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EX-32.01 - EX-32.01 - MAN FRM MANAGED FUTURES STRATEGIES LLCa09-32679_4ex32d01.htm
EX-32.02 - EX-32.02 - MAN FRM MANAGED FUTURES STRATEGIES LLCa09-32679_4ex32d02.htm
EX-31.01 - EX-31.01 - MAN FRM MANAGED FUTURES STRATEGIES LLCa09-32679_4ex31d01.htm
EX-31.02 - EX-31.02 - MAN FRM MANAGED FUTURES STRATEGIES LLCa09-32679_4ex31d02.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 September 30, 2009

 

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 0-52505

 

ML SYSTEMATIC MOMENTUM FUTURESACCESS LLC

(Exact Name of Registrant as
specified in its charter)

 

Delaware

 

30-0408280

(State or other jurisdiction of

 

(IRS Employer Identification No.)

incorporation or organization)

 

 

 

c/o Merrill Lynch Alternative Investments LLC

Four World Financial Center, 6th Floor

250 Vesey Street

New York, New York 10080

(Address of principal executive offices)

(Zip Code)

 

212-449-3517

(Registrant’s telephone number, including area code)

 

Two World Financial Center, 7th Floor

New York, New York 10281

(Former name, former address and former fiscal year, if changed since last report)

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  o   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. (Check one):

 

Large accelerated filer o

 

Accelerated filer o

 

 

 

Non-accelerated filer x

 

Small reporting company o

(Do not check if a smaller reporting company)

 

 

 

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

 

As of September 30, 2009, 667,513,599 units of membership were outstanding.

 

 

 



 

ML SYSTEMATIC MOMENTUM FUTURESACCESS LLC

 

QUARTERLY REPORT FOR SEPTEMBER 30, 2009 ON FORM 10-Q

 

Table of Contents

 

 

 

PAGE

 

 

 

PART I

 

 

 

Item 1.

Financial Statements

1

 

 

 

Item 2.

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

14

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

21

 

 

 

Item 4T.

Controls and Procedures

29

 

 

 

PART II

 

 

 

Item 1.

Legal Proceedings

30

 

 

 

Item 1A.

Risk Factors

30

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

30

 

 

 

Item 3.

Defaults Upon Senior Securities

31

 

 

 

Item 4.

Submission of Matters to a Vote of Security Holders

31

 

 

 

Item 5.

Other Information

31

 

 

 

Item 6.

Exhibits

31

 



 

PART I - FINANCIAL INFORMATION

 

Item 1.    Financial Statements

 

ML SYSTEMATIC MOMENTUM FUTURESACCESS LLC

(a Delaware Limited Liability Company)

 

STATEMENTS OF FINANCIAL CONDITION
(unaudited)

 

 

 

September 30,

 

December 31,

 

 

 

2009

 

2008

 

ASSETS:

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

50,659,602

 

$

36,548

 

Accrued Interest Recievable

 

10,458

 

 

Investment in Portfolio Funds (Cost $757,009,163 at 2009 and $614,639,346 at 2008)

 

800,740,193

 

701,122,301

 

Prepaid fee

 

65,809

 

 

Due from Managers

 

792,627

 

22,935

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

852,268,688

 

$

701,181,784

 

 

 

 

 

 

 

LIABILITIES AND MEMBERS’ CAPITAL:

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

Sponsor fee payable

 

$

1,337,038

 

$

1,018,265

 

Redemptions payable

 

45,704,550

 

21,004,290

 

Other

 

323,521

 

461,141

 

 

 

 

 

 

 

Total liabilities

 

47,365,109

 

22,483,696

 

 

 

 

 

 

 

MEMBERS’ CAPITAL:

 

 

 

 

 

Members’ Interest (667,513,599 Units and 532,683,079 Units outstanding; unlimited Units authorized)

 

804,903,579

 

678,698,088

 

Total members’ capital

 

804,903,579

 

678,698,088

 

 

 

 

 

 

 

TOTAL LIABILITIES AND MEMBERS’ CAPITAL

 

$

852,268,688

 

$

701,181,784

 

 

NET ASSET VALUE PER UNIT (SEE NOTE 4)

 

See notes to financial statements.

 

1



 

ML SYSTEMATIC MOMENTUM FUTURESACCESS LLC

(a Delaware Limited Liability Company)

 

STATEMENTS OF OPERATIONS

(unaudited)

 

 

 

For the three

 

For the three

 

For the nine

 

For the nine

 

 

 

months ended

 

months ended

 

months ended

 

months ended

 

 

 

September 30, 2009

 

September 30, 2008

 

September 30, 2009

 

September 30, 2008

 

TRADING PROFIT (LOSS):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Realized

 

$

253,227

 

$

6,377,938

 

$

2,721,050

 

$

6,436,969

 

Change in unrealized, net

 

13,322,943

 

(36,016,486

)

(42,751,019

)

5,618,693

 

 

 

 

 

 

 

 

 

 

 

Total trading profit (loss)

 

13,576,170

 

(29,638,548

)

(40,029,969

)

12,055,662

 

 

 

 

 

 

 

 

 

 

 

INVESTMENT INCOME:

 

 

 

 

 

 

 

 

 

Interest

 

37,755

 

9,056

 

74,828

 

86,587

 

 

 

 

 

 

 

 

 

 

 

EXPENSES:

 

 

 

 

 

 

 

 

 

Sponsor fee

 

3,876,939

 

2,025,866

 

10,691,151

 

4,088,396

 

Other

 

413,404

 

241,515

 

689,741

 

787,105

 

Total expenses

 

4,290,343

 

2,267,381

 

11,380,892

 

4,875,501

 

 

 

 

 

 

 

 

 

 

 

NET INVESTMENT INCOME (LOSS)

 

(4,252,588

)

(2,258,325

)

(11,306,064

)

(4,788,914

)

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS)

 

$

9,323,582

 

$

(31,896,873

)

$

(51,336,033

)

$

7,266,748

 

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS) PER UNIT:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of Units outstanding

 

 

 

 

 

 

 

 

 

Class A**

 

76,461,127

 

31,239,094

 

63,627,220

 

18,229,165

 

Class C*

 

446,179,004

 

240,431,660

 

401,925,073

 

158,206,339

 

Class D

 

24,473,058

 

27,925,749

 

27,459,659

 

23,190,809

 

Class I*

 

69,904,917

 

27,846,118

 

65,643,380

 

15,617,620

 

Class D1***

 

39,185,542

 

47,421,103

 

35,796,407

 

37,864,668

 

Class DA****

 

42,492,885

 

 

46,290,806

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per weighted average Unit

 

 

 

 

 

 

 

 

 

Class A**

 

$

0.0153

 

$

(0.0799

)

$

(0.0684

)

$

(0.0129

)

Class C*

 

$

0.0115

 

$

(0.0827

)

$

(0.0867

)

$

0.0184

 

Class D

 

$

0.0227

 

$

(0.0997

)

$

(0.0788

)

$

0.0924

 

Class I*

 

$

0.0162

 

$

(0.0782

)

$

(0.0770

)

$

0.0118

 

Class D1***

 

$

0.0189

 

$

(0.0959

)

$

(0.0622

)

$

0.0596

 

Class DA****

 

$

0.0141

 

$

 

$

(0.0608

)

$

 

 


*Units issued June 1, 2007.

** Units issued on July 1, 2007.

*** Units issued on July 1, 2007 and Class D1 was previously known as Class D-SD.

**** Units issued on December 1, 2008.

 

See notes to financial statements.

 

2



 

ML SYSTEMATIC MOMENTUM FUTURESACCESS LLC

(a Delaware Limited Liability Company)

 

STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL

For the nine months ended September 30, 2009 and 2008

(unaudited in Units)

 

 

 

Members’ Capital
December 31, 2007

 

Subscriptions

 

Redemptions

 

Members’ Capital
September 30, 2008

 

Members’ Capital
December 31, 2008

 

Subscriptions

 

Redemptions

 

Members’ Capital
September 30, 2009

 

Class A**

 

5,078,646

 

34,024,260

 

(3,853,230

)

35,249,676

 

43,411,942

 

46,663,535

 

(8,906,021

)

81,169,456

 

Class C*

 

69,888,701

 

242,361,701

 

(28,265,360

)

283,985,042

 

317,357,227

 

183,162,637

 

(49,697,657

)

450,822,207

 

Class D

 

16,803,705

 

13,750,728

 

(5,360,215

)

25,194,218

 

34,878,314

 

7,270,875

 

(16,404,119

)

25,745,070

 

Class I*

 

14,757,114

 

26,552,358

 

 

41,309,472

 

53,200,108

 

32,263,082

 

(15,059,882

)

70,403,308

 

Class D1***

 

4,990,154

 

36,754,895

 

(4,414,476

)

37,330,573

 

31,040,046

 

9,937,042

 

(1,603,530

)

39,373,558

 

Class DA****

 

 

 

 

 

52,795,442

 

 

(52,795,442

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Members’ Units

 

111,518,320

 

353,443,942

 

(41,893,281

)

423,068,981

 

532,683,079

 

279,297,171

 

(144,466,651

)

667,513,599

 

 


*Units issued June 1, 2007.

