MAN FRM MANAGED FUTURES STRATEGIES LLC - FORM 10-K/A - EX-13.01 - March 19, 2012

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EX-13.04 - MAN FRM MANAGED FUTURES STRATEGIES LLCefc12-287_ex1304.htm
Exhibit 13.01
 
ML SYSTEMATIC MOMENTUM FUTURESACCESS LLC
(A Delaware Limited Liability Company)
 
Financial Statements as of and for the years ended
December 31, 2010, 2009 and 2008
and Reports of Independent Registered Public Accounting Firms
 
 
 

 
 
 

 
ML SYSTEMATIC MOMENTUM  FUTURESACCESS LLC
(A Delaware Limited Liability Company)
 
TABLE OF CONTENTS
 
 
Page
   
REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS
2
   
FINANCIAL STATEMENTS:
  
   
Statements of Financial Condition as of December 31, 2010 and 2009
4
   
Statements of Operations for the years ended December 31, 2010, 2009 and 2008
5
   
Statements of Changes in Members’ Capital for the years ended December 31, 2010, 2009 and 2008
6
   
Financial Data Highlights for the years ended December 31, 2010, 2009 and 2008
8
   
Notes to Financial Statements
11
 
1
 

 
 
 

 
 
Report of Independent Registered Public Accounting Firm
 

To the Members of
ML Systematic Momentum FuturesAccess LLC:
 
In our opinion, the accompanying statements of financial condition, and the related statements of operations, changes in members' capital, and financial data highlights present fairly, in all material respects, the financial position of ML Systematic Momentum FuturesAccess LLC (the "Fund") at December 31, 2010 and December 31, 2009, and the results of its operations, the changes in its members' capital and its financial data highlights for the years then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and the financial data highlights (hereafter referred to as the "financial statements") are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
 
/s/ PricewaterhouseCoopers LLP
 
 
March 15, 2011
 
PricewaterhouseCoopers LLP, 300 Madison Avenue, New York, NY 10017
T: (646) 471 3000, F: (646) 471 8320, www.pwc.com/us
 
 

 
 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Members of
ML Systematic Momentum FuturesAccess LLC:

We have audited the accompanying statements of operations, changes in members’ capital and the financial data highlights of ML Systematic Momentum FuturesAccess LLC (the “Fund”), for the year ended December 31, 2008. These financial statements and financial data highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial data highlights based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial data highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements and financial data highlights referred to above present fairly, in all material respects, the results of operations, changes in members’ capital and the financial data highlights of ML Systematic Momentum FuturesAccess LLC for the year ended December 31, 2008, in conformity with accounting principles generally accepted in the United States of America.

/s/ Deloitte & Touche LLP

New York, New York
March 30, 2009
 
 
 
 

 
ML SYSTEMATIC MOMENTUM FUTURESACCESS LLC
(A Delaware Limited Liability Company)
 
STATEMENTS OF FINANCIAL CONDITION
AS OF DECEMBER 31, 2010 and 2009
 
   
2010
  
2009
  
ASSETS:
          
           
Cash and cash equivalents
  
$
312,720
  
$
54,630,410
  
Investment in Portfolio Funds (Cost $917,232,393 at 2010 and $757,978,343 at 2009)
  
1,038,634,185
  
787,161,250
  
Other assets
  
120,000
  
58,216
  
Accrued Interest Receivable
  
48
  
8,697
  
Receivable from Portfolio Fund
  
—
  
36,355,806
  
           
TOTAL ASSETS
  
$
1,039,066,953
  
$
878,214,379
  
           
LIABILITIES AND MEMBERS’ CAPITAL:
          
LIABILITIES:
          
Sponsor fee payable
  
$
1,718,827
  
$
1,442,757
  
Redemptions payable
  
9,355,655
  
8,071,178
  
Other liabilities
  
580,585
  
399,200
  
           
Total liabilities
  
11,655,067
  
9,913,135
  
           
MEMBERS’ CAPITAL:
          
Members’ Interest (803,714,707 Units and 742,615,122 Units outstanding, unlimited Units authorized)
  
1,027,411,886
  
868,301,244
  
Total members’ capital
  
1,027,411,886
  
868,301,244
  
           
TOTAL LIABILITIES AND MEMBERS’ CAPITAL
  
$
1,039,066,953
  
$
878,214,379
  
           
NET ASSET VALUE PER UNIT:
          
           
Class A
  
$
1.2523
  
$
1.1397
  
Class C
  
$
1.2615
  
$
1.1596
  
Class D
  
$
1.4789
  
$
1.3259
  
Class I
  
$
1.3265
  
$
1.2024
  
Class D1
  
$
1.3199
  
$
1.1833
  
Class DA
  
$
—
  
$
—
  
           
See notes to financial statements.
          
