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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

)