ML Winton FuturesAccess LLC - FORM 10-Q - May 13, 2016

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EX-31.02 - EX-31.02 - ML Winton FuturesAccess LLCa16-6567_1ex31d02.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, 2016

 

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 0-51084

 

ML WINTON FUTURESACCESS LLC

(Exact name of registrant as specified in its charter)

 

Delaware

 

20-1227904

(State or other jurisdiction of

 

(I.R.S. Employer Identification No.)

incorporation or organization)

 

 

 

c/o Merrill Lynch Alternative Investments LLC

250 Vesey Street, 11th Floor

New York, New York 10281

(Address of principal executive offices)

(Zip Code)

 

609-274-5838

(Registrant’s telephone number, including area code)

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes 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, 2016, 652,917,153 units of limited liability company interest were outstanding.

 

 

 


 

ML WINTON FUTURESACCESS LLC

 

QUARTERLY REPORT FOR MARCH 31, 2016 ON FORM 10-Q

 

Table of Contents

 

PART I—FINANCIAL INFORMATION

 

 

 

PAGE

 

 

 

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

26

 

 

 

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

27

 

 

 

Item 3.

Defaults Upon Senior Securities

28

 

 

 

Item 4.

Mine Safety Disclosures

28

 

 

 

Item 5.

Other Information

28

 

 

 

Item 6.

Exhibits

28

 

 


 

PART I - FINANCIAL INFORMATION

 

Item 1.   Financial Statements

 

ML WINTON FUTURESACCESS LLC

(A Delaware Limited Liability Company)

 

STATEMENTS OF FINANCIAL CONDITION

(unaudited)

 

 

 

March 31,

 

December 31,

 

 

 

2016

 

2015

 

ASSETS:

 

 

 

 

 

Equity in commodity trading accounts:

 

 

 

 

 

Cash (including restricted cash of $78,823,587 for 2016 and $96,102,994 for 2015)

 

$

998,728,149

 

$

1,040,573,314

 

Unrealized profit on open futures contracts

 

21,670,172

 

22,033,208

 

Unrealized profit on open forwards contracts

 

12,243,691

 

4,751,569

 

Cash and cash equivalents

 

558,109

 

518,196

 

Other assets

 

137,504

 

64,608

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

1,033,337,625

 

$

1,067,940,895

 

 

 

 

 

 

 

LIABILITIES AND MEMBERS’ CAPITAL:

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

Brokerage commissions payable

 

$

7,034

 

$

7,009

 

Sponsor and Advisory fees payable

 

2,769,580

 

2,846,826

 

Redemptions payable

 

2,672,034

 

18,980,515

 

Unrealized loss on open futures contracts

 

20,869,018

 

14,613,804

 

Unrealized loss on open forwards contracts

 

5,683,918

 

6,680,274

 

Other liabilities

 

621,608

 

669,369

 

 

 

 

 

 

 

Total liabilities

 

32,623,192

 

43,797,797

 

 

 

 

 

 

 

MEMBERS’ CAPITAL:

 

 

 

 

 

Members’ Capital (652,917,153 Units and 679,544,349 Units outstanding; unlimited Units authorized)

 

1,000,714,433

 

1,024,143,098

 

Total Members’ Capital

 

1,000,714,433

 

1,024,143,098

 

 

 

 

 

 

 

TOTAL LIABILITIES AND MEMBERS’ CAPITAL

 

$

1,033,337,625

 

$

1,067,940,895

 

 

 

 

 

 

 

NET ASSET VALUE PER UNIT:

 

 

 

 

 

 

 

 

 

 

 

Class A

 

$

1.9358

 

$

1.9048

 

Class C

 

$

1.7330

 

$

1.7095

 

Class D

 

$

2.1087

 

$

2.0671

 

Class I

 

$

2.0083

 

$

1.9742

 

Class M

 

$

1.1848

 

$

1.1615

 

Class F

 

$

1.1767

 

$

1.1508

 

Class F1

 

$

1.2057

 

$

1.1792

 

Class DI

 

$

0.9899

 

$

0.9704

 

 

See notes to financial statements.

 

1


 

ML WINTON FUTURESACCESS LLC

 

(A Delaware Limited Liability Company)

 

STATEMENTS OF OPERATIONS

(unaudited)

 

 

 

For the three

 

For the three

 

 

 

months ended

 

months ended

 

 

 

March 31,

 

March 31,

 

 

 

2016

 

2015

 

TRADING PROFIT (LOSS):

 

 

 

 

 

 

 

 

 

 

 

Realized, net

 

$

25,045,686

 

$

66,569,286

 

Change in unrealized, net

 

1,870,228

 

(2,443,939

)

Brokerage commissions

 

(243,144

)

(259,900

)

 

 

 

 

 

 

Total trading profit (loss), net

 

26,672,770

 

63,865,447

 

 

 

 

 

 

 

INVESTMENT INCOME (EXPENSE):

 

 

 

 

 

Interest, net

 

403,988

 

(1,111

)

 

 

 

 

 

 

EXPENSES:

 

 

 

 

 

Management fee

 

4,968,271

 

5,188,130

 

Sponsor fee

 

3,604,442

 

3,642,320

 

Performance fee

 

12,169

 

11,590,474

 

Other

 

522,027

 

554,767

 

Total expenses

 

9,106,909

 

20,975,691

 

 

 

 

 

 

 

NET INVESTMENT INCOME (LOSS)

 

(8,702,921

)

(20,976,802

)

 

 

 

 

 

 

NET INCOME (LOSS)

 

$

17,969,849

 

$

42,888,645

 

 

 

 

 

 

 

NET INCOME (LOSS) PER UNIT:

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of Units outstanding

 

 

 

 

 

Class A

 

63,211,341

 

64,054,151

 

Class C

 

269,712,698

 

265,395,711

 

Class D

 

33,810,930

 

35,747,449

 

Class I

 

28,712,439

 

31,167,025

 

Class DS*

 

—

 

21,106,304

 

Class DT**

 

—

 

5,331,413

 

Class M

 

99,544,862

 

95,010,626

 

Class F

 

46,520,691

 

46,520,691

 

Class F1

 

32,348,368

 

32,348,368

 

Class DI

 

93,095,046

 

69,259,842

 

 

 

 

 

 

 

Net income (loss) per weighted average Unit

 

 

 

 

 

Class A

 

$

0.0313

 

$

0.0803

 

Class C

 

$

0.0247

 

$

0.0681

 

Class D

 

$

0.0451

 

$

0.0936

 

Class I

 

$

0.0382

 

$

0.0849

 

Class DS*

 

$

—

 

$

0.0931

 

Class DT**

 

$

—

 

$

0.1085

 

Class M

 

$

0.0260

 

$

0.0526

 

Class F

 

$

0.0259

 

$

0.0541

 

Class F1

 

$

0.0266

 

$

0.0554

 

Class DI

 

$

0.0221

 

$

0.0262

 

 

*Units fully redeemed as of April 30, 2015.

**Units fully redeemed as of December 31, 2015.

 

See notes to financial statements.