** Units issued on July 1, 2007.

*** Units issued on July 1, 2007 and Class D1 was previously known as Class D-SD.

**** Units issued on December 1, 2008.

 

See notes to financial statements.

 

3



 

ML SYSTEMATIC MOMENTUM FUTURESACCESS LLC

(a Delaware Limited Liability Company)

STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL

For the nine months ended September 30, 2009 and 2008

(unaudited)

 

 

 

Members’ Capital December 31, 2007

 

Subscriptions

 

Redemptions

 

Net Income
(Loss)

 

Members’ Capital
September 30, 2008

 

Members’ Capital
December 31, 2008

 

Subscriptions

 

Redemptions

 

Net Income (Loss)

 

Members’ Capital
September 30, 2009

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A**

 

$

5,217,419

 

$

38,892,082

 

$

(4,326,897

)

$

(235,263

)

$

39,547,341

 

$

54,529,667

 

$

55,611,209

 

$

(10,522,755

)

$

(4,347,343

)

$

95,270,778

 

Class C*

 

74,531,573

 

282,546,201

 

(31,763,063

)

2,917,517

 

328,232,228

 

409,646,343

 

225,722,814

 

(60,854,240

)

(34,794,774

)

539,720,143

 

Class D

 

19,442,860

 

17,492,760

 

(6,867,030

)

2,143,454

 

32,212,044

 

50,152,681

 

9,722,097

 

(22,746,218

)

(2,106,774

)

35,021,786

 

Class I*

 

15,867,209

 

30,709,170

 

 

183,922

 

46,760,301

 

70,208,485

 

40,932,681

 

(19,006,615

)

(5,045,483

)

87,089,068

 

Class D1***

 

5,165,016

 

42,489,527

 

(5,155,165

)

2,257,118

 

44,756,496

 

39,876,273

 

12,202,026

 

(2,050,814

)

(2,225,681

)

47,801,804

 

Class DA****

 

 

 

 

 

 

54,284,639

 

 

(51,468,661

)

(2,815,978

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Members’ Interest

 

$

120,224,077

 

$

412,129,740

 

$

(48,112,155

)

$

7,266,748

 

$

491,508,410

 

$

678,698,088

 

$

344,190,827

 

$

(166,649,303

)

$

(51,336,033

)

$

804,903,579

 

 


*Units issued June 1, 2007.

** Units issued on July 1, 2007.

*** Units issued on July 1, 2007 and Class D1 was previously known as Class D-SD.

**** Units issued on December 1, 2008.

 

See notes to financial statements.

 

4



 

ML SYSTEMATIC MOMENTUM FUTURESACCESS LLC

(a Delaware Limited Liability Company)

FINANCIAL DATA HIGHLIGHTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2009

 

 

 

2009

 

2009

 

2009

 

2009

 

2009

 

2009

 

 

 

Class A

 

Class C

 

Class D

 

Class I

 

Class D1

 

Class DA*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per Unit Operating Performance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, beginning of period

 

$

1.1601

 

$

1.1863

 

$

1.3395

 

$

1.2214

 

$

1.1955

 

$

0.9568

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Realized and change in unrealized trading profit (loss)

 

0.0185

 

0.0189

 

0.0214

 

0.0195

 

0.0191

 

0.0153

 

Interest income

 

0.0001

 

0.0001

 

0.0001

 

0.0001

 

0.0001

 

0.0000

 

Expenses

 

(0.0049

)

(0.0080

)

(0.0008

)

(0.0039

)

(0.0006

)

(0.0004

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, end of period

 

$

1.1737

 

$

1.1972

 

$

1.3603

 

$

1.2370

 

$

1.2141

 

$

0.9716

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total return before Performance fees

 

1.17

%

0.92

%

1.55

%

1.27

%

1.55

%

1.55

%

Performance fees

 

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

Total return after Performance fees

 

1.17

%

0.92

%

1.55

%

1.27

%

1.55

%

1.55

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios to Average Members’ Capital:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses (excluding Performance fees)

 

0.43

%

0.68

%

0.05

%

0.33

%

0.05

%

0.05

%

Performance fees

 

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

Expenses (including Performance fees)

 

0.43

%

0.68

%

0.05

%

0.33

%

0.05

%

0.05

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income (loss)

 

-0.42

%

-0.67

%

-0.05

%

-0.32

%

-0.05

%

-0.05

%

 


*Units issued December 1, 2008

 

See notes to financial statements.

 

5



 

ML SYSTEMATIC MOMENTUM FUTURESACCESS LLC

(a Delaware Limited Liability Company)

FINANCIAL DATA HIGHLIGHTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009

 

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

 

 

 

2009

 

2009

 

2009

 

2009

 

2009

 

2009

 

 

 

Class A

 

Class C

 

Class D

 

Class I

 

Class D1

 

Class DA*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per Unit Operating Performance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, beginning of period

 

$

1.2561

 

$

1.2908

 

$

1.4379

 

$

1.3197

 

$

1.2847

 

$

1.0282

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Realized and change in unrealized trading profit (loss)

 

(0.0679

)

(0.0697

)

(0.0762

)

(0.0714

)

(0.0696

)

(0.0557

)

Interest income

 

0.0001

 

0.0001

 

0.0001

 

0.0001

 

0.0001

 

0.0001

 

Expenses

 

(0.0146

)

(0.0240

)

(0.0016

)

(0.0114

)

(0.0012

)

(0.0009

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, end of period

 

$

1.1737

 

$

1.1972

 

$

1.3603

 

$

1.2370

 

$

1.2141

 

$

0.9716

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total return before Performance fees

 

-6.56

%

-7.26

%

-5.50

%

-6.28

%

-5.50

%

-5.50

%

Performance fees

 

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

Total return after Performance fees

 

-6.56

%

-7.26

%

-5.50

%

-6.28

%

-5.50

%

-5.50

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios to Average Members’ Capital:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses (excluding Performance fees)

 

1.22

%

1.97

%

0.10

%

0.92

%

0.10

%

0.10

%

Performance fees

 

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

Expenses (including Performance fees)

 

1.22

%

1.97

%

0.10

%

0.92

%

0.10

%

0.10

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income (loss)

 

-1.21

%

-1.96

%

-0.09

%

-0.91

%

-0.09

%

-0.09

%

 

See notes to financial statements.

 

6



 

ML SYSTEMATIC MOMENTUM FUTURESACCESS LLC

(a Delaware Limited Liability Company)

 

NOTES TO FINANCIAL STATEMENTS

(unaudited)

 

1.                                       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

ML Systematic Momentum FuturesAccess LLC (the “Fund”) was organized under the Delaware Limited Liability Company Act on March 8, 2007 and commenced trading activities on April 1, 2007. The Fund issues new units of limited liability company interest (“Units”) at Net Asset Value per Unit as of the beginning of each calendar month.

 

Merrill Lynch Alternative Investments LLC (“MLAI”) is the sponsor (“Sponsor”) and manager (“Manager”) of the Fund. MLAI is an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. (“Merrill Lynch”).  Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S”), a wholly-owned subsidiary of Merrill Lynch, is the Fund’s commodity broker. On September 15, 2008, Merrill Lynch entered into an Agreement and Plan of Merger (as amended by Amendment No. 1 dated as of October 21, 2008, the “Merger Agreement”) with Bank of America Corporation (“Bank of America”). Pursuant to the Merger Agreement, on January 1, 2009, a wholly-owned subsidiary of Bank of America merged with and into Merrill Lynch, with Merrill Lynch continuing as the surviving corporation and a subsidiary of Bank of America.

 

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 September 30, 2009, and the results of its operations for the three and nine months ended September 30, 2009 and 2008. However, the operating results for the interim period may not be indicative of the results for the full year.

 

Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been omitted.  These financial statements should be read in conjunction with the financial statements and notes thereto included in the Fund’s Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2008.

 

In July 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASC”) 105, Generally Accepted Accounting Principles, (ASC 105), which approved the FASB Accounting Standards Codification (the “Codification”) as the single source of authoritative nongovernmental GAAP. The Codification is effective for interim or annual periods ending after September 15, 2009. All existing accounting standards have been superseded and all other accounting literature not included in the Codification will be considered nonauthoritative. ASC 105 was not intended to change the accounting literature and did not impact the Fund’s financial condition or results of operations.  All accounting references within this report are in accordance with the new Codification.

