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EX-32.01 - EX-32.01 - ML Transtrend DTP Enhanced FuturesAccess LLCa13-8676_1ex32d01.htm

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

x

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

 

For the quarterly period ended March 31, 2013

 

OR

 

o

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

 

For the transition period from                  to                  

 

Commission File Number 0-52701

 

ML TRANSTREND DTP ENHANCED FUTURESACCESS LLC

(Exact Name of Registrant as specified in its charter)

 

Delaware

 

30-0408288

(State or other jurisdiction of

 

(IRS Employer Identification No.)

incorporation or organization)

 

 

 

c/o Merrill Lynch Alternative Investments LLC

Four World Financial Center, 11th Floor

250 Vesey Street

New York, New York 10080

 (Address of principal executive offices)

(Zip Code)

 

212-449-3517

(Registrant’s telephone number, including area code)

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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 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.

 

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 in Rule 12b-2 of the Exchange Act).  Yes  o  No x

 

As of March 31, 2013, 104,841,372 units of limited liability company interest were outstanding.

 

 

 



 

ML TRANSTREND DTP ENHANCED FUTURESACCESS LLC

 

QUARTERLY REPORT FOR MARCH 31, 2013 ON FORM 10-Q

 

Table of Contents

 

 

 

PAGE

PART I—FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

1

 

 

 

Item 2.

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

15

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

21

 

 

 

Item 4.

Controls and Procedures

24

 

 

 

PART II—OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

26

 

 

 

Item 1A.

Risk Factors

26

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

26

 

 

 

Item 3.

Defaults Upon Senior Securities

27

 

 

 

Item 4.

Mine Safety Disclosures

27

 

 

 

Item 5.

Other Information

27

 

 

 

Item 6.

Exhibits

27

 



 

PART I - FINANCIAL INFORMATION

 

Item 1.   Financial Statements

 

ML TRANSTREND DTP ENHANCED FUTURESACCESS LLC

(a Delaware Limited Liability Company)

 

STATEMENTS OF FINANCIAL CONDITION

(unaudited)

 

 

 

March 31,

 

December 31,

 

 

 

2013

 

2012

 

ASSETS:

 

 

 

 

 

Equity in commodity trading accounts:

 

 

 

 

 

Cash (including restricted cash of $18,308,945 for 2013 and $23,426,907 for 2012)

 

$

138,850,281

 

$

150,062,262

 

Net unrealized profit on open futures contracts

 

3,968,279

 

3,460,072

 

Cash

 

533,657

 

528,396

 

Other assets

 

1,086

 

120

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

143,353,303

 

$

154,050,850

 

 

 

 

 

 

 

LIABILITIES AND MEMBERS’ CAPITAL:

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

Sponsor and Advisory fees payable

 

$

265,457

 

$

283,361

 

Redemptions payable

 

3,655,413

 

3,841,372

 

Net unrealized loss on open futures contracts

 

363,630

 

673,241

 

Other liabilities

 

203,664

 

200,444

 

 

 

 

 

 

 

Total liabilities

 

4,488,164

 

4,998,418

 

 

 

 

 

 

 

MEMBERS’ CAPITAL:

 

 

 

 

 

Members’ Interest (104,841,372 Units and 111,802,279 Units outstanding; unlimited Units authorized)

 

138,865,139

 

149,052,432

 

Total members’ capital

 

138,865,139

 

149,052,432

 

 

 

 

 

 

 

TOTAL LIABILITIES AND MEMBERS’ CAPITAL

 

$

143,353,303

 

$

154,050,850

 

 

 

 

 

 

 

NET ASSET VALUE PER UNIT:

 

 

 

 

 

 

 

 

 

 

 

Class A

 

$

1.1372

 

$

1.1397

 

Class C

 

$

1.0399

 

$

1.0448

 

Class D

 

$

0.9495

 

$

0.9480

 

Class I

 

$

1.1451

 

$

1.1465

 

Class DS

 

$

1.4547

 

$

1.4524

 

Class DT

 

$

1.5675

 

$

1.5612

 

Class M

 

$

0.9432

 

$

0.9418

 

 

See notes to financial statements.

 

1



 

ML TRANSTREND DTP ENHANCED FUTURESACCESS LLC

(a Delaware Limited Liability Company)

 

STATEMENTS OF OPERATIONS

(unaudited)

 

 

 

For the three months
ended

 

For the three months
ended

 

 

 

March 31, 2013

 

March 31, 2012

 

TRADING PROFIT (LOSS):

 

 

 

 

 

 

 

 

 

 

 

Realized, net

 

$

587,273

 

$

12,594,149

 

Change in unrealized, net

 

817,818

 

(4,703,152

)

Brokerage commissions

 

(249,932

)

(285,089

)

 

 

 

 

 

 

Total trading profit (loss), net

 

1,155,159

 

7,605,908

 

 

 

 

 

 

 

INVESTMENT INCOME (EXPENSE):

 

 

 

 

 

Interest, net

 

956

 

5,917

 

 

 

 

 

 

 

EXPENSES:

 

 

 

 

 

Management fee

 

669,365

 

1,016,640

 

Sponsor fee

 

143,877

 

162,791

 

Other

 

143,952

 

154,042

 

Total expenses

 

957,194

 

1,333,473

 

 

 

 

 

 

 

NET INVESTMENT INCOME (LOSS)

 

(956,238

)

(1,327,556

)

 

 

 

 

 

 

NET INCOME (LOSS)

 

$

198,921

 

$

6,278,352

 

 

 

 

 

 

 

NET INCOME (LOSS) PER UNIT:

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of Units outstanding

 

 

 

 

 

Class A

 

9,278,772

 

9,416,537

 

Class C

 

15,530,724

 

16,613,185

 

Class D

 

7,051,218

 

2,560,122

 

Class I

 

1,425,090

 

1,158,327

 

Class DS

 

57,969,242

 

99,975,747

 

Class DT

 

15,104,905

 

21,061,924

 

Class M

 

4,212,519

 

 

 

 

 

 

 

 

Net income (loss) per weighted average Unit

 

 

 

 

 

Class A

 

$

(0.0041

)

$

0.0287

 

Class C

 

$

(0.0049

)

$

0.0250

 

Class D

 

$

0.0016

 

$

0.0165

 

Class I

 

$

(0.0008

)

$

0.0264

 

Class DS

 

$

0.0037

 

$

0.0446

 

Class DT

 

$

0.0052

 

$

0.0504

 

Class M

 

$

0.0023

 

$

 

 

See notes to financial statements.