 

2


 

ML WINTON FUTURESACCESS LLC

(A Delaware Limited Liability Company)

 

STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL

FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015

(unaudited) (in Units)

 

 

 

Members’ Units

 

 

 

 

 

Members’ Units March

 

 

Members’ Units

 

 

 

 

 

Members’ Units March

 

 

 

December 31, 2014

 

Subscriptions

 

Redemptions

 

31, 2015

 

 

December 31, 2015

 

Subscriptions

 

Redemptions

 

31, 2016

 

Class A

 

64,145,923

 

1,413,586

 

(2,076,230

)

63,483,279

 

 

63,179,258

 

1,269,892

 

(1,847,313

)

62,601,837

 

Class C

 

265,575,955

 

5,412,220

 

(6,283,559

)

264,704,616

 

 

272,305,731

 

3,313,695

 

(9,737,602

)

265,881,824

 

Class D

 

35,322,377

 

558,137

 

—

 

35,880,514

 

 

36,603,739

 

917,642

 

(7,106,927

)

30,414,454

 

Class I

 

31,155,649

 

968,533

 

(635,791

)

31,488,391

 

 

29,501,569

 

499,296

 

(1,893,603

)

28,107,262

 

Class DS**

 

21,211,500

 

217,903

 

(935,483

)

20,493,920

 

 

—

 

—

 

—

 

—

 

Class DT***

 

5,341,053

 

35,822

 

(150,427

)

5,226,448

 

 

—

 

—

 

—

 

—

 

Class M

 

92,200,321

 

4,676,304

 

(306,979

)

96,569,646

 

 

102,050,874

 

4,526,232

 

(7,744,291

)

98,832,815

 

Class F

 

46,520,691

 

—

 

—

 

46,520,691

 

 

46,520,691

 

—

 

—

 

46,520,691

 

Class F1

 

32,348,368

 

—

 

—

 

32,348,368

 

 

32,348,368

 

—

 

—

 

32,348,368

 

Class DI*

 

—

 

105,093,219

 

(168,588

)

104,924,631

 

 

97,034,119

 

—

 

(8,824,217

)

88,209,902

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Members’ Units

 

593,821,837

 

118,375,724

 

(10,557,057

)

701,640,504

 

 

679,544,349

 

10,526,757

 

(37,153,953

)

652,917,153

 

 

* Units issued on February 1, 2015.

**Units fully redeemed as of April 30, 2015.

***Units fully redeemed as of December 31, 2015.

 

See notes to financial statements.

 

3


 

ML WINTON FUTURESACCESS LLC

(A Delaware Limited Liability Company)

 

STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL

FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015

(unaudited)

 

 

 

Members’ Capital

 

 

 

 

 

 

 

Members’ Capital

 

 

Members’ Capital

 

 

 

 

 

 

 

Members’ Capital

 

 

 

December 31, 2014

 

Subscriptions

 

Redemptions

 

Net Income (Loss)

 

March 31, 2015

 

 

December 31, 2015

 

Subscriptions

 

Redemptions

 

Net Income (Loss)

 

March 31, 2016

 

Class A

 

$

124,393,069

 

$

2,793,189

 

$

(4,136,642

)

$

5,143,728

 

$

128,193,344

 

 

$

120,342,696

 

$

2,481,160

 

$

(3,621,690

)

$

1,981,638

 

$

121,183,804

 

Class C

 

466,870,415

 

9,718,497

 

(11,318,810

)

18,079,622

 

483,349,724

 

 

465,517,528

 

5,819,133

 

(17,208,424

)

6,651,590

 

460,779,827

 

Class D

 

73,228,701

 

1,175,000

 

—

 

3,345,915

 

77,749,616

 

 

75,664,376

 

2,000,000

 

(15,054,585

)

1,523,917

 

64,133,708

 

Class I

 

62,368,274

 

1,987,733

 

(1,296,781

)

2,644,654

 

65,703,880

 

 

58,240,855

 

993,817

 

(3,882,214

)

1,095,515

 

56,447,973

 

Class DS**

 

43,919,926

 

463,567

 

(1,996,249

)

1,965,783

 

44,353,027

 

 

—

 

—

 

—

 

—

 

—

 

Class DT***

 

11,818,184

 

81,606

 

(344,716

)

578,601

 

12,133,675

 

 

—

 

—

 

—

 

—

 

—

 

Class M

 

107,401,709

 

5,545,000

 

(370,368

)

5,002,194

 

117,578,535

 

 

118,530,695

 

5,355,937

 

(9,378,259

)

2,591,475

 

117,099,848

 

Class F

 

53,188,258

 

—

 

—

 

2,517,341

 

55,705,599

 

 

53,536,345

 

—

 

—

 

1,205,971

 

54,742,316

 

Class F1

 

37,896,521

 

—

 

—

 

1,793,600

 

39,690,121

 

 

38,144,532

 

—

 

—

 

859,251

 

39,003,783

 

Class DI*

 

—

 

105,087,961

 

(166,723

)

1,817,207

 

106,738,445

 

 

94,166,071

 

—

 

(8,903,389

)

2,060,492

 

87,323,174

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Members’ Capital

 

$

981,085,057

 

$

126,852,553

 

$

(19,630,289

)

$

42,888,645

 

$

1,131,195,966

 

 

$

1,024,143,098

 

$

16,650,047

 

$

(58,048,561

)

$

17,969,849

 

$

1,000,714,433

 

 

* Units issued on February 1, 2015.

**Units fully redeemed as of April 30, 2015.

***Units fully redeemed as of December 31, 2015.

 

See notes to financial statements.

 

4


 

ML WINTON FUTURESACCESS LLC

(A Delaware Limited Liability Company)

 

FINANCIAL DATA HIGHLIGHTS

FOR THE THREE MONTHS ENDED MARCH 31, 2016 (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 M

 

Class F

 

Class F1

 

Class DI

 

Per Unit Operating Performance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, beginning of period

 

$

1.9048

 

$

1.7095

 

$

2.0671

 

$

1.9742

 

$

1.1615

 

$

1.1508

 

$

1.1792

 

$

0.9704

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

0.0489

 

0.0440

 

0.0530

 

0.0507

 

0.0298

 

0.0295

 

0.0302

 

0.0249

 

Brokerage commissions

 

(0.0005

)

(0.0004

)

(0.0005

)

(0.0005

)

(0.0003

)

(0.0003

)

(0.0003

)

(0.0002

)

Interest income, net

 

0.0008

 

0.0007

 

0.0008

 

0.0008

 

0.0005

 

0.0005

 

0.0005

 

0.0004

 

Expenses

 

(0.0182

)

(0.0208

)

(0.0117

)

(0.0169

)

(0.0067

)

(0.0038

)

(0.0039

)

(0.0056

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, end of period

 

$

1.9358

 

$

1.7330

 

$

2.1087

 

$

2.0083

 

$

1.1848

 

$

1.1767

 

$

1.2057

 

$

0.9899

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return: (a) (c)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total return before Performance fees

 

1.63

%

1.38

%

2.01

%

1.72

%

2.00

%

2.26

%

2.26

%

2.00

%

Performance fees

 

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

-0.01

%

-0.01

%

0.00

%

Total return after Performance fees

 

1.63

%

1.38

%

2.01

%

1.72

%

2.00

%

2.25

%

2.25

%

2.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios to Average Members’ Capital: (c)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses (excluding Performance fees) (b)

 

0.93

%

1.18

%

0.55

%

0.83

%

0.55

%

0.30

%

0.30

%

0.55

%

Performance fees

 

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.01

%

0.01

%

0.00

%

Expenses (including Performance fees)

 

0.93

%

1.18

%

0.55

%

0.83

%

0.55

%

0.31

%

0.31

%

0.55

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income (loss) (excluding Performance fees)

 

-0.88

%

-1.14

%

-0.51

%

-0.78

%

-0.51

%

-0.26

%

-0.26

%

-0.51

%

Performance fees

 

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

-0.01

%

-0.01

%

0.00

%

Net investment income (loss) (including Performance fees)

 

-0.88

%

-1.14

%

-0.51

%

-0.78

%

-0.51

%

-0.27

%

-0.27

%

-0.51

%

 

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

(b) The expense ratios do not include brokerage commissions.

