount of both the trader’s initial margin payment to the FCM and the FCM’s initial margin payment to the clearinghouse are determined on the basis of risk, taking into account the price and volatility of the commodity underlying the position and, in certain cases, the offsetting risks that exist within a portfolio of positions.  On most exchanges, at the close of each trading day “variation margin,” representing the unrealized gain or loss on the open positions, is either credited to or debited from a trader’s account.  A trader must maintain a minimum margin level for each outstanding futures position known as “maintenance margin,” which is set by the relevant exchange and based on the risk of the futures position, often a set percentage of the “initial margin.”  If “variation margin” payments cause a trader’s “initial margin” to fall below “maintenance margin” levels, a “margin call” is made, requiring the trader to deposit additional margin or have its position closed out.  A clearinghouse likewise has “maintenance margin” requirements for member FCMs.  An FCM may require a higher level of “initial margin” and “maintenance margin” from the trader than the clearinghouse requires from the FCM, but generally will not allow lower margin levels.  Margin is also required to be posted with counterparties when making investments through forward, swaps or other OTC instruments.  The counterparties calculate margin based on the risk of the underlying commodity and will deposit margin with each other based on a previously agreed upon schedule.  In general, approximately 5% to 25% of the Fund’s assets are expected to be committed as margin for futures or options on futures positions at any one time, although these amounts could occasionally be substantially higher.  The Fund’s exposure and liability are not limited to the amount placed on margin, but are based on the total value of the futures contracts being traded.  Fund assets not committed to margin will be held in cash or cash equivalents and will earn interest as described below.

 

Custody of Assets

 

Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S”) is the Fund’s futures clearing broker. MLPF&S is an affiliate of Bank of America. Certain of the  Fund’s assets will be held in customer-segregated accounts at MLPF&S or its affiliates in cash or invested in Commodity Futures Trading Commission (“CFTC”) authorized investments for customer funds, including, without limitation, commercial paper, U.S. government and government agency securities, prime non-U.S. government securities, corporate notes and money market funds.  However certain of such assets are not required to be, and generally are not, held in customer segregated accounts.  For example, assets used as collateral for margin trading in the OTC forward markets, including assets held by MLIB as F/X prime broker and counterparty, are typically not segregated.

 

The bank accounts in which MLPF&S deposits Fund cash may be offset accounts, which are non-interest bearing demand deposit accounts maintained with banks unaffiliated with BAC. MLPF&S may in the future elect to maintain accounts of this nature with one or more of its affiliates.  Offset account deposits reduce MLPF&S’ borrowing costs with these banks.  An integral feature of the offset arrangements is that the participating banks specifically acknowledge that the offset accounts are for the benefit of MLPF&S’ customers, not subject to any MLPF&S liability.

 

MLAI, as sponsor of the Fund, has a general policy of maintaining exclusive clearing and prime brokerage arrangements with its BAC affiliates, such as MLPF&S and MLIB.  Other affiliates may from time to time be involved in the clearing, custody or investment of the Fund’s assets, including as prime brokers.

 

Cash Management and Interest

 

The Fund generally will earn interest, as described below, on its cash, which is deemed to include, in addition to actual cash held by the Fund, its “open trade equity” i.e., equity attributable to unrealized gain and loss marked to

 

5



 

market daily on open positions.  Cash is held primarily in U.S. dollars, and to a lesser extent in foreign currencies.  Cash does not include, and the Fund does not earn interest income on, the Fund’s gains or losses on its open forward, commodity option and certain non-U.S. futures positions since these gains and losses are not collected or paid until such positions are closed out.

 

The Fund’s cash may be greater than, less than or equal to the Fund’s Net Asset Value, on which the underlying redemption value of the Units is based, primarily because Net Asset Value reflects all gains and losses on open positions as well as accrued but unpaid expenses.

 

MLPF&S intends to pay interest on the Fund’s cash, irrespective of how such cash is held or invested, at the most favorable rate payable by MLPF&S to accounts of BAC affiliates, which will consist of the current federal funds rate of interest minus a spread based on the currency held.  MLPF&S will receive the amount of the spread, in addition to any amounts it receives over the federal funds rate due to its investing activities, as well as any amounts it, or its affiliates, receive in brokerage commissions as described herein.  The Fund receives interest on its cash held in excess of margin.  MLPF&S retains the additional economic benefit derived from possession of the Fund’s cash, which includes the ability to invest such cash throughout cash management programs, which may include investments in vehicles managed or sponsored by MLPF&S or BAC affiliates.

 

MLPF&S, in the course of acting as commodity broker for the Fund, may lend certain currencies to, and borrow certain currencies from the Fund.  In the course of doing so, MLPF&S both retains certain amounts of interest and receives other economic benefits.  In doing so, MLPF&S follows its standard procedures for paying interest on the assets of the commodity pools sponsored by MLAI and other BAC affiliates and traded through MLPF&S.

 

Charges

 

The following table summarizes the charges incurred by the Fund for the years ended December 31, 2011, 2010 and 2009.

 

 

 

2011

 

2010

 

2009

 

Charges

 

Dollar
Amount

 

% of Average
Month-End
Net Assets

 

Dollar
Amount

 

% of Average
Month-End
Net Assets

 

Dollar
Amount

 

% of Average
Month-End
Net Assets

 

Other Expenses

 

$

644,087

 

0.26

%

$

671,538

 

0.28

%

$

572,395

 

0.25

%

Sponsor fees

 

673,816

 

0.27

%

471,939

 

0.19

%

453,477

 

0.20

%

Management fees

 

4,663,195

 

1.86

%

4,406,382

 

1.82

%

3,904,212

 

1.70

%

Performance fees

 

 

0.00

%

1,574,502

 

0.65

%

326

 

0.00

%

Total

 

$

5,981,098

 

2.39

%

$

7,124,361

 

2.94

%

$

4,930,410

 

2.15

%

 

The foregoing table does not reflect:  (i) the bid-ask spreads paid by the Fund on it forward trading, (ii) brokerage commissions, (iii) the benefits which may be derived by BAC from the deposit of certain of the Fund’s U.S. dollar assets maintained at MLPF&S, or (iv) sales commissions payable in connection with the sales of Class A, Class D and Class I Units of the Fund.  Bid-ask spreads and brokerages commissions are components of the trading profit or loss of the Fund rather than a distinct expense item separable from the Fund’s trading; they are netted against realized and unrealized trading gains or losses in determining trading profit or loss.  Benefits derived by BAC from the deposit of the Fund’s assets at MLPF&S are neither a direct expense of the Fund nor readily quantifiable.  Aggregate sales commissions are not included in the table of charges because they are not an expense of the Fund, but rather are paid to MLPF&S out of an investor’s subscription proceeds and therefore reduce the amount invested in the Fund by the investor.

 

The Fund’s average month-end Net Asset Values during 2011, 2010 and 2009 equaled $250,238,270, $242,489,189 and $229,728,184, respectively.

 

During 2011, the interest expense for the Fund was $(17,755), or approximately (0.01)% of the Fund’s average month-end Net Asset Values. During 2010, the Fund earned $474 in interest income, or approximately 0.00% of the Fund’s average month-end Net Asset Values. During 2009, the Fund earned $17,531 in interest income, or approximately 0.01% of the Fund’s average month-end Net Asset Values.

 

6



 

Description of Current Charges

 

Recipient

 

Nature of Payment

 

Amount of Payment

 

 

 

 

 

MLPF&S

 

Brokerage commissions

 

During 2011, 2010 and 2009 the round-turn (each purchase and sale or sale and purchase of a single futures contract) rate of the Fund’s flat-rate Brokerage Commissions were approximately $6.10, $5.64 and $9.58, respectively.

 

 

 

 

 

MLPF&S

 

Use of assets

 

BAC may derive an economic benefit from the deposit of certain of the Fund’s U.S. dollar assets in accounts maintained at MLPF&S.

 

 

 

 

 

MLAI

 

Sponsor fees

 

A flat-rate monthly charge of 0.125 of 1% (1.50% annual rate) on Class A units, flat-rate monthly charge of 0.2083 of 1% (2.50% annual rate) on Class C units, a flat-rate monthly charge of 0.0917 of 1% (1.10% annual rate) on Class I units (including the monthly interest credit and before reduction for accrued month-end redemptions, distributions, brokerage commissions, sponsor fees, management fees or performance fees, in each case as of the end of the month of determination). Class D, Class DS, Class DT and Class M Units do not pay Sponsor fees.

 

 

 

 

 

MLPF&S

 

Sales commissions

 

Class A Units are subject to a 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 0.5%. Sales commissions are deducted from proceeds prior to entering the fund. Shares purchased and reflected in the fund records are net of any commissions charged by MLPF&S. Class C, Class DS, Class DT and Class M Units are not subject to any sales commissions. No sales commission is charged to Class M Units because investors purchasing Class M Units are subject to asset-based fees on BAC managed accounts in which Class M Units are held.

 

 

 

 

 

Merrill Lynch International Bank (“MLIB”) (or an affiliate); Other counterparties

 

Bid—ask spreads

 

Bid—ask spreads are not accounted for separately as an accounting item because bid-ask spreads are an integral part of the price paid or received on all contracts for generally accepted accounting principles.

 

 

 

 

 

MLIB (or an affiliate); Other counterparties

 

EFP differentials

 

Certain of the Fund’s currency trades may be executed in the form of “exchange of futures for physical” transactions, in which a counterparty (which may be MLIB or an affiliate) receives an additional “differential” spread for exchanging the Fund’s cash currency positions for equivalent futures positions.

 

7



 

TRANSTREND

 

Annual Performance Fees

 

25% of any New Trading Profits generated by the Fund as a whole, as of the end of each calendar year. “New Trading Profits” equal any increase in the Net Asset Value of the Fund, prior to reduction for any accrued performance fee, as of the current performance fee or Sponsor fees, calculation date over the Fund’s “High Water Mark.” The “High Water Mark” attributable to the Fund equals the highest Net Asset Value after reduction for the performance fee then paid, as of any preceding performance fee calculation date. Net Asset Value, solely for purposes of calculating the performance fee, does not include any interest income earned by the Fund.

 

 

 

 

 

TRANSTREND and MLAI

 

Management fees

 

All classes pay a flat-rate monthly charge of 0.1667 of 1% of the Fund’s month-end net assets (a 2% annual rate) except for Class DT Units which is charged a 1% annual rate. MLAI receives 50% of the management fees except for Class DT Units.

 

 

 

 

 

Others

 

Operating expense of Fund including audit, legal and tax services

 

Actual payments to third parties.

 

 

 

 

 

MLAI; Others

 

Initial offering costs reimbursed

 

Actual costs incurred.

 

Regulation

 

The CFTC has delegated to the National Futures Association responsibility for the registration of “commodity trading advisors,” “commodity pool operators,” “futures commission merchants,” “introducing brokers” and their respective associated persons, and “floor brokers” and “floor traders.”  The Commodity Exchange Act requires commodity pool operators such as MLAI, commodity trading advisors such as the Trading Advisor and commodity brokers FCMs such as MLPF&S to be registered and to comply with various reporting and record keeping requirements.  CFTC regulations also require FCMs to maintain a minimum level of net capital.  In addition, the CFTC and certain commodities exchanges have established limits referred to as “speculative position limits” on the maximum net long or net short speculative positions that any person may hold or control in any particular futures or options contracts traded on U.S. commodities exchanges.  All accounts owned or managed by the Trading Advisor will be combined for position limit purposes.  The Trading Advisor could be required to liquidate positions in order to comply with such limits.  Any such liquidation could result in substantial costs to the Fund.  In addition, many futures exchanges impose limits beyond which the price of a futures contract may not trade during the course of a trading day, and there is a potential for a futures contract to reach its daily price limit for several days in a row, making it impossible for the Trading Advisor to liquidate a position and thereby experiencing dramatic losses.  Currency forward contracts may become subject to government regulation, see Item 1A “Risk Factors—F/X Trading” and “Regulatory Changes Could Restrict the Fund’s Operations.”

 

Other than in respect of the registration requirements pertaining to the Fund’s securities under Section 12(g) of the Securities Exchange Act of 1934 (the “Securities Exchange Act”), the Fund is generally not subject to regulation by the Securities and Exchange Commission (the “SEC”).  However, MLAI is registered as an “investment adviser” under the Investment Advisers Act of 1940.  MLPF&S is also regulated by the SEC and the Financial Industry Regulatory Authority (“FINRA”).

 

(d)           Financial Information about Geographic Areas

 

The Fund does not engage in material operations in foreign countries, nor is a material portion of the Fund’s revenue derived from customers in foreign countries.

 

The Fund trades on a number of foreign commodity exchanges.  The Fund does not engage in the sales of goods or services.

 

8



 

Item 1A:  Risk Factors

 

Past Performance Not Necessarily Indicative of Future Results

 

There can be no assurance that the Trading Program will produce profitable results.  The past performance of the Fund or Trading Advisor is not necessarily indicative of how the Fund or the Trading Advisor will perform in the future.  There can be no assurance that the Fund will achieve its investment objectives or avoid substantial or total loss.  The Fund may sustain losses in the future under market conditions in which it achieved gains in the past.

 

Volatile Markets; Highly Leveraged Trading

 

Trading in the futures and over-the-counter OTC markets typically results in volatile performance.  Market price levels fluctuate dramatically and may be materially affected by unpredictable factors such as weather and governmental intervention.  The low margin requirements normally required in futures and OTC trading permits an extremely high degree of economic leverage.  This combination of leverage and volatility creates a high degree of risk.  Additionally, although the Trading Advisor may initiate stop-loss orders on certain positions to limit this risk, there can be no assurance that any stop-loss order will be executed or, even if executed, that it will be executed at the desired price or time.

 

Importance of General Market Conditions

 

Neither MLAI nor the Trading Advisor can predict or control overall market or economic conditions.  These conditions, however, can be expected to have a material effect on the performance of the Trading Program.

 

The Fund may incur major losses in the event of disrupted markets and other extraordinary events in which historical pricing relationships become materially distorted.  The risk of loss from pricing distortions is compounded by the fact that in disrupted markets many positions become illiquid, making it difficult or impossible to close out positions against which the markets are moving.  The financing available to the Fund from its banks, dealers and other counterparties is typically reduced in disrupted markets, which may result in substantial losses to the Fund.  Market disruptions may from time to time cause dramatic losses for the Fund and can result in the Trading Advisor’s strategy performing with unprecedented volatility and risk.

 

Trend-Following Systems

 

Many technical trading systems are trend-following.  Trend-following systems generally anticipate that a majority of their trades will be unprofitable and seek to achieve overall profitability by substantial gains made on a limited number of positions.  These strategies are generally only successful in markets in which strong price trends occur.  In stagnant markets in which these trends do not occur, or in “whipsaw markets” in which apparent trends develop but then quickly reverse, trend-following trading systems are likely to incur substantial losses.  Furthermore, the profit potential of trend-following systems may be diminished by the changing character of the markets, which may make historical price data, on which technical trading systems are based, only marginally relevant to future market patterns.

 

Discretionary Strategies

 

The Trading Advisor may utilize a discretionary, rather than systematic, trading strategy.  Discretionary trading advisors may allow emotion to affect trading decisions and may exhibit a lack of discipline in their trading that systematic strategies are designed to avoid.  Relying on subjective trading judgment may produce less consistent results than those obtained by more systematic approaches.

 

Technical Analysis and Trading Systems

 

The Trading Advisor may employ technical analysis and/or technical trading systems.  Technical strategies rely on information intrinsic to the market itself to determine trades, such as prices, price patterns, volume and volatility.  These strategies can incur major losses when factors exogenous to the markets themselves, including political events, natural catastrophes, acts of war or terrorism, dominate the markets.  The widespread use of technical trading systems frequently results in numerous managers’ attempting to execute similar trades at or about the same time, altering trading patterns and affecting market liquidity.

 

9



 

Fundamental Analysis

 

The Trading Advisor’s strategy may rely on fundamental analysis.  Fundamental analysis is premised on the assumption that markets are not perfectly efficient, that informational advantages and mispricing do occur and that econometric analysis can identify trading opportunities.  Fundamental analysis may result in substantial losses if these economic factors are not correctly analyzed, not all relevant factors are identified and/or market forces cause mispricing to continue despite the traders having correctly identified mispricing.  Fundamental analysis may also be more subject to human error and emotional factors than technical analysis.

 

Quantitative Trading

 

The Trading Advisor may engage in quantitative trading.  Quantitative trading strategies are highly complex, and, for their successful application, require relatively sophisticated mathematical calculations and relatively complex computer programs.  These programs anticipate that many of their trades may be unprofitable, seeking to achieve overall profitability through recognizing major profits on a limited number of positions while cutting losing positions quickly.  These trading strategies are dependent upon various computer and telecommunications technologies and upon adequate liquidity in the markets traded.  The successful execution of these strategies could be severely compromised by, among other things, a diminution in the liquidity of the markets traded, telecommunications failures, power loss and software-related “system crashes.”  There are also periods when even an otherwise highly successful system incurs major losses due to external factors dominating the market, such as natural catastrophes and political interventions.  Due to the high trading volume of quantitative trading strategies, the resulting transaction costs may be significant.  In addition, the difference between the expected price of a trade and the price a trade is executed at, or “slippage,” may be significant and may result in losses.

 

Importance of Market Judgment

 

Although the Trading Advisor may use systematic or quantitative valuation models in evaluating the economic components of many prospective trades, the market judgment and discretion of the Trading Advisor’s personnel are often fundamental to the implementation of the Trading Program.  The greater the importance of subjective factors, the more unpredictable a trading strategy becomes.  The Trading Advisor may not have the same access to market information as do certain of its competitors, and the market decisions made by the Trading Advisor will, accordingly, often be based on less information and analysis than those available to competing investors.

 

Derivatives Risks Generally

 

The Trading Advisor may use derivative instruments in implementing the Trading Program.  The market for many types of these derivative instruments is comparatively illiquid and inefficient, creating the potential for substantial mispricing, as well as sustained deviations between theoretical and market value.  In addition, the derivatives market is, in comparison to other markets, a relatively new market, and the events of 2008 and 2009, including the bailout of American International Group, Inc., demonstrated that even the most sophisticated market participants may misunderstand how the market in derivatives will perform during periods of unusual price volatility or instability, market illiquidity, or credit distress.  The primary risks associated with the use of derivatives are model risk, market risk and counterparty risk.

 

The Fund’s investments in OTC derivatives are subject to greater risk of counterparty default and less liquidity than exchange-traded derivatives, although exchange-traded derivatives are subject to risk of failure of the exchange on which they are traded and the clearinghouse through which they are guaranteed.  Counterparty risk includes not only the risk of default and failure to pay mark-to-market amounts and return risk premium, if any, but also the risk that the market value of OTC derivatives will fall if the creditworthiness of the counterparties to those derivatives weakens.

 

The prices of derivative instruments can be highly volatile.  Price movements of derivative instruments are influenced by, among other things, interest rates, changing supply and demand relationships, trade fiscal, monetary and exchange control programs and policies of governments, and national and international political and economic events and policies.  In addition, governments from time to time intervene, directly and by regulation, in certain markets.  This intervention often is intended directly to influence prices and may, together with other factors, cause all of such markets to move rapidly in the same direction because of, among other things, interest rate fluctuations.