 

The preparation of financial statements in conformity with 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.

 

7



 

2.                                       INVESTMENTS IN UNDERLYING FUNDS

 

The seven funds (each a “Portfolio Fund” and collectively “Portfolio Funds”) in which the Fund is invested as of September 30, 2009 are: ML Altis FuturesAccess LLC (“Altis”), ML Aspect FuturesAccess LLC (“Aspect”), ML Chesapeake FuturesAccess LLC (“Chesapeake”), ML Blue Trend FuturesAccess LLC (“Blue Trend”), ML John Locke FuturesAccess LLC (“John Locke”) ML Transtrend DTP Enhanced FuturesAccess LLC (“Transtrend”)  and ML Winton FuturesAccess LLC (“Winton”). Effective May 31, 2009, GSA was liquidated and the Fund no longer invests in GSA. The Sponsor reallocated the liquidation proceeds among the existing Portfolio Funds. MLAI, in its discretion, may 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 individual Portfolio Fund.

 

The investments in Portfolio Funds at fair value at September 30, 2009 and December 31, 2008 are as follows:

 

 

 

% of Partnership’s
Capital @9/30/09

 

% of Partnership’s
Capital @12/31/08

 

Fair Value @ 9/30/09

 

Fair Value @
12/31/08

 

Cost @ 9/30/09

 

Cost @
12/31/08

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chesapeake

 

10.75

%

10.43

%

$

86,509,512

 

$

70,779,579

 

$

84,042,756

 

$

67,146,804

 

Transtrend

 

18.43

%

16.47

%

148,354,101

 

111,765,499

 

140,832,194

 

93,094,156

 

Altis

 

13.81

%

13.77

%

111,139,982

 

93,483,991

 

85,708,137

 

64,293,199

 

Winton

 

19.25

%

16.36

%

154,951,241

 

111,014,511

 

151,935,460

 

99,022,159

 

Aspect

 

10.76

%

10.45

%

86,571,117

 

70,896,651

 

83,965,582

 

60,926,872

 

John Locke

 

18.94

%

15.40

%

152,437,298

 

104,525,135

 

145,842,739

 

92,724,807

 

BlueTrend

 

7.55

%

7.22

%

60,776,942

 

48,989,192

 

51,955,799

 

41,040,653

 

GSA (a)

 

0.00

%

13.21

%

 

89,667,743

 

12,726,496

 

96,390,696

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

$

800,740,193

 

$

701,122,301

 

$

757,009,163

 

$

614,639,346

 

 


(a) In May, the GSA Portfolio was liquidated and the Fund no longer invests in the GSA Portfolio.

 

8



 

These investments are recorded at fair value which is consistent with equity method accounting, in accordance with fund of fund accounting guidance and in accordance with Regulation S-X; the following is summarized financial information for each of the Portfolio Funds which requires disclosure.

 

As of September 30,2009

 

 

 

Total Assets

 

Total Liabilities

 

Total Capital

 

 

 

Winton

 

$

774,945,019

 

$

12,691,401

 

$

762,253,618

 

 

 

Transtrend

 

241,061,174

 

1,129,060

 

239,932,114

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

1,016,006,193

 

$

13,820,461

 

$

1,002,185,732

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2008

 

 

 

Total Assets

 

Total Liabilities

 

Total Capital

 

 

 

Winton

 

$

864,513,961

 

$

60,525,401

 

$

803,988,560

 

 

 

Transtrend

 

234,472,658

 

17,137,534

 

217,335,124

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

1,098,986,619

 

$

77,662,935

 

$

1,021,323,684

 

 

 

 

 

 

 

 

 

 

 

 

 

For the nine months ended September 30,2009

 

 

 

 

 

 

 

 

 

Net

 

 

 

Income (Loss)

 

Commissions

 

Other

 

Income (Loss)

 

Winton

 

$

(6,734,079

)

$

(101,262

)

$

(2,141,190

)

$

(8,976,531

)

Transtrend

 

(8,474,815

)

(473,165

)

(2,201,283

)

(11,149,263

)

 

 

 

 

 

 

 

 

 

 

Total

 

$

(15,208,894

)

$

(574,427

)

$

(4,342,473

)

$

(20,125,794

)

 

 

 

 

 

 

 

 

 

 

For the nine months ended September 30, 2008

 

 

 

 

 

 

 

 

 

Net

 

 

 

Income (Loss)

 

Commissions

 

Other

 

Income (Loss)

 

Winton

 

$

2,381,942

 

$

(52,762

)

$

(748,105

)

$

1,581,075

 

Transtrend

 

8,600,945

 

(153,110

)

(781,688

)

7,666,147

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

10,982,887

 

$

(205,872

)

$

(1,529,793

)

$

9,247,222

 

 

3.                                       FAIR VALUE OF INVESTMENTS

 

In September 2006, the FASB issued 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. The Fund adopted this guidance as of January 1, 2008. The adoption of this guidance did not have a material impact on the Fund’s financial statements.

 

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 is recorded on a trade date basis. Realized gains and losses on investments is recognized when the investments are sold. Any change in net unrealized gain or loss from the preceding period is reported on the Statement of Operations.

 

9



 

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.

 

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, 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. The Sponsor’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 other investment companies are valued using the net asset value reported by the investment company, which management believes approximates fair value. These net asset values are the prices used to execute trades with these investment companies.  If appropriate, adjustments to the reported net asset value may be made based on various factors, including, but not limited to, the attributes of the interest held, including the rights and obligations, and any restrictions or illiquidity.

 

Although there are monthly transactions in these investment company interests, 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.

 

10



 

The following table summarizes the valuation of the Fund’s investment by the above fair value hierarchy levels as of September 30, 2009 and December 31, 2008:

 

 

 

Total

 

Level I

 

Level II

 

Level III

 

Investment in Portfolio Funds

 

 

 

 

 

 

 

 

 

September 30, 2009

 

$

800,740,193

 

N/A

 

$

800,740,193

 

N/A

 

December 31, 2008

 

$

701,122,301

 

N/A

 

$

701,122,301

 

N/A

 

 

Effective January 1, 2009 the Fund adopted the guidance on disclosures about derivative instruments and hedging activities which requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. This guidance only expands the disclosure requirements for derivative instruments and related hedging activities and has no impact on Statement of Financial Condition or Statement of Operations and Members’ Capital. As the Fund invests only in other Portfolio Funds, it does not have any direct investments in derivative instruments.

 

4.                                       NET ASSET VALUE PER UNIT

 

In conformity with U.S. GAAP, the Fund amortizes over a twelve-month period the initial offering costs for purposes of determining Net Asset Value. The Net Asset Value per Unit of the different Classes at September 30, 2009 and December 31, 2008 are as follows:

 

September 30, 2009

 

 

 

Net Asset Value per Unit

 

Class A

 

$

1.1737

 

Class C

 

1.1972

 

Class D

 

1.3603

 

Class I

 

1.2370

 

Class D1

 

1.2141

 

Class DA

 

0.9716

 

 

December 31, 2008

 

 

 

Net Asset Value per Unit

 

Class A

 

$

1.2561

 

Class C

 

1.2908

 

Class D

 

1.4379

 

Class I

 

1.3197

 

Class D1

 

1.2847

 

Class DA

 

1.0282

 

 

5.                                       MARKET, CREDIT AND CONCENTRATION RISKS

 

The nature of this Fund has certain risks, which cannot be presented on the financial statements.  Additionally, the Fund invests in other commodity funds with similar market risk as mentioned below.  The following summarizes some of those risks.

 

11



 

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 Net unrealized profit (loss) 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.

 

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 profit, 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 Merrill Lynch entities as 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.

 

Concentration Risk

 

The Fund’s investments in the Portfolio Funds are subject to the market and credit risk of the Portfolio Funds. Because the majority of the Fund’s capital is invested in the Portfolio Funds, any changes in the market conditions that would adversely affect the Portfolio Funds could significantly impact the solvency of the Fund.

 

12



 

6.                                       RECENT ACCOUNTING PRONOUNCEMENTS

 

In April 2009, the FASB issued guidance on determining fair value when the volume and level of activity for the asset or liability have significantly decreased and identifying transactions that are not orderly. This provides additional guidance for estimating fair value in accordance with FASB guidance on fair value measurements, when the volume and level of activity for the asset or liability have significantly decreased. This also identifies circumstances that indicate a transaction is not orderly. The guidance emphasizes that even if there has been a significant decrease in the volume and level of activity for the asset or liability and regardless of the valuation technique(s) used, the objective of a fair value measurement remains the same. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. The guidance also contains enhanced disclosure requirements whereby fair value disclosures as well as certain disaggregated information will be disclosed. The adoption of this guidance has no impact on the financial statements.