(c) The ratios and total return are not annualized.

 

See notes to financial statements.

 

5

 


 

ML WINTON FUTURESACCESS LLC

(A Delaware Limited Liability Company)

FINANCIAL DATA HIGHLIGHTS

FOR THE THREE MONTHS ENDED MARCH 31, 2015 (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

 

Class F

 

Class F1

 

Class DI (e)

 

Per Unit Operating Performance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, beginning of period or at the time of offer

 

$

1.9392

 

$

1.7580

 

$

2.0732

 

$

2.0018

 

$

2.0706

 

$

2.2127

 

$

1.1649

 

$

1.1433

 

$

1.1715

 

$

1.0000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

0.1210

 

0.1096

 

0.1295

 

0.1249

 

0.1294

 

0.1384

 

0.0728

 

0.0715

 

0.0732

 

0.0255

 

Brokerage commissions

 

(0.0005

)

(0.0004

)

(0.0005

)

(0.0005

)

(0.0005

)

(0.0005

)

(0.0003

)

(0.0003

)

(0.0003

)

(0.0002

)

Interest income, net (c)

 

(0.0000

)

(0.0000

)

(0.0000

)

(0.0000

)

(0.0000

)

(0.0000

)

(0.0000

)

(0.0000

)

(0.0000

)

(0.0000

)

Expenses

 

(0.0404

)

(0.0412

)

(0.0353

)

(0.0396

)

(0.0353

)

(0.0290

)

(0.0198

)

(0.0171

)

(0.0174

)

(0.0080

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, end of period

 

$

2.0193

 

$

1.8260

 

$

2.1669

 

$

2.0866

 

$

2.1642

 

$

2.3216

 

$

1.2176

 

$

1.1974

 

$

1.2270

 

$

1.0173

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return: (a) (d)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total return before Performance fees

 

5.26

%

5.00

%

5.65

%

5.36

%

5.65

%

5.79

%

5.65

%

5.92

%

5.92

%

2.16

%

Performance fees

 

-1.13

%

-1.13

%

-1.13

%

-1.12

%

-1.13

%

-0.87

%

-1.13

%

-1.19

%

-1.18

%

-0.43

%

Total return after Performance fees

 

4.13

%

3.87

%

4.52

%

4.24

%

4.52

%

4.92

%

4.52

%

4.73

%

4.74

%

1.73

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios to Average Members’ Capital: (d)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses (excluding Performance fees) (b)

 

0.93

%

1.19

%

0.56

%

0.83

%

0.56

%

0.43

%

0.56

%

0.30

%

0.30

%

0.56

%

Performance fees

 

1.11

%

1.11

%

1.11

%

1.11

%

1.11

%

0.85

%

1.11

%

1.16

%

1.16

%

0.43

%

Expenses (including Performance fees)

 

2.04

%

2.30

%

1.67

%

1.94

%

1.67

%

1.28

%

1.67

%

1.46

%

1.46

%

0.99

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income (loss) (excluding Performance fees)

 

-0.93

%

-1.19

%

-0.56

%

-0.83

%

-0.56

%

-0.43

%

-0.56

%

-0.30

%

-0.30

%

-0.56

%

Performance fees

 

-1.11

%

-1.11

%

-1.11

%

-1.11

%

-1.11

%

-0.85

%

-1.11

%

-1.16

%

-1.16

%

-0.43

%

Net investment income (loss) (including Performance fees)

 

-2.04

%

-2.30

%

-1.67

%

-1.94

%

-1.67

%

-1.28

%

-1.67

%

-1.46

%

-1.46

%

-0.99

%

 

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

(b) The expense ratios do not include brokerage commissions.

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

(d) The ratios and total return are not annualized.

(e) Units issued on February 1, 2015.

 

See notes to financial statements.

 

6


 

ML WINTON FUTURESACCESS LLC

(A Delaware Limited Liability Company)

 

NOTES TO FINANCIAL STATEMENTS

(unaudited)

 

1.              ORGANIZATION

 

ML Winton FuturesAccess LLC (the “Fund”), a FuturesAccessSM Program (“FuturesAccess”) fund, which is an investment company as defined by Accounting Standards Codification (“ASC”) guidance, was organized under the Delaware Limited Liability Company Act on May 17, 2004 and commenced trading activities on February 1, 2005. The Fund engages in the speculative trading of futures and forward contracts on a wide range of commodities. Winton Capital Management Limited (“Trading Advisor”) is the trading advisor of the Fund.  The Trading Advisor trades the Winton Futures Program (the “Trading Program”) for the Fund.

 

Merrill Lynch Alternative Investments LLC (“MLAI”, the “Sponsor” or the “Managing Member”) 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 “BofA Corp.”. 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 (“MLI”) is the primary foreign exchange (“F/X”) forward prime broker for the Fund. The Sponsor may select other of its affiliates, or third parties, as F/X or other over-the-counter (“OTC”) prime brokers. MLPF&S and MLI are BofA Corp. 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 BofA Corp.  FuturesAccess Funds currently are composed of direct-trading funds advised by a single trading advisor. Although redemption terms vary among FuturesAccess Funds, FuturesAccess applies, with some exceptions, the same minimum investment amounts, fees and other operational criteria across all FuturesAccess Funds.  Each trading advisor participating in FuturesAccess employs different technical, fundamental, systematic and/or discretionary trading 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, BofA Corp. or by any bank.  Interests are subject to investment risks, including the possible loss of the full amount invested.

 

The Fund considers all highly liquid investments, with a maturity of three months or less when acquired, to be cash equivalents classified as Level II within the fair value hierarchy discussed in Note 3. As of March 31, 2016, the Fund holds cash equivalents. Cash was held at a nationally recognized financial institution.

 

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, 2016 and December 31, 2015 and the results of its operations for the three month periods ended March 31, 2016 and 2015.  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 report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2015.