 
4
 

 
 
 

 
ML SYSTEMATIC MOMENTUM FUTURESACCESS LLC
(A Delaware Limited Liability Company)
 
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008
 
   
2010
  
2009
  
2008
  
TRADING PROFIT (LOSS):
              
               
Realized, net
  
$
16,360,846
  
$
(4,551,852
)
$
9,202,478
  
Change in unrealized, net
  
92,218,885
  
(57,300,048
)
71,910,257
  
               
Total trading profit (loss)
  
108,579,731
  
(61,851,900
)
81,112,735
  
               
INVESTMENT INCOME:
              
Interest
  
3,003
  
100,827
  
97,972
  
               
EXPENSES:
              
Sponsor fee
  
18,769,349
  
14,993,578
  
6,953,728
  
Other
  
1,451,397
  
1,066,617
  
632,387
  
Total expenses
  
20,220,746
  
16,060,195
  
7,586,115
  
               
NET INVESTMENT INCOME (LOSS)
  
(20,217,743
)
(15,959,368
)
(7,488,143
)
               
NET INCOME (LOSS)
  
$
88,361,988
  
$
(77,811,268
)
$
73,624,592
  
               
NET INCOME (LOSS) PER UNIT:
              
               
Weighted average number of Units outstanding
              
Class A
  
109,375,008
  
72,278,307
  
23,953,472
  
Class C
  
531,784,589
  
424,839,320
  
198,139,920
  
Class D
  
30,338,915
  
27,746,997
  
25,725,432
  
Class I
  
79,536,161
  
68,216,740
  
40,873,271
  
Class D1
  
37,708,328
  
36,879,598
  
19,636,088
  
Class DA*
  
—
  
46,290,806
  
56,445,187.00
  
               
Net income (loss) per weighted average Unit
              
Class A
  
$
0.1146
  
$
(0.1065
)
$
0.2175
  
Class C
  
$
0.1053
  
$
(0.1252
)
$
0.2298
  
Class D
  
$
0.1602
  
$
(0.1098
)
$
0.2860
  
Class I
  
$
0.1255
  
$
(0.1129
)
$
0.2269
  
Class D1
  
$
0.1317
  
$
(0.0941
)
$
0.2374
  
Class DA*
  
$
—
  
$
(0.0608
)
$
0.0282
  
 
 
* Units issued on December 1, 2008 and liquidated as of September 30, 2009. (Presentation of weighted average units outstanding and net income (loss) per weighted average units for this share class is for the period January 1, 2009 to September 30, 2009.)
 
See notes to financial statements.
 
5
 

 
 
 

 
ML SYSTEMATIC MOMENTUM FUTURESACCESS LLC
(A Delaware Limited Liability Company)
 
STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008
 
   
Members’ Capital
          
Members’ Capital
          
Members’ Capital
          
Members’ Capital
  
   
December 31, 2007
  
Subscriptions
  
Redemptions
  
December 31, 2008
  
Subscriptions
  
Redemptions
  
December 31, 2009
  
Subscriptions
  
Redemptions
  
December 31, 2010
  
Class A
  
5,078,646
  
44,090,513
  
(5,757,217
)
43,411,942
  
68,840,956
  
(10,971,528
)
101,281,370
  
37,454,263
  
(28,793,436
)
109,942,197
  
Class C
  
69,888,701
  
298,412,978
  
(50,944,452
)
317,357,227
  
243,313,258
  
(64,909,097
)
495,761,388
  
117,503,045
  
(67,357,146
)
545,907,287
  
Class D
  
16,803,705
  
23,519,954
  
(5,445,345
)
34,878,314
  
12,101,406
  
(16,996,575
)
29,983,145
  
10,949,271
  
(6,931,705
)
34,000,711
  
Class I
  
14,757,114
  
46,161,324
  
(7,718,330
)
53,200,108
  
41,524,978
  
(18,911,876
)
75,813,210
  
13,078,347
  
(10,583,415
)
78,308,142
  
Class D1
  
4,990,154
  
28,477,949
  
(2,428,057
)
31,040,046
  
10,873,640
  
(2,137,677
)
39,776,009
  
2,388,929
  
(6,608,568
)
35,556,370
  
Class DA*
  
—
  
56,445,187
  
(3,649,745
)
52,795,442
  
—
  
(52,795,442
)
—
  
—
  
—
  
—
  
                                           
Total Members’ Units
  
111,518,320
  
497,107,905
  
(75,943,146
)
532,683,079
  
376,654,238
  
(166,722,195
)
742,615,122
  
181,373,855
  
(120,274,270
)
803,714,707
  
 
 
* Units issued on December 1, 2008 and liquidated as of September 30, 2009.
 
See notes to financial statements.
 
6
 

 
 
 

 
ML SYSTEMATIC MOMENTUM FUTURESACCESS LLC
(A Delaware Limited Liability Company)
 
STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008
 
                                                                                 
   
Members’ Capital
          
Net Income
  
Members’ Capital
          
Net Income
  
Members’ Capital
          
Net Income
  
Members’ Capital
  
   
December 31, 2007
  
Subscriptions
  
Redemptions
  
(Loss)
  
December 31, 2008
  
Subscriptions
  
Redemptions
  
(Loss)
  
December 31, 2009
  
Subscriptions
  
Redemptions
  
(Loss)
  