 

In September 2009, the FASB issued Accounting Standards Update No. 2009-12, Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)(the “ASU 2009-12”), which is effective for interim or annual financial periods ending after December 15, 2009. At this time, the Manager is evaluating the implications of this statement.  However, the adoption is not expected to have material impact on the Fund’s financial statements.

 

13



 

7.                                       SUBSEQUENT EVENTS

 

The Fund has performed an evaluation of subsequent events through November 12, 2009, which is the date the financial statements were issued, and determined that there are no subsequent events that require an adjustment of 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

 

MLAI believes that the Net Asset Value used to calculate subscription and redemption value and to report performance to investors throughout the year is the most valuable performance measure to the Members of the Fund.  Therefore, the charts below referencing Net Asset Value and performance measurements are based on the Net Asset Value for financial reporting purposes, as discussed in Note 4 to the financial statements.

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS A

 

 

 

Jan.

 

Feb.

 

Mar.

 

Apr.

 

May.

 

Jun.

 

Jul.

 

Aug.

 

Sept.

 

2008

 

$

1.0416

 

$

1.1508

 

$

1.1243

 

$

1.1183

 

$

1.1597

 

$

1.2164

 

$

1.1364

 

$

1.1075

 

$

1.1220

 

2009

 

$

1.2473

 

$

1.2484

 

$

1.2081

 

$

1.1729

 

$

1.1861

 

$

1.1601

 

$

1.1456

 

$

1.1597

 

$

1.1737

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS C

 

 

 

Jan.

 

Feb.

 

Mar.

 

Apr.

 

May.

 

Jun.

 

Jul.

 

Aug.

 

Sept.

 

2008

 

$

1.0803

 

$

1.1926

 

$

1.1642

 

$

1.1570

 

$

1.1988

 

$

1.2564

 

$

1.1727

 

$

1.1420

 

$

1.1559

 

2009

 

$

1.2807

 

$

1.2808

 

$

1.2385

 

$

1.2014

 

$

1.2139

 

$

1.1863

 

$

1.1705

 

$

1.1839

 

$

1.1972

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS D

 

 

 

Jan.

 

Feb.

 

Mar.

 

Apr.

 

May.

 

Jun.

 

Jul.

 

Aug.

 

Sept.

 

2008

 

$

1.1774

 

$

1.3025

 

$

1.2741

 

$

1.2689

 

$

1.3175

 

$

1.3836

 

$

1.2942

 

$

1.2629

 

$

1.2810

 

2009

 

$

1.4312

 

$

1.4343

 

$

1.3898

 

$

1.3509

 

$

1.3679

 

$

1.3395

 

$

1.3244

 

$

1.3424

 

$

1.3603

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS I

 

 

 

Jan.

 

Feb.

 

Mar.

 

Apr.

 

May.

 

Jun.

 

Jul.

 

Aug.

 

Sept.

 

2008

 

$

1.0905

 

$

1.2052

 

$

1.1779

 

$

1.1719

 

$

1.2157

 

$

1.2756

 

$

1.1920

 

$

1.1622

 

$

1.1777

 

2009

 

$

1.3110

 

$

1.3126

 

$

1.2708

 

$

1.2341

 

$

1.2484

 

$

1.2214

 

$

1.2066

 

$

1.2219

 

$

1.2370

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS D1

 

 

 

Jan.

 

Feb.

 

Mar.

 

Apr.

 

May.

 

Jun.

 

Jul.

 

Aug.

 

Sept.

 

2008

 

$

1.0508

 

$

1.1624

 

$

1.1371

 

$

1.1324

 

$

1.1758

 

$

1.2348

 

$

1.1550

 

$

1.1271

 

$

1.1432

 

2009

 

$

1.2773

 

$

1.2800

 

$

1.2403

 

$

1.2057

 

$

1.2208

 

$

1.1955

 

$

1.1820

 

$

1.1981

 

$

1.2141

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS DA

 

 

 

Jan.

 

Feb.

 

Mar.

 

Apr.

 

May.

 

Jun.

 

Jul.

 

Aug.

 

Sept.

 

2008

 

N/A

 

N/A

 

N/A

 

N/A

 

N/A

 

N/A

 

N/A

 

N/A

 

N/A

 

2009

 

$

1.0222

 

$

1.0244

 

$

0.9927

 

$

0.9649

 

$

0.9770

 

$

0.9568

 

$

0.9460

 

$

0.9588

 

$

0.9716

 

 

14



 

Liquidity and Capital Resources

 

The Fund does not engage in the sale of goods or services.  The Fund’s assets are it’s (i) investment in Portfolio Funds and (ii) cash.  Because of the low margin deposits normally required in commodity futures trading relatively small price movements may result in substantial losses to the Fund.  While substantial losses could lead to a material decrease in liquidity, no such material losses occurred during the third quarter of 2009 and there was not impact on the Fund’s liquidity.

 

The Fund’s capital consists of the capital contributions of the members as increased or decreased by gains or losses on trading, expenses, interest income, redemptions of Redeemable Units and distributions of profits, if any.

 

For the nine months ended September 30, 2009, Fund capital increased 18.60% from $678,698,088 to $804,903,579.  This increase was attributable to the net loss from operations of $51,336,033, coupled with the redemption of 144,466,651 Redeemable Units resulting in an outflow of $166,649,471.  The cash outflow was offset with cash inflow of $344,190,827 due to subscription of 279,297,171 units.  Future redemptions could impact the amount of funds available for investment in commodity contract positions in subsequent months.

 

Critical Accounting Policies

 

Use of Estimates

 

The preparation of financial statements and accompanying notes in conformity with U.S. generally accepted accounting principles (“GAAP”‘) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, income and expenses, and related disclosures of contingent assets and liabilities in the financial statements and accompanying notes.  As a result, actual results could differ from these estimates.

 

Statement of Cash Flows

 

The Fund has elected not to provide a Statement of Cash Flows as permitted by the ASC guidance for Statement of Cash Flows specifically relating to the exemption of certain enterprises and the classification of cash flows from certain securities acquired for resale.

 

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 measurement date (i.e. the exit price). Purchase and sale of investments is recorded on a trade date basis. Realized gains and losses on investments is 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.

 

Fair Value Measurements

 

The Fund adopted guidance on fair value measurements as of January 1, 2008 which defines fair value 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.  The Fund did not apply the deferral allowed for nonfinancial assets and nonfinancial liabilities measured at fair value on a nonrecurring basis.  For more information on our treatment of fair value, see Note 3, Fair Value of Investments.

 

15



 

Income Taxes

 

Income taxes have not been provided as each member is individually liable for the taxes, if any, on their share of the Fund’s income and expenses and Members’ Capital.

 

In 2007, the Fund adopted the 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 concluded that the adoption of this guidance had no impact on the operations of the Fund for the period ended September 30, 2009 and that no provision for income tax is required in the Fund’s financial statements.

 

Results of Operations

 

January 1, 2009 to March 31, 2009

 

The Fund experienced a net trading loss in the first quarter of 2009 of $25,864,131.

 

Performance of the Portfolio Funds were mixed in January which reflected the choppy markets and diversification of the Portfolio Funds approach to trading. Winton was the best performer, while Altis and GSA performed the worst. The Portfolio Funds profited from falling equities, with long-term managers capturing more of the move. The Portfolio Funds also profited from a continuous down-trend in commodities. Largest losses were suffered in fixed income positions as the U.S. Treasury yields rallied and other global bonds shadowed the move.

 

Time horizon focus did not seem to be a driver of returns in the middle of the quarter, while asset allocation played a more significant role. The Portfolio Funds had small net short exposures to equity markets and thus registered gains in this asset class. In addition, most of the Portfolio Funds that had long positions in the U.S. dollar against various currencies posted profits. Some of the Portfolio Funds that had long positions in the Japanese yen vs. the U.S. dollar posted losses due to the Japanese yen ending the month down significantly relative to the U.S. dollar. Fixed income markets experienced volatile swings during the month as most of the Portfolio Funds ended with small losses in this sector.

 

At the start of March, most of the Portfolio Funds had long positions in the fixed income markets. and kept this position throughout the month of March and benefited from falling yields. John Locke was the exception. As a shorter term manager, its positioning was influenced significantly by intra-month choppiness in fixed income markets, causing large losses.

 

All other sectors had posted losses in March as a result of significant reversals in many markets. During March, equity markets rallied following some positive corporate news in the first week. When the U.S. Federal Reserve announced the start of quantitative easing mid-month, the U.S. dollar began losing value against most major currencies and the commodity markets which are negatively correlated with the U.S. dollar and risk aversion moved up. Given that most managers in the vertical are medium to long term trend followers, they were not in a position to cut exposures very fast and were negatively affected by these reversals.

 

16



 

April 1, 2009 to June 30, 2009

 

The Fund experienced a net trading loss in the second quarter of 2009 of $ 27,742,008.