 

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 unrealized profit (loss) on open contracts on the Statements of Financial Condition, as of March 31, 2016 and December 31, 2015, are as follows:

 

March 31, 2016

 

 

 

Long Positions

 

Short Positions

 

Net Unrealized

 

 

 

 

 

Commodity Industry

 

Number of

 

Unrealized

 

Percent of

 

Number of

 

Unrealized

 

Percent of

 

Profit (Loss)

 

Percent of

 

 

 

Sector

 

Contracts/Notional*

 

Profit (Loss)

 

Members’ Capital

 

Contracts/Notional*

 

Profit (Loss)

 

Members’ Capital

 

on Open Positions

 

Members’ Capital

 

Maturity Dates

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agriculture

 

702

 

$

176,844

 

0.02

%

(3,641

)

$

(691,965

)

-0.07

%

$

(515,121

)

-0.05

%

April 2016 - September 2016

 

Currencies - Futures

 

1,714

 

1,187,101

 

0.12

%

(3,150

)

(7,730,541

)

-0.77

%

(6,543,440

)

-0.65

%

June 2016

 

Currencies - Forwards*

 

414,860,272

 

12,132,131

 

1.21

%

(237,120,887

)

(5,572,358

)

-0.56

%

6,559,773

 

0.65

%

April 2016 - September 2016

 

Energy

 

—

 

—

 

0.00

%

(1,520

)

125,395

 

0.01

%

125,395

 

0.01

%

April 2016 - June 2016

 

Interest rates

 

23,104

 

11,074,235

 

1.11

%

(1,621

)

(825,455

)

-0.08

%

10,248,780

 

1.03

%

June 2016 - March 2019

 

Metals

 

582

 

(738,899

)

-0.07

%

(711

)

(1,439,753

)

-0.14

%

(2,178,652

)

-0.21

%

May 2016 - July 2016

 

Stock indices

 

2,362

 

3,848,970

 

0.38

%

(1,424

)

(4,184,778

)

-0.42

%

(335,808

)

-0.04

%

April 2016 - June 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

$

27,680,382

 

2.77

%

 

 

$

(20,319,455

)

-2.03

%

$

7,360,927

 

0.74

%

 

 

 

December 31, 2015

 

 

 

Long Positions

 

Short Positions

 

Net Unrealized

 

 

 

 

 

Commodity Industry

 

Number of

 

Unrealized

 

Percent of

 

Number of

 

Unrealized

 

Percent of

 

Profit (Loss)

 

Percent of

 

 

 

Sector

 

Contracts/Notional*

 

Profit (Loss)

 

Members’ Capital

 

Contracts/Notional*

 

Profit (Loss)

 

Members’ Capital

 

on Open Positions

 

Members’ Capital

 

Maturity Dates

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agriculture

 

459

 

$

51,979

 

0.01

%

(3,851

)

$

1,311,309

 

0.13

%

$

1,363,288

 

0.14

%

January 2016 - May 2016

 

Currencies - Futures

 

574

 

34,405

 

0.00

%

(5,108

)

4,418,923

 

0.43

%

4,453,328

 

0.43

%

March 2016

 

Currencies - Forwards*

 

461,839,319

 

(4,714,657

)

-0.46

%

(273,519,553

)

2,785,952

 

0.27

%

(1,928,705

)

-0.19

%

January 2016 - June 2016

 

Energy

 

—

 

—

 

0.00

%

(2,601

)

1,389,060

 

0.14

%

1,389,060

 

0.14

%

January 2016 - May 2016

 

Interest rates

 

22,577

 

(4,080,903

)

-0.40

%

(762

)

(35,806

)

0.00

%

(4,116,709

)

-0.40

%

March 2016 - December 2018

 

Metals

 

327

 

85,008

 

0.01

%

(2,272

)

3,637,773

 

0.35

%

3,722,781

 

0.36

%

January 2016 - April 2016

 

Stock indices

 

2,952

 

1,203,351

 

0.12

%

(1,922

)

(595,695

)

-0.06

%

607,656

 

0.06

%

January 2016 - March 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

$

(7,420,817

)

-0.72

%

 

 

$

12,911,516

 

1.26

%

$

5,490,699

 

0.54

%

 

 

 

*Currencies-Forwards present notional amounts as converted to USD.

 

No individual contract’s unrealized profit or loss comprised greater than 5% of Members’ Capital as of March 31, 2016 and December 31, 2015. 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 (losses) of long positions and short positions, 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 accounts 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 hierarchical disclosure framework which prioritizes and ranks the level of market price observability used in measuring investments at fair value. Market price observability is impacted by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

 

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.

 

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

 

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

 

10


 

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 the process for determining fair values.

 

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 observable prices of investments with similar characteristics and these are generally classified as Level II investments. The Fund determined that Level II investments would include its forwards and certain futures contracts.

 

Transfers of investments between different levels of the fair value hierarchy, if any, are recorded as of the beginning of the reporting period. There were no transfers to or from any level during the three month period ended March 31, 2016 or the year ended December 31, 2015.

 

The Fund’s unrealized profit (loss) on open forwards and futures contracts, by the above fair value hierarchy levels, as of March 31, 2016 and December 31, 2015, are as follows:

 

2016

 

Net unrealized profit (loss) 
on open contracts

 

Total

 

Level I

 

Level II

 

Level III

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

Futures

 

$

21,670,172

 

$

21,327,234

 

$

342,938

 

$

—

 

Forwards

 

12,243,691

 

—

 

12,243,691

 

—

 

 

 

$

33,913,863

 

$

21,327,234

 

$

12,586,629

 

$

—

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

Futures

 

$

20,869,018

 

$

19,001,460

 

$

1,867,558

 

$

—

 

Forwards

 

5,683,918

 

—

 

5,683,918

 

—

 

 

 

$

26,552,936

 

$

19,001,460

 

$

7,551,476

 

$

—

 

 

 

 

 

 

 

 

 

 

 

March 31, 2016

 

$

7,360,927

 

$

2,325,774

 

$

5,035,153

 

$

—

 

 

11


 

2015

 

Net unrealized profit (loss)
on open contracts

 

Total

 

Level I

 

Level II

 

Level III

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

Futures

 

$

22,033,208

 

$

19,842,837

 

$

2,190,371

 

$

—

 

Forwards

 

4,751,569

 

—

 

4,751,569

 

—

 

 

 

$

26,784,777

 

$

19,842,837

 

$

6,941,940

 

$

—

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

Futures

 

$

14,613,804

 

$

13,913,792

 

$

700,012

 

$

—

 

Forwards

 

6,680,274

 

—

 

6,680,274

 

—

 

 

 

$

21,294,078

 

$

13,913,792

 

$

7,380,286

 

$

—

 

 

 

 

 

 

 

 

 

 

 

December 31, 2015

 

$

5,490,699

 

$

5,929,045

 

$

(438,346

)

$

—

 

 

The Fund’s volume of trading forwards and futures as of the three month period ended March 31, 2016 and year ended December 31, 2015 are representative of the activity throughout these periods.

 

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 are 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, number of contracts and fair values of derivative instruments by contract type/commodity sector are disclosed in Note 2.

 

The Fund maintains margin deposits and cash collateral with its futures and forwards brokers, respectively, based on the greater of exchange margin or amounts determined by the respective broker. At March 31, 2016 and December 31, 2015, the initial margin deposits (cash) are used to satisfy the margin requirements to establish the futures or forward contracts and are presented on the Statements of Financial Condition in Cash in the Equity in commodity trading accounts. The variation margin on open contracts is presented gross on the Statements of Financial Condition in Unrealized profit or loss on futures or forwards contracts, respectively. The Fund is subject to agreements which support the ability to settle net with its counterparties; however, the Fund has elected to present the related balances on the Statements of Financial Condition on a gross basis. The net of these amounts plus the restricted cash presented within the Cash in the Equity in commodity trading accounts on the Statements of Financial Condition represents the Fund’s net exposure.