December 31, 2010
  
Class A
  
$
5,217,419.00
  
$
50,773,605
  
$
(6,670,127
)
$
5,208,770
  
$
54,529,667
  
$
81,493,093
  
$
(12,896,520
)
$
(7,692,771
)
$
115,433,469
  
$
43,208,239
  
$
(33,492,677
)
$
12,533,508
  
$
137,682,539
  
Class C
  
74,531,573
  
350,073,604
  
(60,487,671
)
45,528,837
  
409,646,343
  
297,112,874
  
(78,716,580
)
(53,153,380
)
574,889,257
  
137,194,846
  
(79,462,491
)
56,020,888
  
688,642,500
  
Class D
  
19,442,860
  
30,338,088
  
(6,986,221
)
7,357,954
  
50,152,681
  
16,149,077
  
(23,558,237
)
(2,989,145
)
39,754,376
  
15,063,878
  
(9,395,654
)
4,861,560
  
50,284,160
  
Class I
  
15,867,209
  
54,394,371
  
(9,328,239
)
9,275,144
  
70,208,485
  
52,343,272
  
(23,702,669
)
(7,693,014
)
91,156,074
  
15,803,018
  
(13,065,374
)
9,978,523
  
103,872,241
  
Class D1
  
5,165,016
  
33,092,685
  
(3,043,195
)
4,661,767
  
39,876,273
  
13,341,647
  
(2,682,871
)
(3,466,981
)
47,068,068
  
2,952,144
  
(8,057,275
)
4,967,509
  
46,930,446
  
Class DA*
  
—
  
56,445,187
  
(3,752,668
)
1,592,120
  
54,284,639
  
—
  
(51,468,662
)
(2,815,977
)
—
  
—
  
—
  
—
  
—
  
                                                       
Total Members’ Capital
  
$
120,224,077
  
$
575,117,540
  
$
(90,268,121
)
$
73,624,592
  
$
678,698,088
  
$
460,439,963
  
$
(193,025,539
)
$
(77,811,268
)
$
868,301,244
  
$
214,222,125
  
$
(143,473,471
)
$
88,361,988
  
$
1,027,411,886
  
 
 
* Units issued on December 1, 2008 and liquidated as of September 30, 2009.
 
See notes to financial statements.
 
7
 

 
 
 

 
ML SYSTEMATIC MOMENTUM FUTURESACCESS LLC
(A Delaware Limited Liability Company)
 
FINANCIAL DATA HIGHLIGHTS
FOR THE YEAR ENDED DECEMBER 31, 2010
 
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 D1
  
Per Unit Operating Performance:
                      
                       
Net asset value, beginning of year
  
$
1.1397
  
$
1.1596
  
$
1.3259
  
$
1.2024
  
$
1.1833
  
                       
Net Realized and net unrealized change in trading profit (loss)
  
0.1319
  
0.1333
  
0.1551
  
0.1396
  
0.1384
  
Interest income
  
0.0000
  
0.0000
  
0.0000
  
0.0000
  
0.0000
  
Expenses
  
(0.0193
)
(0.0314
)
(0.0021
)
(0.0155
)
(0.0018
)
                       
Net asset value, end of year
  
$
1.2523
  
$
1.2615
  
$
1.4789
  
$
1.3265
  
$
1.3199
  
                       
Total Return: (a)
                      
                       
Total return
  
9.88
%
8.78
%
11.54
%
10.32
%
11.54
%
                       
Ratios to Average Members’ Capital:
                      
                       
Expenses
  
1.66
%
2.67
%
0.15
%
1.26
%
0.15
%
                       
Net investment income (loss)
  
-1.66
%
-2.67
%
-0.15
%
-1.26
%
-0.15
%
 
(a) The total return calculations are based on compounded monthly returns and is calculated for each class taken as a whole. An individual members’ return may vary from these returns based on timing of capital transactions.
 
See notes to financial statements.
 
8
 

 
 
 

 
ML SYSTEMATIC MOMENTUM FUTURESACCESS LLC
(A Delaware Limited Liability Company)
 
FINANCIAL DATA HIGHLIGHTS
FOR THE YEAR ENDED DECEMBER 31, 2009
 
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 D1
  
Class DA*
  
Per Unit Operating Performance:
                          
                           
Net asset value, beginning of year
  
$
1.2561
  
$
1.2908
  
$
1.4379
  
$
1.3197
  
$
1.2847
  
$
1.0282
  
                           
Net Realized and net unrealized change in trading profit (loss)
  
(0.0971
)
(0.0995
)
(0.1119
)
(0.1022
)
(0.0998
)
0.0073
  
Interest income
  
0.0001
  
0.0001
  
0.0002
  
0.0002
  
0.0001
  
0.0001
  
Expenses
  
(0.0194
)
(0.0318
)
(0.0003
)
(0.0153
)
(0.0017
)
(0.0007
)
                           
Net asset value, before liquidation
  
1.1397
  
1.1596
  
1.3259
  
1.2024
  
1.1833
  
1.0349
  
Less liquidating distribution
  
—
  
—
  
—
  
—
  
—
  
1.0349
  
Net asset value, end of year
  
$
1.1397
  
$
1.1596
  
$
1.3259
  
$
1.2024
  
$
1.1833
  
$
—
  
                           
Total Return: (a)
                          
                           
Total return
  
-9.27
%
-10.17
%
-7.90
%
-8.90
%
-7.90
%
-5.50
%
                           
Ratios to Average Members’ Capital:
                          
                           
Expenses
  
1.64
%
2.64
%
0.14
%
1.24
%
0.14
%
0.10
%
                           
Net investment income (loss)
  
-1.63
%
-2.63
%
-0.13
%
-1.23
%
-0.13
%
-0.09
%
 
*Units issued December 1, 2008 and liquidated as of September 30, 2009.
(a) The total return calculations are based on compounded monthly returns and is calculated for each class taken as a whole. An individual members’ return may vary from these returns based on timing of capital transactions.
 
See notes to financial statements.
 