 

There was substantial disruption in the derivatives markets related to the bankruptcy of Lehman Brothers Holdings, Inc. and uncertainty relating to the government bailout of American International Group, Inc.  This disruption and uncertainty can cause substantial losses if transactions are prematurely terminated, especially due to default when payment may be delayed or completely lost.  Uncertainties in the derivatives markets continue due to proposed regulatory initiatives, new regulations requiring OTC derivatives clearing, and allegations of inappropriate behavior by market participants to cause

 

10



 

or avoid payments under credit default swaps.  See “Risk of Loss Due to the Bankruptcy or Failure of Counterparties, Custodians, Brokers and Exchanges,” below.

 

F/X Forward Trading

 

The Fund may trade currencies in the F/X Markets, in addition to its trading in the futures markets.  Prospective investors must recognize that the Fund’s OTC currency trading takes place in unregulated markets, rather than on futures exchanges, and may, but does not now, take place through “retail” F/X Markets subject to the jurisdiction of the CFTC or other regulatory bodies.  The responsibility for performing under a particular transaction rests solely with the counterparties to that transaction, not with any exchange or clearinghouse.  As a result, the Fund is exposed to the credit risk of the OTC counterparties with which it trades and deposits collateral, including that of MLIB as the F/X prime broker (the “F/X Prime Broker”).  See “Risk of Loss Due to the Bankruptcy or Failure of Counterparties, Custodians, Brokers and Exchanges,” below.

 

The Fund is also subject to the risk that a forward counterparty may not settle a transaction in accordance with its terms, because the counterparty is unwilling or unable to do so, potentially resulting in significant losses. A counterparty’s failure to perform could occur in respect of an offsetting forward contract on which the Fund remains obligated to perform.  The Fund will not, however, be excused from performance under any forward contracts into which it has entered due to defaults under other forward contracts.  In addition, counterparties generally have the right to terminate trades under a number of circumstances including, for example, declines in the Fund’s net assets and certain “key person” events.  Any premature termination of the Fund’s currency forward trades could result in significant losses for the Fund, because the Fund may be unable to quickly re-establish those trades and may only be able to do so at disadvantageous prices.  Forward market counterparties are under no obligation to enter into forward transactions with the Fund, including transactions through which the Fund is attempting to liquidate open positions.  In addition, the prices offered for the same forward contract may vary significantly among different forward market participants.

 

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Reform Act”) amended the definition of “eligible contract participant,” and the CFTC has announced intentions to interpret that definition in a manner that would require the Fund to limit its currency forward counterparties to a limited set of registered, regulated entities such as FCMs, “retail foreign exchange dealers,” and banks and broker-dealers engaging in “retail foreign exchange transactions.”  Limiting the Fund’s potential currency forward counterparties could lead to the Fund’s bearing higher upfront and mark-to-market margin, less favorable trade pricing, and the possible imposition of new or increased fees.  “Retail forex” markets could also be significantly less liquid than the interbank market.  Moreover, the creditworthiness of the counterparties with whom the Fund may be required to trade could be significantly weaker than the creditworthiness of the F/X Prime Broker and the currency forward counterparties with which the Fund would otherwise engage for its currency forward transactions.

 

The imposition of credit controls by governmental authorities or the implementation of regulations pursuant to the Reform Act might limit forward trading to less than that which MLAI would otherwise recommend, to the possible detriment of the Fund.

 

Trading in Options

 

The Trading Advisor may trade options on futures contracts or options on F/X forward contracts.  Although successful options trading requires many of the same skills as successful futures and forward trading, the risks involved are different.  For example, the assessment of near-term market volatility, which is directly reflected in the price of outstanding options, can be of much greater significance in trading options than it is in many long-term futures strategies.  The use of options can be extremely expensive if market volatility is incorrectly predicted.  A purchaser of options is exposed to the risk of loss of the entire premium paid; a seller, or writer, of call options is exposed to the risk of theoretically unlimited loss, and the seller of put options is exposed to the risk of substantial loss far in excess of the premium received.

 

Exchange of Futures for Physicals

 

The Trading Advisor may engage in exchange of futures for physical (“EFP”) transactions on behalf of the Fund.  As is the case with executing a transaction purely on an exchange or purely in the OTC market, EFP transactions, which are done partially on a futures exchange and partially in the OTC market, involve transaction costs.

 

Physical Commodities Trading in General

 

The Trading Advisor may engage in transactions that involve taking delivery of physical commodity assets such as agricultural commodities, freight, coal, oil, gas and electric power.  These investments are subject to risks that are not

 

11



 

typically directly applicable to other financial instruments, such as:  destruction; loss; industry-specific regulation, such as pollution control regulation; operating failures; and work stoppages.

 

Physical commodities trading, as opposed to commodity futures trading, is substantially unregulated, and if the Fund engages in this type of trading, it will not be assured the same access to these markets as it might have in a regulated context.

 

Exchange Rate Risks; Currency Hedging

 

The Fund may invest and trade in currencies for speculative and/or hedging purposes.  In addition, the Units are denominated, and the Fund values its assets, in U.S. dollars and the Fund may trade and invest in assets denominated in non-U.S. currencies.

 

Currency-related investments are subject to the risk that the value of a particular currency will change in relation to the U.S. dollar, and the exchange rates of currencies may be highly volatile.  Among the factors that may affect currency values are direct government intervention, which is often intended specifically to change currency values, trade balances, the level of short-term interest rates, differences in the relative values of similar assets in different currencies, long-term opportunities for investment and capital appreciation and political developments.

 

While the Trading Advisor may from time-to-time hedge a certain amount of risks associated with currency trading, it is under no obligation to do so.  Even if it chooses to do so, it is not economically feasible and often simply not possible to fully or effectively hedge exchange-rate risks.  In a number of cases, otherwise highly successful investment funds have incurred significant, and in certain instances total, losses due to the decline in the value of the currencies in which their investments were denominated or in which they were invested for speculative purposes.

 

Off-Balance Sheet Risk

 

The Fund may invest in financial instruments with off-balance sheet risk.  These instruments include futures and forward contracts,  swaps and options contracts sold short.  In entering into these contracts, there exists a market risk that the contracts may be significantly influenced by conditions, such as interest rate volatility, resulting in the contracts becoming less valuable.  An off-balance sheet risk is associated with a financial instrument if it exposes the investor to a loss in excess of the investor’s recognized asset carrying value in the financial instrument, if any, or if the ultimate liability associated with the financial instrument has the potential to exceed the amount that the investor recognizes as a liability in the investor’s statement of assets and liabilities.

 

Increased Assets Under Management

 

There appears to be a tendency for the rates of return achieved by managed futures advisors to decline as assets under management increase.  The Trading Advisor has not agreed to limit the amount of additional equity which it may manage and may be at or near its all-time high in assets under management.

 

The aggregate capital committed to the managed futures sector in general is also at an all-time high.  The more capital that is traded in these markets or that is committed to any one particular strategy,  the greater the competition for a finite number of positions and the less the profit potential for all strategies or for any particular strategy.

 

Trading Advisor Risk

 

The Fund is subject to the risk of the bad judgment, negligence or misconduct of the Trading Advisor.  There have been a number of instances in recent years in which private investment funds have incurred substantial losses due to manager misconduct.

 

Redemptions by Other Trading Advisor Fund Investors

 

Investors in other funds or accounts implementing the Trading Program or similar strategies may be able to redeem their investments more frequently or on less prior notice than Investors in the Fund.  Redemptions by investors in these funds or withdrawals from accounts that have less restrictive redemption terms could have a material adverse impact on the Fund’s portfolio and could disadvantage Investors in certain circumstances.

 

12



 

Trade Execution Risk

 

The Trading Advisor may use executing brokers unaffiliated with BAC.  In the event of a trading error, the Fund may have no effective remedy against these executing brokers.

 

Changes in Trading Program

 

The Trading Advisor may make material changes to the Trading Program without the knowledge of MLAI.  Particularly given the proprietary and/or systematic nature of the Trading Program, it is virtually impossible for MLAI to detect these changes.

 

Illiquid Markets

 

Certain positions held by the Fund may become illiquid, preventing the Trading Advisor from acquiring positions otherwise indicated by the Trading Program or making it impossible for the Trading Advisor to close out positions against which the market is moving.

 

Most U.S. futures exchanges limit fluctuations in some futures contract prices during a single day by regulations referred to as “daily price limits.”  During a single trading day no trades may be executed in these contracts at prices beyond the daily price limit.  Once the price of a futures contract has increased or decreased to the limit point, positions can be neither taken nor liquidated.  Futures prices have occasionally moved to the daily limit for several consecutive days with little or no trading.  Similar occurrences could prevent the Fund from promptly liquidating unfavorable positions and subject the Fund to substantial losses.  Also, the CFTC or exchanges may suspend or limit trading.  Trading on non-U.S. exchanges may also be subject to price fluctuation limits and subject to periods of significant illiquidity.  Trading in the F/X Markets and other OTC markets is not subject to daily limits, although OTC trading is also subject to periods of significant illiquidity.

 

Possible Effects of Speculative Position Limits

 

The CFTC and U.S. commodities exchanges have established limits referred to as “speculative position limits” on the maximum net long or net short speculative positions that any person may hold or control in any particular futures or options on futures contracts traded on U.S. commodities exchanges.  All proprietary or client accounts owned or managed by the Trading Advisor are combined for purposes of calculating position limits.  The Trading Advisor could be required to liquidate positions held for the Fund, or may not be able to fully implement the Trading Program, in order to comply with such limits, even though the positions attributable to the Fund do not themselves trigger the position limits or are a small portion of the aggregate positions directed by the Trading Advisor.  Position limits could force the Fund to liquidate profitable positions, result in a tracking error between the Fund’s portfolio and the Trading Advisor’s standard trading program and cause the Fund to incur substantial transaction costs.

 

In October 2011, the CFTC adopted rules that, among other things, imposed separate position limits regime for 28 so-called “exempt,” i.e., metals and energy, and agricultural futures and options contracts and their economically equivalent swap contracts.  Position limits in spot months are generally set at 25% of the official estimated deliverable supply of the underlying commodity while position limits related to non-spot months are generally set at 10% of open interest in the first 25,000 contracts and 2.5% of the open interest thereafter.  In addition, the Reform Act significantly expands the CFTC’s authority to impose position limits with respect to futures contracts, options on futures contracts, swaps that are economically equivalent to futures or options on futures, swaps that are traded on a regulated exchange and certain swaps that perform a significant price discovery function.

 

MLAI is subject to CFTC-imposed position limits through its control of the Fund, and may have to aggregate positions of certain FuturesAccess Funds in determining whether the position limits are reached.  The rules adopted by the CFTC in October 2011, in addition to expanding the contracts subject to CFTC-imposed position limits, narrow certain exemptions from the aggregation requirements, making it more likely that a party such as the Fund hiring multiple trading advisors may be required to aggregate the positions controlled by the various trading advisors.  In the Fund’s case, if this aggregation is required, the Trading Advisor may not be able to implement the Trading Program for the Fund in the same manner as for its other clients, causing the Fund to underperform other accounts utilizing the Trading Program, or the Fund may have to liquidate trading positions when the Trading Advisor would otherwise not advise doing so, resulting in losses to the Fund.

 

13



 

Any of the regulations discussed above could adversely affect the Fund in certain circumstances.

 

Trading on Non-U.S. Exchanges

 

The Trading Advisor may trade on futures exchanges outside the United States on behalf of the Fund.  Trading on non-U.S. exchanges is not regulated by any U.S. government agency and may involve certain risks not applicable to trading on U.S. exchanges.

 

For example, some non-U.S. exchanges, in contrast to U.S. exchanges, are “principals’ markets” similar to the forward markets in which performance is the responsibility only of the individual member with whom the Fund has entered into a futures contract and not of any exchange or clearing corporation.  In these cases, the Fund will be subject to the risk of the inability or refusal to perform with respect the individual member with whom the Fund has entered into a futures contract.

 

Trading on non-U.S. exchanges may involve the additional risks of expropriation, burdensome or confiscatory taxation (including taxes on specific trading activities), moratoriums, exchange or investment controls and political or diplomatic disruptions, each of which might materially adversely affect the Fund’s trading activities.  The Fund could incur substantial losses trading on non-U.S. exchanges to which it would not have been subject had the Trading Advisor limited its trading to U.S. markets.

 

The U.S. tax treatment of non-U.S. futures trading may be adverse compared to the tax treatment of U.S. futures trading.  The profits and losses derived from trading non-U.S. futures and options will generally be denominated in non-U.S. currencies.  Consequently, the Fund will be subject to exchange-rate risk in trading those contracts.

 

Foreign Exchange Controls

 

Governments in non-U.S. markets may impose F/X controls at will, making it impossible to convert local currency into other currencies.  Should the Fund trade on futures exchanges outside the United States or otherwise invest in non-U.S. markets, these controls may effectively prevent Fund capital from being removed from a country where its futures contracts and other investments are traded.  In addition, certain countries do not have fully convertible currencies as a matter of policy, adding cost or delay to the trading of currency investments by the Fund.  The imposition of currency controls by a non-U.S. government may negatively affect performance and liquidity in the Fund as capital becomes trapped in that country.

 

Risk of Loss Due to the Bankruptcy or Failure of Counterparties, Custodians, Brokers and Exchanges

 

The Fund is exposed to the risk that the bankruptcy or insolvency of its trading counterparties and other entities holding Fund assets — such as broker-dealers, FCMs, futures exchanges, clearinghouses, banks or other financial institutions, particularly MLPF&S in its capacity as clearing broker, MLIB as F/X prime broker and their affiliates — could result in all or a substantial portion of the Fund’s assets being lost permanently or impounded for a matter of years pending the final disposition of legal proceedings.  A bankruptcy or insolvency of this kind, or the threat of one, may cause MLAI to decide to liquidate the Fund or suspend, limit or otherwise alter trading, perhaps causing the Fund to miss significant profit opportunities.

 

The following paragraphs discuss the various uses of the Fund’s assets and the risks of loss — in addition to losses from trading — associated with each use.

 

Margin for Commodities Trading.  Although MLAI believes that MLPF&S is appropriately capitalized to function as the Fund’s FCM, cash posted as margin for commodities trading with MLPF&S is nevertheless subject to the risk of insolvency of MLPF&S.  MLPF&S is required by CFTC regulations to segregate “customer funds” from its proprietary assets for futures and options trading on U.S. exchanges in order to protect customer funds in the event of MLPF&S’s bankruptcy.  If MLPF&S did not comply with the segregation requirement to the full extent required by law, the assets of the Fund might not be fully protected.  Even given proper segregation, the Fund may be subject to a risk of loss of its funds.  For example, CFTC regulations permit FCMs to invest customer funds in a number of generally high quality and interest bearing financial instruments, which may prove to be riskier than expected and lose value, resulting in a shortfall in customer segregated funds held by MLPF&S in the event of MLPF&S’s insolvency.  In addition, there may be a shortfall in customer segregated funds held by MLPF&S in the event of a substantial default by one or more of MLPF&S’s other customers.  In the case of a MLPF&S insolvency or inability to satisfy a substantial deficiency in other customer accounts, the Fund might recover, even in respect of “customer funds” specifically traceable to the Fund, only a pro rata share of all property available for distribution to all of MLPF&S’s customers.  In addition, if BAC directly or indirectly owns 10% or more of the Fund, the Fund’s account

 

14



 

at MLPF&S would be considered a “proprietary account” under CFTC regulations and the Fund’s assets, including assets used to margin U.S. exchange-traded futures and options, would not be protected as “customer funds.”  If MLPF&S became insolvent at a time when the Fund’s assets on deposit with MLPF&S were not considered customer funds, the Fund would likely lose significantly more as a result of the bankruptcy than would otherwise be the case.

 

MLPF&S is required by CFTC regulations to maintain in a secure account the amount required to margin futures and options positions established on non-U.S. futures exchanges in order to protect customer funds in the event of MLPF&S’s bankruptcy.  While the secure account requirement relating to trading non-U.S. futures exchanges is similar in some respects to the segregation requirement relating to trading on U.S. futures exchanges, they are not identical and there are special risks associated with funds maintained in a secure account.  Funds held in a secure account may be commingled with funds of non-U.S. persons and, because they are by necessity held in a non-U.S. jurisdiction, are subject to different insolvency laws and customer protection regulations, which may be less favorable than U.S. laws and regulations.  Moreover, these funds are not subject to the same limitations on permissible investments applicable to funds subject to segregation.  In addition to these special risks, funds held in a secured account are subject to risks comparable to those applicable to funds in a segregated account, namely that MLPF&S will not comply with the relevant regulations, that investments in the account will decline in value, of a shortfall in the event of the default by another customer, and that, if, BAC owns 10% or more of the Fund, the Fund’s assets will not be protected as “customer funds.”

 

Collateral for OTC Transactions.  Cash pledged as collateral with  MLIB for F/X forwards or options on forwards or with any other OTC prime broker for trading other OTC investments is subject to the risk of the insolvency of MLIB or other OTC prime broker and unlike cash posted as margin for commodities trading on regulated exchanges is not required to be segregated or held in a secured account.

 

Bank Deposits.  The vast majority of the cash deposited with banks would be in excess of the limits on federal insurance for deposits, and thus not insured by the Federal Deposit Insurance Corporation (“FDIC”), and would be subject to the risk of bank failure.  However, amounts held in non-interest bearing demand deposit accounts are fully insured through the end of 2012.

 

Cash in Brokerage Accounts.  Cash in brokerage accounts with MLPF&S is subject to the risk of insolvency of MLPF&S.  While brokers are required to keep customer cash in a special reserve account for the benefit of customers, it is possible that a shortfall could exist in this account, in which case the Fund, along with other customers, would suffer losses.  The Securities Investor Protection Corporation provides protection against these losses, up to a limit, but the cash deposited by the Fund in a brokerage account would far exceed the limit.

 

Direct Investments.  Fund investments in U.S. government securities are backed by the full faith and credit of the U.S. government.  To the extent the Fund makes investments in non-government securities it would be subject to a risk of loss that depended on the type of security.

 

By preferring its BAC affiliates in clearing and prime brokerage relationships, MLAI has historically maintained the vast majority of its cash in brokerage accounts with its affiliates.  This policy exposes the Fund to the specific credit risk of these BAC affiliates because balances in these accounts are not subject to FDIC or other form of deposit insurance against loss from failure of the BAC affiliate.  Rather, the BAC affiliate is entitled to invest these funds in assets of its choosing.

 

There are increased risks associated with offshore OTC trading, including the risk that assets held by offshore brokers and unregulated trading counterparties may not benefit from the protection afforded to customer funds deposited with regulated FCMs or broker-dealers.  Additionally, the participants in OTC markets typically are not subject to the type of strict credit evaluation and regulatory oversight applicable to members of “exchange-based” markets, and transactions in these markets typically are not settled through exchanges or clearinghouses that guarantee the trades of their participants.  To the extent the Trading Advisor trades in offshore OTC markets, the Fund is subject to the credit risk of the counterparties with which it trades and deposits collateral, including that of MLIB.

 

If a party holds Fund assets, those assets are not held in segregation or in a secured account as “customer funds” for any of the reasons discussed above and the party becomes insolvent, the Fund would be a general creditor of that party even in respect of property specifically traceable to the Fund’s account.  As a result, the Fund’s claim would be paid along with the claims of other general creditors and the Fund would be subject to the loss of its entire deposit with the party.