 

The following table indicates the trading profits and losses before brokerage commissions, by commodity industry sector for each of the three month periods ended March 31, 2016 and 2015:

 

12


 

 

 

For the three months ended

 

For the three months ended

 

 

 

March 31, 2016

 

March 31, 2015

 

Commodity Industry Sector

 

Profit (loss) from trading, net

 

Profit (loss) from trading, net

 

 

 

 

 

 

 

Agriculture

 

$

518,584

 

$

2,681,165

 

Currencies

 

(5,087,567

)

21,037,247

 

Energy

 

7,606,678

 

993,969

 

Interest rates

 

50,653,534

 

24,689,976

 

Metals

 

(19,142,171

)

(5,900,494

)

Stock indices

 

(7,633,144

)

20,623,484

 

 

 

 

 

 

 

Total, net

 

$

26,915,914

 

$

64,125,347

 

 

The Fund is subject to the risk of insolvency of a counterparty, an exchange, a clearinghouse, MLPF&S or other BofA Corp. 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 in 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 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 it will, in fact, succeed in doing so.  These procedures focus primarily on monitoring the trading of the Trading Advisor, 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 the Trading Advisor 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 process of Trading Advisor monitoring, with the market risk controls being applied by the Trading Advisor.

 

13


 

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 investors 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 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 BofA Corp. affiliates, such as MLPF&S and MLI, although MLAI may engage non-BofA Corp. affiliated service providers as clearing brokers or prime brokers for the Fund. This policy may increase risk to the Fund by preventing the diversification of brokers used by the Fund.

 

The Fund, in its normal course of business, enters into various contracts, with MLPF&S acting as its futures clearing broker and MLI as its forwards prime broker.  Due to the relationship with MLPF&S, in the event of default, all futures balances are eligible for offset with a net settlement due to MLPF&S.  Due to the relationship with MLI, in the event of default, all forwards balances are eligible for offset with a net settlement due to MLI.

 

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 certain parties, including BofA Corp. affiliates. 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

 

MLAI owns 48 Class D Units which represent less than 1% of the Fund’s Net Asset Value as of March 31, 2016.

 

MLAI, the Fund and certain other FuturesAccess Funds, MLAI’s HedgeAccess® Program of hedge funds and other BofA Corp. funds (each a “Serviced Fund” and collectively, the “Serviced Funds”) have entered into a transfer agency and investor services agreement with Financial Data Services, Inc. (the “Transfer Agent”), a wholly owned subsidiary of BofA Corp. and affiliate of MLAI.  The Transfer Agent provides registrar, distribution disbursing agent, transfer agent and certain other services related to the issuance, redemption, exchange and transfer of Units.  The fees charged by the Transfer Agent for its services were 0.02% per year of the aggregate net assets of the Serviced Funds. The fee is paid monthly in arrears.  The Transfer Agent also receives reimbursement for its out-of-pocket expenses and certain extraordinary expenses.  MLAI allocates the Transfer Agent fees to each of the Serviced Funds, including the Fund, on a monthly basis based on each Serviced Fund’s net assets.   The Transfer Agent fee allocated to the Fund for the three month periods ended March 31, 2016, and 2015 amounted to

 

14


 

$56,481 and $57,078, respectively, of which $60,137 and $59,827 was payable to the Transfer Agent as of March 31, 2016 and December 31, 2015, respectively.

 

Brokerage commissions, interest, net and sponsor fees, as presented on the Statements of Operations, are all received from or paid to related parties. Equity in commodity trading accounts, including cash and Unrealized profit (loss), as presented on the Statements 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 financial statements were issued and has determined that there were no subsequent events that require adjustments to, or disclosure in, the financial statements.

 

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

 

MONTH-END NET ASSET VALUE PER UNIT

 

The Fund calculates the Net Asset Value per Unit of each Class of Units as of the last calendar day of each month, the fifteenth 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 generally equals the value of the Fund’s account under the management of the Trading Advisor as of that date, plus any other assets held by the Fund, minus accrued sponsor, management and performance fees, trading liabilities, including brokerage commissions, any offering or operating costs, and all other liabilities of the Fund.  MLAI or its delegates are authorized to make all Net Asset Value determinations.

 

MLAI believes that the Net Asset Value used to calculate subscription and redemption value and to report performance to investors is a useful performance measure for the investors of the Fund.  Therefore, the charts below are referencing Net Asset Value at each Calculation Date.

 

15


 

PERIOD-END NET ASSET VALUE PER INITIAL UNIT CLASS A

 

 

 

Jan. 15th

 

Jan.

 

Feb. 15th

 

Feb.

 

Mar. 15th

 

Mar.

 

2015

 

$

1.9671

 

$

1.9900

 

$

1.9613

 

$

1.9857

 

$

2.0058

 

$

2.0193

 

2016

 

$

1.9859

 

$

1.9706

 

$

1.9902

 

$

2.0034

 

$

1.9221

 

$

1.9358

 

 

PERIOD-END NET ASSET VALUE PER INITIAL UNIT CLASS C

 

 

 

Jan. 15th

 

Jan.

 

Feb. 15th

 

Feb.

 

Mar. 15th

 

Mar.

 

2015

 

$

1.7825

 

$

1.8025

 

$

1.7758

 

$

1.7971

 

$

1.8145

 

$

1.8260

 

2016

 

$

1.7816

 

$

1.7672

 

$

1.7839

 

$

1.7950

 

$

1.7215

 

$

1.7330

 

 

PERIOD-END NET ASSET VALUE PER INITIAL UNIT CLASS D

 

 

 

Jan. 15th

 

Jan.

 

Feb. 15th

 

Feb.

 

Mar. 15th

 

Mar.

 

2015

 

$

2.1043

 

$

2.1301

 

$

2.1007

 

$

2.1281

 

$

2.1510

 

$

2.1669

 

2016

 

$

2.1565

 

$

2.1412

 

$

2.1638

 

$

2.1795

 

$

2.0924

 

$

2.1087

 

 

PERIOD-END NET ASSET VALUE PER INITIAL UNIT CLASS I

 

 

 

Jan. 15th

 

Jan.

 

Feb. 15th

 

Feb.

 

Mar. 15th

 

Mar.

 

2015

 

$

2.0310

 

$

2.0549

 

$

2.0257

 

$

2.0512

 

$

2.0723

 

$

2.0866

 

2016

 

$

2.0585

 

$

2.0431

 

$

2.0637

 

$

2.0777

 

$

1.9937

 

$

2.0083

 

 

PERIOD-END NET ASSET VALUE PER INITIAL UNIT CLASS DS

 

 

 

Jan. 15th

 

Jan.

 

Feb. 15th

 

Feb.

 

Mar. 15th

 

Mar.

 

2015

 

$

2.1017

 

$

2.1274

 

$

2.0981

 

$

2.1255

 

$

2.1484

 

$

2.1642

 

2016

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

 

PERIOD-END NET ASSET VALUE PER INITIAL UNIT CLASS DT

 

 

 

Jan. 15th

 

Jan.

 

Feb. 15th

 

Feb.

 

Mar. 15th

 

Mar.

 

2015

 

$

2.2484

 

$

2.2781

 

$

2.2451

 

$

2.2767

 

$

2.3031

 

$

2.3216

 

2016

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

 

PERIOD-END NET ASSET VALUE PER INITIAL UNIT CLASS M

 

 

 

Jan. 15th

 

Jan.

 

Feb. 15th

 

Feb.

 

Mar. 15th

 

Mar.

 

2015

 

$

1.1824

 

$

1.1969

 

$

1.1804

 

$

1.1958

 

$

1.2086

 

$

1.2176

 

2016

 

$

1.2117

 

$

1.2031

 

$

1.2158

 

$

1.2247

 

$

1.1757

 

$

1.1848

 

 

PERIOD-END NET ASSET VALUE PER INITIAL UNIT CLASS F

 

 

 

Jan. 15th

 

Jan.