9
 

 
 
 

 
ML SYSTEMATIC MOMENTUM FUTURESACCESS LLC
(A Delaware Limited Liability Company)
 
FINANCIAL DATA HIGHLIGHTS
FOR THE YEAR ENDED DECEMBER 31, 2008
 
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 D1
  
Class DA*
  
Per Unit Operating Performance:
                          
                           
Net asset value, beginning of year
  
$
1.0273
  
$
1.0664
  
$
1.1571
  
$
1.0752
  
$
1.0350
  
$
1.0000
  
                           
Net Realized and net unrealized change in trading profit
  
0.2494
  
0.2577
  
0.2846
  
0.2614
  
0.2532
  
0.0280
  
Interest income
  
0.0003
  
0.0004
  
0.0004
  
0.0004
  
0.0003
  
0.0000
  
Expenses
  
(0.0209
)
(0.0337
)
(0.0042
)
(0.0173
)
(0.0038
)
0.0002
  
                           
Net asset value, end of year
  
$
1.2561
  
$
1.2908
  
$
1.4379
  
$
1.3197
  
$
1.2847
  
$
1.0282
  
                           
Total Return: (b)
                          
                           
Total return
  
22.20
%
20.98
%
24.05
%
22.68
%
24.05
%
2.82
%
                           
Ratios to Average Members’ Capital:
                          
                           
Expenses
  
1.85
%
2.87
%
0.34
%
1.46
%
0.34
%
-0.19
%(a)
                           
Net investment income (loss)
  
-1.82
%
-2.84
%
-0.31
%
-1.43
%
-0.31
%
0.19
%
 
*Units issued December 1, 2008.
(a)  The ratios have been annualized and do not reflect the proportionate share of income and expenses of the Portfolio funds.
(b) The total return calculations are based on compounded monthly returns and is calculated for each class taken as a whole. An individual members’ return may vary from these returns based on timing of capital transactions.
 
See notes to financial statements.
 
10
 
 
 
 

 
ML SYSTEMATIC MOMENTUM FUTURESACCESS LLC
(A Delaware Limited Liability Company)
 
NOTES TO FINANCIAL STATEMENTS
 
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Organization
 
ML Systematic Momentum FuturesAccess LLC (the “Fund”), a Merrill Lynch FuturesAccess Program (the “Program”) fund, was organized under the Delaware Limited Liability Company Act on March 8, 2007 and commenced operations on April 2, 2007.  The Fund operates as a “fund of funds”, allocating and reallocating its capital, under the direction of Merrill Lynch Alternative Investments LLC (“MLAI” or the “Sponsor”), the Sponsor of the Fund, among seven underlying FuturesAccess Funds (each a “Portfolio Fund”, and collectively the “Portfolio Funds”) (See Note 2).
 
MLAI is an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. (“Merrill Lynch”). Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S”), a wholly-owned subsidiary of Merrill Lynch, is the commodity broker of the Portfolio Funds. Merrill Lynch is a wholly-owned subsidiary of Bank of America Corporation.
 
The Program is a group of commodity pools sponsored by MLAI (each a “Program Fund” or collectively, “Program Funds”) each of which places substantially all of its assets in a managed futures and forward trading account managed by a single or multiple commodity trading advisors. Each Program Fund is generally similar to the Fund in terms of fees, Classes of Units and redemption rights. Each of the Program Funds implements a different trading strategy.
 
As of December 31, 2010 the Fund offers four Classes of Units to retail investors: Class A, Class C, Class D and Class I. Each Class of Units was offered at $1.00 per Unit and subsequently is offered at Net Asset Value per Unit. The four Classes of Units are subject to different Sponsor fees. Class D1 is used exclusively for investments made by Systematic Momentum FuturesAccess LTD. Class DA was used exclusively for investments made by Systematic Momentum FuturesAccess II LLC until its liquidation at September 30, 2009.
 
Interests in the Fund are not insured or otherwise protected by the Federal Deposit Insurance Corporation or any other government authority.  Interests are not deposits or other obligations of, and are not guaranteed by, Bank of America Corporation or any of its affiliates or by any bank.  Interests are subject to investment risks, including the possible loss of the full amount invested.
 
11
 

 
 
 

 
Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates and such differences could be material.
 
Statement of Cash Flows
 
The Fund is not required to provide a Statement of Cash Flows.
 
Revenue Recognition
 
The Portfolio Funds’ may invest in commodity futures, options on futures and forward contract transactions which are recorded on trade date. Open contracts are reflected in Net unrealized profit (loss) on open contracts in the Statements of Financial Condition of the Portfolio Funds as the difference between the original contract value and the market value (for those commodity interests for which market quotations are readily available) or at fair value.  The change in unrealized profit (loss) on open contracts from one period to the next is reflected in Change in unrealized under Trading profit (loss) in the Statements of Operations of the Portfolio Funds.
 
Trading profit (loss) of the Portfolio Funds is reduced for brokerage commission costs.
 
The resulting change between cost and market value (net of subscription and redemption activity in the investment in the Portfolio Funds) is reflected in the Statements of Operations as “Change in unrealized”.  In addition, when the Fund redeems or partially redeems its interest in the Portfolio Funds, it records realized (net profit or loss) under Trading profit (Loss) for such interests in the Statements of Operations of the Portfolio Fund.
 
Foreign Currency Transactions
 
The Fund’s functional currency is the U.S. dollar; however, it and the Portfolio Funds may transact business in U.S. dollars and in currencies other than the U.S. dollar.  Assets and liabilities denominated in currencies other than the U.S. dollar are translated into U.S. dollars at the rates in effect at the date of the Statements of Financial Condition of the Fund and each of the Portfolio Funds.  Income and expense items denominated in currencies other than the U.S. dollar are translated into U.S. dollars at the rates in effect during the year.  Gains and losses resulting from the translation to U.S. dollars are included in Trading Profit (loss) in the Statements of Operations of the Fund and each of the Portfolio Funds.
 