 

2



 

ML TRANSTREND DTP ENHANCED FUTURESACCESS LLC

(a Delaware Limited Liability Company)

 

STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL

FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012

(unaudited) (in Units)

 

 

 

Members’ Capital
December 31, 2011

 

Subscriptions

 

Redemptions

 

Members’ Capital
March 31, 2012

 

Members’ Capital
December 31, 2012

 

Subscriptions

 

Redemptions

 

Members’ Capital
March 31, 2013

 

Class A

 

8,926,646

 

780,003

 

(262,273

)

9,444,376

 

9,473,298

 

36,986

 

(667,567

)

8,842,717

 

Class C

 

17,017,841

 

202,510

 

(1,999,470

)

15,220,881

 

15,352,391

 

1,218,519

 

(1,477,880

)

15,093,030

 

Class D

 

2,062,362

 

1,493,280

 

(62,362

)

3,493,280

 

6,838,004

 

248,619

 

 

7,086,623

 

Class I

 

952,853

 

341,581

 

 

1,294,434

 

1,390,934

 

75,504

 

(153,619

)

1,312,819

 

Class DS

 

104,405,795

 

 

(15,693,348

)

88,712,447

 

59,889,179

 

1,104,439

 

(6,949,904

)

54,043,714

 

Class DT

 

21,641,717

 

 

(2,104,875

)

19,536,842

 

15,166,653

 

115,978

 

(1,105,257

)

14,177,374

 

Class M*

 

 

 

 

 

3,691,820

 

619,683

 

(26,408

)

4,285,095

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Members’ Units

 

155,007,214

 

2,817,374

 

(20,122,328

)

137,702,260

 

111,802,279

 

3,419,728

 

(10,380,635

)

104,841,372

 

 


*Units issued on October 1, 2012

 

See notes to financial statements.

 

3



 

ML TRANSTREND DTP ENHANCED FUTURESACCESS LLC

(a Delaware Limited Liability Company)

 

STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL

FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012

(unaudited)

 

 

 

Members’ Capital
December 31, 2011

 

Subscriptions

 

Redemptions

 

Net Income
(Loss)

 

Members’ Capital
March 31, 2012

 

Members’ Capital
December 31, 2012

 

Subscriptions

 

Redemptions

 

Net Income
(Loss)

 

Members’ Capital
March 31, 2013

 

Class A

 

$

10,534,052

 

$

932,981

 

$

(316,755

)

$

270,670

 

$

11,420,948

 

$

10,797,104

 

$

42,073

 

$

(744,412

)

$

(38,402

)

$

10,056,363

 

Class C

 

18,595,146

 

223,793

 

(2,234,209

)

416,097

 

17,000,827

 

16,040,651

 

1,250,472

 

(1,518,524

)

(76,764

)

15,695,835

 

Class D

 

1,994,275

 

1,500,000

 

(62,025

)

42,285

 

3,474,535

 

6,482,616

 

235,000

 

 

11,188

 

6,728,804

 

Class I

 

1,126,558

 

412,737

 

 

30,582

 

1,569,877

 

1,594,694

 

85,000

 

(175,268

)

(1,078

)

1,503,348

 

Class DS

 

154,664,583

 

 

(23,944,970

)

4,457,027

 

135,176,640

 

86,982,563

 

1,558,929

 

(10,141,526

)

215,309

 

78,615,275

 

Class DT

 

34,131,695

 

 

(3,420,312

)

1,061,691

 

31,773,074

 

23,677,970

 

179,963

 

(1,713,299

)

78,999

 

22,223,633

 

Class M*

 

 

 

 

 

 

3,476,834

 

580,000

 

(24,622

)

9,669

 

4,041,881

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Members’ Capital

 

$

221,046,309

 

$

3,069,511

 

$

(29,978,271

)

$

6,278,352

 

$

200,415,901

 

$

149,052,432

 

$

3,931,437

 

$

(14,317,651

)

$

198,921

 

$

138,865,139

 

 


*Units issued on October 1, 2012

 

See notes to financial statements.

 

4



 

ML TRANSTREND DTP ENHANCED FUTURESACCESS LLC

(A Delaware Limited Liability Company)

 

FINANCIAL DATA HIGHLIGHTS

FOR THE THREE MONTHS ENDED MARCH 31, 2013 (unaudited)

 

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

 

 

 

Class A

 

Class C

 

Class D

 

Class I

 

Class DS

 

Class DT

 

Class M

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per Unit Operating Performance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, beginning of period

 

$

1.1397

 

$

1.0448

 

$

0.9480

 

$

1.1465

 

$

1.4524

 

$

1.5612

 

$

0.9418

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

0.0104

 

0.0095

 

0.0087

 

0.0105

 

0.0134

 

0.0144

 

0.0087

 

Brokerage commissions

 

(0.0019

)

(0.0018

)

(0.0016

)

(0.0019

)

(0.0025

)

(0.0027

)

(0.0016

)

Interest income, net (c)

 

0.0000

 

0.0000

 

0.0000

 

0.0000

 

0.0000

 

0.0000

 

0.0000

 

Expenses

 

(0.0110

)

(0.0126

)

(0.0056

)

(0.0100

)

(0.0086

)

(0.0054

)

(0.0057

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, end of period

 

$

1.1372

 

$

1.0399

 

$

0.9495

 

$

1.1451

 

$

1.4547

 

$

1.5675

 

$

0.9432

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return: (a)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total return before Performance fees

 

-0.22

%

-0.47

%

0.16

%

-0.12

%

0.16

%

0.41

%

0.16

%

Performance fees

 

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

Total return after Performance fees

 

-0.22

%

-0.47

%

0.16

%

-0.12

%

0.16

%

0.41

%

0.16

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios to Average Member’s Capital: (b)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses (excluding Performance fees)

 

0.98

%

1.23

%

0.60

%

0.88

%

0.60

%

0.35

%

0.60

%

Performance fees

 

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

Expenses (including Performance fees)

 

0.98

%

1.23

%

0.60

%

0.88

%

0.60

%

0.35

%

0.60

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income (loss)

 

-0.97

%

-1.22

%

-0.60

%

-0.87

%

-0.60

%

-0.35

%

-0.60

%

 


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

(b) The ratios to average member capital have been annualized. The total return ratios are not annualized.

(c) Interest income, net is less than $0.0001 per Unit

 

See notes to financial statements.