 

The market environment that caused a loss for the Fund in March continued through April as well. The Portfolio Funds continued to be positioned against market moves and experienced losses in most of the sectors they traded. In March, being long fixed income helped to offset losses in equity indices, currencies and commodities. In April, the losses in equity indices, currencies and commodities were more muted as many Portfolio Funds had trimmed risk in those sectors; however, having long positions in fixed income proved to be a problem as global bond yields rose significantly, hurting those long positions. Overall, fixed income was the worst performing sector for the Portfolio Funds, followed by currencies. The Portfolio Funds approach to trading was mixed exposure in commodities, making money in some markets and losing money in others. In equities, positioning was more on the short side, but with extremely small exposures; losses thus were muted.

 

May was a continuation of March and April in terms of market direction and moves. Equities and commodities were up, and bonds and the U.S. dollar was down. These new trends gave many Portfolio Fund managers a reason to adjust their portfolios to match the new environment resulting in profits being posted to the Fund. Short and medium term Portfolio Funds were more in sync with markets given that they adjust faster to new trends, while longer term Portfolio Funds have held on to their pre-March positioning somewhat longer and were not able to avoid losses. So the main difference in May relative to March and April was that many Portfolio Funds were now correctly positioned to take advantage of current trends. Short to medium term managers (John Locke, GSA, BlueTrend, Altis, Transtrend) had better performance than longer term managers (Winton, Chesapeake, Aspect). The shorter term managers have adjusted better to the current market environment where equities and commodities are doing well and the U.S. dollar and bonds performed poorly. Risk by asset class continues to be biased towards fixed income which has a roughly 50% risk allocation, down from more than 80% in April. Fixed income was the asset class with the fewest reversals recently and thus risk had moved there as equities, commodities and currencies experienced changes in trend during March. But now, the risk allocated to other asset classes is creeping up: commodities are about a third of the total and the remainder is split between currencies and equities.

 

March, April and May had been characterized by market moves most commonly seen during periods where investors are risk seeking. There were up moves in equities and commodities and down moves in bonds and the U.S. dollar. The Portfolio Fund managers were just beginning to adjust their portfolios to match these new market directions. After suffering losses during March and April (as they were not positioned for the new trends that began in early March), most managers had begun turning around their portfolios to be more in line with where markets were going and many were able to post gains in May. That came to a stop in June as several events took place. First, short term interest rates suffered a sharp reversal during the first week of the month and the U.S. dollar had a similar reversal, gaining against most currencies. Then, mid-month, the up trends in equities and commodities reversed, as sentiment became risk averse again. As a result of these moves, most asset classes ended the month with negative attribution. The worst were short term rates and commodities. The quarter ended with losses being posted to the Fund. The worst were short term rates and commodities. Medium term managers had the worst performance as they not only suffered from the rates and U.S. dollar moves, but also the reversals in equities and commodities. John Locke, the manager with the shortest time horizon was able to avoid big losses. Winton and Chesapeake, the longest term managers, had relatively smaller losses because the equity and commodity reversals were actually good for them since they were still holding on to their pre-March positions in those asset classes.

 

17



 

July 1, 2009 to September 30, 2009

 

The Fund experienced a net trading profit in the third quarter of 2009 of $13,576,170.

 

Losses were posted to the Fund in July which was characterized by two types of moves in most markets. At the beginning of the month, equities, commodities and bond yields were moving lower while the United States dollar gained ground against other major currencies. In mid-July, sentiment reversed and equities and commodities resumed their up trends from prior month and the United States dollar lost value against other major currencies. The moves in the second part of the month were larger in magnitude, therefore, the Portfolio Funds who shifted towards ‘risk seeking’ trades faster performed better. Transtrend was an underperformer resulting in losses in the synthetic markets it trades in.

 

Losses were posted to the Fund in August attributable to a continuation of trends from the second half of July. Equities and fixed income ended the month up. Similarly, most commodities finished up (except oil, natural gas and grains) and currency performance was mixed. Coming into August, Systematic Momentum had small long positions in all geographies in equity indices. In commodities, the Portfolio Funds had more long positions than short positions: long positions in crude oil, softs and metals with short positions in natural gas, grains and livestock. In currencies, the Portfolio Funds held short positions in the United States dollar and in fixed income, it was long across the yield curve. In general, the equity and fixed income positioning posted profits for the Portfolio Funds throughout the month of August. Similarly, the Portfolio Funds were spot on in their Commodity positioning except in crude oil. Currencies were mixed and losses in some markets canceled out profits in others. Sugar, metals and equity positions were the best performers.

 

In September, the Portfolio Funds made most of their profits in equity indices and currencies as trends from late summer continued. Short positions in the United States dollar performed the best as the United States dollar continued to slide against other major currencies. Long equity index and long fixed income positions also continued to be profitable for the Portfolio Funds as there were neither reversals nor choppiness in those asset classes as trends from late summer continued. Commodities detracted from performance due to choppiness in crude oil and huge adverse moves in natural gas. Transtrend was the only Portfolio Fund showing a loss for the month due to its short positions in natural gas.

 

January 1, 2008 to March 31, 2008

 

The Fund experienced a net trading gain in the first quarter of 2008 of $13,641,919.

 

The Fund is a fund of funds investing in seven separate Portfolio Funds which are domiciled at Merrill Lynch FuturesAccess Program. The Fund posted gains for the quarter.

 

January was a positive month for the Fund, despite dramatic declines in global stock indices, illustrating the fund’s low correlation with equities over a market cycle. Managers had long positions in fixed income and precious metals, both of which benefited from fears of a US recession, as well as sharp Fed rate cuts totaling 1.25% for the month. The continuing rally in grain markets was another source of profit for managers. Losses came primarily from energy markets as oil prices weakened and natural gas rebounded. Aspect was the top performer within the Fund, gaining 4.7%, while Altis was the main underperformer, declining -4.6% for the month. Going into February, commodities and fixed income are the two largest risk allocations for most managers. CTAs continue to be long in most fixed income markets, while in commodities, they generally have long positions in grains, softs and precious metals, and shorts in livestock. Energy exposure has been cut back significantly after January’s losses. In equities, there is a small short bias for most managers, while in FX there is a short USD tilt against most currencies except the GBP.

 

18



 

February was a very strong month for the Fund and the Fund continue to remain up for the year 2008. As a point of comparison, the Newedge CTA Index (formerly Calyon Financial Barclay Index) returned 4.6% for the month and is up 6.3% for the year. The bulk of returns were earned in surging commodity markets. Grains and softs rallied strongly due to low inventories and positive forecasts of demand. Energy and metals climbed as these sectors are perceived as an inflation hedge. The other profitable trades included short currency positions against the USD. The top performer within the vertical in February was Altis, which gained 24.3%. Altis is a medium to short term manager, with higher than average commodity exposure and higher than average leverage. The bottom performer was GSA, which gained 2.1%. GSA is a short term manager with a blend of trend following and econometric models, the latter type faring less well during the month. Going into March, most managers have increased their risk-taking to above-average levels. The largest allocation remains in commodities, where managers are long in most markets. In interest rates, most managers are biased long, whereas in currencies most are tilted against the USD. Equities have a very low risk allocation.

 

The Fund was unprofitable for March. GSA, a short term manager was the top performer in the vertical in March, gaining 1.5%, while Altis was the bottom performer losing -6.8%. For the 1st Quarter as a whole, John Locke was the top performer in the vertical, up 12.0%, while GSA had the smallest gains, rising 4.2%. The strong trends in commodity markets in February made a sharp reversal in March, hurting most funds in the vertical. After gaining 11.7% in February, the CRB Commodity Index fell -6.3% March. The grains and precious metals sectors recorded particularly large reversals. The Fund was able to participate more in the upward move in February (when it gained 10.4%) than in the March reversal (when it lost -2.4%), thereby preserving its gains for the quarter. Managers were able to limit the damage in March by reducing leverage. Most managers scaled back positions in inverse proportion to rising volatility in commodity markets. By the end of March overall leverage for most managers was about 40% lower than at the start of the month. Losses for the vertical during the month were also mitigated by the positive performance of short term managers such as GSA and John Locke, who exploited opportunities outside of commodities.

 

April 1, 2008 to June 30, 2008

 

The Fund experienced a net trading gain in the second quarter of 2008 of $27,742,008.

 

The Fund is a fund of funds investing in seven separate Portfolio Funds which are domiciled at Merrill Lynch FuturesAccess Program. The Fund posted gains for the quarter.