12
 

 
 
 

 
Cash and Cash Equivalents
 
The Fund considers all highly liquid investments, with a maturity of three months or less when acquired, to be cash equivalents. Cash equivalents were recorded at amortized cost, as provided by the investment manager of the cash equivalent, which approximated fair value (Level II see Note 3). Cash was held at a nationally recognized financial institution.
 
Operating Expenses and Selling Commissions
 
The Fund pays for all routine operating costs (including ongoing offering costs, administration, custody, transfer, exchange and redemptions process, legal, regulatory filing, tax, audit, escrow, accounting and printing fees and expenses) incurred by the Fund.
 
Class A Units are subject to a sales commission paid to Merrill Lynch ranging from 1.00% to 2.50%.  Class D and Class I Units are subject to sales commissions up to 0.50%.  The rate assessed to a given subscription is based upon the subscription amount. Sales commissions are directly deducted from subscription amounts.  Class C and D1Units are not subject to any sales commissions.
 
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 Standard Codification (“ASC”) guidance on accounting for uncertainty in income taxes.  This guidance provides how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements.  This guidance also requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Fund’s financial statements to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority.  Tax positions with respect to tax at the Fund level not deemed to meet the “more-likely-than-not” threshold would be recorded as a tax benefit or expense in the current year.  MLAI has analyzed the Fund’s tax positions and has concluded that no provision for income tax is required in the Fund’s financial statements. The following are the major tax jurisdictions for the Fund and the earliest tax year subject to examination: United States — 2007.
 
Distributions
 
The Members are entitled to receive, equally per Unit, any distributions which may be made by the Fund. No such distributions have been declared for the years ended December 31, 2010, 2009 and 2008.
 
Subscriptions
 
Units are offered as of the close of business at the end of each month.  Shares are purchased as of the first business day of any month at Net Asset Value, but the subscription request must be submitted at least three calendar days before the end of the preceding month.  Subscriptions submitted less than three days before the end of a month will be applied to Units subscriptions as of the beginning of the second month after receipt, unless revoked by MLAI.
 
13
 

 
 
 

 
Redemptions and Exchanges
 
A Member may redeem or exchange some or all of such Member’s Units at Net Asset Value as of the close of business, on the last business day of any month, upon ten calendar days’ notice (“notice period”).
 
An investor in the Fund can exchange these Units for Units of the same Class in other Program Funds as of the beginning of each calendar month upon at least ten days’ prior notice.  The minimum exchange amount is $10,000.
 
Redemption and exchange requests are accepted within the notice period.  The Fund does not accept any redemption requests after the notice period.  All redemption requests received after the notice period will be processed for the following month.
 
Dissolution of the Fund
 
The Fund may terminate if certain circumstances occur as set forth in the private placement memorandum, which   include but are not limited to the following:
 
(a)                            Bankruptcy, dissolution, withdrawal or other termination of the trading advisors of this Fund.
(b)                           Any event which would make unlawful the continued existence of this Fund.
(c)                            Determination by MLAI to liquidate or withdraw from the Fund.
 
2.         INVESTMENTS IN  PORTFOLIO FUNDS
 
The Portfolio Funds in which the Fund was invested as of December 31, 2010 and 2009 were:  ML Altis FuturesAccess LLC (“Altis”), ML Aspect FuturesAccess LLC (“Aspect”), ML Blue Trend FuturesAccess LLC (“Blue Trend”), ML John Locke FuturesAccess LLC (“John Locke”) ML Transtrend DTP Enhanced FuturesAccess LLC (“Transtrend”), ML Tudor Tensor FuturesAccess LLC (“Tudor Tensor”) and ML Winton FuturesAccess LLC (“Winton”).  The Fund had positions in ML Chesapeake FuturesAccess LLC (“Chesapeake”) which liquidated January 31, 2010 and ML GSA FuturesAccess LLC (“GSA”) which liquidated May 31, 2009. MLAI, the Sponsor of the Fund, may in its discretion, change the Portfolio Funds at any time. MLAI, also at its discretion may, vary the percentage of the Fund’s total portfolio allocated to the different Portfolio Funds. There is no pre-established range for the minimum and maximum allocations that may be made to any given Portfolio Fund.
 
The investment transactions were accounted for on the trade date. The investments in the Portfolio Funds were valued at fair value and were reflected in the Statements of Financial Condition. In determining fair value, MLAI utilized the net asset value of the underlying Portfolio Funds. The fair value was net of all fees relating to the Portfolio Funds, paid or accrued. Additionally, MLAI monitored the performance of the Portfolio Funds. Such monitoring procedures included, but were not limited to: monitoring market movements in Portfolio Funds’ investments, comparing performance to industry benchmarks, and in-depth conference calls and site visits with the Portfolio Funds’ Managers.
 