 

5



 

ML TRANSTREND DTP ENHANCED FUTURESACCESS LLC

(A Delaware Limited Liability Company)

 

FINANCIAL DATA HIGHLIGHTS

FOR THE THREE MONTHS ENDED MARCH 31, 2012 (unaudited)

 

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

 

 

 

Class A

 

Class C

 

Class D

 

Class I

 

Class DS

 

Class DT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per Unit Operating Performance:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, beginning of period

 

$

1.3296

 

$

1.2436

 

$

1.0733

 

$

1.3268

 

$

1.6443

 

$

1.7338

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

(0.0036

)

(0.0033

)

(0.0029

)

(0.0036

)

(0.0045

)

(0.0048

)

Brokerage commissions

 

(0.0015

)

(0.0014

)

(0.0012

)

(0.0015

)

(0.0019

)

(0.0020

)

Interest income, net (c)

 

(0.0000

)

(0.0000

)

(0.0000

)

(0.0000

)

(0.0000

)

(0.0000

)

Expenses

 

(0.0126

)

(0.0150

)

(0.0062

)

(0.0112

)

(0.0094

)

(0.0059

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, end of period

 

$

1.3119

 

$

1.2239

 

$

1.0630

 

$

1.3105

 

$

1.6285

 

$

1.7211

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return: (a) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total return before Performance fees

 

-1.34

%

-1.59

%

-0.97

%

-1.24

%

-0.97

%

-0.72

%

Performance fees

 

-0.02

%

-0.02

%

-0.02

%

-0.02

%

-0.02

%

-0.04

%

Total return after Performance fees

 

-1.36

%

-1.61

%

-0.99

%

-1.26

%

-0.99

%

-0.76

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios to Average Member’s Capital: (b)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses (excluding Performance fees)

 

0.94

%

1.19

%

0.56

%

0.84

%

0.56

%

0.31

%

Performance fees

 

0.01

%

0.01

%

0.01

%

0.01

%

0.01

%

0.03

%

Expenses (including Performance fees)

 

0.95

%

1.20

%

0.57

%

0.85

%

0.57

%

0.34

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income (loss)

 

-0.94

%

-1.20

%

-0.57

%

-0.84

%

-0.57

%

-0.34

%

 


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

(b) The ratios to average member capital have been annualized. The total return ratios are not annualized.

(c) Interest income, net is less than $0.0001 per Unit

 

See notes to financial statements.

 

6



 

ML TRANSTREND DTP ENHANCED FUTURESACCESS LLC

(a Delaware Limited Liability Company)

 

NOTES TO FINANCIAL STATEMENTS

(unaudited)

 

1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

ML Transtrend DTP Enhanced FuturesAccess LLC (the “Fund”), a Merrill Lynch FuturesAccessSM Program ( “FuturesAccess”) fund, was organized under the Delaware Limited Liability Company Act on March 8, 2007 and commenced trading activities on April 2, 2007. The Fund engages in the speculative trading of futures on a wide range of commodities. Transtrend B.V. (“Transtrend” or “Trading Advisor”) is the trading advisor of the Fund.  The Trading Advisor trades the Transtrend Diversified Trend Program-Enhanced Risk Profile (the “Trading Program”) for the Fund.

 

Merrill Lynch Alternative Investments LLC (“MLAI” or “Sponsor”) is the sponsor and manager of the Fund. MLAI is an indirect wholly-owned subsidiary of Bank of America Corporation. Bank of America Corporation and its affiliates are referred to herein as “BAC”. Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S”) is currently the exclusive clearing broker for the Fund. The Sponsor may select other parties as clearing broker(s). Merrill Lynch International Bank, Ltd. (“MLIB”) is the primary foreign exchange (“F/X”) forward prime broker for the Fund. The Sponsor may select other parties as F/X or other over-the-counter (“OTC”) prime brokers, including Bank of America N.A. (“BANA”).  MLPF&S, MLIB and BANA are BAC affiliates.

 

FuturesAccess is a group of managed futures funds sponsored by MLAI (“FuturesAccess Funds”).  FuturesAccess is exclusively available to investors that have investment accounts with Merrill Lynch Wealth Management, U.S. Trust and other divisions or affiliates of BAC.  FuturesAccess Funds currently are composed of direct-trading funds advised by a single trading advisor or funds of funds for which MLAI acts as the advisor and allocates capital among multiple trading advisors.  Each FuturesAccess Fund is generally similar in terms of fees, although redemption terms vary among FuturesAccess Funds.  Each trading advisor participating in FuturesAccess employs different technical, fundamental, systematic and/or discretionary strategies.

 

Interests in the Fund are not insured or otherwise protected by the Federal Deposit Insurance Corporation or any other government authority.  Interests are not deposits or other obligations of, and are not guaranteed by, BAC or by any bank.  Interests are subject to investment risks, including the possible loss of the full amount invested.

 

In the opinion of management, these interim financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the financial position of the Fund as of March 31, 2013 and December 31, 2012 and the results of its operations for the three months ended March 31, 2013 and 2012.  However, the operating results for the interim periods may not be indicative of the results for the full year.

 

7



 

Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been omitted.  These financial statements should be read in conjunction with the financial statements and notes thereto included in the Fund’s Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2012.

 

Estimates

 

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

 

8



 

2.              CONDENSED SCHEDULES OF INVESTMENTS

 

The Fund’s investments, defined as net unrealized profit (loss) on open contracts on the Statements of Financial Condition, as of March 31, 2013 and December 31, 2012 are as follows:

 

March 31, 2013

 

 

 

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

 

930

 

$

(751,262

)

-0.54

%

(1,461

)

$

690,251

 

0.50

%

$

(61,011

)

-0.04

%

April 2013 - March 2014

 

Currencies

 

931

 

53,357

 

0.04

%

(598

)

(60,073

)

-0.04

%

(6,716

)

0.00

%

June 2013

 

Energy

 

281

 

106,133

 

0.08

%

(82

)

(35,317

)

-0.03

%

70,816

 

0.05

%

April 2013 - December 2014

 

Interest rates

 

5,347

 

3,869,163

 

2.79

%

(2,262

)

(498,648

)

-0.36

%

3,370,515

 

2.43

%

June 2013 - December 2017

 

Metals

 

382

 

(2,354,404

)

-1.70

%

(714

)

2,746,381

 

1.98

%

391,977

 

0.28

%

April 2013 - December 2013

 

Stock indices

 

1,020

 

(299,156

)

-0.22

%

(276

)

138,224

 

0.10

%

(160,932

)

-0.12

%

April 2013 - September 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total, net