 

15



 

MLAI’s policy that the Trading Advisor use MLPF&S and MLIB may increase the risks of insolvency described above by preventing the diversification of brokers and counterparties used by the Fund.

 

Although the Fund must use MLPF&S and MLIB, in certain circumstances MLAI may have limited control over the selection of counterparties by the Fund.  The Fund also may not be restricted from dealing with any particular counterparty, regulated or unregulated, or from concentrating any or all of its transactions with a single counterparty or limited number of counterparties or from initially transacting, clearing or brokering with a non-BAC broker and from “giving up” those trades to MLPF&S and MLIB.  In addition, to the extent assets are held at entities other than MLPF&S and MLIB, MLAI may have limited ability to assess the extent to which the Trading Advisor maintains the Fund’s assets in unregulated accounts subject to the bankruptcy of the counterparties holding such assets.

 

Recent events underscore the risks described above.  Significant losses incurred by many investment funds in relation to the bankruptcy and/or administration of Lehman Brothers Holdings Inc. and its affiliates illustrate the risks incurred in both derivatives trading and custody/brokerage arrangements.  The ongoing bankruptcy liquidation of MF Global Inc. also demonstrates that even customer funds subject to segregation requirements may be difficult for an FCM to locate, and customer funds held by an FCM in bankruptcy may not be distributed promptly and may be subject to a lengthy claims process.

 

Insolvency of Dual-Registered Entities

 

MLPF&s is registered as both an FCM with the CFTC and as a broker-dealer with the SEC.  Other counterparties and entities holding Fund assets may also be entities registered with both the SEC and the CFTC.  In the event of an insolvency of a dual-registered entity, the distribution of CFTC regulated customer funds would be governed by the CFTC’s bankruptcy rules and Chapter 7 of the U.S. Bankruptcy Code, while the distribution of SEC regulated customer funds would be governed by the Securities Investor Protection Act of 1970 and applicable provisions of the U.S. Bankruptcy Code.  Uncertainty exists regarding the application of the two separate insolvency regimes to the insolvency of a single entity.

 

Risk of Loss Due to Trading Errors and the Failure of Trading Systems

 

The Fund is subject to the risk of failures or inaccuracies in the trading systems of the Trading Advisor.  Trades for the Fund may be placed or executed in error due to technical errors such as coding or programming errors in software, hardware problems and inaccurate pricing information provided by third parties or execution errors such as keystroke, typographic or inadvertent drafting errors.  Many exchanges have adopted “obvious error” rules that prevent the entry and execution of trades more than a specified amount away from the current best price on the exchange.  However, these rules may not be in place on the exchanges on which the Trading Advisor trades on behalf of the Fund and may not be enforced even if in effect.  These rules likely would not prevent the entry and execution of a trade entered close to the market price but at the wrong size.

 

The Fund is subject to the risk of the unavailability or failure of the computer systems of the exchanges on which the Trading Advisor trades.  Any such errors or failures could subject the Fund to substantial losses.

 

Market Disruptions; Government Intervention

 

The global financial markets have recently experienced pervasive and fundamental disruptions that have led to extensive and unprecedented governmental intervention.  Government intervention has in certain cases been implemented on an “emergency” basis, suddenly and substantially eliminating market participants’ ability, at least on a temporary basis, to continue to implement certain strategies or manage the risk of their outstanding positions.  In addition, as one would expect given the complexities of the financial markets and the limited time frame within which governments have taken action, these interventions typically have been difficult to interpret and unclear in scope and application, resulting in confusion and uncertainty.  This confusion and uncertainty in itself has been materially detrimental to the efficient functioning of the markets as well as previously successful investment strategies.

 

The Fund may incur substantial losses in the event of disrupted markets and other extraordinary events in which historical pricing relationships become materially distorted, the availability of credit is restricted or the ability to trade or invest capital, including exiting existing positions, is otherwise impaired.  The risk of loss from pricing distortions is compounded by the fact that in disrupted markets many positions become illiquid, making it difficult or impossible to close out positions against which the markets are moving.  The financing available to private investment funds, such as the Fund from banks, dealers and other counterparties is typically reduced in disrupted markets.  Any reduction may result in substantial losses to the Fund.  Market disruptions may from time to time cause dramatic losses for the Fund and these events

 

16



 

can result in otherwise historically low-risk strategies performing with unprecedented volatility and risk.

 

Regulatory Changes Could Restrict the Fund’s Operations

 

The Fund implements speculative, highly leveraged strategies.  From time to time there is governmental scrutiny of these types of strategies and political pressure to regulate their activities.  The CFTC and the exchanges are authorized to take extraordinary actions in the event of a market emergency, including, for example, the retroactive implementation of speculative position limits or higher margin requirements, the establishment of daily price limits and the suspension of trading.  The regulation of futures, forward and options transactions in the United States is a rapidly changing area of law and is subject to modification by government and judicial action.  In addition, several U.S. legislators and the CFTC have expressed the concern that speculative futures traders, and commodity funds in particular, may be responsible for unwarranted and dramatic swings in the prices of commodities.  Non-U.S. governments have from time to time blamed the declines of their currencies on speculative currency trading and imposed restrictions on speculative trading in certain markets.

 

Regulatory changes could adversely affect the Fund by restricting the markets in which it trades, otherwise limiting its trading and/or increasing the taxes to which Investors are subject.  Adverse regulatory initiatives could develop suddenly and without notice.

 

The Reform Act includes provisions that comprehensively regulate the OTC derivatives markets for the first time.  The Reform Act requires that a substantial portion of derivatives currently traded over the counter be executed in regulated markets and submitted for clearing to regulated clearinghouses.  Those OTC derivatives may include OTC F/X forwards and swaps which may be traded by the Fund.  Although the U.S. Treasury has the discretion to exclude F/X forwards and swaps from certain of the new regulatory requirements, it has proposed to do so only in limited circumstances.  If these forwards and swaps are not so excluded, the Reform Act may require them, and other OTC contracts that the Fund may trade, to be cleared.  This may subject the Fund, the Trading Advisor, MLAI and/or the Fund’s counterparties to additional regulatory requirements including minimum initial and variation margin requirements, minimum capital requirements, registration with the SEC and/or the CFTC, new business conduct standards, disclosure requirements, reporting and recordkeeping requirements, transparency requirements, position limits, limitations on conflicts of interest and other regulatory burdens.  Some or all of these requirements may apply to currency forwards and swaps even if they are excluded by the U.S. Treasury.  These new regulatory burdens would further increase the dealers’ costs, which are expected to be passed through to other market participants such as the Fund in the form of higher fees and less favorable dealer marks.  They may also render certain strategies in which the Trading Advisor might otherwise engage impossible, or so costly that they will no longer be economical, to implement.

 

Additionally, the Reform Act includes a provision that has come to be known as the “Volcker Rule” that places significant limitations on the ability of a “banking entity” to sponsor or invest in hedge funds, private equity funds or similar funds (collectively, “private funds”). “Banking entity” generally includes a company that controls an FDIC-insured depository institution, such as BAC, or a non-U.S. bank that is treated as a bank holding company and any affiliate or subsidiary of any bank holding company, such as MLAI, and other systemically significant organizations regulated by the Federal Reserve.  Under certain circumstances the Volcker Rule will permit a banking entity to organize and make or retain a de minimis investment in a private fund, in connection with the banking entity’s fiduciary or investment advisory business.  The Volcker Rule is effective in July 2012 and provides for a conformance period of up to two years following the effective date.  However, the implementation of the Volcker rule requires additional rulemaking from multiple federal government agencies, including the SEC, CFTC, the Federal Reserve and various other banking regulators.

 

Concerns Regarding the Downgrade of the U.S. Credit Rating and the Sovereign Debt Crisis in Europe

 

On August 5, 2011, Standard & Poor’s lowered its long term sovereign credit rating on the United States of America from AAA to AA+.  While U.S. lawmakers reached agreement to raise the federal debt ceiling on August 2, 2011, the downgrade reflected Standard & Poor’s view that the fiscal consolidation plan within that agreement fell short of what would be necessary to stabilize the U.S. government’s medium term debt dynamics.  This downgrade could have material adverse impacts on financial markets and economic conditions in the United States and throughout the world and, in turn, the market’s anticipation of these impacts could have a material adverse effect on the investments made by the Fund and thereby the Fund’s financial condition and liquidity.  The unprecedented nature of negative credit rating actions with respect to U.S. government obligations makes the ultimate impact on global markets and the Fund’s business, financial condition and liquidity unpredictable.

 

Global markets and economic conditions have been negatively affected by the ability of certain European Union (“E.U.”) member states to service their sovereign debt obligations.  The continued uncertainty over the outcome of the

 

17



 

E.U. governments’ financial support programs and the possibility that other E.U. member states may experience similar financial troubles could further disrupt global markets, which may have an adverse effect on the Fund.

 

Item 1B: Unresolved Staff Comments

 

Not applicable.

 

Item 2:   Properties

 

The Fund does not use any physical properties in the conduct of its business.

 

The Fund’s sponsor offices are the administrative offices of MLAI (Merrill Lynch Alternative Investments LLC, Four World Financial Center, 10th Floor, 250 Vesey Street New York, New York 10080).  MLAI performs administrative services for the Fund from MLAI’s offices.

 

Item 3:   Legal Proceedings

 

None.

 

Item 4:   Mine Safety Disclosures

 

Not applicable

 

PART II

 

Item 5:        Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

Item 5(a)

 

(a)                                 Market Information:

 

There is no established public trading market for the Units, and none is likely to develop.  Members may redeem Units on ten days written notice to MLAI as of the last day of each month at their Net Asset Value, subject to certain early redemption charges.

 

(b)                                 Holders:

 

As of December 31, 2011, there were 761 holders of Units including MLAI, none of whom owned 5% or more of the Fund’s Units.

 

(c)                                  Dividends:

 

MLAI has not made and does not contemplate making any distributions on the Units.

 

(d)                                 Securities Authorized for Issuance Under Equity Compensation Plans:

 

Not applicable.

 

(e)                                  Performance Graph:

 

Not applicable.

 

18



 

(f)                                   Recent Sales of Unregistered Securities:

 

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-11

 

$

248,623

 

186,991

 

$

1.3296

 

Feb-11

 

133,573

 

100,947

 

1.3232

 

Mar-11

 

2,835,475

 

2,106,124

 

1.3463

 

Apr-11

 

1,115,380

 

850,202

 

1.3119

 

May-11

 

1,404,913

 

1,045,400

 

1.3439

 

Jun-11

 

972,069

 

766,193

 

1.2687

 

Jul-11

 

176,474

 

144,284

 

1.2231

 

Aug-11

 

737,731

 

588,866

 

1.2528

 

Sep-11

 

394,581

 

327,236

 

1.2058

 

Oct-11

 

56,549

 

48,225

 

1.1726

 

Nov-11

 

351,094

 

307,465

 

1.1419

 

Dec-11

 

59,524

 

51,460

 

1.1567

 

Jan-12

 

382,542

 

324,161

 

1.1801

 

Feb-12

 

276,898

 

232,141

 

1.1928

 

 

CLASS C

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

Jan-11

 

$

534,604

 

429,884

 

$

1.2436

 

Feb-11

 

756,991

 

612,205

 

1.2365

 

Mar-11

 

884,627

 

703,704

 

1.2571

 

Apr-11

 

1,052,270

 

859,768

 

1.2239

 

May-11

 

1,157,700

 

924,164

 

1.2527

 

Jun-11

 

1,244,888

 

1,053,561

 

1.1816

 

Jul-11

 

370,993

 

325,947

 

1.1382

 

Aug-11

 

150,000

 

128,766

 

1.1649

 

Sep-11

 

593,896

 

530,171

 

1.1202

 

Oct-11

 

287,556

 

264,176

 

1.0885

 

Nov-11

 

317,939

 

300,197

 

1.0591

 

Dec-11

 

 

 

1.0719

 

Jan-12

 

135,099

 

123,638

 

1.0927

 

Feb-12

 

18,999

 

17,217

 

1.1035

 

 

CLASS D

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

Jan-11

 

$

 

 

$

1.0733

 

Feb-11

 

 

 

1.0694

 

Mar-11

 

 

 

1.0895

 

Apr-11

 

 

 

1.0630

 

May-11

 

 

 

1.0903

 

Jun-11

 

 

 

1.0305

 

Jul-11

 

 

 

0.9947

 

Aug-11

 

 

 

1.0202

 

Sep-11

 

 

 

0.9831

 

Oct-11

 

59,699

 

62,362

 

0.9573

 

Nov-11

 

 

 

0.9334

 

Dec-11

 

 

 

0.9466

 

Jan-12

 

 

 

0.9670

 

Feb-12

 

 

 

0.9786

 

 

CLASS I

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

Jan-11

 

$

199,823

 

150,605

 

$

1.3268

 

Feb-11

 

14,999

 

11,356

 

1.3208

 

Mar-11

 

31,182

 

23,194

 

1.3444

 

Apr-11

 

 

 

1.3105

 

May-11

 

29,998

 

22,340

 

1.3428

 

Jun-11

 

40,000

 

31,543

 

1.2681

 

Jul-11

 

 

 

1.2229

 

Aug-11

 

112,433

 

89,724

 

1.2531

 

Sep-11

 

 

 

1.2064

 

Oct-11

 

 

 

1.1737

 

Nov-11

 

45,770

 

40,033

 

1.1433

 

Dec-11

 

 

 

1.1585

 

Jan-12

 

159,999

 

135,329

 

1.1823

 

Feb-12

 

4,999

 

4,182

 

1.1954

 

 

CLASS DS

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

Jan-11

 

$

2,447,633

 

1,488,556

 

$

1.6443

 

Feb-11

 

 

 

1.6383

 

Mar-11

 

2,916,160

 

1,747,250

 

1.6690

 

Apr-11

 

505,731

 

310,550

 

1.6285

 

May-11

 

1,864,710

 

1,116,459

 

1.6702

 

Jun-11

 

1,668,777

 

1,057,058

 

1.5787

 

Jul-11

 

953,024

 

625,385

 

1.5239

 

Aug-11

 

 

 

1.5629

 

Sep-11

 

2,396,107

 

1,590,935

 

1.5061

 

Oct-11

 

304,677

 

207,758

 

1.4665

 

Nov-11

 

 

 

1.4299

 

Dec-11

 

 

 

1.4502

 

Jan-12

 

 

 

1.4814

 

Feb-12

 

 

 

1.4992

 

 

CLASS DT

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

Jan-11

 

$

 

 

$

1.7338

 

Feb-11

 

 

 

1.7290

 

Mar-11

 

 

 

1.7625

 

Apr-11

 

 

 

1.7211

 

May-11

 

 

 

1.7663

 

Jun-11

 

 

 

1.6710

 

Jul-11

 

 

 

1.6143

 

Aug-11

 

 

 

1.6570

 

Sep-11

 

641,276

 

401,274

 

1.5981

 

Oct-11

 

338,330

 

217,240

 

1.5574

 

Nov-11

 

 

 

1.5198

 

Dec-11

 

 

 

1.5426

 

Jan-12

 

 

 

1.5771

 

Feb-12

 

 

 

1.5974

 

 


(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.

 

19



 

Item 5(b)

Not applicable.

Item 5(c)

Not applicable.

 

Item 6:   Selected Financial Data

 

The following selected financial data has been derived from the financial statements of the Fund.

 

Statements of Operations

 

For the year
ended
December 31,
2011

 

For the year ended
December 31, 2010

 

For the year ended
December 31, 2009

 

For the year ended
December 31, 2008

 

For the period
April 2, 2007
(commencement of
operations) to
December 31,2007

 

 

 

 

 

 

 

 

 

 

 

 

 

Trading profit (loss)

 

 

 

 

 

 

 

 

 

 

 

Realized, net

 

$

(19,290,462

)

$

41,966,162

 

$

(30,087,116

)

$

58,391,558

 

$

18,830,414

 

Change in unrealized, net

 

(1,469,413

)

8,120,139

 

(5,594,032

)

2,997,703

 

3,742,826

 

Brokerage commissions

 

(1,084,608

)

(1,332,262

)

(1,209,739

)

(642,724

)

(580,731

)

Total trading profit (loss)

 

(21,844,483

)

48,754,039

 

(36,890,887

)

60,746,537

 

21,992,509

 

 

 

 

 

 

 

 

 

 

 

 

 

INVESTMENT INCOME:

 

 

 

 

 

 

 

 

 

 

 

Interest

 

(17,755

)

474

 

17,531

 

2,502,184

 

3,463,933

 

 

 

 

 

 

 

 

 

 

 

 

 

EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

Management fees

 

4,663,195

 

4,406,382

 

3,904,212

 

2,462,288

 

862,994

 

Performance fees

 

 

1,574,502

 

326

 

14,415,123

 

5,282,368

 

Sponsor fees

 

673,816

 

471,939

 

453,477

 

255,504

 

9,750

 

Other

 

644,087

 

671,538

 

572,395

 

626,258

 

155,223

 

Total Expenses

 

5,981,098

 

7,124,361

 

4,930,410

 

17,759,173

 

6,310,335

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INVESTMENT INCOME (LOSS)

 

(5,998,853

)

(7,123,887

)

(4,912,879

)

(15,256,989

)

(2,846,402

)

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS)

 

$

(27,843,336

)

$

41,630,152

 

$

(41,803,766

)

$

45,489,548

 

$

19,146,107

 

 

Balance Sheet Data

 

December 31,
2011

 

December 31, 2010

 

December 31, 2009

 

December 31, 2008

 

December 31, 2007

 

 

 

 

 

 

 

 

 

 

 

 

 

Members’ Capital

 

$

221,046,309

 

$

255,959,800

 

$

235,900,686

 

$

217,335,124

 

$

112,656,278

 

Net Asset Value per Series A Unit

 

1.1801

 

1.3296

 

1.1440

 

1.3842

 

1.0998

 

Net Asset Value per Series C Unit

 

1.0927

 

1.2436

 

1.0807

 

1.3209

 

1.0608

 

Net Asset Value per Series D Unit

 

0.9670

 

1.0733

 

0.9097

 

1.2310

 

0.9354

 

Net Asset Value per Series I Unit

 

1.1823

 

1.3268

 

1.1369

 

1.3707

 

1.0609

 

Net Asset Value per Series DS Unit

 

1.4814

 

1.6443

 

1.3936

 

1.6610

 

1.3022

 

Net Asset Value per Series DT Unit

 

1.5771

 

1.7338

 

1.4551

 

1.7165

 

1.2896

 

 

20



 

MLAI believes that the Net Asset Value used to calculate subscription and redemption value and report performance to investors throughout the year is useful financial information for the Members of the Fund.

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS A

 

 

 

Jan.

 

Feb.

 

Mar.

 

Apr.

 

May

 

June

 

July

 

Aug.

 

Sept.

 

Oct.

 

Nov.

 

Dec.