 

Feb. 15th

 

Feb.

 

Mar. 15th

 

Mar.

 

2015

 

$

1.1609

 

$

1.1755

 

$

1.1597

 

$

1.1752

 

$

1.1883

 

$

1.1974

 

2016

 

$

1.2010

 

$

1.1931

 

$

1.2061

 

$

1.2153

 

$

1.1672

 

$

1.1767

 

 

PERIOD-END NET ASSET VALUE PER INITIAL UNIT CLASS F1

 

 

 

Jan. 15th

 

Jan.

 

Feb. 15th

 

Feb.

 

Mar. 15th

 

Mar.

 

2015

 

$

1.1895

 

$

1.2045

 

$

1.1883

 

$

1.2042

 

$

1.2176

 

$

1.2270

 

2016

 

$

1.2307

 

$

1.2225

 

$

1.2358

 

$

1.2452

 

$

1.1959

 

$

1.2057

 

 

PERIOD-END NET ASSET VALUE PER INITIAL UNIT CLASS DI

 

 

 

Jan. 15th

 

Jan.

 

Feb. 15th

 

Feb.

 

Mar. 15th

 

Mar.

 

2015

 

n/a

 

n/a

 

$

0.9862

 

$

0.9991

 

$

1.0098

 

$

1.0173

 

2016

 

$

1.0124

 

$

1.0052

 

$

1.0158

 

$

1.0232

 

$

0.9823

 

$

0.9899

 

 

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.

 

Substantially all of the Fund’s assets are held in cash with the brokers. Changes in interest rates could cause periods of strong up or down price trends, during which the Fund’s profit or loss potential might increase. 

 

16


 

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.

 

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, 2016, Fund capital decreased 2.29% from $1,024,143,098 to $1,000,714,433.  This decrease was attributable to the net income from operations of $17,969,849 coupled with the redemption of 37,153,953 redeemable Units resulting in an outflow of $58,048,561.  The cash outflow was offset with cash inflow of $16,650,047 due to subscriptions of 10,526,757 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.

 

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 Financial Statements 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

 

17


 

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 is based on the daily mark to market and is recorded as unrealized profit (loss).  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 or directly with the exchange on which the contracts are traded, credit exposure is limited.  Realized profit (loss), net and change in unrealized profit (loss), net on futures 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.  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 bids 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 profit (loss), net and change in unrealized profit (loss), net 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

 

BofA Corp.’s “Interest Earning Program,” which offers interest on cash balances subject to a negotiated schedule, will generally apply to Fund cash assets during any time they are maintained by the Sponsor with its affiliates. The present interest rate under the Interest Earning Program on U.S. dollar cash balances is the daily effective federal funds rate less 20 basis points, recalculated and accrued daily, and subject to a floor of 0%, except for currencies designated by MLPF&S as “negative interest rate currencies.  MLPF&S deposits certain of the Fund’s assets as margin or collateral with clearinghouses and/or depositories.  As a result of the present low interest rate environment, clearinghouses and depositories charge MLPF&S fees to account for the negative interest rates on cash balances for certain currencies, which may change from time to time.  Accordingly, MLPF&S will charge the Fund a “negative interest rate fee” for any currencies designated by MLPF&S as a “negative interest rate currency.”

 

Income Taxes

 

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

 

The Fund follows the ASC guidance on accounting for uncertain tax positions. This guidance provides how uncertain tax positions should be recognized, measured, presented and disclosed in the financial

 

18


 

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.  A prospective investor should be aware that, among other things, income taxes could have a material adverse effect on the periodic calculations of the Net Asset Value of the Fund, including reducing the Net Asset Value of the Fund to reflect reserves for income taxes, such as foreign withholding taxes, that may be payable by the Fund. This could cause benefits or detriments to certain investors, depending upon the timing of their entry and exit from the Fund. 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 — 2012.

 

Reform Act

 

The Dodd-Frank Wall Street Reform and Consumer Protection Act amended the definition of “eligible contract participant” and the Fund expects to meet the amended definition as it applies to trading in “retail forex” transactions so long as its total assets exceed $10 million.  If the Fund does not meet the definition of “eligible contract participant” for purposes of trading in “retail forex” transactions, it could lead to the Fund being unable to trade such transactions in the interbank market and bearing higher upfront and mark-to-market margin, less favorable trade pricing, and the possible imposition of new or increased fees.  “Retail forex” markets available to parties that do not meet the definition of “eligible contract participant” 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 in such circumstances could be significantly weaker than the creditworthiness of MLI and the currency forward counterparties with which the Fund would otherwise engage for its currency forward transactions.

 

Results of Operations

 

January 1, 2016 to March 31, 2016

 

January 1, 2016 to March 31, 2016

 

The Fund experienced a net trading profit of $26,915,914 before brokerage commissions and related fees in the first quarter of 2016. The Fund’s profits were primarily attributable to the interest rates, energy and agriculture sectors. The currency, stock indices and metal sectors posted losses.

 

The interest rate sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the quarter as the Euribor and Bunds futures prices both recovered their December losses during January. Profits were posted to the Fund in the middle of the quarter due to profits in Eurodollar, Bund and Japanese government bond futures prices.  Losses were posted to the Fund at the end of the quarter. In U.S. government bonds, yields rose for the first half of March only to fall by month end. The Trading Program was reducing its position in these markets during March, and hence incurred losses.

 

The energy sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the quarter as the Trading Program continued to follow the crude oil price lower amid rising stockpiles and the removal of sanctions on Iran. Profits were posted to the Fund in the middle of the quarter. A steady and profitable downwards trend in natural gas prices outshone the Trading Program’s crude oil positioning, which made minimal gains in February after relatively strong performance in January. Losses were posted to the Fund at the

 

19


 

end of the quarter.  The Fund gave up part of its year-to-date profits within energies as the West Texas Intermediate crude prices went up per barrel in March.

 

The agriculture sector posted profits to the Fund.  Profits were posted to the Fund at the beginning through the middle of the quarter. Losses were posted to the Fund at the end of the quarter due to the Trading Program’s short exposure in crops futures.

 

The currency sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the quarter which was reversed in the middle of the quarter. One of the most notable developments in February was the British pound sliding lower versus the U.S. dollar as heightened concerns around “Brexit” took hold — that is the possibility of Britain exiting the European Union. Losses were posted to the Fund at the end of the quarter where strengthening euro- and sterling-U.S. dollar exchange rates and an upwards shift in the eurodollar term structure led to the most notable detractors.

 

The stock indices sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the quarter which reversed in the middle of the quarter. Profits were posted to the Fund in the middle of the quarter as global stock markets were steadier in February as compared with January. Losses were posted to the Fund at the end of the quarter due to the Trading Program’s short exposure to the equity markets.

 

The metals sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the quarter through the middle of the quarter. The Trading Program’s short position to a rising gold price detracted from performance. Losses were posted to the Fund at the end of the quarter.

 

January 1, 2015 to March 31, 2015

 

January 1, 2015 to March 31, 2015

 

The Fund experienced a net trading profit of $64,125,347 before brokerage commissions and related fees in the first quarter of 2015. The Fund’s profits were primarily attributable to the interest rates, currency, stock indices, agriculture and energy sectors. The metals sector posted losses.