 

 

 

$

623,831

 

0.45

%

 

 

$

2,980,818

 

2.15

%

$

3,604,649

 

2.60

%

 

 

 

December 31, 2012

 

 

 

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

 

731

 

$

(931,174

)

-0.62

%

(1,641

)

$

1,594,170

 

1.07

%

$

662,996

 

0.45

%

January 2013 - December 2013

 

Currencies

 

1,703

 

(4,071

)

0.00

%

(486

)

480,758

 

0.32

%

476,687

 

0.32

%

March 2013

 

Energy

 

154

 

133,950

 

0.09

%

(880

)

824,023

 

0.55

%

957,973

 

0.64

%

January 2013 - December 2014

 

Interest rates

 

5,417

 

1,241,021

 

0.83

%

(3,174

)

(187,087

)

-0.13

%

1,053,934

 

0.70

%

March 2013 - December 2016

 

Metals

 

369

 

119,647

 

0.08

%

(312

)

(744,175

)

-0.50

%

(624,528

)

-0.42

%

January 2013 - May 2013

 

Stock indices

 

1,782

 

281,988

 

0.19

%

(179

)

(22,219

)

-0.01

%

259,769

 

0.18

%

January 2013 - June 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total, net

 

 

 

$

841,361

 

0.57

%

 

 

$

1,945,470

 

1.30

%

$

2,786,831

 

1.87

%

 

 

 

No individual contract’s unrealized profit or loss comprised greater than 5% of Members’ Capital as of March 31, 2013 and December 31, 2012. With respect to each commodity industry sector listed in the above chart, the net unrealized profit (loss) on open positions is the sum of the unrealized profits (loss) of long positions and short positions of the open contracts, netting unrealized losses against unrealized profits as applicable.  Net unrealized profit and loss provides a rough measure of the exposure of the Fund to the various sectors as of the date listed, although such exposure can change at any time.

 

9



 

3.  FAIR VALUE OF INVESTMENTS

 

Fair value of an investment is the amount that would be received to sell the investment in an orderly transaction between market participants at the measurement date (i.e. the exit price). All investments (including derivative financial instruments and derivative commodity instruments) are held for trading purposes.  The investments are recorded on trade date and open contracts are recorded at fair value (described below) at the measurement date. Investments denominated in foreign currencies are translated into U.S. dollars at the exchange rates prevailing at the measurement date.  Profits or losses are realized when contracts are liquidated.  Unrealized profits or losses on open contracts are included in Equity in commodity trading account on the Statements of Financial Condition.  Any change in net unrealized profit or loss from the preceding period/year is reported in the respective Statements of Operations.

 

The fair value measurement guidance established by U.S. GAAP is a hierarchal disclosure framework which prioritizes and ranks the level of market price observability used in measuring investments at fair value. Market price observability is impacted by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

 

Investments measured and reported at fair value are classified and disclosed in one of the following categories:

 

Level I — Quoted prices are available in active markets for identical investments as of the reporting date. The type of investments included in Level I are publicly traded investments. As required by the fair market value measurement guidance in U.S. GAAP, the Fund does not adjust the quoted price for these investments even in situations where the Fund holds a large position and a sale could reasonably impact the quoted price.

 

Level II — Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of generally accepted and understood models or other valuation methodologies. Investments which are generally included in this category are investments valued using market data.

 

Level III — Pricing inputs are unobservable and include situations where there is little, if any, market activity for the investment. Fair value for these investments is determined using valuation methodologies that consider a range of factors, including but not limited to the nature of the investment, local market conditions, trading values on public exchanges for comparable securities, current and projected operating performance and financing transactions subsequent to the acquisition of the investment. The inputs into the determination of fair value require significant management judgment. Due to the inherent uncertainty of these estimates, these values may differ materially from the values that would have been used had a ready market for these investments existed. Investments that are included in this category generally are privately held debt and equity securities.

 

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. MLAI’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment.

 

10



 

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

 

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

 

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

 

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

 

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

 

The Fund’s net unrealized profit (loss) on open forward and futures contracts, by the above fair value hierarchy levels, as of March 31, 2013 and December 31, 2012 are as follows:

 

Net unrealized profit (loss) 

 

 

 

 

 

 

 

 

 

on open contracts

 

Total

 

Level I

 

Level II

 

Level III

 

 

 

 

 

 

 

 

 

 

 

Futures

 

 

 

 

 

 

 

 

 

Long

 

$

623,831

 

$

3,010,475

 

$

(2,386,644

)

$

 

Short

 

2,980,818

 

725,187

 

2,255,631

 

 

 

 

$

3,604,649

 

$

3,735,662

 

$

(131,013

)

$

 

 

 

 

 

 

 

 

 

 

 

Forwards

 

 

 

 

 

 

 

 

 

Long

 

$

 

$

 

$

 

$

 

Short

 

 

 

 

 

 

 

$

 

$

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

March 31, 2013

 

$

3,604,649

 

$

3,735,662

 

$

(131,013

)

$

 

 

11



 

Net unrealized profit (loss) 

 

 

 

 

 

 

 

 

 

on open contracts

 

Total

 

Level I

 

Level II

 

Level III

 

 

 

 

 

 

 

 

 

 

 

Futures

 

 

 

 

 

 

 

 

 

Long

 

$

841,361

 

$

788,009

 

$

53,352

 

$

 

Short

 

1,945,470

 

2,669,390

 

(723,920

)

 

 

 

$

2,786,831

 

$

3,457,399

 

$

(670,568

)

$

 

 

 

 

 

 

 

 

 

 

 

Forwards

 

 

 

 

 

 

 

 

 

Long

 

$

 

$

 

$

 

$

 

Short

 

 

 

 

 

 

 

$

 

$

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

December 31, 2012

 

$

2,786,831

 

$

3,457,399

 

$

(670,568

)

$

 

 

The Fund’s volume of trading forwards and futures as of the three month period and year ended March 31, 2013 and December 31, 2012, respectively, are representative of the activity throughout these periods. There were no transfers to or from any level during the three month period ended March 31, 2013 or the year ended December 31, 2012.

 

The Fund engages in the speculative trading of futures, options on futures and forward contracts on a wide range of commodities. Such contracts meet the definition of a derivative as noted in the ASC guidance for accounting for derivative and hedging activities. The fair value amounts of and the net profits and losses on derivative instruments is disclosed in the Statements of Financial Condition and Statements of Operations, respectively. There are no credit related contingent features embedded in these derivative contracts. The total notional, contract amount, or number of contracts and fair values of derivative instruments by contract type/commodity sector are disclosed in Note 2, above.