14
 

 
 
 

 
At December 31, 2010, details of Investments in Portfolio Funds are as follows:
 
   
Percentage of
Members’
Capital
  
Fair Value
  
Profit (Loss)
  
Cost @ 12/31/10
  
Management
Fees
  
Performance
Fees
  
Redemptions Permitted
  
Chesapeake*
  
0.00
%
—
  
(2,598,008
)
—
  
(144,407
)
—
  
monthly
  
Transtrend
  
17.87
%
183,615,388
  
29,487,583
  
170,118,192
  
(3,404,718
)
—
  
monthly
  
Altis
  
13.05
%
134,073,398
  
12,597,945
  
104,309,484
  
(2,445,604
)
—
  
monthly
  
Winton
  
17.74
%
182,231,744
  
20,913,669
  
159,384,935
  
(3,399,640
)
—
  
monthly
  
Aspect
  
10.04
%
103,142,819
  
14,049,609
  
89,607,738
  
(1,888,760
)
—
  
monthly
  
John Locke
  
14.08
%
144,651,209
  
10,500,284
  
135,795,468
  
(2,627,905
)
—
  
monthly
  
BlueTrend
  
15.53
%
159,597,862
  
18,370,900
  
131,991,494
  
(2,703,505
)
—
  
monthly
  
Tudor
  
12.78
%
131,321,765
  
5,257,749
  
126,025,082
  
(2,391,031
)
—
  
monthly
  
                               
   
101.09
%
$
1,038,634,185
  
$
108,579,731
  
$
917,232,393
  
$
(19,005,570
)
$
—
      
                                         
 
 
* Liquidated as of January 31, 2010.
 
At December 31, 2009, details of Investments in Portfolio Funds are as follows:
 
   
Percentage of
Members’
Capital
  
Fair Value
  
Profit (Loss)
  
Cost @ 12/31/09
  
Management
Fees
  
Performance
Fees
  
Redemptions Permitted
  
Chesapeake**
  
8.01
%
89,097,919
  
548,547
  
85,817,248
  
(1,610,421
)
(66,420
)
monthly
  
Transtrend
  
13.69
%
152,211,381
  
(25,830,157
)
159,370,194
  
(2,728,503
)
(174
)
monthly
  
Altis
  
10.37
%
115,332,711
  
(8,896,043
)
95,037,963
  
(2,077,161
)
—
  
monthly
  
Winton
  
14.26
%
158,630,744
  
(8,375,671
)
155,014,029
  
(2,753,086
)
(76
)
monthly
  
Aspect
  
7.75
%
86,166,474
  
(8,874,084
)
85,326,225
  
(1,594,961
)
(4,182
)
monthly
  
John Locke
  
11.22
%
124,737,088
  
(9,350,844
)
126,419,973
  
(2,692,888
)
—
  
monthly
  
BlueTrend
  
5.48
%
60,984,933
  
2,608,281
  
50,992,711
  
(1,136,431
)
(575,116
)
monthly
  
GSA*
  
0.00
%
—
  
(3,681,929
)
—
  
(690,487
)
—
  
monthly
  
   
70.78
%
$
787,161,250
  
$
(61,851,900
)
$
757,978,343
  
$
(15,283,938
)
$
(645,968
)
    
                                         
 
* Liquidated as of May 2009
** Liquidated as of January 31, 2010.
 
As of December 31, 2010 and 2009, no single investment in the Portfolio Funds exceeds 5% of Member’
 
15
 

 
 
 

 
These investments are recorded at fair value and in accordance with Regulation S-X. The following is summarized financial information for each of the Portfolio Funds which requires disclosure.
 
   
As of December 31, 2010
  
   
Total Assets
  
Total Liabilities
  
Total Capital
  
Transtrend
  
$
258,918,312
  
$
2,958,512
  
$
255,959,800
  
               
Total
  
$
258,918,312
  
$
2,958,512
  
$
255,959,800
  
 
   
As of December 31, 2009
  
   
Total Assets
  
Total Liabilities
  
Total Capital
  
Transtrend
  
$
238,072,475
  
$
2,171,789
  
$
235,900,686
  
               
Total
  
$
238,072,475
  
$
2,171,789
  
$
235,900,686
  
 
   
For the year ended December 31,2010
  
               
Net
  
   
Income (Loss)
  
Commissions
  
Other
  
Income (Loss)
  
Transtrend
  
$
35,391,195
  
$
(912,767
)
$
(4,990,845
)
$
29,487,583
  
                   
Total
  
$
35,391,195
  
$
(912,767
)
$
(4,990,845
)
$
29,487,583
  
 
   
For the year ended December 31, 2009
  
               
Net
  
   
Income (Loss)
  
Commissions
  
Other
  
Income (Loss)
  
Transtrend
  
$
(22,029,665
)
$
(718,793
)
$
(3,081,699
)
$
(25,830,157
)
                   
Total
  
$
(22,029,665
)
$
(718,793
)
$
(3,081,699
)
$
(25,830,157
)
 
3.
FAIR VALUE OF INVESTMENTS
 
The Financial Accounting Standards Board (“FASB”) issued the ASC which provide authoritative guidance on fair value measurement. This guidance defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.
 
Fair value of an investment is the amount that would be received to sell the investment in an orderly transaction between market participants at measurement date (i.e. the exit price). Purchase and sale of investments are recorded on a trade date basis. Realized gains and losses on investments are recognized when the investments are sold. Any change in net unrealized gain or loss from the preceding period is reported on the Statements of Operations.
 
The fair value measurement guidance established a hierarchal disclosure framework which prioritizes and ranks the level of market price observability used in measuring investments at fair value. Market price observability is impacted by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.
 
16
 

 
 
 

 
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 value measurement guidance, the Fund does not adjust the quoted price for these investments even in situations where the Fund holds a large position and a sale could reasonably impact the quoted price.
 
Level II — Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of generally accepted and understood models or other valuation methodologies. Investments which are generally included in this category are investments valued using market data.
 