 

The Portfolio Funds made gains in their long energy positions at the beginning of the quarter, as oil and natural gas hit historic highs which were offset by losses from reversals in financial futures markets. Most of the Portfolio Funds came into April with short positions in the U.S. dollar, long positions in bonds and short positions in equities. However, markets experienced a relief rally in April as investors began to believe the end of the credit crisis might be over. This caused the U.S. dollar to rebound, bonds to fall and equities to rise, thus hurting the Portfolio Funds performance. The Portfolio Funds with more energy exposure did better in the month, as well as the Portfolio Funds who had short positions in the financial futures were able to unwind their positions quickly.

 

May was a month where energies jumped to record levels. Crude oil and natural gas was up continuing trends from previous months. The primary drivers of performance for the Fund were in the commodities and energy sectors. Altis, which has the largest commodity bias among the seven Portfolio Funds in the vertical, was up with two thirds of Altis gains came from its energy positions. Other Portfolio Funds also benefited from energy exposure, though none to the extent of Altis. Non-commodity markets were mixed as most of the Funds managed to be flat to positive in the financial markets overall. Several Portfolio Funds did well in fixed income but then lost money in the equity indices.

 

19



 

The Portfolio Funds made gains through long positions in commodities and short equities positions at the end of the quarter. Longer term Portfolio Funds tended to have higher commodity and equity exposure than their shorter term peers. Short term managers meanwhile were caught out by choppiness in currencies and rates. Altis was the top performer in the vertical benefiting from its higher commodity exposure and higher leverage than other managers. Meanwhile, GSA, a short term manager fell as some of its relative value trades underperformed.

 

July 1, 2008 to September 30, 2008

 

The Fund is a fund of funds investing in eight separate Portfolio Funds which are domiciled at Merrill Lynch FuturesAccess Program. The Fund posted a loss for the quarter.

 

The Portfolio Funds posted losses at the beginning of the quarter as bullish trends in commodities dramatically reversed. The Portfolio Funds came into the month of July with long positions in most of the commodity markets. After having made most of their year-to-date gains in commodities, the Portfolio Funds had the largest losses in these markets. Goldman Sachs Commodity Index was down for the month, as well as the Energy sub-index and the correction was particularly severe in Natural Gas Index which was also down.

 

The Portfolio Funds had a second month of poor performance in August. There were two major trends that caused the Portfolio Funds to lose money. The first was the strengthening in the U.S. dollar, following a long period of declines against most major currencies. Typically, the Portfolio Funds will be short on the U.S. dollar positions which caused losses to be posted in the middle of the quarter. The second trend was the continued decline in commodities, following the dramatic reversal from July.

 

The Portfolio Funds posted gains at the end of the quarter. September witnessed an extended weakness in financial markets that was manifested in a sharp sell-off in global equities and commodities, including energies, grains, and industrial metals. Bond yields fell moderately, while the U.S. dollar continued its upward move against other major currencies. The Portfolio Funds performance exhibited a fair amount of variance which was a function of the time frame of the underlying strategy. Medium-term trend followers, who form the bulk of Systematic Momentum, did quite well as they were correctly positioned for the market moves. Altis and Transtrend were the best performers respectively. BlueTrend, a medium-term trend follower added to the portfolio on September 1, had an impressive debut. Performance of long-term followers were less impressive as they tended to maintain long positions in commodities which detracted from performance. Long term managers also continued to favor weakness of the U.S. dollar and more neutral stances on equities than their medium-term counterparts.

 

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

 

20



 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Quantitative Forward-Looking Statements

 

The following quantitative disclosures regarding the Fund’s market risk exposures contain “forward-looking statement” within the meaning of the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934).  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.

 

Due to the Fund’s fund of funds structure, the following statements are related to the Portfolio Funds.

 

Maintenance margin requirements have been used by the Portfolio Funds as the measure of their 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 Portfolio Funds), 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 Portfolio Funds’ positions are rarely, if ever, 100% positively correlated have not been reflected.  Since the Fund is invested in the Portfolio Funds, the Value at Risk chart for the underlying funds have been provided.

 

21



 

The Portfolio Funds’ Trading Value at Risk in Different Market Sectors

 

The following tables indicate the average, highest, and lowest trading Value at Risk associated with the Portfolio Funds’ open positions by market category for the nine months ended September 30, 2009 and September 30, 2008.

 

Altis Class DS (1) 

 

 

 

September 30, 2009

 

 

 

Average

 

% of Average

 

Highest Value

 

Lowest Value

 

Market Sector

 

Value at Risk

 

Capitalization

 

At Risk

 

At Risk

 

 

 

 

 

 

 

 

 

 

 

Agricultural Commodities

 

$

129,117

 

0.13

%

$

253,440

 

$

30,906

 

Energy

 

165,995

 

0.17

%

351,115

 

27,763

 

Interest Rates

 

9,253,880

 

9.25

%

11,279,824

 

7,331,246

 

Metals

 

250,061

 

0.25

%

531,943

 

79,345

 

Stock Indices

 

376,092

 

0.38

%

1,284,200

 

32,824

 

Currencies

 

179,040

 

0.18

%

438,433

 

31,310

 

 

 

 

 

 

 

 

 

 

 

TOTAL

 

$

10,354,185

 

10.36

%

$

14,138,955

 

$

7,533,394

 

 


(1) Average capitalization of Altis Class DS is $100,006,258.

 

Altis Class DS (1)

 

 

 

September 30, 2008

 

 

 

Average

 

% of Average

 

Highest Value

 

Lowest Value

 

Market Sector

 

Value at Risk

 

Capitalization

 

At Risk

 

At Risk

 

 

 

 

 

 

 

 

 

 

 

Agricultural Commodities

 

$

626,283

 

1.51

%

$

1,458,996

 

$

54,072

 

Energy

 

612,819

 

1.47

%

1,866,010

 

12,279

 

Interest Rates

 

4,877,108

 

11.72

%

9,327,165

 

189,485

 

Metals

 

434,400

 

1.04

%

1,102,077

 

77,059

 

Stock Indices

 

586,752

 

1.41

%

2,257,511

 

37,656

 

Currencies

 

745,373

 

1.79

%

3,171,565

 

49,042

 

 

 

 

 

 

 

 

 

 

 

TOTAL

 

$

7,882,735

 

18.94

%

$

19,183,324

 

$

419,593

 

 


(1) The average capitalization for Altis Class DS is $41,597,215.

 

22



 

Transtrend Class DS (2)

 

 

 

September 30, 2009

 

 

 

Average

 

% of Average

 

Highest Value

 

Lowest Value

 

Market Sector

 

Value at Risk

 

Capitalization

 

At Risk

 

At Risk

 

 

 

 

 

 

 

 

 

 

 

Agricultural Commodities

 

$

331,397

 

0.26

%

$

1,197,217

 

$

109,282

 

Energy

 

359,711

 

0.28

%

810,589

 

39,677

 

Interest Rates

 

10,782,855

 

8.39

%

14,708,674

 

5,997,177

 

Metals

 

90,834

 

0.07

%

248,259

 

2,739

 

Stock Indices

 

556,066

 

0.43

%

1,142,960

 

33,691

 

Currencies

 

402,336

 

0.31

%

977,358

 

60,805

 

 

 

 

 

 

 

 

 

 

 

TOTAL

 

$

12,523,199

 

9.74

%

$

19,085,057

 

$

6,243,371

 

 


(2) Average capitalization of Transtrend Class DS is $128,595,510.

 

Transtrend Class DS (2)

 

 

 

September 30, 2008

 

 

 

Average

 

% of Average

 

Highest Value

 

Lowest Value

 

Market Sector

 

Value at Risk

 

Capitalization

 

At Risk

 

At Risk

 

 

 

 

 

 

 

 

 

 

 

Agricultural Commodities

 

$

195,372

 

0.46

%

$

611,794

 

$

9,653

 

Energy

 

318,020

 

0.75

%

903,111

 

6,302

 

Interest Rates

 

3,223,854

 

7.62

%

4,817,628

 

1,124,248

 

Metals

 

151,163

 

0.36

%

385,465

 

5,586

 

Stock Indices

 

296,259

 

0.70

%

587,895

 

33,200

 

Currencies

 

880,748

 

2.08

%

1,979,632

 

31,374

 

 

 

 

 

 

 

 

 

 

 

TOTAL

 

$

5,065,416

 

11.97

%

$

9,285,525

 

$

1,210,363

 

 


(2) The average capitalization for Transtrend Class DS is $42,325,524.

 

23



 

Aspect Class DS (3) 

 

 

 

September 30, 2009

 

 

 

Average

 

% of Average

 

Highest Value

 

Lowest Value

 

Market Sector

 

Value at Risk

 

Capitalization

 

At Risk

 

At Risk

 

 

 

 

 

 

 

 

 

 

 

Agricultural Commodities

 

$

48,590

 

0.06

%

$

92,819

 

$

2,419

 

Energy

 

61,428

 

0.08

%

149,193

 

8,266

 

Interest Rates

 

8,014,553

 

10.50

%

14,837,852

 

4,680,142

 

Metals

 

81,522

 

0.11

%

213,341

 

3,601

 

Stock Indices

 

122,936

 

0.16

%

379,208

 

5,887

 

Currencies

 

324,767

 

0.43

%

646,060

 

97,270

 

 

 

 

 

 

 

 

 

 

 

TOTAL

 

$

8,653,796

 

11.34

%

$

16,318,473

 

$

4,797,585

 

 


(3) Average Capitalization of Aspect Class DS is $76,335,815.