 

The Fund presents their futures and forward contract amounts gross on the Statement of Financial Condition.  The Fund maintains initial and variation margin deposits  and cash collateral with its futures and forward brokers, respectively, in amounts such broker determine, for open futures in the case of forwards, currency contracts.  At March 31, 2013, the initial and variation margin deposits and cash collateral are used to satisfy the margin requirements on open contracts and are presented on the Statement of Financial Condition as unrealized gain or loss on futures or forward contracts, respectively.

 

The following table indicates the trading profits and losses, before brokerage commissions, by type/commodity industry sector on derivative instruments for each of the three month periods ended March 31, 2013 and 2012:

 

 

 

For the three months ended

 

For the three months ended

 

 

 

March 31, 2013

 

March 31, 2012

 

Commodity Industry Sector

 

profit (loss) from trading, net

 

profit (loss) from trading, net

 

 

 

 

 

 

 

Agriculture

 

$

(937,874

)

$

(3,192,757

)

Currencies

 

1,065,536

 

2,051,198

 

Energy

 

(2,228,386

)

8,281,327

 

Interest rates

 

(2,702,560

)

(3,710,658

)

Metals

 

433,372

 

(917,129

)

Stock indices

 

5,775,003

 

5,379,016

 

 

 

 

 

 

 

Total, net

 

$

1,405,091

 

$

7,890,997

 

 

12



 

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

 

4.   MARKET AND CREDIT RISKS

 

The nature of this Fund has certain risks, which cannot all be presented on the financial statements.  The following summarizes some of those risks.

 

Market Risk

 

Derivative instruments involve varying degrees of market risk.  Changes in the level or volatility of interest rates, foreign currency exchange rates or the market values of the financial instruments or commodities underlying such derivative instruments frequently result in changes in the Fund’s net unrealized profit (loss) on open contracts on such derivative instruments as reflected in the Statements of Financial Condition. The Fund’s exposure to market risk is influenced by a number of factors, including the relationships among the derivative instruments held by the Fund as well as the volatility and liquidity of the markets in which the derivative instruments are traded. Investments in foreign markets may also entail legal and political risks.

 

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

 

Credit Risk

 

The risks associated with exchange-traded contracts are typically perceived to be less than those associated with over-the-counter (non-exchange-traded) transactions, because exchanges typically (but not universally) provide clearinghouse arrangements in which the collective credit (in some cases limited in amount, in some cases not) of the members of the exchange/clearinghouse is pledged to support the financial integrity of the exchange/clearinghouse.  In over-the-counter transactions, on the other hand, traders must rely solely on the credit of their respective individual counterparties.  Margins, which may be subject to loss in the event of a default, are generally required in exchange traded contracts, and in the over-the-counter markets counterparties may also require margin.

 

The credit risk associated with these instruments from counterparty nonperformance is the Net unrealized profit (loss) on open contracts, if any, included in the Statements of Financial Condition. MLAI, as sponsor of the Fund, has a general policy of maintaining clearing and prime brokerage arrangements with BAC affiliates, such as MLPF&S and MLIB, although MLAI may, nevertheless, engage unaffiliated services providers as clearing brokers or prime brokers for the Fund.

 

13



 

The Fund, in its normal course of business, enters into various contracts, with MLPF&S acting as its clearing broker.  Pursuant to the brokerage arrangement with MLPF&S (which includes a netting arrangement), MLPF&S has the right to net receivables and payables.

 

Indemnifications

 

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

 

5.   RELATED PARTY TRANSACTIONS

 

The Fund has a transfer agency and investor services agreement with Financial Data Services, Inc. (the “Registrar and Transfer Agent”), a wholly-owned subsidiary of BAC and affiliate of MLAI. The agreement calls for a fee to be paid based on the collective net assets of funds managed or sponsored by MLAI. The fee rate ranges from 0.016% to 0.02% based on aggregate net assets. During the quarter ended March 31, 2013, the rate was 0.02%. The fee is payable monthly in arrears. MLAI allocates the Registrar and Transfer Agent fees to each of the managed/sponsored funds on a monthly basis based on the Fund’s net assets. The Registrar and Transfer Agent fee, which was 0.02% of aggregate asset level, allocated to the Fund for the three month periods ended March 31, 2013 and 2012 amounted to $7,271 and $10,897, respectively, of which $5,028 and $5,324 was payable to the Registrar and Transfer Agent as of March 31, 2013 and December 31, 2012, respectively.

 

Brokerage Commissions, Interest and Sponsor fees as presented on the Statements of Operations are all received from or all paid to related parties. Equity in commodity trading accounts, including cash and net unrealized profit/loss, as seen on the Statement of Financial Condition are held with a related party.

 

6.   SUBSEQUENT EVENTS

 

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

 

14



 

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

 

MONTH-END NET ASSET VALUE PER UNIT

 

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

 

The Fund calculates the Net Asset Value per Unit of each Class of Units as of as of  (i) the 15th calendar day of each month and/or (ii) the last calendar day of each month and as of any other dates MLAI may determine in its discretion (each, a “Calculation Date”). 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 Sponsor’s, management and performance fees, trading liabilities, including brokerage commissions, any offering or operating costs, amortized organizational and initial offering costs and all other liabilities of the Fund. MLAI is authorized to make all Net Asset Value determinations.

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS A

 

 

 

Jan. 15th

 

Jan.

 

Feb. 15th

 

Feb.

 

Mar. 15th

 

Mar.

 

2012

 

n/a

 

$

1.1928

 

n/a

 

$

1.2228

 

n/a

 

$

1.2093

 

2013

 

$

1.1068

 

$

1.1304

 

$

1.1540

 

$

1.1061

 

$

1.1249

 

$

1.1372

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS C

 

 

 

Jan. 15th

 

Jan.

 

Feb. 15th

 

Feb.

 

Mar. 15th

 

Mar.

 

2012

 

n/a

 

$

1.1035

 

n/a

 

$

1.1304

 

n/a

 

$

1.1169

 

2013

 

$

1.0142

 

$

1.0354

 

$

1.0566

 

$

1.0123

 

$

1.0291

 

$

1.0399

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS D

 

 

 

Jan. 15th

 

Jan.

 

Feb. 15th

 

Feb.

 

Mar. 15th

 

Mar.