 

2007

 

 

n/a

 

 

n/a

 

 

 

 

 

n/a

 

 

n/a

 

 

n/a

 

 

n/a

 

 

n/a

 

$

1.0780

 

$

1.1716

 

$

1.1141

 

$

1.0999

 

2008

 

$

1.0964

 

$

1.1567

 

$

1.1632

 

$

1.1633

 

$

1.1945

 

$

1.2163

 

$

1.1875

 

$

1.1684

 

$

1.2284

 

$

1.3201

 

$

1.3532

 

$

1.3842

 

2009

 

$

1.3808

 

$

1.3886

 

$

1.3368

 

$

1.3365

 

$

1.3550

 

$

1.3301

 

$

1.2825

 

$

1.2892

 

$

1.2623

 

$

1.1991

 

$

1.2292

 

$

1.1440

 

2010

 

$

1.0816

 

$

1.0975

 

$

1.2139

 

$

1.2405

 

$

1.1682

 

$

1.1659

 

$

1.1497

 

$

1.1940

 

$

1.2333

 

$

1.2900

 

$

1.2786

 

$

1.3296

 

2011

 

$

1.3232

 

$

1.3463

 

$

1.3119

 

$

1.3439

 

$

1.2687

 

$

1.2231

 

$

1.2528

 

$

1.2058

 

$

1.1726

 

$

1.1419

 

$

1.1567

 

$

1.1801

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS C

 

 

 

Jan.

 

Feb.

 

Mar.

 

Apr.

 

May

 

June

 

July

 

Aug.

 

Sept.

 

Oct.

 

Nov.

 

Dec.

 

2007

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

$

0.9522

 

$

0.9228

 

$

0.9940

 

$

1.0795

 

$

1.0530

 

$

1.0610

 

2008

 

$

1.0567

 

$

1.1139

 

$

1.1208

 

$

1.1141

 

$

1.1465

 

$

1.1724

 

$

1.1390

 

$

1.1189

 

$

1.1751

 

$

1.2616

 

$

1.2923

 

$

1.3208

 

2009

 

$

1.3165

 

$

1.3228

 

$

1.2724

 

$

1.2710

 

$

1.2876

 

$

1.2629

 

$

1.2166

 

$

1.2219

 

$

1.1954

 

$

1.1346

 

$

1.1621

 

$

1.0807

 

2010

 

$

1.0209

 

$

1.0351

 

$

1.1439

 

$

1.1680

 

$

1.0990

 

$

1.0959

 

$

1.0798

 

$

1.1205

 

$

1.1563

 

$

1.2085

 

$

1.1969

 

$

1.2436

 

2011

 

$

1.2365

 

$

1.2571

 

$

1.2239

 

$

1.2527

 

$

1.1816

 

$

1.1382

 

$

1.1649

 

$

1.1202

 

$

1.0885

 

$

1.0591

 

$

1.0719

 

$

1.0927

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS D

 

 

 

Jan.

 

Feb.

 

Mar.

 

Apr.

 

May

 

June

 

July

 

Aug.

 

Sept.

 

Oct.

 

Nov.

 

Dec.

 

2007

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

$

0.9391

 

$

0.9355

 

2008

 

$

0.9336

 

$

0.9862

 

$

0.9960

 

$

1.0015

 

$

1.0470

 

$

1.0743

 

$

1.0468

 

$

1.0313

 

$

1.0859

 

$

1.1684

 

$

1.2020

 

$

1.2311

 

2009

 

$

1.2296

 

$

1.2380

 

$

1.1935

 

$

1.1946

 

$

1.2127

 

$

1.1919

 

$

1.1507

 

$

1.1581

 

$

1.0000

 

$

0.9511

 

$

0.9762

 

$

0.9097

 

2010

 

$

0.8612

 

$

0.8749

 

$

0.9689

 

$

0.9914

 

$

0.9348

 

$

0.9341

 

$

0.9223

 

$

0.9590

 

$

0.9918

 

$

1.0387

 

$

1.0308

 

$

1.0733

 

2011

 

$

1.0694

 

$

1.0895

 

$

1.0630

 

$

1.0903

 

$

1.0305

 

$

0.9947

 

$

1.0202

 

$

0.9831

 

$

0.9573

 

$

0.9334

 

$

0.9466

 

$

0.9670

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS I

 

 

 

Jan.

 

Feb.

 

Mar.

 

Apr.

 

May

 

June

 

July

 

Aug.

 

Sept.

 

Oct.

 

Nov.

 

Dec.

 

2007

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

$

1.0691

 

$

1.0475

 

$

1.0610

 

2008

 

$

1.0579

 

$

1.1165

 

$

1.1325

 

$

1.1384

 

$

1.1761

 

$

1.2054

 

$

1.1727

 

$

1.1542

 

$

1.2143

 

$

1.3061

 

$

1.3396

 

$

1.3707

 

2009

 

$

1.3678

 

$

1.3760

 

$

1.3246

 

$

1.3247

 

$

1.3435

 

$

1.3193

 

$

1.2725

 

$

1.2795

 

$

1.2533

 

$

1.1909

 

$

1.2212

 

$

1.1369

 

2010

 

$

1.0754

 

$

1.0915

 

$

1.2077

 

$

1.2346

 

$

1.1631

 

$

1.1612

 

$

1.1454

 

$

1.1899

 

$

1.2294

 

$

1.2864

 

$

1.2755

 

$

1.3268

 

2011

 

$

1.3208

 

$

1.3444

 

$

1.3105

 

$

1.3428

 

$

1.2681

 

$

1.2229

 

$

1.2531

 

$

1.2064

 

$

1.1737

 

$

1.1433

 

$

1.1585

 

$

1.1823

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS DS

 

 

 

Jan.

 

Feb.

 

Mar.

 

Apr.

 

May

 

June

 

July

 

Aug.

 

Sept.

 

Oct.

 

Nov.

 

Dec.

 

2007

 

n/a

 

n/a

 

n/a

 

$

1.0532

 

$

1.1117

 

$

1.1922

 

$

1.1542

 

$

1.1218

 

$

1.2109

 

$

1.3177

 

$

1.2928

 

$

1.3023

 

2008

 

$

1.2998

 

$

1.3730

 

$

1.3922

 

$

1.3951

 

$

1.4378

 

$

1.4701

 

$

1.4266

 

$

1.4021

 

$

1.4726

 

$

1.5798

 

$

1.6218

 

$

1.6611

 

2009

 

$

1.6591

 

$

1.6705

 

$

1.6103

 

$

1.6119

 

$

1.6363

 

$

1.6082

 

$

1.5526

 

$

1.5626

 

$

1.5320

 

$

1.4571

 

$

1.4955

 

$

1.3936

 

2010

 

$

1.3193

 

$

1.3403

 

$

1.4843

 

$

1.5188

 

$

1.4321

 

$

1.4310

 

$

1.4129

 

$

1.4692

 

$

1.5194

 

$

1.5912

 

$

1.5792

 

$

1.6443

 

2011

 

$

1.6383

 

$

1.6690

 

$

1.6285

 

$

1.6702

 

$

1.5787

 

$

1.5239

 

$

1.5629

 

$

1.5061

 

$

1.4665

 

$

1.4299

 

$

1.4502

 

$

1.4814

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS DT

 

 

 

Jan.

 

Feb.

 

Mar.

 

Apr.

 

May

 

June

 

July

 

Aug.

 

Sept.

 

Oct.

 

Nov.

 

Dec.

 

2007

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

$

1.1598

 

$

1.1255

 

$

1.0950

 

$

1.1829

 

$

1.2891

 

$

1.2678

 

$

1.2900

 

2008

 

$

1.2885

 

$

1.3623

 

$

1.3854

 

$

1.3980

 

$

1.4479

 

$

1.4882

 

$

1.4508

 

$

1.4320

 

$

1.5102

 

$

1.6300

 

$

1.6749

 

$

1.7170

 

2009

 

$

1.7163

 

$

1.7296

 

$

1.6688

 

$

1.6719

 

$

1.6986

 

$

1.6709

 

$

1.6144

 

$

1.6262

 

$

1.5956

 

$

1.5189

 

$

1.5602

 

$

1.4551

 

2010

 

$

1.3787

 

$

1.4019

 

$

1.5538

 

$

1.5912

 

$

1.5016

 

$

1.5017

 

$

1.4839

 

$

1.5443

 

$

1.5984

 

$

1.6754

 

$

1.6642

 

$

1.7338

 

2011

 

$

1.7290

 

$

1.7625

 

$

1.7211

 

$

1.7663

 

$

1.6710

 

$

1.6143

 

$

1.6570

 

$

1.5981

 

$

1.5574

 

$

1.5198

 

$

1.5426

 

$

1.5771

 

 

21



 

ML TRANSTREND DTP ENHANCED FUTURESACCESS LLC

(CLASS A UNITS) (5)

December 31, 2011

 

Type of Pool:  Single Advisor Non-”Principal Protected” (1)

Inception of Trading: September 1, 2007

Aggregate Subscriptions: $13,788,861

Current Capitalization:  $10,534,052

Worst Monthly Drawdown (2):  (6.93)% ( December 2009)

Worst Peak-to-Valley Drawdown (3):  (22.12)%  ( March 2009 — December 2011)

 

Net Asset Value per Unit for Class A, December 31, 2011:  $1.1801

 

Monthly Rates of Return (4)

 

Month

 

2011

 

2010

 

2009

 

2008

 

2007

 

January

 

(0.48

)%

(5.45

)%

(.25

)%

(0.32

)%

 

February

 

1.75

 

1.47

 

0.56

 

5.50

 

 

March

 

(2.56

)

10.61

 

(3.73

)

0.56

 

 

April

 

2.44

 

2.19

 

(0.02

)

0.01

 

 

May

 

(5.60

)

(5.83

)

1.38

 

2.68

 

 

June

 

(3.59

)

(0.20

)

(1.84

)

1.83

 

 

July

 

2.43

 

(1.39

)

(3.58

)

(2.37

)

 

August

 

(3.75

)

3.85

 

0.52

 

(1.61

)

 

September

 

(2.75

)

3.29

 

(2.09

)

5.14

 

7.80

%

October

 

(2.62

)

4.60

 

(5.01

)

7.46

 

8.68

 

November

 

1.30

 

(0.88

)

2.51

 

2.51

 

(4.91

)

December

 

2.02

 

3.99

 

(6.93

)

2.29

 

(1.27

)

Compound Annual Rate of Return

 

(11.25

)%

16.22

%

(17.37

)%

25.85

%

9.99

%

 


(1) Certain funds are structured so as to guarantee to investors that their investment will be worth no less than a specified amount (typically, the initial purchase price) as of a date certain after the date of investment.  The CFTC refers to such funds as “principal protected”. The Fund has no such feature.

 

(2) Worst Monthly Drawdown represents the largest negative Monthly Rate of Return experienced since September 1, 2007 by the Fund; a drawdown is measured on the basis of month-end Net Asset Value only, and does not reflect intra-month figures.

 

(3) Worst Peak-to-Valley Drawdown represents the greatest percentage decline since September 1, 2007 from a month-end cumulative Monthly Rate of Return without such cumulative Monthly Rate of Return being equaled or exceeded as of a subsequent month-end.  For example, if the Monthly Rate of Return was (1)% in each of January and February, 1% in March and (2)% in April, the Peak-to-Valley Drawdown would still be continuing at the end of April in the amount of approximately (3)%, whereas if the Monthly Rate of Return had been approximately 3% in March, the Peak-to-Valley Drawdown would have ended as of the end of February at approximately the (2)% level.

 

(4) Monthly Rate of Return is the net performance of the Fund during the month of determination (including interest income and after all expenses have been accrued or paid) divided by the total capital of the Fund as of the beginning of such month.

 

(5) The information presented is based on Net Asset Value and Net Asset Value per Unit. The inception to date total return is 18.01%.

 

22



 

ML TRANSTREND DTP ENHANCED FUTURESACCESS LLC

(CLASS C UNITS) (5)

December 31, 2011

 

Type of Pool:  Single Advisor Non-”Principal Protected” (1)

Inception of Trading: July 1, 2007

Aggregate Subscriptions:  $33,839,612

Current Capitalization:  $18,595,146

Worst Monthly Drawdown (2):  (7.00)% (December 2009)

Worst Peak-to-Valley Drawdown (3):  (22.82)% (March 2009 —December 2011)

 

Net Asset Value per Unit for Class C, December 31, 2011:  $1.0927

 

Monthly Rates of Return (4)

 

Month

 

2011

 

2010

 

2009

 

2008

 

2007

 

January

 

(0.57

)%

(5.53

)%

(.33

)%

(0.41

)%

 

February

 

1.67

 

1.39

 

0.48

 

5.41

 

 

March

 

(2.64

)

10.51

 

(3.81

)

0.62

 

 

April

 

2.35

 

2.11

 

(0.11

)

(0.60

)

 

May

 

(5.68

)

(5.91

)

1.31

 

2.91

 

 

June

 

(3.67

)

(0.28

)

(1.92

)

2.26

 

 

July

 

2.35

 

(1.47

)

(3.67

)

(2.85

)

(4.78

)%

August

 

(3.84

)

3.77

 

0.44

 

(1.76

)

(3.09

)

September

 

(2.83

)

3.20

 

(2.17

)

5.02

 

7.71

 

October

 

(2.70

)

4.51

 

(5.09

)

7.36

 

8.60

 

November

 

1.21

 

(0.96

)

2.42

 

2.43

 

(2.45

)

December

 

1.94

 

3.90

 

(7.00

)

2.21

 

0.76

 

Compound Annual Rate of Return

 

(12.13

)%

15.07

%

(18.19

)%

24.49

%

6.10

%

 


(1) Certain funds are structured so as to guarantee to investors that their investment will be worth no less than a specified amount (typically, the initial purchase price) as of a date certain after the date of investment.  The CFTC refers to such funds as “principal protected”. The Fund has no such feature.

 

(2) Worst Monthly Drawdown represents the largest negative Monthly Rate of Return experienced since July 1, 2007 by the Fund; a drawdown is measured on the basis of month-end Net Asset Value only, and does not reflect intra-month figures.

 

(3) Worst Peak-to-Valley Drawdown represents the greatest percentage decline since July 1, 2007 from a month-end cumulative Monthly Rate of Return without such cumulative Monthly Rate of Return being equaled or exceeded as of a subsequent month-end.  For example, if the Monthly Rate of Return was (1)% in each of January and February, 1% in March and (2)% in April, the Peak-to-Valley Drawdown would still be continuing at the end of April in the amount of approximately (3)%, whereas if the Monthly Rate of Return had been approximately 3% in March, the Peak-to-Valley Drawdown would have ended as of the end of February at approximately the (2)% level.

 

(4) Monthly Rate of Return is the net performance of the Fund during the month of determination (including interest income and after all expenses have been accrued or paid) divided by the total capital of the Fund as of the beginning of such month.

 

(5) The information presented is based on Net Asset Value and Net Asset Value per Unit. The inception to date total return is 9.27%.

 

23



 

ML TRANSTREND DTP ENHANCED FUTURESACCESS LLC

(CLASS D UNITS) (5)

December 31, 2011

 

Type of Pool:  Single Advisor Non-”Principal Protected” (1)

Inception of Trading: November 1, 2007

Aggregate Subscriptions:  $6,284,698

Current Capitalization:  $1,994,275

Worst Monthly Drawdown (2):  (6.81)% (December 2009)

Worst Peak-to-Valley Drawdown (3):  (21.20)%  ( March 2009-December 2011)

 

Net Asset Value per Unit for Class D, December 31, 2011:  $0.9670

 

Monthly Rates of Return (4)

 

Month

 

2011

 

2010

 

2009

 

2008

 

2007

 

January

 

(0.36

)%

(5.33

)%

(.12

)%

(0.19

)%

 

February

 

1.88

 

1.59

 

0.68

 

5.63

 

 

March

 

(2.43

)

10.74

 

(3.59

)

0.99

 

 

April

 

2.57

 

2.32

 

0.09

 

0.55

 

 

May

 

(5.48

)

(5.71

)

1.52

 

4.54

 

 

June

 

(3.47

)

(0.07

)

(1.72

)

2.61

 

 

July

 

2.56

 

(1.26

)

(3.46

)

(2.56

)

 

August

 

(3.64

)

3.98

 

0.64

 

(1.48

)

 

September

 

(2.62

)

3.42

 

 

5.29

 

 

October

 

(2.50

)

4.73

 

(4.89

)

7.60

 

 

November

 

1.41

 

(0.76

)

2.64

 

2.88

 

(6.09

)%

December

 

2.16

 

4.12

 

(6.81

)

2.42

 

(0.39

)

Compound Annual Rate of Return

 

(9.91

)%

17.98

%

(14.43

)%

31.61

%

(6.46

)%

 


(1) Certain funds are structured so as to guarantee to investors that their investment will be worth no less than a specified amount (typically, the initial purchase price) as of a date certain after the date of investment.  The CFTC refers to such funds as “principal protected”. The Fund has no such feature.

 

(2) Worst Monthly Drawdown represents the largest negative Monthly Rate of Return experienced since November 1, 2007 by the Fund; a drawdown is measured on the basis of month-end Net Asset Value only, and does not reflect intra-month figures.

 

(3) Worst Peak-to-Valley Drawdown represents the greatest percentage decline since November 1, 2007 from a month-end cumulative Monthly Rate of Return without such cumulative Monthly Rate of Return being equaled or exceeded as of a subsequent month-end.  For example, if the Monthly Rate of Return was (1)% in each of January and February, 1% in March and (2)% in April, the Peak-to-Valley Drawdown would still be continuing at the end of April in the amount of approximately (3)%, whereas if the Monthly Rate of Return had been approximately 3% in March, the Peak-to-Valley Drawdown would have ended as of the end of February at approximately the (2)% level.

 

(4) Monthly Rate of Return is the net performance of the Fund during the month of determination (including interest income and after all expenses have been accrued or paid) divided by the total capital of the Fund as of the beginning of such month.

 

(5) The information presented is based on Net Asset Value and Net Asset Value per Unit. The inception to date total return is (3.30)%.

 

24



 

ML TRANSTREND DTP ENHANCED FUTURESACCESS LLC

(CLASS I UNITS) (5)

December 31, 2011

 

Type of Pool:  Single Advisor Non-”Principal Protected” (1)

Inception of Trading: October 1, 2007

Aggregate Subscriptions:  $3,699,305

Current Capitalization:  $1,126,558

Worst Monthly Drawdown (2):  (6.90)% ( December 2009)

Worst Peak-to-Valley Drawdown (3):  (21.85)%  ( March 2009 —December 2011)

 

Net Asset Value per Unit for Class I, December 31, 2011:  $1.1823

 

Monthly Rates of Return (4)

 

Month

 

2011

 

2010

 

2009

 

2008

 

2007

 

January

 

(0.45

)%

(5.41

)%

(.21

)%

(0.29

)%

 

February

 

1.79

 

1.50

 

0.60

 

5.54

 

 

March

 

(2.52

)

10.65

 

(3.74

)

1.43

 

 

April

 

2.46

 

2.23

 

0.01

 

0.52

 

 

May

 

(5.56

)

(5.79

)

1.42

 

3.31

 

 

June

 

(3.56

)

(0.16

)

(1.80

)

2.49

 

 

July

 

2.47

 

(1.36

)

(3.55

)

(2.71

)

 

August

 

(3.73

)

3.89

 

0.55

 

(1.58

)

 

September

 

(2.71

)

3.32

 

(2.05

)

5.21

 

 

October

 

(2.59

)

4.64

 

(4.98

)

7.56

 

6.91

%

November

 

1.33

 

(0.85

)

2.54

 

2.56

 

(2.03

)

December

 

2.05

 

4.02

 

(6.90

)

2.32

 

1.29

 

Compound Annual Rate of Return

 

(10.89

)%

16.70

%

(17.07

)%

29.18

%

6.10

%

 


(1) Certain funds are structured so as to guarantee to investors that their investment will be worth no less than a specified amount (typically, the initial purchase price) as of a date certain after the date of investment.  The CFTC refers to such funds as “principal protected”. The Fund has no such feature.