Level III — Pricing inputs are unobservable and include situations where there is little, if any, market activity for the investment. Fair value for these investments is determined using valuation methodologies that consider a range of factors, including but not limited to the nature of the investment, local market conditions, trading values on public exchanges for comparable securities, current and projected operating performance and financing transactions subsequent to the acquisition of the investment. The inputs into the determination of fair value require significant management judgment. Due to the inherent uncertainty of these estimates, these values may differ materially from the values that would have been used had a ready market for these investments existed.
 
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. MLAI’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment.
 
Following is a description of the valuation methodologies used for investments, as well as the general classification of such investments pursuant to the valuation hierarchy.
 
Investments in Portfolio Funds are valued using the net asset value reported by the Portfolio Funds, which management believes approximates fair value. These net asset values are the prices used to execute trades with these Portfolio Funds.
 
Although there are monthly transactions in these Portfolio Funds, the Net Asset Value’s (“NAV”) are materially based on portfolios of Level I and Level II assets and liabilities for which the Fund has transparency.  As such, the Fund determined that its investments in these investment companies in this case, would be classified as Level II. There were no transfers to or from Level II during 2010 and 2009.
 
17
 

 
 
 

 
The following table summarizes the valuation of the Fund’s investment by the above fair value hierarchy levels as of December 31, 2010 and 2009:
 
Investment in 
                  
Portfolio Funds
  
Total
  
Level I
  
Level II
  
Level III
  
                   
December 31, 2010
  
$
1,038,634,185
  
$
—
  
$
1,038,634,185
  
$
—
  
December 31, 2009
  
$
787,161,250
  
$
—
  
$
787,161,250
  
$
—
  
 
4.
RELATED PARTY TRANSACTIONS
 
The Portfolio Funds’ U.S. dollar assets are maintained at MLPF&S. On assets held in U.S. dollars, Merrill Lynch credits the Portfolio Funds with interest at the most favorable rate payable by MLPF&S to accounts of Merrill Lynch affiliates but not less than 75% of such prevailing rate.  The Portfolio Funds are credited with interest on any of their assets and net gains actually held by MLPF&S in non-U.S. dollar currencies at a prevailing local rate received by Merrill Lynch.  Merrill Lynch may derive certain economic benefit, in excess of the interest which Merrill Lynch pays to the Portfolio Funds, from possession of such assets.
 
Merrill Lynch charges the Portfolio Funds at prevailing local interest rates for financing realized and unrealized losses on each Portfolio Fund’s non-U.S. dollar-denominated positions.  Such amounts are netted against interest income due to the insignificance of such amounts.
 
The Fund charges Sponsor fees on the month-end net assets after all other charges at annual rates equal to 1.50% for Class A, 2.50% for Class C, and 1.10% on Class I.  Class D1 and D are not charged a Sponsor Fee.   Sponsor fees are paid to MLAI.
 
No brokerage commission is charged to members at the Fund level, although brokerage commissions are charged to members at the Portfolio Funds’ level, and members will be indirectly subject to their pro rata share of such fees based on the investment of the Fund in such underlying Portfolio Funds. Brokerage commissions will be paid on the completion or liquidation of a trade and are referred to as “round-turn” commissions, which cover both the initial purchase (or sale) and the subsequent offsetting sale (or purchase) of a commodity futures contract.  A portion of the brokerage fees is paid to Portfolio Funds’ executing brokers, which include MLPF&S, as the commission on their execution services. The “round-turn” commissions paid will not exceed $15 per round-turn, except in the case of certain foreign contracts on which the rates may be as high as $100 per round-turn due to the large size of the contracts traded.  In general, it is estimated that aggregate brokerage commission charges will not exceed 3% and should equal approximately 0.50% per annum of each of the Portfolio Fund’s average month-end assets.
 
Interest and Sponsor Fees as presented on the Statements of Operations are all received from or paid to related parties.
 
The Fund holds cash at an unaffiliated bank which invests such cash in a money market fund which is managed by BlackRock, a related party to MLAI.  The Cash and cash equivalents as seen on the Statements of Financial Condition is the amount held by the related party.
 
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5.
ADVISORY AGREEMENTS
 
Each Portfolio Fund implements a systematic-based managed futures strategy under the direction of its trading advisors which are listed below:
 
       
Next Renewal Date
  
Portfolio Fund
  
Advisor
  
of Advisory Agreement
  
Altis
  
Altis Partners (Jersey) Limited
  
December 31, 2016
  
Aspect
  
Aspect Capital Management
  
December 31, 2011
  
Chesapeake**
  
Chesapeake Capital Corporation
  
December 31, 2016
  
Transtrend
  
Transtrend B.V.
  
December 31, 2012
  
Winton
  
Winton Capital Management Limited
  
December 31, 2014
  
John Locke
  
John Locke Investments SA
  
December 31, 2016
  
GSA*
  
GSA Capital Partner, LLP
  
June 30, 2012
  
BlueTrend
  
BlueCrest Capital Management, L.P.
  
December 31, 2011
  
Tudor
  
Tudor Investment Corporation
  
December 31, 2012
  
 
* Liquidated as of May 31, 2009
** Liquidated as of January 31, 2010.
 
The advisory agreements shall be automatically renewed for successive three-year periods with the exception of Transtrend which has an automatic renewal of one-year period and Tudor which has an automatic renewal of two-year period on the same terms, unless terminated by either the Portfolio Fund or the respective advisor upon 90 days’ notice to the other party.  The trading advisors determine the commodity futures, options on futures and forward contract trades to be made on behalf of their respective Portfolio Fund accounts, subject to certain trading policies and to certain rights reserved by MLAI.
 