 

2012

 

n/a

 

$

0.9786

 

n/a

 

$

1.0045

 

n/a

 

$

0.9946

 

2013

 

$

0.9212

 

$

0.9415

 

$

0.9617

 

$

0.9224

 

$

0.9386

 

$

0.9495

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS I

 

 

 

Jan. 15th

 

Jan.

 

Feb. 15th

 

Feb.

 

Mar. 15th

 

Mar.

 

2012

 

n/a

 

$

1.1954

 

n/a

 

$

1.2260

 

n/a

 

$

1.2128

 

2013

 

$

1.1135

 

$

1.1375

 

$

1.1614

 

$

1.1134

 

$

1.1325

 

$

1.1451

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS DS

 

 

 

Jan. 15th

 

Jan.

 

Feb. 15th

 

Feb.

 

Mar. 15th

 

Mar.

 

2012

 

n/a

 

$

1.4992

 

n/a

 

$

1.5389

 

n/a

 

$

1.5238

 

2013

 

$

1.4113

 

$

1.4423

 

$

1.4733

 

$

1.4131

 

$

1.4380

 

$

1.4547

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS DT

 

 

 

Jan. 15th

 

Jan.

 

Feb. 15th

 

Feb.

 

Mar. 15th

 

Mar.

 

2012

 

n/a

 

$

1.5974

 

n/a

 

$

1.6411

 

n/a

 

$

1.6263

 

2013

 

$

1.5176

 

$

1.5517

 

$

1.5857

 

$

1.5215

 

$

1.5489

 

$

1.5675

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS M

 

 

 

Jan. 15th

 

Jan.

 

Feb. 15th

 

Feb.

 

Mar. 15th

 

Mar.

 

2012

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

2013

 

$

0.9151

 

$

0.9353

 

$

0.9553

 

$

0.9163

 

$

0.9324

 

$

0.9432

 

 

Liquidity and Capital Resources

 

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

 

15



 

Substantially all of the Fund’s assets are held in cash.  The Net Asset Value of the Fund’s cash is not affected by inflation.  However, changes in interest rates could cause periods of strong up or down price trends, during which the Fund’s profit potential generally increases.  Inflation in commodity prices could also generate price movements, which the strategies might successfully follow. The Fund should be able to close out its open trading positions and liquidate its holdings relatively quickly and at market prices, except in unusual circumstances.  This typically permits the Fund to limit losses as well as reduce market exposure on short notice should its strategies indicate doing so.

 

Investors in the Fund generally may redeem any or all of their Units at Net Asset Value, effective as of (i) the 15th calendar day of each month and/or (ii) the last calendar day of each month (each a “Redemption Date”), upon providing eight business days notice.  MLAI, at any time in its discretion, may discontinue allowing redemptions as of the 15th calendar day of each month on a going forward basis.  Investors will remain exposed to fluctuations in Net Asset Value during the period between submission of their redemption requests and the applicable Redemption Date.

 

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

 

For the three month period ended March 31, 2013, Fund capital decreased 6.83% from $149,052,432 to $138,865,139.  This decrease was attributable to the net profit from operations of $198,921 coupled with the redemption of 10,380,635 Redeemable Units resulting in an outflow of $14,317,651. The cash outflow was offset with cash inflow of $3,931,437 due to subscriptions of 3,419,728 Units.  Future redemptions could impact the amount of funds available for investment in commodity contract positions in subsequent months.

 

Critical Accounting Policies

 

Statement of Cash Flows

 

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

 

Investments

 

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

 

16



 

Fair Value Measurements

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  For more information on the Fund’s treatment of fair value, see Note 3, Fair Value of Investments.

 

Futures Contracts

 

The Fund trades exchange listed futures contracts.  A listed futures contract is a firm commitment to buy or sell a standardized quantity of an underlying asset over a specified duration.  The Fund buys and sells contracts based on indices of financial assets such as stocks, domestic and global stock indices, as well as contracts on various physical commodities. Prices paid or received on these contracts are determined by the ask or bid provided by the exchanges on which they are traded.   Contracts may be settled in physical form or cash settled depending upon the contract.  Upon the execution of a trade, margin requirements determine the amount of cash that must be on deposit to secure the transaction.  These amounts are considered restricted cash on the Fund’s Statements of Financial Condition.  Contracts are priced daily by the Fund and the profit or loss based on the daily mark to market are recorded as unrealized profits.  When the contract is closed, the Fund records a realized profit or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed.  Because transactions in futures contracts require participants to make both initial margin deposits of cash or other assets and variation margin deposits, through the futures broker, directly with the exchange on which the contracts are traded, credit exposure is limited.  Realized profits (losses), net and changes in unrealized profits (losses), net on futures contracts are included in the Statements of Operations.  The Fund also trades futures contracts on the London Metals Exchange (LME). The valuation pricing for LME contracts is based on action of a committee that incorporates prices from the most liquid trading sessions of the day and can also rely on other inputs such as supply and demand factors and bid and asks from open outcry sessions.

 

Forward Foreign Currency Contracts

 

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

 

Interest Rates and Income

 

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

 

17



 

Income Taxes

 

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

 

The Fund follows the Accounting Standards Codification guidance on accounting for uncertainty in income taxes.  This guidance provides how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements.  This guidance also requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Fund’s financial statements to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority.  Tax positions with respect to tax at the Fund level not deemed to meet the “more-likely-than-not” threshold would be recorded as a tax benefit or expense in the current year.  MLAI has analyzed the Fund’s tax positions and has concluded that no provision for income tax is required in the Fund’s financial statements. The following is the major tax jurisdiction for the Fund and the earliest tax year subject to examination: United States — 2009.

 

Reform Act

 

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Reform Act”) was signed into law on July 21, 2010. The Reform Act enacts financial regulatory reform, and may alter the way in which the Fund conducts certain trading activities. The Reform Act includes measures to broaden the scope of derivative instruments subject to regulation, including requiring clearing and exchange trading of certain derivatives, imposing new capital and margin reporting, registration and business conduct requirements for certain market participants and imposing position limits on certain over-the-counter derivatives. The Reform Act grants the U.S. Commodity Futures Trading Commission and the Securities and Exchange Commission substantial new authority and requires numerous rulemakings by these agencies. The ultimate impact of these derivatives regulations, and the time it will take to comply, remains uncertain. The final regulations may impose additional operational and compliance costs on the Fund.

 

Results of Operations

 

January 1, 2013 to March 31, 2013

 

January 1, 2013 to March 31, 2013

 

The Fund experienced a net trading profit of $1,405,091 before brokerage commissions and related fees in the first quarter of 2013. The Fund’s profits were primarily attributable to the stock indices, currencies, and metals sectors posting profits. The agriculture, interest rates and energy sectors posted losses.