 

(2) Worst Monthly Drawdown represents the largest negative Monthly Rate of Return experienced since October 1, 2007 by the Fund; a drawdown is measured on the basis of month-end Net Asset Value only, and does not reflect intra-month figures.

 

(3) Worst Peak-to-Valley Drawdown represents the greatest percentage decline since October 1, 2007 from a month-end cumulative Monthly Rate of Return without such cumulative Monthly Rate of Return being equaled or exceeded as of a subsequent month-end.  For example, if the Monthly Rate of Return was (1)% in each of January and February, 1% in March and (2)% in April, the Peak-to-Valley Drawdown would still be continuing at the end of April in the amount of approximately (3)%, whereas if the Monthly Rate of Return had been approximately 3% in March, the Peak-to-Valley Drawdown would have ended as of the end of February at approximately the (2)% level.

 

(4) Monthly Rate of Return is the net performance of the Fund during the month of determination (including interest income and after all expenses have been accrued or paid) divided by the total capital of the Fund as of the beginning of such month.

 

(5) The information presented is based on Net Asset Value and Net Asset Value per Unit. The inception to date total return is 18.23%.

 

25



 

ML TRANSTREND DTP ENHANCED FUTURESACCESS LLC

(CLASS DS UNITS) (5)

December 31, 2011

 

Type of Pool:  Single Advisor Non-”Principal Protected” (1)

Inception of Trading: April 2, 2007

Aggregate Subscriptions:  $196,930,272

Current Capitalization:  $154,664,583

Worst Monthly Drawdown (2):  (6.81)% ( December 2009)

Worst Peak-to-Valley Drawdown (3):  (21.03)%  ( March 2009 — December 2011)

 

Net Asset Value per Unit for Class DS, December 31, 2011:  $1.4814

 

Monthly Rates of Return (4)

 

Month

 

2011

 

2010

 

2009

 

2008

 

2007

 

January

 

(0.36

)%

(5.33

)%

(.12

)%

(0.19

)%

 

February

 

1.87

 

1.59

 

0.69

 

5.63

 

 

March

 

(2.43

)

10.74

 

(3.60

)

1.40

 

 

April

 

2.56

 

2.32

 

0.10

 

0.21

 

5.32

%

May

 

(5.48

)

(5.71

)

1.51

 

3.06

 

5.56

 

June

 

(3.47

)

(0.08

)

(1.72

)

2.25

 

7.24

 

July

 

2.56

 

(1.26

)

(3.46

)

(2.96

)

(3.19

)

August

 

(3.63

)

3.98

 

0.64

 

(1.72

)

(2.80

)

September

 

(2.63

)

3.42

 

(1.96

)

5.03

 

7.94

 

October

 

(2.50

)

4.73

 

(4.89

)

7.28

 

8.83

 

November

 

1.42

 

(0.75

)

2.64

 

2.66

 

(1.89

)

December

 

2.15

 

4.12

 

(6.81

)

2.42

 

0.74

 

Compound Annual Rate of Return

 

(9.91

)%

17.99

%

(16.11

)%

27.55

%

30.23

%

 


(1) Certain funds are structured so as to guarantee to investors that their investment will be worth no less than a specified amount (typically, the initial purchase price) as of a date certain after the date of investment.  The CFTC refers to such funds as “principal protected”. The Fund has no such feature.

 

(2) Worst Monthly Drawdown represents the largest negative Monthly Rate of Return experienced since April 2, 2007 by the Fund; a drawdown is measured on the basis of month-end Net Asset Value only, and does not reflect intra-month figures.

 

(3) Worst Peak-to-Valley Drawdown represents the greatest percentage decline since April 2, 2007 from a month-end cumulative Monthly Rate of Return without such cumulative Monthly Rate of Return being equaled or exceeded as of a subsequent month-end.  For example, if the Monthly Rate of Return was (1)% in each of January and February, 1% in March and (2)% in April, the Peak-to-Valley Drawdown would still be continuing at the end of April in the amount of approximately (3)%, whereas if the Monthly Rate of Return had been approximately 3% in March, the Peak-to-Valley Drawdown would have ended as of the end of February at approximately the (2)% level.

 

(4) Monthly Rate of Return is the net performance of the Fund during the month of determination (including interest income and after all expenses have been accrued or paid) divided by the total capital of the Fund as of the beginning of such month.

 

(5) The information presented is based on Net Asset Value and Net Asset Value per Unit. The inception to date total return is 48.14%.

 

26



 

ML TRANSTREND DTP ENHANCED FUTURESACCESS LLC

(CLASS DT UNITS) (5)

December 31, 2011

 

Type of Pool:  Single Advisor Non-”Principal Protected”(1)

Inception of Trading: June 1, 2007

Aggregate Subscriptions:  $121,932,427

Current Capitalization:  $34,131,695

Worst Monthly Drawdown (2):  (6.74)% (December 2009)

Worst Peak-to-Valley Drawdown (3):  (20.29)% ( March 2009 - December 2010)

 

Net Asset Value per Unit for Class DT, December 31, 2011:  $1.5771

 

Monthly Rates of Return (4)

 

Month

 

2011

 

2010

 

2009

 

2008

 

2007

 

January

 

(0.28

)%

(5.25

)%

(.04

)%

(0.12

)%

 

February

 

1.94

 

1.68

 

0.77

 

5.73

 

 

March

 

(2.35

)

10.84

 

(3.52

)

1.70

 

 

April

 

2.63

 

2.41

 

0.19

 

0.91

 

 

May

 

(5.40

)

(5.63

)

1.60

 

3.57

 

 

June

 

(3.39

)

0.01

 

(1.63

)

2.78

 

4.33

%

July

 

2.65

 

(1.19

)

(3.38

)

(2.51

)

(2.96

)

August

 

(3.55

)

4.07

 

0.73

 

(1.30

)

(2.70

)

September

 

(2.55

)

3.50

 

(1.88

)

5.46

 

8.03

 

October

 

(2.41

)

4.82

 

(4.81

)

7.93

 

8.97

 

November

 

1.50

 

(0.67

)

2.72

 

2.75

 

(1.65

)

December

 

2.24

 

4.18

 

(6.74

)

2.51

 

1.75

 

Compound Annual Rate of Return

 

(9.04

)%

19.15

%

(15.26

)%

33.08

%

16.04

%

 


(1) Certain funds are structured so as to guarantee to investors that their investment will be worth no less than a specified amount (typically, the initial purchase price) as of a date certain after the date of investment.  The CFTC refers to such funds as “principal protected”. The Fund has no such feature.

 

(2) Worst Monthly Drawdown represents the largest negative Monthly Rate of Return experienced since June 1, 2007 by the Fund; a drawdown is measured on the basis of month-end Net Asset Value only, and does not reflect intra-month figures.

 

(3) Worst Peak-to-Valley Drawdown represents the greatest percentage decline since June 1, 2007 from a month-end cumulative Monthly Rate of Return without such cumulative Monthly Rate of Return being equaled or exceeded as of a subsequent month-end.  For example, if the Monthly Rate of Return was (1)% in each of January and February, 1% in March and (2)% in April, the Peak-to-Valley Drawdown would still be continuing at the end of April in the amount of approximately (3)%, whereas if the Monthly Rate of Return had been approximately 3% in March, the Peak-to-Valley Drawdown would have ended as of the end of February at approximately the (2)% level.

 

(4) Monthly Rate of Return is the net performance of the Fund during the month of determination (including interest income and after all expenses have been accrued or paid) divided by the total capital of the Fund as of the beginning of such month.

 

(5) The information presented is based on Net Asset Value and Net Asset Value per Unit. The inception to date total return is 41.86%.

 

27



 

Item 7:            Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Operational Overview

 

This performance summary is an outline description of how the Fund performed in the past, not necessarily any indication of how it will perform in the future.  In addition, the general causes to which certain price movements are attributed may or may not in fact have caused such movements, but simply occurred at or about the same time.

 

The Fund is unlikely to be profitable in markets in which such trends do not occur.  Static or erratic prices are likely to result in losses.  Similarly, unexpected events (for example, a political upheaval, natural disaster or governmental intervention) can lead to major short-term losses, as well as gains.

 

While there can be no assurance that the Fund will be profitable under any given market condition, markets in which substantial and sustained price movements occur typically offer the best profit potential for the Fund.

 

Results of Operations

 

General

 

Transtrend’s objective in providing trading management services is to effect appreciation of the assets of its clients through the speculative trading on U.S. and non-U.S. exchanges and markets of various instruments, which includes without limitation:  futures, options, options on futures, swaps, swaps on futures, and forward contracts on currencies, interest rates, interest rate instruments, commodities, and equity-related indices.

 

Performance Summary

 

This performance summary is an outline description of how the Fund performed in the past, not necessarily any indication of how it will perform in the future.  In addition, the general causes to which certain price movements are attributed may or may not have caused such movements, but simply occurred at or about the same time.

 

Year ended December 31, 2011

 

 

 

Total Trading

 

 

 

Profit (Loss)

 

Stock Indices

 

$

(7,649,877

)

Metals

 

1,345,868

 

Agricultural Commodities

 

(12,391,662

)

Currencies

 

(15,346,290

)

Energy

 

(600,805

)

Interest Rates

 

13,882,891

 

Subtotal

 

(20,759,875

)

Brokerage Commissions

 

(1,084,608

)

Total

 

$

(21,844,483

)

 

The Fund experienced a net trading loss of $20,759,875 before brokerage commissions and related fees for the year ended December 31, 2011. The Fund’s profits were primarily attributable to interest rates and metal sectors posting profits. The energy, stock indices, agriculture and currency sectors posted losses.

 

Profits were posted to the Fund. Losses were posted to the Fund at the beginning of the first quarter. The revival in the euro was accompanied by falling euro interest rate futures. Losses resulted from the trading program’s long positions on the shorter end of the yield curve (euribor, German short term government paper). Losses were posted to the Fund in the middle of the first quarter. The flight to safe bond markets is unfavorable for a number of long inflation positions that anticipate rising interest rates. The trading program could not identify enough profitable trends to compensate for these losses. Losses were posted to the Fund at the end of the first quarter. The trading program could not find any significant trends

 

28



 

in the interest rate markets, resulting in limited positions with a near zero result. Losses were posted to the Fund at the beginning of the second quarter. In a long inflation environment, the trading program anticipated rising interest rates and falling bond markets. Concerns about the quality of bonds should theoretically strengthen such a move. However, a flight towards non U.S. bonds took place. Short positions in Canadian, European, Japanese and Australian bond markets therefore resulted in losses. Profits were posted the Fund in the middle of the second quarter as the restless currency, commodity and equity markets reinforced the flight to widely considered safe bond markets. With the Greek unrest, the flight to widely considered safe interest rate markets calmly continued from the previous month resulting in profits posted to the Fund at the end of the second quarter. Profits were posted to the Fund at the beginning of the third quarter. Profits were earned from the flight from deemed unsafe government bonds, and more still, from the flight to deemed safe government bonds. Losses on positions in several spreads between various interest rate instruments did not affect the positive result.  Profits were posted to the Fund in the middle of the third quarter. The best trends were due to the continuing flight to deemed safe government bonds. Profits were posted to the Fund at the end of the third quarter.  The rising, safely-deemed interest rate markets in Germany and North America continued their rise on the long end of the yield curve, i.e. terms longer than five years. Losses were posted to the Fund at the beginning of the fourth quarter. The losses in the already small positions in the reversing longer-term bonds from previously considered safe countries are partly offset by modest profits in a number of interest rate spreads. Profits were posted to the Fund in the middle of the fourth quarter due to gains earned in the first week of the month on long positions in the long-term government bonds of Germany, Canada and the U.S. Profits were posted to the Fund at the end of the fourth quarter. The Korean bond markets display a number of extreme market moves as a reaction to the death of the North Korean leader Kim Jong-il and the appointment of his successor, but these market moves have no significant impact on the result. The trading program was well positioned as interest rates gradually decline, mainly in Switzerland, Germany and the United Kingdom, and on the longer end of the yield curve in the U.S.

 

The metals sector posted profits to the Fund. Losses were posted to the Fund at the beginning of the first quarter which was offset with profits posted to the Fund in the middle of the quarter. Textbook positions profited in February from political unrest are the trading program’s long positions in metals in comparing the price of gold with the value of the commodity-rich South African equity index (JSE Top 40) is illustrative. These markets jointly move up in an inflationary environment driven by a commodity shortage. The trading program will have long position in both markets in this environment, taking into account their strong correlation for the purpose of determining position sizes. Profits were posted to the Fund at the end of the quarter. Long positions in base metals resulted in losses posted to the Fund which was offset by positions in silver which continue to offer diversification. Profits were posted to the Fund at the beginning of the second quarter with rising prices of precious metals, including silver. Losses were posted to the Fund in the middle of the second quarter due to the trading program’s various positions in the metals markets. Losses were posed to the Fund at the end of the second quarter as precious metals weakened over the course of the month. Profits were posted to the Fund at the beginning of the third quarter with rising prices of precious metals, including silver. Losses were posted to the Fund in the middle of the third quarter due to the trading program’s various positions in the metals markets. Losses were posed to the Fund at the end of the third quarter as precious metals weakened over the course of the month. Losses were posted to the Fund at the beginning of the fourth quarter. The positions that anticipate a further decrease in the prices of base metals suffer damage by the reversal during the first week of the month of October. Losses were posted to the Fund in the middle of the fourth quarter as metals offer few opportunities for the trading program to post profits. Losses were posted to the Fund at the end of the fourth quarter. Positions anticipating rising prices of precious metals are closed out with a loss in the first weeks of the month of December.

 

The energy sector posted losses to the Fund. Profits were posted to the Fund at the beginning of the first quarter. In the oil markets, Texas oil lost on the North Sea variant over the course of the month. Although the Texan flavor did jump up in the last two days of the month in response to the unrest in Egypt, nearly all of the trading program’s earnings in oil markets were achieved outside of the United States. Profits were posted to the Fund in the middle of the first quarter due to the trading program’s long positions in crude oil. Losses were posted to the Fund at the end of the first quarter. When Germany shuts down some of its nuclear reactors in response to the difficulties experienced in Japan, the trading program’s positions in electricity, carbon emissions and Rotterdam coal resulted in profits for the Fund only to be offset by losses in the trading program’s short positions in natural gas. The Fund benefited only to a limited extent from the upward trend in crude oil and related products which was not enough to offset losses posted to the Fund at the beginning of the second quarter. Losses were posted to the Fund in the middle of the second quarter due to fluctuation of oil prices. Losses were posted to the Fund at the end of the second quarter due to the decline in carbon emission rights and electricity markets. Profits were posted to the Fund at the beginning of the third quarter only to be reversed in the middle of the third quarter as the North Sea oil suffered damage during the first week of August. Profits were posted to the Fund at the end of the third quarter due to gains on short positions in natural gas. Losses were posted to the Fund at the beginning of the fourth quarter. Profits were posted to the Fund in the middle of the fourth quarter. The trading program profited from rising prices of Texas crude oil and gasoil, and from falling prices of natural gas, coal, electricity and emission rights. Profits were posted to the Fund at the end of the fourth quarter as the trading program anticipated declining commodity prices, mainly in energy markets like natural gas and coal.

 

29



 

The stock indices posted losses to the Fund. Profits were posted to the Fund at the beginning of the first quarter. The restored confidence in the stability of the euro zone had a positive influence on the southern European stock markets. Positions in Italian equities earned profits. Agricultural-rich stock indices (Food & Beverage (Europe), Nifty, Bovespa) were remarkably weak. Through the steady and continuous rise of many other stock markets, the stock indices sector resulted in profits posted to the Fund. Profits were posted to the Fund in the middle of the first quarter. The political unrest has a negative impact on stocks of emerging economies especially in the trading program’s long positions in Taiwan resulting in losses which were offset by profits in the European, Canadian and United States equities markets. Losses were posted to the Fund at the end of the first quarter. At the time of the earthquake, the trading program had a very marginal position in Japanese equities, which is (systematically) closed that same day. Losses occurred in other countries, especially within Europe, for example with positions in insurers. Even through some recovery in the second half of the month and profits earned in South Korea and Thailand was not enough to offset losses posted to the Fund. Profits were posted to the Fund at the beginning of the second quarter through the trading program’s long positions in sector indices and short positions in volatility indices. Losses were posted to the Fund in the middle of the second quarter as stock markets which were previously rising under the influence of higher commodity markets were hit as the commodity markets turned. Particularly in emerging countries where continued concern about the stability of the Euro fed the reaction. Losses were posted to the Fund at the end of the second quarter. Short positions in Australia and Italy were not enough to offset losses from long positions in Taiwan, Sweden, Switzerland and the U.S. Losses were posted to the Fund at the beginning of the third quarter. The least amount of trends was in the stock markets as they were thrown back and forth between the following forces at work. Good results were only achieved near the two extremes, for example falling in Italy and Greece and rising in Russia and Taiwan. Losses were posted to the Fund in the middle of the third quarter.  The Russian stock market was dragged down by falling oil prices. The trading program’s long positions in technology stocks in Taiwan, Korea and in the NASDAQ also produced losses. Losses were posted to the Fund at the end of the third quarter. The trading program’s positions responding to recovering North American equities were not (yet) profitable. Profits were posted to the Fund at the beginning of the fourth quarter. Positions anticipating a further fall in equity markets, particularly in Asia, suffer losses after the reversal. The same applies for positions which anticipate further increasing volatility in Europe and in the U.S. This is partly offset by a number of positions profiting from rising equity markets in Northern Europe and in the U.S. Losses were posted to the Fund in the middle of the fourth quarter due to the trading program’s positions in U.S. equities which did not hold their strength from the first week in November and from positions in Northern European shares which at the end of the month recover from their earlier decline. Profits earned on positions anticipating a further drop in equity prices in Japan, China and Taiwan were not able to compensate for these losses. Losses were posted to the Fund at the end of the fourth quarter. The trading program profited from the ongoing downward drift in China, as well as from the enthusiastic recovery of the European health care and food & beverage sectors, and from U.S. equities which are holding their ground. But a number of limited losses on varied positions in many other equity markets resulted in losses to the Fund at the end of the fourth quarter.

 

The agriculture sector posted losses to the Fund. Profits were posted to the Fund at the beginning of the first quarter due to the trading program’s positions in wheat and hogs. Losses were posted to the Fund in the middle of the first quarter due to various agricultural markets that had large price movements. Losses were posted to the Fund at the end of the first quarter. The turn in the commodities markets in March resulted in losses in the trading program’s long positions in corn, sugar and cocoa. Positions in various agricultural markets offered diversification but not enough to offset losses posted to the Fund at the beginning of the second quarter. Losses were posted to the Fund in the middle of the second quarter. In the agricultural markets, it was noticeable that the near contracts were affected by the dim sentiment of the other commodity markets, while the far contracts reflected that the climatic conditions in Europe and the U.S. did not promise much for the next harvest. Losses were posted to the Fund at the end of the second quarter. The majority of commodity markets started the month rising, with the trading program holding long positions, only to weaken in the course of the month, leading to losses as a consequence in corn and soybeans. Sugar succeeded in staying reasonably strong and the trading program picked up the decline in wheat although not enough to offset losses. Losses were posted to the Fund at the beginning of the fourth quarter due to the trading program’s positions that anticipated a further decrease in the prices of various agricultural commodities which reversed during the first week of the October. Profits were posted to the Fund in the middle of the fourth quarter as the trading program profited from falling prices in various agricultural markets. Losses were posted to the Fund at the end of the fourth quarter as the trading program’s short positions in grains resulted in losses.