The Portfolio Funds pay their respective trading advisors an annual management fee of 2.00% of their average month-end assets after reduction for the brokerage commissions accrued with respect to such assets. For Altis, BlueTrend, Transtrend and Tudor, MLAI receives 50% of the 2.00% management fees. For Aspect, Winton and John Locke, MLAI receives 25% of the 2.00% management fees.  The remainder is paid to the respective Trading Advisor.
 
Performance charged by the Portfolio Funds are calculated at 20% for all Portfolio Funds except BlueTrend and Transtrend which is calculated at 25% of any New Trading Profit, as defined in the private placement memorandum, and earned by the respective advisors.  Performance fees are also paid out in respect of Units redeemed as of the end of interim month, to the extent of the applicable percentage of any New Trading Profit attributable to such Units. For the following Funds, Aspect, Winton and John Locke, MLAI received 25% of the 20% performance fees.
 
19
 

 
 
 

 
6.
WEIGHTED AVERAGE UNITS
 
The weighted average number of Units outstanding for each Class is computed for purposes of calculating net income (loss) per weighted average Unit. The weighted average number of Units outstanding for the years ended December 31, 2010, 2009 and 2008 equals the Units outstanding for each Class as of such date, adjusted proportionately for Units sold or redeemed based on the respective length of time each was outstanding during the year/period.
 
7.
RECENT ACCOUNTING PRONOUNCEMENTS
 
In January 2010, the FASB issued an update to the fair value measurements disclosure. Pursuant to this update, additional disclosures in the financial statements relating to transfers in and out of Levels 1 and 2 fair value measurements and separate disclosure of purchases, sales, issuances, and settlements in Level 3 rollforward, will be required. In addition, this update provides clarifications on i) the level of aggregation of classes of assets and liabilities disclosed in the fair value measurement disclosures and ii) disclosures relating to the inputs and valuation techniques for Level 2 and Level 3 fair value measurements. The new disclosures and clarifications of existing disclosures are effective for annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the Level 3 roll forward which are effective for fiscal years beginning after December 15, 2010. This update further enhances the fair value disclosures and the Sponsor has determined that the adoption of this update would not have a material impact to the Fund’s financial statements.
 
8.
MARKET AND CREDIT RISK
 
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 Portfolio Funds’ net unrealized gains on open contracts on such derivative instruments as reflected in the Statements of Financial Condition of the Portfolio Funds.  The Fund’s exposure to market risk is influenced by a number of factors, including the relationships among the derivative instruments held by the Portfolio Funds 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 the Portfolio Funds, calculating the Net Asset Value of the Fund and the Portfolio Funds 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 Portfolio Funds’ market exposure, MLAI may urge the respective trading advisors to reallocate positions in an attempt to avoid over-concentrations.  However, such interventions are expected to be unusual.  It is expected that MLAI’s basic risk control procedures will consist of the ongoing process of advisor monitoring, with the market risk controls being applied by respective trading advisors.
 
20
 

 
 
 

 
Credit Risk
 
The risks associated with exchange-traded contracts are typically perceived to be less than those associated with over-the-counter (non-exchange-traded) transactions, because exchanges typically provide clearinghouse arrangements in which the collective credit (in some cases limited in amount, in some cases not) of the members of the exchange is pledged to support the financial integrity of the exchange.  In over-the-counter transactions, on the other hand, traders must rely solely on the credit of their respective individual counterparties.  Margins, which may be subject to loss in the event of a default, are generally required in exchange trading, and counterparties may also require margin in the over-the-counter markets.
 
The credit risk associated with these instruments from counterparty nonperformance is the net unrealized gains on open contracts, if any, included in the Statements of Financial Condition of the Portfolio Funds. The Portfolio Funds attempt to mitigate this risk by dealing exclusively with MLPF&S as its clearing brokers.
 
The Portfolio Funds, in their normal course of business, enter into various contracts, with MLPF&S acting as their commodity broker.  Pursuant to the brokerage arrangement with MLPF&S (which includes a netting arrangement), to the extent that such trading results in receivables from and payables to MLPF&S, these receivables and payables are offset and reported as a net receivable or payable and included in Equity in commodity futures trading accounts in the Statements of Financial Condition of the Portfolio Funds.
 
Indemnifications
 
In the normal course of business the Fund has entered, or may in the future enter, into agreements that obligate the Fund to indemnify third parties, including affiliates of the Fund, for breach of certain representations and warranties made by the Fund. No claims have actually been made with respect to such indemnities and any quantification would involve hypothetical claims that have not been made. Based on the Fund’s experience, MLAI expected the risk of loss to be remote and, therefore, no provision has been recorded.
 
9.
SUBSEQUENT EVENTS
 
Management has evaluated the impact of subsequent events on the Fund and has determined that there were no subsequent events that require adjustments to, or disclosure in, the financial statements.
 
21
 
 
 
 

 
*     *     *     *     *     *     *     *     *     *      *
 
To the best of the knowledge and belief of the
undersigned, the information contained in this
report is accurate and complete.
 
 
/s/ Barbra E. Kocsis
  
 
Barbra E. Kocsis
  
 
Chief Financial Officer
  
 
Merrill Lynch Alternative Investments LLC
  
 
Sponsor of
  
 
ML Systematic Momentum FuturesAccess LLC
  
 
 
 
 
 
 
 
 
 
 
 
 
 
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MAN FRM MANAGED FUTURES STRATEGIES LLC Reports

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