 

The stock indices sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the quarter. The market movement in the first few days of January broadly set the stage for the rest of the month. Equity markets were strong globally; positions anticipating this delivered the largest positive contribution to the monthly result. Profits were posted to the Fund in the middle of the quarter. Losses on the Trading Program’s long positions in markets that from the beginning of February reacted (such as those in China, Russia, the Netherlands and Mexico), were compensated by gains earned on rising stock markets (especially in Australia, Switzerland and the U.S.). Profits were posted to the Fund at the end of the quarter which was based on the strength in the United States. Although positions in Australia, Hong

 

18



 

Kong, South Africa, and Greece and in European banks resulted in some losses, on balance the Trading Program did not score significantly negative in any time zone.

 

The currency sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the quarter. Profits were earned in the carry trades with the high yielding currencies of New Zealand, Turkey, Romania, or Mexico on the long side and the low yielding currencies of Japan, Great Britain or the United States on the short side. Losing positions were those with the high yielding currency of South Africa on the long side and positions with the low yielding euro on the short side. This was taken advantage of with the Trading Program’s long positions versus the also low yielding currencies of Singapore, Hong Kong and Taiwan. Losses were posted to the Fund in the middle of the quarter. The carry trades resulted in losses posted to the Fund when anticipating a falling U.S. dollar relative to the high yielding currencies of India, Hungary, Poland, Romania and Colombia. Profits were posted to the Fund at the end of the quarter. The Trading Program was correctly positioned to profit from the falling euro and Japanese yen, and the strength of the currencies of Mexico, the U.S., Australia, Israel and Turkey.

 

The metals sector posted profits to the Fund. Losses were posted to the Fund at the beginning of the quarter only to be reversed in the middle of the quarter. Profits were posted to the Fund in the middle of the quarter due to the Trading Program’s short positions in gold and silver. Profits were posted to the Fund at the end of the quarter.

 

The agriculture sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the quarter only to be reversed in the middle of the quarter. Profits were posted to the Fund in the middle of the quarter by the Trading Program effectively anticipating the continuing fall of the prices of wheat and beef. Profits were posted to the Fund at the end of the quarter as the Trading Program anticipated further falling prices of coffee, sugar, wheat and meat.

 

The interest rate sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the quarter due to the Trading Program’s long positions in European bond markets. Profits were posted to the Fund in the middle of the quarter due to the Trading Program’s long positions in Korea and Japan, as well as on the shorter end of the yield curve in Great Britain. Profits were posted to the Fund at the end of the quarter due to the Trading Program’s long positions in Korean and Japanese bonds. But most of the profits resulted from numerous, often hybrid, synthetic positions, of which a significant portion was “short euro” related.

 

The energy sector posted losses to the Fund. Profits were posted to the Fund at the beginning of the quarter when anticipating falling prices of electricity, coal and carbon emissions delivered positive results.  Losses were posted to the Fund in the middle through the end of the quarter due to the oil markets.

 

January 1, 2012 to March 31, 2012

 

January 1, 2012 to March 31, 2012

 

The Fund experienced a net trading gain of $7,890,997 before brokerage commissions and related fees in the first quarter of 2012. The Fund’s profits were primarily attributable to the energy, stock indices and the currency sectors posting profits. The metals, agriculture and interest rate sectors posted losses.

 

19



 

The energy sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the quarter with gains on both shorts (natural gas, electricity, coal) and longs (gasoline). Profits continued to be posted to the Fund in the middle to the end of the quarter from short positions in natural gas and electricity.

 

The stock indices posted profits to the Fund. Profits were posted to the Fund at the beginning of the quarter. Positions anticipating declining equity markets, particularly those in the East, suffer losses. Growing positions responding to rising stock markets and a declining volatility offset the losses with their earnings. Profits were posted to the Fund in the middle of the quarter in connection with the rising equity markets.  The Trading program profits globally, but especially where it concerns oil-rich or technology stocks. Profits were posted to the Fund at the end of the quarter. The U.S. and Japanese equities did not seem to be sensitive to signs of slowing growth in China. The trading program’s positions in these markets provided profits for the Fund, despite some losses suffered on positions in several other countries including Hong Kong, Taiwan, Russia and South Africa.

 

The currency sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the quarter. The largest gains stem from positions that consist of a short in a European currency versus a long in a commodity-rich currency. These ensure for a positive outcome in the sector, despite losses on various other short positions in European currencies and various other long positions in the U.S. dollar. Profits were posted to the Fund in the middle of the quarter as the largest gains again stem from long positions in commodity-rich currencies. Profits were posted to the Fund at the end of the quarter. In March more via shorts in the U.S. dollar or the Japanese yen than via a short in the euro.

 

The metals sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the quarter as the trading program rotation from short to long is not accompanied by large losses. Profits were posted to the Fund in the middle of the quarter due to the trading program’s short positions. Losses were posted to the Fund at the end of the quarter.

 

The agriculture sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the quarter. Particularly difficult are the agricultural markets, partly due to the release of startling figures from the U.S. corn crop report. Losses were posted to the Fund in the middle of the quarter through the end of the quarter. Most commodities weakened in March resulting in losses on long positions such as sugar.

 

The interest rate sector posted losses to the Fund. Profits were posted to the Fund at the beginning of the quarter. Positions anticipating continued falling interest rates run into difficulty during the month, but turn back to profit when the U.S. Federal Reserve announces to continue its low rate policy. This result is due to losses suffered on positions responding to changing spread levels between interest rates of different countries and of different maturities. Losses were posted to the Fund in the middle of the quarter as interest rate markets were difficult for trend followers as the large recognized safe havens do not show continuing trends. Because the Fund is also in these markets shuns large concentrated risks, the losses in these markets remain limited. Gains on various positions anticipating rising interest rates in commodity-rich countries like Australia and Canada was not enough to offset losses. Losses were posted to the Fund at the end of the quarter.  The mid-month March fall in prices created losses on long positions in treasuries from the U.S., Europe and Japan.