 

The currency sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the first quarter. The revival in the euro resulted in losses on the trading program’s short positions versus many emerging market currencies. Commodity-rich currencies exhibited different price behaviors. The oil-rich currencies, such as those of Russia and Mexico, remained strong, while the metal and agricultural rich currencies, such as those of Chile, South Africa and Australia, weakened. Profits were posted to the Fund in the middle of the second quarter. The currencies of emerging markets were also impacted by the political events, resulting in losses on positions in the Korean won and the Mexican peso with the Indonesian rupiah remaining exceptionally strong. Also, profits were posted to the Fund from the strength of various

 

30



 

peripheral European currencies including the British pound, Norwegian and Swedish “crowns”, Hungarian forint, Romanian leu and Russian ruble. Profits were posted to the Fund at the end of the first quarter. The Japanese yen responded to the tsunami with a huge swing. The Japanese yen shot up extremely for a number of days, and then in response to successful interventions, fell just as extremely. The trading program’s short positions versus various non United States currencies, losses were locked during the rise. The trading program’s long positions against the U.S. dollar resulted in losses after the intervention. Measured by the extremity of the swing, the total damage actually remained limited, mainly through the trading program not reacting too hastily. Although long positions in British pounds suffered unfortunate results, various other short U.S. dollar positions offset losses resulting in profits posted to the Fund. Profits were posted to the Fund at the beginning of the second quarter. A dominating significant trend was the falling U.S. dollar in April and the trading program was able to earn as much from this move as the limitations to risk concentration allowed. Losses were posted to the Fund in the middle of the second quarter. Although the falling U.S. dollar was a favorable trend in April, the reaction in this trend was the main source of losses in May. Losses were posted to the Fund at the end of the second quarter. Several positions that benefit from a declining U.S. dollar and Euro resulted in losses. Losses were posted to the Fund at the beginning of the third quarter. Profits were made in the trading program’s several short positions which were offset by losses in the trading program’s several other long positions. The strong Japanese yen and British pound resulted almost exclusively in losses on several earlier accumulated trading programs’ short positions. The strength of the currencies of Australia, New Zealand, South Korea, India, Philippines, Chile and Brazil and the weakness of the Turkish lira posted profits, but was not enough to fully offset losses. Losses were posted to the Fund in the middle of the third quarter from the trading program’s long positions in commodity rich currencies, such as those from Russia, Australia, New Zealand, South Africa, Mexico, Brazil and Chile. The rise of the Swiss franc generated profits, despite the far reaching measures by the Swiss central bank. Losses were posted to the Fund at the end of the third quarter. In late August, it seems that most European currencies, and even more so, the currencies of some emerging countries like South Korea and a number of resource-rich countries like Australia, started to recover. The trading program’s positions anticipated a continuation of this trend which resulted in losses posted to the Fund. Profits were earned with the decline of the Taiwanese dollar versus the U.S. dollar and the rise of the Japanese yen versus the Korean won and the Mexican peso which was not enough to offset the losses. Losses were posted to the Fund at the beginning of the fourth quarter. When the U.S. dollar initiated its decline in the first week of October several of the trading program’s positions, mainly against European currencies, were negatively affected. A limited number of the trading program’s positions anticipating a further rise in the Japanese yen suffer losses on the last day of October due to interventions by the Bank of Japan. Losses were posted to the Fund in the middle of the fourth quarter. The trading program’s positions that anticipated a declining U.S. dollar and a rising commodity-rich currencies from Australia, Brazil and Norway resulted in losses. Profits were posted to the Fund at the end of the fourth quarter due to the trading program’s short position in a European currency versus a long position in a non European currency.

 

Year ended December 31, 2010

 

 

 

Total Trading

 

 

 

Profit (Loss)

 

Stock Indices

 

$

(2,475,421

)

Metals

 

13,431,814

 

Agricultural Commodities

 

1,791,226

 

Currencies

 

8,588,176

 

Energy

 

2,100,729

 

Interest Rates

 

26,649,777

 

Subtotal

 

50,086,301

 

Brokerage Commissions

 

(1,332,262

)

Total

 

$

48,754,039

 

 

The Fund experienced a net trading profit before brokerage commissions and related fees for the year ended December 31, 2010 of $50,086,301.  The profits were primarily attributable to the Fund trading in the interest rates, metals, currencies, energy and agriculture sectors posting profits while the stock indices sector posted losses.

 

31



 

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 first 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 first quarter. Profits were posted to the Fund at the beginning of the second 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 second 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-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 second quarter. Profits were posted to the Fund at the beginning of the third quarter; July followed as in June, the best trends were found in the interest rate markets. Profits were earned from the rise in prices of U.S. and Mexican interest rate instruments. Profits continued to be posted to the Fund in the middle of the third quarter as fears of a “double dip” gave a new impetus to the four months already continuous rise in the bond markets. Especially in Europe, South Korea and New Zealand significant profits were earned. Losses were posted to the Fund at the end of the third quarter as the interest rate sector was further limited due to the South Korean bonds being insensitive to the turnarounds seen elsewhere. Gains earned with various rate spreads offered some compensation but not enough to offset losses. A major driving force behind the weakening U.S. dollar in October was the U.S. Federal Government’s interest rate policy, which was focused on keeping interest rates low. Other central banks followed the same policy if they did not want their currencies to appreciate against the U.S. dollar, or they accept a rising interest rate disparity. The trading program successfully participated in the resulting trends in various interest rate markets resulting in profits being posted to the Fund at the beginning of the fourth quarter. With respect to the U.S. Federal Reserve announcement to buy bonds of a shorter term than what was anticipated by the market, short-term (five years or less) U.S. interest rate instruments initially rallied after Chairman Bernanke’s message and then fell back, which was unfavorable for the long positions in these markets. The systems did not or barely benefit from the already weakening Italian and Australian bonds while other interest rate markets were fairly trendless, resulting in losses posted to the Fund in the middle of the fourth quarter. Due to the technical nature of the observed market behavior, the trading program was aggressive in picking up seemingly restarting uptrends in the shorter end of the yield curve, and reluctant to pick up the downtrends in the longer end which turned out to be a detriment to the Fund. The uptrends in the shorter end did not continue, resulting in losses on these positions, which were not offset by gains on the (absent) short positions in the long end. However, the weakness in the long end was well exploited through positions in numerous synthetic markets which could not prevent losses posted to the Fund at the end of the fourth quarter.

 

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 at the beginning of the first quarter.  Gold purchases were profitable but not enough to offset losses being posted to the Fund in the middle of the first quarter. The commodity markets experienced a variety of different trends with base metals prices increasing resulting in profits. The first quarter ended with profits being posted to the Fund. The prices of base metals did not show any recovery after the major events in April resulting in 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 second 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 second quarter. Precious metals continued to appreciate in June resulting in profits being posted to the Fund at the end of the second quarter. Losses were posted to the Fund at the beginning of the third quarter due to volatility in the market. Profits were posted to the Fund in the middle through the end of the third quarter due to the upward trending metal prices and a weakening U.S. dollar. This is also marked by the trading program as a concentrated risk. In other words, in determining the sizes of positions, the trading program takes into

 

32



 

account that the rise of gold prices coincides with the end of the fall of the U.S. dollar. The U.S. dollar inflation was represented in the rising metals resulting in profits posted to the Fund at the beginning of the fourth quarter.  The rise of silver and palladium in November resulted in profits posted to the Fund. The global trend of rising commodity prices in December such as base metals resulted in profits posted to the Fund at the end of the fourth quarter.

 

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 first 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 first quarter ended with profits being posted to the Fund. Profits were posted to the Fund at the beginning of the second 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 second 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 second 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 second quarter. Losses were posted to the Fund at the beginning of the third quarter. Profits were earned from the strength of the Australian and New Zealand dollars, the South African rand and the Colombian peso against the U.S. dollar. These profits were not enough to offset losses being posted to the Fund from long positions in Central and South American currencies against the euro. Losses continued to be posted to the Fund in the middle of the third quarter. The trading program reasonably benefitted from the strength of a number of Asian and South American currencies. However, losses from the Mexican peso plus a multitude of limited losses in other currencies resulted in losses being posted to the Fund. The currency markets were completely dominated by one theme in September, the weakening U.S. dollar which profited from positions in the currencies of emerging and commodity-rich economies. The downturn of the U.S. dollar in relation to the Chinese renminbi still occurred unexpectedly so some losses were suffered here. Interventions by the Bank of Japan had a too isolated and too short lived effect to have a significant impact resulting in profits being posted to the Fund at the end of the third quarter. The falling U.S. dollar was the dominant trend in October resulting in profits posted to the Fund at the beginning of the fourth quarter. The position sizes in currency pairs with a weak U.S. dollar were restricted, since this same movement was participated in with numerous other positions. The U.S. dollar interrupted its prolonged decline in November shortly after Chairman Bernanke’s announcement. Short positions therefore suffered losses. Long positions in Eastern European currencies also returned losses. The profits gained from the rising commodity currencies of Australia, New Zealand, South Africa and Mexico were not enough to compensate for the losses suffered resulting in losses posted to the Fund in the middle of the fourth quarter. Profits were posted to the Fund at the end of the fourth quarter due to the strength of currencies of commodity-rich countries, such as Australia, South Africa and Brazil.

 

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 first 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 first 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 first quarter. Purchases in liquid energy products and emission rights resulted in profits posted to the Fund at the beginning of the second 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 resulting in losses posted to the Fund in the middle through the end of the second quarter as downward trends in the oil markets, initialized in May, did not continue in June. Losses were posted to the Fund at the beginning of the third quarter due to trends in gasoil (upward) and natural gas (downward) were picked up, which resulted in

 

33



 

losses when these trends did not continue their course. Positions in carbon emissions also suffered as the rising trend, started in June, reversed. Profits were posted to the Fund in the middle of the third quarter as the decreasing natural gas prices continued throughout August. The profits resulting from these trends largely offset the losses incurred in the long positions built up in liquid fuels. Profits were posted to the Fund at the end of the third quarter due to falling trends in natural gas. The U.S. dollar inflation was represented here in the rising liquid fuels prices, although lost ground in the last two weeks of October. Not related to the U.S. dollar weakness, short positions in natural gas and electricity resulted in profits being posted to the Fund at the beginning of the fourth quarter.  The rise of liquid fuels, Rotterdam coal and Nordic baseload electricity were not enough to offset losses posted to the Fund in the middle of the fourth quarter. The global trend of rising commodity prices profited from positions in liquid fuels and electricity resulting in profits being posted to the Fund at the end of the fourth quarter.

 

The agriculture sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the first 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 first 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 first quarter. 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 second quarter.  Losses were posted to the Fund in the middle of the second 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 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 second quarter. Cotton prices fell immediately after new highs had been reached. Losses were posted to the Fund at the beginning of the third quarter as the most significant price movement was found in the grain markets. In Europe and the U.S., wheat prices rose by more than 25%. However, since wheat closed especially weak in June, the Fund’s trend following trading program started the month with large short positions, which were closed in the first half of July with a loss. In the second half of the month, profits were then earned with the rising grain prices which were not enough to offset the losses. Profits were posted to the Fund in the middle of the third quarter as cotton prices rose due to severe flooding in several cotton producing countries. In September, profit generating rising trends in sugar, cotton, corn and sunflower seed resulted in profits being posted to the Fund at the end of the third quarter. Profits were posted to the Fund at the beginning of the fourth quarter as less dependent on the U.S. dollar weakness were long positions in agricultural commodities such as sugar, cotton and palm oil. The price of corn, for instance, rose in reaction to a disappointing crop report. Also short positions in wheat not related to the U.S. dollar weakness. Losses were posted to the Fund in the middle of the fourth quarter as many commodities peaked and reacted after Chairman Bernanke’s announcement. Especially, the swings in sugar and cotton were extreme, while earlier these markets were in fact fairly insensitive to the U.S. dollar movements. Profits were posted to the Fund at the end of the fourth quarter due to rising prices in vegetable oils.

 

Stock indices posted losses to the Fund.  The stock markets continued their way upwards in 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 beginning of the first quarter.. At 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 first 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 first quarter ended with profits being posted to the Fund. Losses were posted to the Fund at the beginning of the second 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 & Poors 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

 

34



 

midcap indices, showed the highest resilience. However, the profits could not fully offset the losses posted to the Fund at the beginning of the second quarter.  Purchases of mostly non-euro equity markets suffered harshly in the first week of May. In the second 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 second 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 second quarter. Losses were posted to the Fund at the beginning of the third quarter. In July, the global equity markets were sluggish and the trading program limited the losses being posted to the Fund. This was mainly due to the carefully rising trends in the stock indices of emerging economies such as Turkey, South Korea, Malaysia, India, Thailand, Taiwan and Brazil. Limited exposures in Europe and the U.S., in both long and short positions resulted in losses being posted to the Fund. Losses continued to be posted to the Fund in the middle of the third quarter. In August, the convinced anticipation of rising stock markets was not a success. Only a select number of markets in Southeast Asia (Malaysia and Thailand) were immune to the “double dip”.  In September, it was not coincidental that the downturn in interest rate markets was paired with an upturn in the stock markets. This was immediately taken advantage of in a number of stock market indices which were already up trending, mainly in the South East Asian region. Profits were also earned with these rising stock markets of Canada and the United States. The third quarter ended with profits being posted to the Fund. The U.S. dollar inflation manifested itself in the rising prices of U.S. dollar denominated shares in October. Investors who sought refuge in a stronger currency strengthened the flow of capital, resulting in rising stock markets in non U.S. dollar countries resulting in profits being posted to the Fund at the beginning of the fourth quarter. Worldwide, spread across the continents, many equity indices found a temporary peak shortly after Chairman Bernanke’s announcement to buy bonds of a shorter term than what was anticipated by the market, short-term (five years or less). “Commodity-rich” shares, such as chemicals, basic resources, automobiles, and in the Mexican index, however continued their upward rise tirelessly resulting in profits were posted to the Fund in the middle of the fourth quarter. The limited number of short positions in stock indices suffered losses which was offset by profits earned on long positions worldwide. Especially the strength of emerging equities, namely the shares of emerging economies, as well as the small and mid-caps of the aged economies.

 

Year ended December 31, 2009

 

 

 

Total Trading

 

 

 

Profit (Loss)

 

Stock Indices

 

$

2,771,674

 

Metals

 

1,294,047

 

Agricultural Commodities

 

(1,089,234

)

Currencies

 

(2,785,506

)

Energy

 

(22,155,899

)

Interest Rates

 

(13,716,230

)

Subtotal

 

(35,681,148

)

Brokerage Commissions

 

(1,209,739

)

Total

 

$

(36,890,887

)

 

The Fund experienced a net trading loss before brokerage commissions and related fees for the year ended December 31, 2009 of $35,681,148.  The Fund’s stock indices and the metals sector posted gains, while the agriculture, currencies, interest rates and energy sectors posted losses.

 

Profits were posted to the Fund in stock indices at the beginning of the first 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 first 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 first 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. Profits were posted to the Fund at the beginning of the second 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

 

35



 

in size, posted losses to the Fund. Profits were posted to the Fund in the middle of the second 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 second 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. Profits were posted to the Fund at the beginning of the third quarter due to the Fund’s existing and new long positions in the Asian markets such as China, Taiwan and South Korea. Positions in Canada and Sweden also contributed to profits being posted to the Fund. Profits continued to be posted to the Fund in the middle of the third quarter as almost all stock indices continued forth with their rising trends. Profits were posted to the Fund due to purchases in Australia, France and the United Kingdom. Success was also achieved with a pan-European insurance sector position. Losses were felt on long positions in Taiwan and China as a consequence of Chinese Central Bank monetary tightening fears. The third quarter ended with profits being posted to the Fund.  Just a few Asian countries, such as Japan and China, went against the trend, partly caused by an appreciating Japanese yen. This was not favorable for long positions. These losses were however more than made up for through long positions in various European countries, Australia, Taiwan and Canada. Losses were posted to the Fund at the beginning of the fourth quarter. Although the month of October started positively for positions, the sharp reactions on the stock markets pulled the month into the red. Long positions in stock indices worldwide suffered. The heaviest losses were felt in Germany, the United Kingdom and in the base metals pan-European sector index. The Japanese and Canadian markets also generated a notable negative contribution to the losing month. Losses were posted to the Fund in the middle of the fourth quarter. The positions in the stock markets, comprising mainly of purchases, suffered from the returning cautiousness. The falling stock prices caused losses in Hong Kong, Taiwan, Italy and Germany. Doubts regarding future economic developments could not prevent most stock indices from ending the month of December in higher territory. Long positions in Asia, namely in South Korea, Taiwan and Singapore, posted profits to the Fund while short positions in Japan suffered losses. Purchases in the Netherlands, France and Germany, along with a pan-European basic resources index, posted profits to the Fund. Positions in various U.S. stock indices also performed well. The fourth quarter ended with profits being posted to 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 first quarter. Profits were posted to the Fund in the middle of the first 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 first 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. Losses were posted to the Fund at the beginning of the second 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 second quarter due to long positions in gold, tin and zinc. The second quarter ended with losses being posted to the Fund due to gold purchases and aluminum sales both led to losses. Losses were posted to the Fund at the beginning of the third quarter due to gold prices being inconsistent and led to losses on purchases and sales. Profits were posted to the Fund in the middle of the third quarter. Gold and silver buying created losses but were outweighed by the positive results earned with purchases of copper and tin. The third quarter ended with profits being posted to the Fund due to rising prices of silver. Profits were posted to the Fund at the beginning of the third quarter through gold and silver purchases, while short aluminum positions led to a loss.  Profits were posted to the Fund in the beginning of the fourth quarter as the gold price continued its upward trend. Purchases of silver and copper also contributed to profits being posted to the Fund. Profits were posted to the Fund at the end of the fourth quarter due to long positions in aluminum and, copper.

 

Losses were posted to the Fund in the agriculture sector at the beginning of the first quarter due to volatility in the markets. The Fund profited from the downward trends in wheat and soybeans resulting in profits being posted to the Fund in the middle of the first quarter.  Sugar was one of the few commodities which ended the month of January higher which played out well for purchased positions. The first 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. Profits were posted to the Fund at the beginning of the second 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 second 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 second 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. Profits were posted to the Fund at the beginning of the third quarter due to the downward trends in corn and wheat prices resulting

 

36



 

from favorable harvest expectations. Profits continued to be posted to the Fund in the middle of the third quarter as sugar prices exploded upward following bad harvest expectations. Profits were also earned with sales of corn and wheat. Profits made from rising prices in cacao as well as falling wheat prices produced profits however, could not overcome the losses from the short positions in corn, coffee and lean hog resulting in losses being posted to the Fund at the end of the third quarter. Sales in the soybean and wheat and purchases of sugar suffered losses resulting in losses being posted to the Fund at the beginning of the fourth quarter. Losses were posted to the Fund in the middle of the fourth quarter due to volatility in the global markets. Due to sharp falls seen in the beginning of December existing long positions in the soybean complex suffered losses resulting in losses being posted to the Fund at the end of the fourth quarter.