 

The interest rate sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the first quarter as long positions in European bonds benefited from the Quantitative Easing announced by the European Central Bank U.S. government bonds also closed January higher. Losses were posted to the Fund in the middle of the quarter. Encouraging U.S. employment data and speculation of a rate hike later this year saw a sell-off in U.S. fixed income securities during the first half of February. Fed Chair Janet Yellen’s testimony to Congress at the end of February reversed this somewhat, but not enough for the Fund’s long fixed income positions to have avoided losses. Profits were posted to the Fund at the end of the quarter. The Fund made gains in fixed income markets, with notable contributions from Bunds and Eurodollars.

 

The currency sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the first quarter.  Swiss Central Bank announced the decision to remove the cap on the strength of the Swiss franc against the Euro. Intertwined with this was the European Central Bank affirming their commitment to Quantitative Easing, followed by the election of an anti-austerity government in Greece. The net effect on the Fund’s currency positions was a loss in the CHF-USD position being offset by a gain in the EUR-USD position. Losses were posted to the Fund in the middle of the quarter as the British pound rallied against the U.S dollar, returning to where it started the year and causing the Fund’s short position to make a loss. Profits were posted to the Fund at the end of the quarter. The short position on the Euro against the U.S. dollar made a significant positive contribution.

 

20


 

The stock indices sector posted profits to the Fund. Losses were posted to the Fund at the beginning of the first quarter. Profits were posted to the Fund in the middle of the quarter. The Fund made gains in its long stock index positions. Losses were posted to the Fund at the end of the quarter.

 

The agriculture sector posted profits to the Fund. Losses were posted to the Fund at the beginning of the first quarter only to be reversed in the middle of the quarter.  Profits were posted to the Fund at the end of the quarter.

 

The energy sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the first quarter. Crude oil continued to fall. This benefited the Fund’s short futures positions in the energy sector and also assisted the cash equity systems, which continue to be net short energies. Losses were posted to the Fund in the middle of the quarter as the Fund made small losses on its short energy positions. Profits were posted to the Fund at the end of the quarter due to the Fund’s short positions in energies.

 

The metals sector posted losses to the Fund. Losses were posted to the Fund at the beginning and middle of the first quarter. Losses were posted to the Fund at the end of the quarter. The Fund’s short position in copper made losses after cooper rallied with news of the world’s second largest copper mine halting production over labor protests.

 

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

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

 

Introduction

 

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

 

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

 

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

 

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

 

21


 

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 statements” within the meaning of the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933 (“Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (“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 Trading Advisor 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 (in the case of exchange-traded contracts in which profits and losses on open positions are settled daily through variation margin).

 

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

 

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 periods ended March 31, 2016 and 2015 the Fund’s average capitalization was $1,028,998,715 and $1,062,305,205, respectively.

 

22


 

March 31, 2016

 

 

 

Average

 

% of Average

 

Highest Value

 

Lowest Value

 

Market Sector

 

Value at Risk

 

Capitalization

 

At Risk

 

At Risk

 

 

 

 

 

 

 

 

 

 

 

Agriculture

 

$

2,680,790

 

0.26

%

$

3,014,342

 

$

2,312,825

 

Currencies

 

85,000

 

0.01

%

95,576

 

73,333

 

Energy

 

652,580

 

0.06

%

733,776

 

563,007

 

Interest Rates

 

53,336,649

 

5.18

%

59,972,949

 

46,015,668

 

Metals

 

11,338,130

 

1.10

%

12,748,853

 

9,781,860

 

Stock Indices

 

1,747,610

 

0.17

%

1,965,053

 

1,507,734

 

 

 

 

 

 

 

 

 

 

 

TOTAL

 

$

69,840,759

 

6.78

%

$

78,530,549

 

$

60,254,427

 

 

March 31, 2015

 

 

 

Average

 

% of Average

 

Highest Value

 

Lowest Value

 

Market Sector

 

Value at Risk

 

Capitalization

 

At Risk

 

At Risk

 

 

 

 

 

 

 

 

 

 

 

Agriculture

 

$

9,465,550

 

0.89

%

$

10,888,809

 

$

7,312,345

 

Currencies

 

2,856,048

 

0.27

%

3,285,490

 

2,206,360

 

Energy

 

4,802,034

 

0.45

%

5,524,077

 

3,709,676

 

Interest Rates

 

48,812,144

 

4.59

%

56,151,635

 

37,708,451

 

Metals

 

10,377,392

 

0.98

%

11,937,757

 

8,016,762

 

Stock Indices

 

5,940,491

 

0.56

%

6,833,715

 

4,589,159

 

 

 

 

 

 

 

 

 

 

 

TOTAL

 

$

82,253,659

 

7.74

%

$

94,621,483

 

$

63,542,753

 

 

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 and MLI

 

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 approximately 90% 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.

 

23


 

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 the Trading Advisor 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 December 31, 2015 by market sector. There have been no material changes at March 31, 2016.

 

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 may 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 may also take positions in the government debt of smaller nations. MLAI anticipates that G-7 interest rates will remain the primary market exposure of the Fund for the foreseeable future.

 

Currencies

 

The Fund trades in a number of currencies. However, the Fund’s major exposures have typically been in the U.S. dollar/China renminbi, U.S. dollar/Euro and U.S. dollar/Indian rupee positions. The Fund does not anticipate that the risk profile of the Fund’s currency sector will change significantly in the future. The currency trading VaR figure includes foreign margin amounts converted into U.S. dollars with an incremental adjustment to reflect the exchange rate risk of maintaining VaR in a functional currency other than U.S. dollars.

 

Stock Indices

 

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

 

Metals

 

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

 

24


 

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, corn and livestock accounted for the substantial bulk of the Fund’s agricultural commodities exposure.

 

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 primary non-trading risk exposures of the Fund as of December 31, 2015. There have been no material changes at March 31, 2016.

 

Foreign Currency Balances

 

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

 

U.S. Dollar Cash Balance

 

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

 

Qualitative Disclosures Regarding Means of Managing Risk Exposure

 

Trading Risk

 

MLAI has procedures in place intended to control market risk, although there can be no assurance that they will, in fact, succeed in doing so.  While MLAI does not itself intervene in the markets to hedge or diversify the Fund’s market exposure, MLAI may urge the Trading Advisor to reallocate positions in an attempt to avoid over-concentrations.  However, such interventions are unusual, except in cases in which it appears that the Trading Advisor has begun to deviate from past practice and trading policies or to be trading erratically. MLAI’s basic control procedures consist of the process of monitoring the Trading Advisor with the market risk controls being applied by the Trading Advisor itself.

 

Risk Management

 

In respect of the Trading Program, the most important determinant of risk is the level of leverage. In order to determine the level of leverage, comprehensive information is required on the risks the Trading Program is taking, including the Trading Program’s long- and short-term forecast value at risk using both standard and proprietary volatility models, stress-tested models of extreme value at risk (tail risk) using various proprietary methods, forecasts of extreme loss frequency and measures of margin employment and leverage. The Trading Advisor forecasts volatility in each market and the correlation between markets daily in order to forecast the overall volatility of the portfolio and adjust leverage accordingly to manage portfolio risk.  The Trading Advisor’s investment management committee is primarily responsible for managing investment risk, with oversight from the Trading Advisor’s risk committee.

 

25


 

This risk committee oversees the identification, assessment, management and monitoring of risks to which the Trading Program is exposed, including investment risk, counterparty risk, IT and security risks and regulatory risks.