 

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

 

20



 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Introduction

 

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

 

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

 

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

 

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

 

Quantifying The Fund’s Trading Value At Risk

 

Quantitative Forward-Looking Statements

 

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

 

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

 

Exchange maintenance margin requirements have been used by the Fund as the measure of its Value at Risk.  Maintenance margin requirements are set by exchanges to equal or exceed the maximum loss in the fair value of any given contract incurred in 95%-99% of the one-day time periods included in the historical sample (generally approximately one year) researched for purposes of establishing margin levels.  The maintenance margin levels are established by dealers and exchanges using historical price

 

21



 

studies as well as an assessment of current market volatility (including the implied volatility of the options on a given futures contract) and economic fundamentals to provide a probabilistic estimate of the maximum expected near-term one-day price fluctuation.

 

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

 

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

 

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

 

The following table indicates the average, highest and lowest trading Value at Risk associated with the Fund’s open positions by market category for the fiscal period. For the three month period ended March 31, 2013 and 2012 the Fund’s average Month-end Net Asset Value was approximately $143,910,070 and $212,784,746, respectively.

 

March 31, 2013

 

 

 

Average Value

 

% of Average

 

Highest Value

 

Lowest Value

 

Market Sector

 

at Risk

 

Capitalization

 

at Risk

 

at Risk

 

 

 

 

 

 

 

 

 

 

 

Agricultural Commodities

 

$

259,919

 

0.18

%

$

272,042

 

$

252,136

 

Currencies

 

28,612

 

0.02

%

29,946

 

27,755

 

Energy

 

301,695

 

0.21

%

315,767

 

292,661

 

Interest Rates

 

14,359,300

 

9.98

%

15,029,039

 

13,929,319

 

Metals

 

1,669,927

 

1.16

%

1,747,815

 

1,619,922

 

Stock Indices

 

685,609

 

0.48

%

717,587

 

665,079

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

17,305,062

 

12.03

%

$

18,112,196

 

$

16,786,872

 

 

March 31, 2012

 

 

 

Average

 

% of Average

 

Highest Value

 

Lowest Value

 

Market Sector

 

Value at Risk

 

Capitalization

 

At Risk

 

At Risk

 

 

 

 

 

 

 

 

 

 

 

Agricultural Commodities

 

$

4,595,229

 

2.16

%

$

4,978,827

 

$

4,167,320

 

Currencies

 

2,819,916

 

1.33

%

3,055,315

 

2,557,325

 

Energy

 

9,743,111

 

4.58

%

10,556,440

 

8,835,830

 

Interest Rates

 

1,248,642

 

0.59

%

1,352,876

 

1,132,369

 

Metals

 

1,862,714

 

0.88

%

2,018,208

 

1,689,257

 

Stock Indices

 

3,011,349

 

1.42

%

3,262,729

 

2,730,931

 

 

 

 

 

 

 

 

 

 

 

TOTAL

 

$

23,280,961

 

10.96

%

$

25,224,395

 

$

21,113,032

 

 

22



 

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

 

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

 

Non-Trading Risk

 

Foreign Currency Balances; Cash on Deposit with MLPF&S

 

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

 

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

 

Qualitative Disclosures Regarding Primary Trading Risk Exposures

 

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

 

The following were the primary trading risk exposures of the Fund as of March 31, 2013, by market sector.

 

Interest Rates

 

Interest rate movements directly affect the price of derivative sovereign bond positions held by the Fund and indirectly the value of its stock index and currency positions. Interest rate movements in one country as well as relative interest rate movements between countries materially impact the Fund’s profitability. The Fund’s primary interest rate exposure is to interest rate fluctuations in the United States and the other G-7 countries.  However, the Fund also takes positions in the government debt of smaller nations e.g., Australia. MLAI anticipates that G-7 interest rates will remain the primary market exposure of the Fund for the foreseeable future.

 

23



 

Currencies

 

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

 

Metals

 

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

 

Agricultural Commodities

 

The Fund’s primary agricultural commodities exposure is to agricultural price movements which are often directly affected by severe or unexpected weather conditions. Soybeans, grains, and livestock accounted for the substantial bulk of the Fund’s agricultural commodities exposure as of March 31, 2013. However, it is anticipated that the Fund will maintain an emphasis on cotton, grains and sugar, in which the Fund has historically taken its largest positions.

 

Energy

 

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

 

Qualitative Disclosures Regarding Non-Trading Risk Exposure

 

The following were the only non-trading risk exposures of the Fund as of March 31, 2013.

 

Foreign Currency Balances

 

The Fund’s primary foreign currency balances are in Japanese yen and Hungarian forint.

 

U.S. Dollar Cash Balance

 

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

 

Item 4. Controls and Procedures

 

MLAI, the Sponsor of ML Transtrend DTP Enhanced FuturesAccess LLC, with the participation of the Sponsor’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Securities Exchange Act of 1934) with respect to the Fund as of the end of the period covered by this quarterly report. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective. No change in internal control over financial reporting (in connection with the evaluation required by paragraph (d) 

 

24



 

of Rule 13a-15 or Rule 15d-15 under the Securities Exchange Act of 1934) occurred during the quarter ended March 31, 2013 that has materially affected, or is reasonably likely to materially affect, the Fund’s internal control over financial reporting.

 

25



 

PART II - OTHER INFORMATION

 

Item 1.       Legal Proceedings

 

                        None.

 

Item 1A.  Risk Factors

 

There are no material changes from risk factors as previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2012, filed with the Securities and Exchange Commission on March 27, 2013.

 

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

 

(a)  Units are privately offered and sold to “accredited investors” (as defined in Rule 501(a) under the Securities Act in reliance on the exemption from registration provided by Section 4(2) of the Securities Act and Rule 506 thereunder.  The selling agent of the Units was MLPF&S.

 

CLASS A

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

1/01/2013

 

$

32,273

 

28,317

 

$

1.1397

 

1/16/2013

 

 

 

1.1068

 

2/01/2013

 

9,800

 

8,669

 

1.1304

 

2/16/2013

 

 

 

1.1540

 

3/01/2013

 

 

 

1.1061

 

3/16/2013

 

 

 

1.1249

 

4/01/2013

 

 

 

1.1372

 

 

CLASS D

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

1/01/2013

 

$

135,000

 

142,405

 

$

0.9480

 

1/16/2013

 

 

 

0.9212

 

2/01/2013

 

100,000

 

106,213

 

0.9415

 

2/16/2013

 

 

 

0.9617

 

3/01/2013

 

 

 

0.9224

 

3/16/2013

 

 

 

0.9386

 

4/01/2013

 

 

 

0.9495

 

 

CLASS DS

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

1/01/2013

 

$

 

 

$

1.4524

 

1/16/2013

 

1,374,794

 

974,133

 

1.4113

 

2/01/2013

 

 

 

1.4423

 

2/16/2013