 

Losses were posted to the Fund in the currency sector at the beginning of the first 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 in January 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 first 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 first 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. Profits were posted to the Fund at the beginning of the second 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 second 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 second 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. Profits were posted to the Fund at the beginning of the third quarter with purchases of Turkish lira and various Eastern European currencies plus long positions in Brazil and Colombia. In August, the upward trend of emerging market currencies halted. Purchases of the Mexican peso, Turkish lira, Russian ruble and South African rand posted losses to the Fund. Losses were posted to the Fund in the middle of the third quarter due to Euros purchased with the United States dollar, Japanese yen and Swiss francs and the Canadian dollar purchases versus Japanese yen sales. The United States dollar fell against several other currencies such as purchases of Japanese yen, Australian and Canadian dollars producing profits to the Fund in September. Profits were posted to the Fund through currencies from emerging markets such as Russia, South Africa and South Korea at the end of the third quarter. One of the few major currencies performing weaker than the U.S. dollar was the British pound, primarily due to the central bank wanting to keep a weaker pound for competitive purposes. Sales of British pounds versus the euro and South African rand also produced profits to the Fund. Losses were posted to the Fund at the beginning of the fourth quarter. In the carry trades, where high yielding currencies are financed by low interest-bearing currencies, sharp reactions were experienced. This led to a portion of built up profits being eaten into and resulting in losses posted to the Fund.  The purchases of the Australian dollar, Mexican peso and the euro versus the Japanese yen suffered from these reactions. Long positions in the Hungarian forint, Turkish lira, South Africa rand and the Canadian dollar also posted losses for the Fund. Losses were posted to the Fund in the middle of the fourth quarter. The Japanese yen appreciated at the end of November due to the increasing aversion to risk. The Japanese yen sales versus the Australian dollar and the euro suffered losses. The U.S. dollar gained some value in relation to several currencies in December. Purchases of currencies from Japan, Poland, Czech Republic, Hungary and Russia all financed with the U.S. dollar lost money. Profits posted to the Fund were achieved with long positions in the Mexican peso,

 

37



 

Australian and New Zealand dollar versus the euro. British pounds purchased with Swiss francs suffered losses while Turkish lira bought with euros earned profits. Overall, the sector closed the end of the fourth quarter with losses being posted to the Fund.

 

Losses were posted for the Fund at the beginning of the first 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 first 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 first quarter. Although the market had considered that the 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. Losses were posted to the Fund at the beginning of the second quarter. The expectation of further buying of debt 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 second quarter. An improved economic outlook and 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 second 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 in part to 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 second quarter ended. Losses were posted to the Fund at the beginning of the third quarter. Most positions in the interest rate markets were loss making as they mainly anticipated lower rates. Positions put on to follow trends in trans-Atlantic rate differences also posted losses for the Fund. However, the anticipated lower interest rates positions proved profitable for Fund in the middle of the third quarter as profits were posted to the Fund. The third quarter ended with profits being posted to the Fund as most positions anticipated declining interest rates resulting in profits. Positions in Europe prepared for falling interest rates which generated losses being posted to the Fund at the beginning of the fourth quarter. These were partially compensated by positions anticipating a change in the difference in trans-Atlantic rates and long positions in American government debt. In the markets, confidence was growing that the leading central banks would be leaving their base rates at their current low levels far into 2010. Question marks regarding the condition of the apparent economic recovery and the worrisome developments in Dubai pushed interest rates lower. Several positions in various money markets and purchases of state debt in Germany, the US, Canada and South Korea resulted in profits being posted to the Fund in the middle of the fourth quarter. The lack of interest shown during the United States bond auctions and rising doubt about the creditworthiness of various countries led to increasing interest rates. Most positions were anticipating falling yields and thus suffered losses. Unfavorable results were also felt with trans-Atlantic interest rate positions resulting in losses being posted to the Fund at the end of the fourth quarter.

 

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 in energies.  Profits continued to be posted to the Fund in the middle of the first 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 first quarter resulting from natural gas sales. Profits were posted to the Fund at the beginning of the second quarter resulting from sales of natural gas. Losses were posted to the Fund in the middle of the quarter. Various fossil fuel prices rose 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. Losses were posted to the Fund at the beginning of the third quarter. Large supplies and low expected sales of natural gas pushed prices to lower levels which were advantageous for short positions. Sharp price swing in crude oil prices produced losses for the Fund on both long and short positions in various oil related products. Profits were posted to the Fund in the middle of the third quarter as prices found a new multi year low which outweighed the losses form the purchases of crude oil and gasoline. The sudden break in the downward trend of natural gas prices was not favorable for

 

38



 

existing short positions resulting in losses being posted to the Fund at the end of the third quarter. Also, the crude oil market did not show any distinct trends so both buys and sells suffered posting losses for the Fund. The losses felt in the oil markets originated from short positions from the beginning of October. Long purchases in crude oil and its derivatives later in the month overall resulted in profits but not enough to offset the losses being posted to the Fund at the beginning of the fourth quarter. Profits were posted to the Fund in the middle of the fourth quarter. The best performer was short positions in natural gas, which heavily lost its value due to large winter supplies and relatively high temperatures. An abrupt trend reversal in natural gas prices was unfavorable for short positions and led to serious losses.  Due to sharp falls seen in the beginning of December existing long positions in crude oil suffered resulting in losses being posted to the Fund at the end of the fourth quarter.

 

Variables Affecting Performance

 

The principal variables that determine the net performance of the Fund are gross profitability from the Fund’s trading activities and interest 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.

 

During all periods set forth above in “Selected Financial Data”, the interest rates in many countries were at unusually low levels. In addition, low interest rates are frequently associated with reduced fixed income market volatility, and in static markets the Fund’s profit potential generally tends to be diminished.  On the other hand, during periods of higher interest rates, the relative attractiveness of a high risk investment such as the Fund may be reduced as compared to high yielding and much lower risk fixed-income investments.

 

The Fund’s management fees and sponsor fees are a constant percentage of the Fund’s assets.  Brokerage commissions, which are not based on a percentage of the Fund’s assets, are based on actual round turns.  The Performance fees payable to Transtrend are based on the New Trading Profits generated by the Fund excluding interest and after reduction of the brokerage commissions.

 

Unlike many investment fields, there is no meaningful distinction in the operation of the Fund between realized and unrealized profits.  Most of the contracts traded by the Fund are highly liquid and can be closed out at any time.

 

Except in unusual circumstances, factors—regulatory approvals, cost of goods sold, employee relations and the like—which often materially affect an operating business, have no material impact on the Fund.

 

Liquidity; Capital Resources

 

The Fund borrows only to a limited extent and only on a strictly short-term basis in order to finance losses on non-U.S. dollar denominated trading positions pending the conversion of the Fund’s U.S. dollar deposits. These borrowings are at a prevailing short-term rate in the relevant currency.

 

Substantially all of the Fund’s assets are held in cash. The Net Asset Value of the Fund’s cash is not affected by inflation. However, changes in interest rates could cause periods of strong up or down price trends, during which the Fund’s profit potential generally increases. Inflation in commodity prices could also generate price movements, which the strategies might successfully follow.

 

Because substantially all of the Fund’s assets are held in cash, the Fund should be able to close out any or all of its open trading positions and liquidate any or all of its securities holdings quickly and at market prices, except in very unusual circumstances. This permits the Fund to limit losses as well as reduce market exposure on short notice should its strategies indicate doing so. In addition, because there is a readily available market value for the Fund’s positions and assets, the Fund’s monthly Net Asset Value calculations are precise, and investors need to provide ten business days notice to receive the full redemption proceeds of their Units on the last business day of any month.

 

As a commodity pool, the Fund maintains an extremely large percentage of its assets in cash, which it must have available to post initial and variation margin on futures contracts.  This cash is also used to fund redemptions.  While the Fund has the ability to fund redemption proceeds from liquidating positions, as a practical matter positions are not liquidated to fund redemptions.  In the event that positions were liquidated to fund redemptions, MLAI, as the Manager of the Fund, has the ability to override decisions of the Trading Advisor to fund redemptions if necessary, but in practice the Trading Advisor

 

39



 

would determine in its discretion which investments should be liquidated.

 

(The Fund has no applicable off-balance sheet arrangements or tabular disclosure of contractual obligations of the type described in Items 3.03(a)(4) and 3.03(a)(5) of Regulation S-K.)

 

Recent Accounting Developments

 

Recent accounting developments are discussed in Exhibit 13.01.

 

Item 7A: Quantitative and Qualitative Disclosures About Market Risks

 

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.

 

The Fund, under the direction of Transtrend, rapidly acquires and liquidates both long and short positions in currency 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 and Section 21E of the Securities Exchange Act).  All quantitative disclosures in this section are deemed to be forward-looking statements for purposes of the safe harbor, except for statements of historical fact.

 

The Fund’s risk exposure in the various market sectors traded by the Fund 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).

 

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

 

40



 

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.

 

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 periods. During the periods ended December 31, 2011 and December 31, 2010, the Fund’s average month-end Net Asset Value was approximately $250,238,270 and $242,489,189, respectively.

 

December 31, 2011

 

 

 

Average Value

 

% of Average

 

Highest Value

 

Lowest Value

 

Market Sector

 

at Risk

 

Capitalization

 

at Risk

 

at Risk

 

 

 

 

 

 

 

 

 

 

 

Agriculture

 

2,347,392

 

0.94

%

4,857,637

 

664,888

 

Currencies

 

4,565,045

 

1.82

%

11,388,125

 

434,159

 

Energy

 

3,668,546

 

1.47

%

9,092,079

 

1,061,402

 

Interest Rates

 

2,478,257

 

0.99

%

5,623,341

 

324,409

 

Metals

 

4,659,846

 

1.86

%

10,262,688

 

1,597,242

 

Stock Indices

 

3,326,532

 

1.33

%

8,606,799

 

134,677

 

 

 

 

 

 

 

 

 

 

 

Total

 

21,045,618

 

8.41

%

49,830,669

 

4,216,777

 

 

December 31, 2010

 

 

 

Average Value

 

% of Average

 

Highest Value

 

Lowest Value

 

Market Sector

 

at Risk

 

Capitalization

 

at Risk

 

at Risk

 

 

 

 

 

 

 

 

 

 

 

Agriculture

 

$

2,538,385

 

1.05

%

$

5,946,607

 

$

778,695

 

Currencies

 

5,783,392

 

2.39

%

12,294,354

 

504,065

 

Energy

 

8,761,194

 

3.61

%

14,928,308

 

4,060,278

 

Interest Rates

 

4,218,621

 

1.74

%

7,542,633

 

939,365

 

Metals

 

1,707,860

 

0.70

%

3,722,391

 

364,706

 

Stock Indices

 

1,854,290

 

0.76

%

4,603,316

 

387,830

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

24,863,742

 

10.25

%

$

49,037,609

 

$

7,034,939

 

 

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.”

 

41



 

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. The value of this cash is not interest rate sensitive, but there is cash flow risk in that if interest rates decline so will the cash flow generated on these monies.

 

Qualitative Disclosures Regarding Primary Trading Risk Exposures

 

The following qualitative disclosures regarding the 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 December 31, 2011, by market sector.

 

Interest Rates

 

Interest rate movements directly affect the price of derivative sovereign bond positions held by the Fund and indirectly the value of its stock index and currency positions. Interest rate movements in one country as well as relative interest rate movements between countries materially impact the 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.  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 December 31, 2011. 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.

 

42



 

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 December 31, 2011.

 

Foreign Currency Balances

 

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

 

U.S. Dollar Cash Balance

 

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

 

Qualitative Disclosures Regarding Means of Managing Risk Exposure

 

Trading Risk

 

MLAI has procedures in place intended to control market risk, although there can be no assurance that they will, in fact, succeed in doing so. While MLAI does not 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 unusual, except in cases in which it appears that Transtrend has begun to deviate from past practice and trading policies or to be trading erratically, MLAI’s basic control procedures consist of simply of the ongoing process of monitoring Transtrend with the market risk controls being applied by Transtrend itself.

 

Risk Management

 

Transtrend attempts to control risk in all aspects of the investment process — from confirmation of a trend to determining the optimal exposure in a given market, and to money management issues such as the startup or upgrade of investor accounts.  Transtrend double checks the accuracy of market data, and will not trade a market without multiple price sources for analytical input.  In constructing a portfolio, Transtrend seeks to control overall risk as well as the risk of any one position, and Transtrend trades only markets that have been identified as having positive performance characteristics.  Trading discipline requires plans for the exit of a market as well as for entry.  Transtrend factors the point of exit into the decision to enter (stop loss).  The size of the Funds’ positions in a particular market is not a matter of how large a return can be generated but of how much risk it is willing to take relative to that expected return.

 

To attempt to reduce the risk of volatility while maintaining the potential for excellent performance, proprietary research is conducted on an ongoing basis to refine the Transtrend investment strategies.  Research may suggest substitution of alternative investment methodologies with respect to particular contracts; this may occur, for example, when the testing of a new methodology has indicated that its use might have resulted in different historical performance.  In addition, risk management research and analysis may suggest modifications regarding the relative weighting among various contracts, the addition or deletion of particular contracts for a program, or a change in position size in relation to account equity.  The weighting of capital committed to various markets in the investment programs is dynamic, and Transtrend may vary the weighting at its discretion as market conditions, liquidity, position limit considerations and other factors warrant.

 

Transtrend may determine that risks arise when markets are illiquid or erratic, which may occur cyclically during holiday seasons, or on the basis of irregularly occurring market events.  In such cases, Transtrend at its sole discretion may override computer-generated signals and may at times use discretion in the application of its quantitative models, which may affect performance positively or negatively.

 

Adjustments in position size in relation to account equity have been and continue to be an integral part of Transtrend’s investment strategy.  At its discretion, Transtrend may adjust the size of a position in relation to equity in certain markets or entire programs.  Such adjustments may be made at certain times for some programs but not for others.

 

Factors which may affect the decision to adjust the size of a position in relation to account equity include ongoing research, program volatility, assessments of current market volatility and risk exposure, subjective judgment, and evaluation of these and other general market conditions

 

43



 

Non-Trading Risk

 

The Fund controls the non-trading exchange rate risk by regularly converting foreign balances back into U.S. dollars at least once per week, and more frequently if a particular foreign currency balance becomes unusually high.

 

The Fund has cash flow interest rate risk on its cash on deposit with MLPF&S and in the BlackRock, which was a related party to MLAI for a portion of the year, sponsored money market mutual fund in that declining interest rates would cause the income from such cash to decline. However, a certain amount of cash or cash equivalents must be held by the Fund in order to facilitate margin payments and pay expenses and redemptions. MLAI does not take any steps to limit the cash flow risk on its cash held on deposit at MLPF&S and in the BlackRock sponsored money market mutual fund.

 

Item 8: Financial Statements and Supplementary Data

 

Net Income(Loss) by Quarter

Eight Quarters through December 31, 2011

 

 

 

Fourth

 

Third

 

Second

 

First

 

Fourth

 

Third

 

Second

 

First

 

 

 

Quarter

 

Quarter

 

Quarter

 

Quarter

 

Quarter

 

Quarter

 

Quarter

 

Quarter

 

 

 

2011

 

2011

 

2011

 

2011

 

2010

 

2010

 

2010

 

2010

 

Total Income (Loss)

 

$

3,414,069

 

$

(8,224,491

)

$

(15,891,955

)

$

(1,159,861

)

$

22,860,229

 

$

15,472,363

 

$

(7,433,314

)

$

17,855,235

 

Total Expenses

 

1,420,609

 

1,506,420

 

1,542,224

 

1,511,845

 

3,122,172

 

1,368,562

 

1,316,448

 

1,317,179

 

Net Income (Loss)

 

$

1,993,460

 

$

(9,730,911

)

$

(17,434,179

)

$

(2,671,706

)

$

19,738,057

 

$

14,103,801

 

$

(8,749,762

)

$

16,538,056

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income (Loss) per weighted average Unit (1)

 

$

0.0118

 

$

(0.0561

)

$

(0.1030

)

$

(0.0164

)

$

0.1219

 

$

0.0839

 

$

(0.0509

)

$

0.0916

 

 


(1) The net income per weighted average unit is based on the weighted average of the total units for each quarter.

 

The financial statements required by this Item are included in Exhibit 13.01.

 

The supplementary financial information (“information about oil and gas producing activities”) specified by Item 302(b) of Regulation S-K is not applicable.

 

Item 9: Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

 

None.

 

Item 9A: Controls and Procedures

 

Disclosure Controls and Procedures

 

MLAI’s Chief Executive Officer and the Chief Financial Officer, on behalf of the Fund, has evaluated the effectiveness of the design and operation of its disclosure controls and procedures with respect to the Fund as of and for the year which ended December 31, 2011, and, based on its evaluation, has concluded that these disclosure controls and procedures are effective.

 

Management’s Annual Report on Internal Control over Financial Reporting:

 

The Fund’s management is responsible for establishing and maintaining adequate internal control over financial reporting.  The Fund’s internal control over financial reporting is a process designed under the supervision of MLAI’s Chief Executive Officer and the Chief Financial Officer, on behalf of the Fund and is effected by management, other personnel and service providers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and included those policy and procedures that:

 

·                  Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Fund.

 

44



 

·                  Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Fund are being made only in accordance with authorizations of management and directors of the Fund; and

 

·                  Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use or disposition of the Fund’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation and presentation.  Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in condition, or that the degree of compliance with the policies or procedures may deteriorate.

 

The Fund’s management assessed the effectiveness of the Funds’ internal control over financial reporting as of December 31, 2011.  In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “Internal Control-Integrated Framework”.

 

Based on its assessment the Fund’s management concluded that at December 31, 2011, the Fund’s internal control over financial reporting was effective.

 

This annual report does not include an attestation report of the Fund’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Fund’s independent registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Fund to provide only management’s report for this annual report.

 

Changes in Internal Control over Financial Reporting

 

No change in internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act) occurred during the quarter ended December 31, 2011 that has materially affected, or is reasonable likely to materially affect, the Fund’s internal control, over financial reporting.

 

Item 9B:  Other Information

 

Not applicable.