 

Aspect Class DS (3)

 

 

 

September 30, 2008

 

 

 

Average

 

% of Average

 

Highest Value

 

Lowest Value

 

Market Sector

 

Value at Risk

 

Capitalization

 

At Risk

 

At Risk

 

 

 

 

 

 

 

 

 

 

 

Agricultural Commodities

 

$

147,425

 

0.38

%

$

578,645

 

$

26,389

 

Energy

 

241,392

 

0.63

%

798,988

 

39,490

 

Interest Rates

 

3,577,155

 

9.32

%

7,499,164

 

1,462,844

 

Metals

 

97,425

 

0.25

%

366,936

 

25,073

 

Stock Indices

 

305,568

 

0.80

%

941,736

 

66,942

 

Currencies

 

551,241

 

1.44

%

1,619,743

 

72,560

 

 

 

 

 

 

 

 

 

 

 

TOTAL

 

$

4,920,206

 

12.82

%

$

11,805,212

 

$

1,693,298

 

 


(3) The average capitalization for Aspect Class DS is $38,382,377.

 

24



 

Chesapeake Class DS (4) 

 

 

 

September 30, 2009

 

 

 

Average

 

% of Average

 

Highest Value

 

Lowest Value

 

Market Sector

 

Value at Risk

 

Capitalization

 

At Risk

 

At Risk

 

 

 

 

 

 

 

 

 

 

 

Agricultural Commodities

 

$

357,829

 

0.47

%

$

1,333,240

 

$

77,437

 

Energy

 

721

 

0.00

%

3,258

 

 

Interest Rates

 

4,114,434

 

5.35

%

6,340,519

 

3,416,885

 

Metals

 

378,082

 

0.49

%

1,848,800

 

34,228

 

Stock Indices

 

6,543

 

0.01

%

57,132

 

 

Stock Futures

 

148,338

 

0.19

%

1,143,955

 

 

Currencies

 

190,799

 

0.25

%

1,000,168

 

23,079

 

 

 

 

 

 

 

 

 

 

 

TOTAL

 

$

5,196,746

 

6.76

%

$

11,727,072

 

$

3,551,629

 

 


(4) Average capitalization of Chesapeake Class DS is $76,876,140.

 

Chesapeake Class DS (4)

 

 

 

September 30, 2008

 

 

 

Average

 

% of Average

 

Highest Value

 

Lowest Value

 

Market Sector

 

Value at Risk

 

Capitalization

 

At Risk

 

At Risk

 

 

 

 

 

 

 

 

 

 

 

Agricultural Commodities

 

$

417,991

 

1.10

%

$

899,332

 

$

30,339

 

Energy

 

353,063

 

0.93

%

674,311

 

85,971

 

Interest Rates

 

3,211,342

 

8.46

%

4,290,090

 

1,541,194

 

Metals

 

180,414

 

0.48

%

376,232

 

13,636

 

Stock Futures

 

83,947

 

0.22

%

157,913

 

14,811

 

Currencies

 

596,682

 

1.57

%

1,295,092

 

29,240

 

 

 

 

 

 

 

 

 

 

 

TOTAL

 

$

4,843,439

 

12.76

%

$

7,692,970

 

$

1,715,191

 

 


(4) The average capitalization for Chesapeake Class DS is $37,962,083.

 

25



 

Winton Class DS (5)

 

 

 

September 30, 2009

 

 

 

Average

 

% of Average

 

Highest Value

 

Lowest Value

 

Market Sector

 

Value at Risk

 

Capitalization

 

At Risk

 

At Risk

 

 

 

 

 

 

 

 

 

 

 

Agricultural Commodities

 

$

66,419

 

0.05

%

$

143,791

 

$

2,120

 

Energy

 

35,624

 

0.03

%

68,518

 

7,259

 

Interest Rates

 

7,082,038

 

5.51

%

8,547,657

 

6,181,929

 

Metals

 

65,496

 

0.05

%

220,247

 

11,874

 

Stock Indices

 

151,038

 

0.12

%

358,169

 

52,988

 

Currencies

 

478,226

 

0.37

%

939,118

 

127,347

 

 

 

 

 

 

 

 

 

 

 

TOTAL

 

$

7,878,841

 

6.13

%

$

10,277,500

 

$

6,383,517

 

 


(5) Average capitalization of Winton Class DS is $128,457,694

 

Winton Class DS (5) 

 

 

 

September 30, 2008

 

 

 

Average

 

% of Average

 

Highest Value

 

Lowest Value

 

Market Sector

 

Value at Risk

 

Capitalization

 

At Risk

 

At Risk

 

 

 

 

 

 

 

 

 

 

 

Agricultural Commodities

 

$

185,768

 

0.44

%

$

365,847

 

$

13,191

 

Energy

 

201,166

 

0.48

%

419,274

 

44,824

 

Interest Rates

 

2,498,370

 

5.96

%

3,867,029

 

1,715,436

 

Metals

 

124,834

 

0.30

%

241,005

 

1,591

 

Stock Indices

 

319,692

 

0.76

%

1,029,005

 

9,284

 

Currencies

 

562,310

 

1.34

%

1,006,414

 

111,600

 

 

 

 

 

 

 

 

 

 

 

TOTAL

 

$

3,892,140

 

9.28

%

$

6,928,574

 

$

1,895,926

 

 


(5) The average capitalization for Winton Class DS is $41,933,983.

 

26



 

John Locke Class DS (6) 

 

 

 

September 30, 2009

 

 

 

Average

 

% of Average

 

Highest Value

 

Lowest Value

 

Market Sector

 

Value at Risk

 

Capitalization

 

At Risk

 

At Risk

 

 

 

 

 

 

 

 

 

 

 

Agricultural Commodities

 

$

275,554

 

0.22

%

$

968,849

 

$

6,390

 

Energy

 

407,751

 

0.33

%

1,812,797

 

16,382

 

Interest Rates

 

43,022,304

 

34.50

%

305,915,780

 

1,922,404

 

Metals

 

538,652

 

0.43

%

3,324,914

 

30,523

 

Stock Indices

 

446,146

 

0.36

%

1,976,182

 

34,401

 

Currencies

 

2,626,631

 

2.11

%

13,102,677

 

500,808

 

 

 

 

 

 

 

 

 

 

 

TOTAL

 

$

47,317,038

 

37.95

%

$

327,101,199

 

$

2,510,908

 

 


(6) Average capitalization of John Locke Class DS is $124,709,424

 

John Locke Class DS (6) 

 

 

 

September 30, 2008

 

 

 

Average

 

% of Average

 

Highest Value

 

Lowest Value

 

Market Sector

 

Value at Risk

 

Capitalization

 

At Risk

 

At Risk

 

 

 

 

 

 

 

 

 

 

 

Agricultural Commodities

 

$

83,748

 

0.23

%

$

264,554

 

$

3,386

 

Energy

 

107,236

 

0.29

%

368,725

 

9,148

 

Interest Rates

 

2,627,259

 

7.21

%

4,922,791

 

769,897

 

Metals

 

83,818

 

0.23

%

221,857

 

24,169

 

Stock Indices

 

68,490

 

0.19

%

261,571

 

9,144

 

Currencies

 

331,685

 

0.91

%

588,857

 

34,661

 

 

 

 

 

 

 

 

 

 

 

TOTAL

 

$

3,302,236

 

9.06

%

$

6,628,355

 

$

850,405

 

 


(6) The average capitalization for John Locke Class DS is $36,454,310.