 

Non-Trading Risk

 

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

 

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

 

Item 4. Controls and Procedures

 

Disclosure Controls and Procedures

 

MLAI’s Chief Executive Officer and Chief Financial Officer, on behalf of the Fund, have 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) with respect to the Fund as of the end of the quarter which ended March 31, 2016, and, based on their evaluation, have concluded that these disclosure controls and procedures are effective.

 

Changes in Internal Control over Financial Reporting

 

No change in internal control over financial reporting (in connection with Rule 13a-15 or Rule 15d-15 under the Securities Exchange Act) occurred during the quarter ended March 31, 2016 that has materially affected, or is reasonably likely to materially affect, the Fund’s internal control over financial reporting.

 

PART II - OTHER INFORMATION

 

Item 1.                               Legal Proceedings

 

None.

 

Item 1A.   Risk Factors

 

There are no material changes from risk factors as previously disclosed in the Fund’s report on Form 10-K for the year ended December 31, 2015, filed with the Securities and Exchange Commission on March 18, 2016.

 

26


 

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 is MLPF&S.

 

The Fund’s sales of unregistered securities are as follows for each Class of Units.

 

CLASS A

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

1/1/2016

 

$

405,540

 

212,904

 

$

1.9048

 

1/16/2016

 

370,250

 

186,439

 

1.9859

 

2/1/2016

 

610,605

 

309,857

 

1.9706

 

2/16/2016

 

313,010

 

157,276

 

1.9902

 

3/1/2016

 

156,475

 

78,105

 

2.0034

 

3/16/2016

 

625,280

 

325,311

 

1.9221

 

4/1/2016

 

985,925

 

509,311

 

1.9358

 

 

CLASS C

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

1/1/2016

 

$

1,074,161

 

628,348

 

$

1.7095

 

1/16/2016

 

489,000

 

274,472

 

1.7816

 

2/1/2016

 

996,972

 

564,154

 

1.7672

 

2/16/2016

 

545,000

 

305,510

 

1.7839

 

3/1/2016

 

1,485,000

 

827,298

 

1.7950

 

3/16/2016

 

1,229,000

 

713,913

 

1.7215

 

4/1/2016

 

1,339,343

 

772,847

 

1.7330

 

 

CLASS D

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

1/1/2016

 

$

—

 

—

 

$

2.0671

 

1/16/2016

 

—

 

—

 

2.1565

 

2/1/2016

 

—

 

—

 

2.1412

 

2/16/2016

 

—

 

—

 

2.1638

 

3/1/2016

 

2,000,000

 

917,642

 

2.1795

 

3/16/2016

 

—

 

—

 

2.0924

 

4/1/2016

 

—

 

—

 

2.1087

 

 

CLASS I

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

1/1/2016

 

$

802,000

 

406,241

 

$

1.9742

 

1/16/2016

 

—

 

—

 

2.0585

 

2/1/2016

 

7,817

 

3,826

 

2.0431

 

2/16/2016

 

25,000

 

12,114

 

2.0637

 

3/1/2016

 

130,000

 

62,569

 

2.0777

 

3/16/2016

 

29,000

 

14,546

 

1.9937

 

4/1/2016

 

505,000

 

251,456

 

2.0083

 

 

CLASS M

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

1/1/2016

 

$

1,241,497

 

1,068,874

 

$

1.1615

 

1/16/2016

 

97,004

 

80,056

 

1.2117

 

2/1/2016

 

1,347,192

 

1,119,767

 

1.2031

 

2/16/2016

 

345,000

 

283,764

 

1.2158

 

3/1/2016

 

117,000

 

95,534

 

1.2247

 

3/16/2016

 

2,208,244

 

1,878,237

 

1.1757

 

4/1/2016

 

1,406,881

 

1,187,442

 

1.1848

 

 

CLASS F

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

1/1/2016

 

$

—

 

—

 

$

1.1508

 

1/16/2016

 

—

 

—

 

1.2010

 

2/1/2016

 

—

 

—

 

1.1931

 

2/16/2016

 

—

 

—

 

1.2061

 

3/1/2016

 

—

 

—

 

1.2153

 

3/16/2016

 

—

 

—

 

1.1672

 

4/1/2016

 

—

 

—

 

1.1767

 

 

CLASS F1

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

1/1/2016

 

$

—

 

—

 

$

1.1792

 

1/16/2016

 

—

 

—

 

1.2307

 

2/1/2016

 

—

 

—

 

1.2225

 

2/16/2016

 

—

 

—

 

1.2358

 

3/1/2016

 

—

 

—

 

1.2452

 

3/16/2016

 

—

 

—

 

1.1959

 

4/1/2016

 

—

 

—

 

1.2057

 

 

CLASS DI

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

1/1/2016

 

$

—

 

—

 

$

0.9704

 

1/16/2016

 

—

 

—

 

1.0124

 

2/1/2016

 

—

 

—

 

1.0052

 

2/16/2016

 

—

 

—

 

1.0158

 

3/1/2016

 

—

 

—

 

1.0232

 

3/16/2016

 

—

 

—

 

0.9823

 

4/1/2016

 

—

 

—

 

0.9899

 

 

(1) Beginning of the period Net Asset Value

 

Class A Units are subject to upfront sales commissions paid to MLPF&S ranging from 1.0% to 2.5% of an investor’s gross subscription amount. Class D Units and Class I Units are subject to upfront sales

 

27


 

commissions paid to MLPF&S up to 2.5% of an investor’s gross subscription amount. Class F Units and Class G Units are subject to upfront sales commissions paid to MLPF&S up to 0.5% of an investor’s gross subscription amount. Sales commissions are directly deducted from subscription amounts.  Class C Units, Class DI Units, Class F1 Units and Class M Units are not subject to upfront sales commissions.

 

(b)         Not applicable.

(c)          Not applicable.

 

Item 3.                                 Defaults Upon Senior Securities

None.

 

Item 4.                                 Mine Safety Disclosures

 

Not applicable.

 

Item 5.                                 Other Information

None.

 

Item 6.                                 Exhibits

 

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

 

31.01 and

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

 

Exhibit 31.01

and 31.02                 Are filed herewith.

 

32.01 and

32.02                                         Section 1350 Certifications

 

Exhibit 32.01

and 32.02                 Are filed herewith.

 

Exhibit 101   Are filed herewith.

 

The following materials from the Fund’s quarterly Report on Form 10-Q for the three  month period ended March 31, 2016 formatted in XBRL (Extensible Business Reporting Language): (i) Statements of Financial Condition (ii) Statements of Operations (iii) Statements of Changes in Members’ Capital (iv) Financial Data Highlights and (v) Notes to Financial Statements, tagged as blocks of text.

 

28


 

SIGNATURES

 

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

 

 

 

ML WINTON FUTURESACCESS LLC

 

 

 

 

 

By:

MERRILL LYNCH ALTERNATIVE

 

 

INVESTMENTS LLC

 

 

(Manager)

 

 

 

 

Date: May 13, 2016

By:

/s/ NANCY FAHMY

 

 

Nancy Fahmy

 

 

Chief Executive Officer and President

 

 

(Principal Executive Officer)

 

 

 

 

Date: May 13, 2016

By:

/s/ BARBRA E. KOCSIS

 

 

Barbra E. Kocsis

 

 

Chief Financial Officer

 

 

(Principal Financial Officer)

 

29

ML Winton FuturesAccess LLC Reports