 

45



 

PART III

 

Item 10: Directors, Executive Officers and Corporate Governance

 

10(a) and 10(b)    Identification of Directors and Executive Officers:

 

The managers and executive officers of MLAI and their respective business backgrounds are as follows:

 

Justin C. Ferri

 

Chief Executive Officer, President and Manager

 

 

 

Barbra E. Kocsis

 

Chief Financial Officer and Vice President

 

 

 

Deann Morgan

 

Vice President and Manager

 

 

 

James L. Costabile

 

Vice President and Manager

 

 

 

Paul D. Harris

 

Vice President and Manager

 

 

 

Colleen R. Rusch

 

Vice President and Manager

 

Justin C. Ferri is the Chief Executive Officer, President and Manager of MLAI. Mr. Ferri, 36 years old, has been the Chief Executive Officer and President of MLAI since August 2009.  Mr. Ferri has been listed as a principal of MLAI since July 29, 2008.  He has been registered with the CFTC as an associated person of MLAI since September 11, 2009.  He has served as Managing Director within the BAC Global Wealth & Investment Management group (“GWIM”) and the Global Wealth and Retirement Solutions group (“GWRS”) since January 2007, and has been responsible for heading GWIM’s Alternative Investments business since August 2009 and was responsible for platform and product management for the business from January 2007 until taking over as head in August 2009.  Prior to his role in GWRS, Mr. Ferri was a Director in MLPF&S’ Global Private Client Market Investments & Origination group from January 2005 to January 2007 where he was responsible for the structured fund business for Merrill Lynch wealth management, and before that, he served as a Vice President and head of the MLPF&S Global Private Client Rampart Equity Derivatives team from January 2003 to January 2005.  In addition, from August 2009 to October 2010, Mr. Ferri served as President of IQ Investment Advisors LLC (“IQ”), an indirect, wholly-owned investment adviser subsidiary of ML & Co., and served as President of each of IQ’s publicly traded closed-end mutual fund companies.  Prior to joining BAC in January 2002 as Vice President and Co-Head of Analytic Development, Mr. Ferri was a Vice President within the Quantitative Development group of mPower Advisors LLC, an on-line investment advice and retirement education company, from June 1999 to January 2002, and prior to that, he worked in the Private Client division of J.P. Morgan & Co., a global financial services company, from June 1997 to June 1999, as an associate in the bank’s wealth management business for high-net worth individuals where he was responsible for the development and implementation of a wealth management client account trading system. Mr. Ferri was listed as a principal and registered as an associated person of BACAP Alternative Advisors, Inc., a commodity pool operator, from January 8, 2010 to May 5, 2010 and January 14, 2010 to May 5, 2010, respectively, where he was responsible for supervision of certain unregistered “fund of hedge fund” investment vehicles.  He was also listed as a principal of Banc of America Investment Advisors, Inc., an investment adviser and an indirect, wholly-owned subsidiary of Bank of America where he was responsible for supervision of certain registered and unregistered “fund of hedge fund” investment vehicles from January 8, 2010 to September 21, 2010 and January 14, 2010 to September 21, 2010, respectively.  Mr. Ferri holds a B.A. degree from Loyola College in Maryland.

 

Barbra E. Kocsis is the Chief Financial Officer and Vice President for MLAI. Ms. Kocsis, 45 years old, has been the Chief Financial Officer of MLAI since October 2006. Ms. Kocsis has been listed with the CFTC as a principal of MLAI since May 21, 2007 and is a Director within the Bank of America Global Wealth Investment Management Technology and Operations group, positions she has held since October 2006. Prior to serving in her current roles, she was the Fund Controller of MLAI from May 1999 to September 2006. Before joining MLAI, Ms. Kocsis held various accounting and tax positions at Derivatives Portfolio Management LLC from May 1992 until May 1999, at which time she held the position of accounting director. Prior to that, she was an associate at Coopers & Lybrand in both the audit and tax practices from September 1988 to February 1992. She graduated cum laude from Monmouth College with a Bachelor of Science in Business Administration - Accounting.

 

46



 

Deann Morgan is a Vice President and Manager of MLAI. Ms. Morgan, 42 years old, has been a Vice President of MLAI since March 2008 and Managing Director of the GWIM Alternative Investments Group since January 2009. As Managing Director of GWIM AI, Ms. Morgan heads Alternative Investments Origination. From April 2006 until March 2008, Ms. Morgan was a Director for Merrill Lynch’s Global Investments, Wealth Management & Insurance group, where she was responsible for origination of private equity and listed alternative investments. Between August 1999 and April 2006, Ms. Morgan worked for BAC’s Investment Banking Group covering Asian corporate clients. She received her M.B.A. from University of Chicago and her B.B.A. from University of Michigan. Ms. Morgan has been registered with NFA as an associated person and listed as a principal of MLAI since August 21, 2009. Ms. Morgan has also been registered with NFA as an associated person of MLPF&S since April 13, 2009.

 

James L. Costabile, is a Vice President and Manager of MLAI.  Mr. Costabile, 35 years old, has been a Managing Director within GWRS responsible for alternative investment distribution for BAC since June 2007 and US Trust since January 2009.  Mr. Costabile has been listed as a principal of MLAI since July 14, 2010.  He has also been registered with NFA as an associated person of MLPF&S since August 20, 2007.  Mr. Costabile was previously registered as an associated person of Citigroup Global Markets Inc. from November 13, 2003 to July 6, 2007.  As part of the MLAI management team, Mr. Costabile oversees a team of specialists responsible for supporting hedge funds, private equity and real asset offerings.  Prior to joining BAC in 2007, Mr. Costabile spent ten years with Citigroup Inc., most recently as a Managing Director for Citigroup Alternative Investments responsible for co-heading Smith Barney Alternative Investment Distribution from February 2005 to June 2007.  Prior to that, Mr. Costabile held a number of positions involving sales, marketing, product management and financial advisor training within different divisions of Citigroup, Inc. including: Citigroup Alternative Investments from May 2003 to February 2005 (sales manager for hedge funds, private equity funds, structured products and exchange funds); the Private Capital Group from February 2001 to May 2003 (sales desk manager for alternative funds for Smith Barney and Citi Private Bank); Salomon Smith Barney Alternative Investment Group from February 1999 to February 2001 (producing sales desk manager for alternative investment funds); Smith Barney Alternative Investments from March 1998 to February 1999 (sales desk supervisor for alternative investment funds) and Smith Barney Capital Management from November 1997 to March 1998 (participating in sales, marketing and product management).  Mr. Costabile received a B.S. from Fordham University and holds the Chartered Alternative Investment Analyst designation.

 

Paul D. Harris, is a Vice President and Manager of MLAI.  Mr. Harris, 41 years old, has been Managing Director and head of Strategy and Marketing in the Alternative Investment group within GWRS since December 2009.  Mr. Harris has been listed as a principal of MLAI since August 26, 2010.  Mr. Harris is responsible for leading Strategy, Marketing and Information Management functional teams in developing alternative investment solutions, including hedge funds, managed futures, private equity and real assets investments for financial advisors.  Prior to joining BAC in December 2009, Mr. Harris was a Managing Director at PH Investment Group, LLC from May 2008 to November 2009, and before that a Director at Bridgewater Associates from August  2007 to March 2008.  Mr. Harris was also a Director at Citigroup Alternative Investments and the Strategy and M&A team at Citigroup’s investment bank from January 2003 to January 2007.  From January 2002 to January 2003, Mr. Harris was the Director of Business Development at Pomona Capital.  In addition, Mr. Harris worked in strategic consulting as a Project Leader at the Boston Consulting Group from September 1999 to January 2002.  Mr. Harris began his career in September 1992 in investment banking followed by Barclays Capital and Goldman Sachs in investment banking and capital markets in September 1992.  Mr. Harris holds an MBA from Harvard Business School and a BA in Economics and Politics from Essex University, UK.

 

Colleen R. Rusch is a Vice President and Manager of MLAI.  Ms. Rusch, 44 years old, has been a Vice President of MLAI since June 2008 and Managing Director of the GWIM Alternative Investment Group since January 2012. As Managing Director of GWIM Alternative Investment Ms. Rusch heads Alternative Investment Platform Management.  Prior to her role, Ms. Rusch was a Director responsible for overseeing GWIM’s Alternative Investments product and trading platform since 2007.  Ms. Rusch has applied to be listed as a principal of MLAI.  In addition, Ms. Rusch served as Chief Administrative Officer and Vice President of IQ Investment Advisors LLC (“IQ”), an indirect wholly-owned investment adviser subsidiary of Merrill Lynch & Co., and serves as Vice President and Secretary of each of IQ’s publicly-traded closed-end mutual funds from June 2005 to October 2010. Prior to her role in GWRS, Ms. Rusch was a Director in the MLPF&S Global Private Client - Market Investment & Origination Group (“MIO”) from July 2005 to 2007.  Prior to her role as a Director in MIO, Ms. Rusch was a Director of Merrill Lynch Investment Managers from January 2005 to July 2005 and a Vice President from April 1993 to December 2004.  Ms. Rusch holds a B.S. degree in Business Administration from Saint Peter’s College in New Jersey.

 

MLAI acts as the sponsor, general partner or manager to nine public futures funds whose units of limited partner or member interests are registered under the Securities Exchange Act: Aspect Futures Access LLC, ML Bluetrend FuturesAccess LLC, Highbridge Commodities FuturesAccess LLC, Man-AHL FuturesAccess LLC, ML Select Futures I L.P., Systematic Momentum FuturesAccess LLC, ML Transtrend DTP Enhanced FuturesAccess LLC, ML Trend-Following Futures Fund L.P, and ML Winton FuturesAccess LLC. Because MLAI serves as the sole sponsor, general partner or manager of each of these funds, the officers and managers of MLAI effectively manage them as officers and directors of such funds.

 

47



 

(c)                              Identification of Certain Significant Employees:

 

None.

 

(d)                                 Family Relationships:

 

None.

 

(e)                                  Business Experience:

 

See Items 10(a) and (b) above.

 

(f)                                   Involvement in Certain Legal Proceedings:

 

None.

 

(g)                                  Promoters and Control Persons:

 

Not applicable.

 

(h)                                 Section 16(a) Beneficial Ownership Reporting Compliance:

 

Not contained herein.

 

Code of Ethics:

 

MLAI and BAC have adopted a code of ethics which applies to the Fund’s (MLAI’s) principal executive officer and principal financial officer or persons performing similar functions on behalf of the Fund.  A copy of the code of ethics is available to any person, without charge, upon request by calling 1-866-MER-ALTS.

 

Nominating Committee:

 

Not applicable. (Neither the Fund nor MLAI has a nominating committee.)

 

Audit Committee: Audit Committee Financial Expert:

 

Not applicable. (Neither the Fund nor MLAI has an audit committee.  There are no listed shares of the Fund or MLAI.)

 

Item 11: Executive Compensation

 

The managers and officers of MLAI are remunerated by BAC in their respective positions. The Fund does not have any officers, managers or employees.  The Fund pays brokerage commissions to an affiliate of MLAI and sponsor fees to MLAI.  MLAI also receives management fees. MLAI or its affiliates may also receive certain economic benefits from possession of the Fund’s U.S. dollar assets.  The managers and officers receive no “other compensation” from the Fund, and the managers receive no compensation for serving as managers of MLAI.  There are no compensation plans or arrangements relating to a change in control of either the Fund or MLAI.

 

Item 12: Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

(a)                                 Security Ownership of Certain Beneficial Owners:

 

Not applicable. (The Units represent limited liability company interests. The Fund is managed by its Manager, MLAI.)

 

(b)                                 Security Ownership of Management:

 

As of December 31, 2011, MLAI owned no Unit-equivalent member interests. The principals of MLAI did not own any Units, and Transtrend did not own any Units.

 

48



 

(c)                                  Changes in Control:

 

None.

 

(d)                                 Securities Authorized for Issuance Under Equity Compensation Plans:

 

Not applicable.

 

Item 13: Certain Relationships and Related Transactions, and Director Independence

 

(a)                                 Transactions between Merrill Lynch and the Fund

 

 

Some of the service providers to the Fund are affiliates of BAC.  However, none of the fees paid by the Fund to such BAC affiliates were negotiated and such fees charged to the Fund might be higher than would have been obtained in arms-length negotiations.

 

The Fund pays indirectly BAC through MLPF&S and MLAI substantial brokerage commissions and Sponsor fees as well as bid-ask spreads on forward currency trades.  The Fund also pays MLPF&S interest on short-term loans extended by MLPF&S to cover losses on foreign currency positions.

 

Within the BAC organization, MLAI is the beneficiary of the revenues received by different BAC entities from the Fund.  MLAI controls the management of the Fund and serves as its promoter.  Although MLAI has not sold any assets, directly or indirectly, to the Fund, MLAI makes substantial profits from the Fund due to the foregoing revenues.

 

No loans have been, are, or will be outstanding between MLAI or any of its principals and the Fund.

 

MLAI pays substantial selling commissions and trailing commissions to MLPF&S for distributing the Units.  MLAI is ultimately paid back for these expenditures from the revenues it receives from the Fund.

 

(b)                                 Certain Business Relationships:

 

MLPF&S, an affiliate of MLAI, acts as the principal commodity broker for the Fund.

 

In 2011, the Fund expensed:  (i) brokerage commissions of $1,084,608 to MLPF&S and $4,663,195 in management fees earned by Transtrend and MLAI, (ii) Sponsor Fees of $673,816 to MLAI. In addition, MLAI and its affiliates may have derived certain economic benefits from possession of a portion of the Fund’s assets, as well as from foreign exchange and EFP trading.

 

See Item 1(c), “Narrative Description of Business — Charges” and “— Description of Current Charges” for a discussion of other business dealings between MLAI affiliates and the Fund.

 

(c)                                  Indebtedness of Management:

 

None.

 

(d)                                 Transactions with Promoters:

 

Not applicable.

 

(e)                                  Director Independence:

 

No person who served as a manger of MLAI would be considered independent (based on the definition of an independent director under NASDAQ rules).

 

49



 

Item 14: Principal Accountant Fees and Services

 

(a)                                 Audit Fees

 

Aggregate fees billed for professional services rendered by the principal accountant, PricewaterhouseCoopers LLP, for the audit of the Fund’s financial statements and review of financial statements included in the Fund’s Form 10-Q or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for the years ended December 31, 2011 and 2010 were $161,250 and $159,250, respectively.

 

(b)                                 Audit-Related Fees

 

There were no other audit-related fees billed for the years ended December 31, 2011 and 2010, related to the Fund.

 

(c)                                  Tax Fees

 

No fees were billed by PricewaterhouseCoopers LLP or any member firms of PricewaterhouseCoopers and their respective affiliates for the years ended December 31, 2011 and 2010 for professional services rendered to the Fund in connection with tax compliance, tax advice and tax planning.

 

(d)                                 All Other Fees

 

No fees were billed by PricewaterhouseCoopers LLP or any member firms of PricewaterhouseCoopers and their respective affiliates for the years ended December 31, 2011 and 2010

 

Neither the Fund nor MLAI has an audit committee to pre-approve principal accountant fees and services.  In lieu of an audit committee, the managers and the principal financial officer pre-approve all billings prior to the commencement of services.

 

50



 

PART IV

 

Item 15: Exhibits and Financial Statement Schedules

 

 

 

Page

 

 

 

 

 

1.

Financial Statements (found in Exhibit 13.01):

 

 

 

 

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

1

 

 

 

 

 

 

Statements of Financial Condition as of December 31, 2011 and 2010

2

 

 

 

 

 

 

Statements of Operations for the years ended December 31, 2011, 2010 and 2009

3

 

 

 

 

 

 

Statements of Changes in Members’ Capital for the years ended December 31, 2011 2010 and 2009

4

 

 

 

 

 

 

Financial Data Highlights for the years ended December 31, 2011, 2010 and 2009

6

 

 

 

 

 

 

Notes to Financial Statements

9

 

 

2.

Financial Statement Schedules:

 

 

 

 

 

Financial statement schedules not included in this Form 10-K have been omitted for the reason that they are not required or are not applicable or that equivalent information has been included in the financial statements or notes thereto.

 

 

 

 

3.

Exhibits:

 

 

 

 

 

The following exhibits are incorporated by reference or are filed herewith to this Annual Report on Form 10-K:

 

Designation

 

Description

 

 

 

 

3.01

 

Certificate of Formation of ML Transtrend DTP Enhanced FuturesAccess LLC.

 

 

 

Exhibit 3.01:

 

Is incorporated by reference from Exhibit 3.1 contained in the registrant’s Registration Statement on Form 10 filed on June 25, 2007.

 

 

 

3.02

 

Second Amended and Restated Limited Liability Company Operating Agreement of ML Transtrend DTP Enhanced FuturesAccess LLC.

 

 

 

Exhibit 3.02

 

Is incorporated by reference from Exhibit 3.02 contained in the registrant’s Report on Form 8-K filed on March 6, 2012.

 

 

 

10.01

 

Customer Agreement between ML Transtrend DTP Enhanced FuturesAccess LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated.

 

 

 

Exhibit 10.01:

 

Is incorporated by reference from Exhibit 10.1 contained in the registrant’s Registration Statement on Form 10 filed on November 13, 2007.

 

 

 

10.02

 

Advisory Agreement by and among ML Transtrend DTP Enhanced FuturesAccess LLC, Merrill Lynch Alternative Investments LLC and Transtrend B.V.

 

51



 

Exhibit 10.02:

 

Is incorporated by reference from Exhibit 10.02 contained in the registrant’s Form 10-K for the year ended December 31, 2008, filed on March 31, 2009.

 

 

 

13.01

 

2011 Annual Report and Report of Independent Registered Public Accounting Firm.

 

 

 

Exhibit 13.01:

 

Is filed herewith.

 

 

 

31.01 and 31.02

 

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

 

 

 

Exhibit 31.01

 

 

and 31.02:

 

Are filed herewith.

 

 

 

32.01 and 32.02

 

Section 1350 Certifications

 

 

 

Exhibit 32.01

 

 

and 32.02:

 

Are filed herewith.

 

 

 

99.1

 

Amended and Restated Selling Agreement effective as of July 8, 2011 between Merrell Lynch Alternative Investments LLC (for itself, and as sponsor on behalf of the investment funds listed therein) and Merrill Lynch, Pierce, Fenner & Smith Incorporated (as selling agent).

 

 

 

Exhibit 99.1:

 

Is incorporated by reference from Exhibit 99.1 contained in the registrant’s Report on Form 8-K filed on July 11, 2011.

 

52



 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

ML TRANSTREND DTP ENHANCED FUTURESACCESS LLC

By: MERRILL LYNCH ALTERNATIVE INVESTMENTS LLC, Manager

By:

/s/Justin C. Ferri

 

 

Justin C. Ferri

 

Chief Executive Officer, President and Manager

 

(Principal Executive Officer)

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Signature

 

Title

 

Date

 

 

 

 

 

/s/Justin C. Ferri

 

Chief Executive Officer, President and Manger

 

March 23, 2012

Justin C. Ferri

 

 

 

 

 

 

 

 

 

/s/ Barbra E. Kocsis

 

Chief Financial Officer and Vice President

 

March 23, 2012

Barbra E. Kocsis

 

(Principal Financial and Accounting Officer)

 

 

 

 

 

 

 

/s/Deann Morgan

 

Vice President and Manager

 

March 23, 2012

Deann Morgan

 

 

 

 

 

 

 

 

 

/s/James L. Costabile

 

Vice President and Manager

 

March 23, 2012

James L. Costabile

 

 

 

 

 

 

 

 

 

/s/Paul D. Harris

 

Vice President and Manager

 

March 23, 2012

Paul D. Harris

 

 

 

 

 

 

 

 

 

/s/Colleen R. Rusch

 

Vice President and Manager

 

March 23, 2012

Colleen R. Rusch

 

 

 

 

 

(Being the principal executive officer, the principal financial and accounting officer and a majority of the managers of Merrill Lynch Alternative Investments LLC)

 

53



 

ML TRANSTREND DTP ENHANCED FUTURESACCESS LLC

 

2011 FORM 10-K

 

INDEX TO EXHIBITS

 

 

 

 

Exhibit

 

 

 

Exhibit 13.01

 

2011 Annual Report and Report of Independent Registered Public Accounting Firm

 

 

 

Exhibit 31.01 and 31.02

 

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

 

 

 

Exhibit 32.01 and 32.02

 

Sections 1350 Certifications

 

54