 

27



 

BlueTrend Class DS (8) 

 

 

 

September 30, 2009

 

 

 

Average

 

% of Average

 

Highest Value

 

Lowest Value

 

Market Sector

 

Value at Risk

 

Capitalization

 

At Risk

 

At Risk

 

 

 

 

 

 

 

 

 

 

 

Agricultural Commodities

 

$

11,546

 

0.02

%

$

16,802

 

$

2,512

 

Energy

 

47,904

 

0.09

%

126,648

 

4,415

 

Interest Rates

 

4,167,371

 

7.74

%

7,415,576

 

2,727,545

 

Metals

 

10,480

 

0.02

%

22,254

 

3,646

 

Stock Indices

 

103,046

 

0.19

%

360,685

 

8,830

 

Currencies

 

25,093

 

0.05

%

63,560

 

1,961

 

 

 

 

 

 

 

 

 

 

 

TOTAL

 

$

4,365,439

 

8.11

%

$

8,005,525

 

$

2,748,907

 

 


(8) Average capitalization of BlueTrend Class DS is $53,859,118

 

BlueTrend Class DS (8)

 

 

 

September 30, 2008

 

 

 

Average

 

% of Average

 

Highest Value

 

Lowest Value

 

Market Sector

 

Value at Risk

 

Capitalization

 

At Risk

 

At Risk

 

 

 

 

 

 

 

 

 

 

 

Agricultural Commodities

 

$

12,073

 

0.03

%

$

12,073

 

$

12,073

 

Energy

 

23,984

 

0.07

%

23,984

 

23,984

 

Interest Rates

 

1,854,518

 

5.15

%

1,854,518

 

1,854,518

 

Metals

 

24,924

 

0.07

%

24,924

 

24,924

 

Stock Indices

 

193,271

 

0.54

%

193,271

 

193,271

 

Currencies

 

35,515

 

0.10

%

35,515

 

35,515

 

 

 

 

 

 

 

 

 

 

 

TOTAL

 

$

2,144,285

 

5.96

%

$

2,144,285

 

$

2,144,285

 

 


(8) The average capitalization for Class DS is $36,029,745.

 

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

 

The face value of the market sector instruments held by the Portfolio Funds 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 Portfolio Funds.  The magnitude of the Portfolio Funds’ 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 Portfolio Funds to incur severe losses over a short period of time.   The foregoing Value at Risk table — as well as the past performance of the Portfolio Funds — gives no indication of this “risk of ruin.”

 

28



 

Non-Trading Risk

 

Foreign Currency Balances; Cash on Deposit with MLPF&S

 

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

 

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

 

The face value of the market sector instruments held by the Portfolio Funds are 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 Portfolio Funds.  The magnitude of the Portfolio Funds’ 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 Portfolio Funds to incur severe losses over a short period of time.   The foregoing Value at Risk table — as well as the past performance of the Portfolio Funds — gives no indication of this “risk of ruin.”

 

Qualitative Disclosures Regarding Primary Trading Risk Exposures

 

The following qualitative disclosures regarding the Portfolio Funds’ market risk exposures — except for (i) those disclosures that are statements of historical fact and (ii) the descriptions of how the Portfolio Funds manage their 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 Portfolio Funds’ primary market risk exposures as well as the strategies used and to be used by Portfolio Funds’ managers for managing such exposures are subject to numerous uncertainties, contingencies and risks, any one of which could cause the actual results of the Portfolio Funds’ 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 Portfolio Funds. There can be no assurance that the Portfolio Funds’ 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.

 

Item 4T. Controls and Procedures

 

MLAI, the Sponsor of ML Systematic Momentum FuturesAccess LLC, with the participation of the Sponsor’s Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of the design and operation of its disclosure controls and procedures with respect to the Fund as of the end of the period of this quarterly report, and, based on this evaluation, has concluded that these disclosure controls and procedures are effective.  Additionally, there were no changes in the Fund’s internal controls or in other factors during the latest fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Fund’s internal control over financial reporting.

 

29



 

PART II - OTHER INFORMATION

 

Item 1.                                   Legal Proceedings

 

None.

 

Item 1A.                         Risk Factors

 

There are no material changes from risk factors as previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2008, filed March 31, 2009.

 

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

 

(a) Issuance to accredited investors pursuant to Regulation D and Section 4(6) under the Securities Act.  The selling agent of the following Class of Units was MLPF&S.

 

CLASS A

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

Jan-09

 

$

3,599,510

 

2,865,624

 

$

1.2561

 

Feb-09

 

5,720,556

 

4,586,351

 

1.2473

 

Mar-09

 

6,120,724

 

4,902,854

 

1.2484

 

Apr-09

 

5,762,982

 

4,769,891

 

1.2081

 

May-09

 

8,887,887

 

7,577,702

 

1.1729

 

Jun-09

 

5,546,629

 

4,676,359

 

1.1861

 

Jul-09

 

6,263,068

 

5,398,731

 

1.1601

 

Aug-09

 

6,042,246

 

5,274,307

 

1.1456

 

Sep-09

 

7,667,607

 

6,611,716

 

1.1597

 

Oct-09

 

15,636,738

 

13,322,602

 

1.1737

 

 

CLASS C

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

Jan-09

 

$

28,240,030

 

21,876,234

 

$

1.2909

 

Feb-09

 

26,028,041

 

20,323,293

 

1.2807

 

Mar-09

 

30,607,819

 

23,897,423

 

1.2808

 

Apr-09

 

33,059,489

 

26,693,168

 

1.2385

 

May-09

 

29,957,332

 

24,935,352

 

1.2014

 

Jun-09

 

19,611,804

 

16,156,030

 

1.2139

 

Jul-09

 

25,790,268

 

21,740,089

 

1.1863

 

Aug-09

 

15,532,334

 

13,269,828

 

1.1705

 

Sep-09

 

16,895,697

 

14,271,220

 

1.1839

 

Oct-09

 

39,415,410

 

32,922,995

 

1.1972

 

 

CLASS D

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

Jan-09

 

$

 

 

$

1.4396

 

Feb-09

 

 

 

1.4312

 

Mar-09

 

 

 

1.4343

 

Apr-09

 

 

 

1.3898

 

May-09

 

 

 

1.3509

 

Jun-09

 

 

 

1.3679

 

Jul-09

 

5,147,100

 

3,842,553

 

1.3395

 

Aug-09

 

1,999,999

 

1,510,117

 

1.3244

 

Sep-09

 

2,574,998

 

1,918,205

 

1.3424

 

Oct-09

 

599,981

 

441,065

 

1.3603

 

 

CLASS I

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

Jan-09

 

$

5,655,080

 

4,284,476

 

$

1.3199

 

Feb-09

 

7,755,169

 

5,915,461

 

1.3110

 

Mar-09

 

3,879,323

 

2,955,450

 

1.3126

 

Apr-09

 

5,761,281

 

4,533,586

 

1.2708

 

May-09

 

7,170,562

 

5,810,357

 

1.2341

 

Jun-09

 

1,759,941

 

1,409,757

 

1.2484

 

Jul-09

 

4,077,683

 

3,338,532

 

1.2214

 

Aug-09

 

2,590,820

 

2,147,207

 

1.2066

 

Sep-09

 

2,282,822

 

1,868,256

 

1.2219

 

Oct-09

 

6,931,734

 

5,603,665

 

1.2370

 

 

CLASS D1

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

Jan-09

 

$

 

 

$

1.2848

 

Feb-09

 

3,722,356

 

2,914,238

 

1.2773

 

Mar-09

 

 

 

1.2800

 

Apr-09

 

529,675

 

427,054

 

1.2403

 

May-09

 

4,504,529

 

3,736,028

 

1.2057

 

Jun-09

 

1,681,341

 

1,377,245

 

1.2208

 

Jul-09

 

1,048,230

 

876,813

 

1.1955

 

Aug-09

 

715,895

 

605,664

 

1.1820

 

Sep-09

 

 

 

1.1981

 

Oct-09

 

807,517

 

665,116

 

1.2141

 

 

CLASS DA

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

Jan-09

 

$

 

 

$

1.0282

 

Feb-09

 

 

 

1.0222

 

Mar-09

 

 

 

1.0244

 

Apr-09

 

 

 

0.9927

 

May-09

 

 

 

0.9649

 

Jun-09

 

 

 

0.9770

 

Jul-09

 

 

 

0.9568

 

Aug-09

 

 

 

0.9460

 

Sep-09

 

 

 

0.9588

 

Oct-09

 

 

 

0.9716

 

 


(1) Beginning of the month Net Asset Value for all other purposes

 

(b)         None.

(c)          None.

 

30



 

Item 3.                                   Defaults Upon Senior Securities

 

None.

 

Item 4.                                   Submission of Matters to a Vote of Security Holders

 

None.

 

Item 5.                                   Other Information

 

None.

 

Item 6.                                   Exhibits

 

The following exhibits are incorporated by reference or 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.

 

31



 

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 SYSTEMATIC MOMENTUM FUTURESACCESS LLC

 

 

 

 

 

By: MERRILL LYNCH ALTERNATIVE

 

INVESTMENTS LLC

 

(Manager)

 

 

 

 

Date: November 12, 2009

By

/s/ JUSTIN C. FERRI

 

 

Justin C. Ferri

 

 

Chief Executive Officer and President

 

 

(Principal Executive Officer)

 

 

Date: November 12, 2009

 

 

By

/s/ BARBRA E. KOCSIS

 

 

Barbra E. Kocsis

 

 

Chief Financial Officer

 

 

(Principal Financial and Accounting Officer)

 

32