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EX-32.01 - EX-32.01 - ML Winton FuturesAccess LLCa09-32679_1ex32d01.htm
EX-31.01 - EX-31.01 - ML Winton FuturesAccess LLCa09-32679_1ex31d01.htm
EX-32.02 - EX-32.02 - ML Winton FuturesAccess LLCa09-32679_1ex32d02.htm
EX-31.02 - EX-31.02 - ML Winton FuturesAccess LLCa09-32679_1ex31d02.htm

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended 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 0-51084

 

ML WINTON FUTURESACCESS LLC

(Exact Name of Registrant as
specified in its charter)

 

Delaware

 

20-1227904

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

 

As of September 30, 2009, 515,535,828 units of membership were outstanding.

 

 

 



 

ML WINTON 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

15

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

23

 

 

 

Item 4T.

Controls and Procedures

28

 

 

 

 

PART II

 

 

 

 

Item 1.

Legal Proceedings

29

 

 

 

Item 1A.

Risk Factors

29

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

29

 

 

 

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 WINTON FUTURESACCESS LLC

(a Delaware Limited Liability Company)

 

STATEMENTS OF FINANCIAL CONDITION

(unaudited)

 

 

 

September 30,

 

December 31,

 

 

 

2009

 

2008

 

ASSETS:

 

 

 

 

 

Equity in commodity futures trading accounts:

 

 

 

 

 

Cash (including restricted cash of $59,565,610 for 2009 and $40,230,744 for 2008)

 

$

 750,922,943

 

$

 849,579,676

 

Net unrealized profit on open contracts

 

23,772,902

 

14,731,114

 

Cash

 

249,174

 

163,743

 

Accrued interest

 

 

39,428

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

 774,945,019

 

$

 864,513,961

 

 

 

 

 

 

 

LIABILITIES AND MEMBERS’ CAPITAL:

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

Brokerage commissions payable

 

$

 142,129

 

$

 89,151

 

Management fee payable

 

1,260,153

 

1,400,958

 

Sponsor fee payable

 

726,434

 

902,258

 

Redemptions payable

 

10,136,579

 

27,903,546

 

Performance fee payable

 

33,300

 

29,843,518

 

Other

 

392,801

 

385,970

 

 

 

 

 

 

 

Total liabilities

 

12,691,396

 

60,525,401

 

 

 

 

 

 

 

MEMBERS’ CAPITAL:

 

 

 

 

 

Sponsor’s Interest (19,470 Units)

 

28,717

 

31,415

 

Members’ Interest (515,316,358 Units and 500,089,110 Units)

 

762,224,906

 

803,957,145

 

Total members’ capital

 

762,253,623

 

803,988,560

 

 

 

 

 

 

 

TOTAL LIABILITIES AND MEMBERS’ CAPITAL

 

$

 774,945,019

 

$

 864,513,961

 

 

 

 

 

 

 

NET ASSET VALUE PER UNIT (SEE NOTE 4)

 

 

 

 

 

 

 

 

 

 

 

(Based on 515,335,828 and 500,108,580  Units outstanding; unlimited Units authorized)

 

 

 

 

 

 

See notes to financial statements.

 

1



 

WINTON 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,

 

September 30,

 

September 30,

 

September 30,

 

 

 

2009

 

2008

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

TRADING PROFIT (LOSS):

 

 

 

 

 

 

 

 

 

Realized

 

$

 (11,778,258

)

$

 (28,352,200

)

$

 (54,611,721

)

$

 81,846,519

 

Change in unrealized, net

 

22,314,757

 

(30,851,844

)

9,039,356

 

(7,829,096

)

Brokerage commissions

 

(203,463

)

(261,011

)

(596,742

)

(910,442

)

 

 

 

 

 

 

 

 

 

 

Total trading profit (loss)

 

10,333,036

 

(59,465,055

)

(46,169,107

)

73,106,981

 

 

 

 

 

 

 

 

 

 

 

INVESTMENT INCOME:

 

 

 

 

 

 

 

 

 

Interest

 

(5,390

)

3,632,539

 

52,569

 

12,209,816

 

 

 

 

 

 

 

 

 

 

 

EXPENSES:

 

 

 

 

 

 

 

 

 

Management fee

 

3,708,504

 

3,800,396

 

11,470,161

 

10,781,276

 

Sponsor fee

 

2,252,474

 

2,580,675

 

7,264,488

 

7,556,325

 

Performance fee

 

 

(12,354,958

)

583

 

11,751,260

 

Other

 

396,081

 

358,427

 

1,054,124

 

1,043,973

 

Total expenses

 

6,357,059

 

(5,615,460

)

19,789,356

 

31,132,834

 

 

 

 

 

 

 

 

 

 

 

NET INVESTMENT LOSS

 

(6,362,449

)

9,247,999

 

(19,736,787

)

(18,923,018

)

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS)

 

$

 3,970,587

 

$

 (50,217,056

)

$

 (65,905,894

)

$

 54,183,963

 

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS) PER UNIT:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of Units outstanding

 

 

 

 

 

 

 

 

 

Class A

 

48,330,421

 

46,558,456

 

48,290,312

 

45,084,680

 

Class C

 

203,695,343

 

234,140,456

 

209,769,004

 

227,484,892

 

Class D

 

78,318,234

 

92,889,619

 

78,159,645

 

83,956,966

 

Class I

 

41,090,886

 

42,555,410

 

42,465,404

 

40,185,227

 

Class DS*

 

101,023,751

 

45,105,598

 

86,031,099

 

30,547,965

 

Class DT**

 

47,750,063

 

59,280,933

 

50,098,593

 

62,927,835

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per weighted average Unit

 

 

 

 

 

 

 

 

 

Class A

 

$

 0.0063

 

$

 (0.0994

)

$

 (0.1378

)

$

 0.1135

 

Class C

 

$

 0.0022

 

$

 (0.1001

)

$

 (0.1419

)

$

 0.1016

 

Class D

 

$

 0.0112

 

$

 (0.0919

)

$

 (0.1174

)

$

 0.1138

 

Class I

 

$

 0.0082

 

$

 (0.0946

)

$

 (0.1341

)

$

 0.1226

 

Class DS*

 

$

 0.0135

 

$

 (0.0816

)

$

 (0.1043

)

$

 0.0460

 

Class DT**

 

$

 0.0134

 

$

 (0.0997

)

$

 (0.1135

)

$

 0.1600

 

 


*Class DS was previously known as Class D-SM.  Units issued on April 2, 2007.

**Class DT was previously known as Class D-TF.  Units issued on June 1, 2007.

 

See notes to financial statements.

 

2



 

ML WINTON 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

 

40,108,055

 

15,091,853

 

(8,772,898

)

46,427,010

 

45,849,416

 

9,950,735

 

(8,234,239

)

47,565,912

 

Class C

 

213,642,396

 

51,129,801

 

(33,032,805

)

231,739,392

 

215,169,073

 

28,649,326

 

(44,094,154

)

199,724,245

 

Class D

 

77,864,803

 

22,831,658

 

(11,370,571

)

89,325,890

 

73,051,567

 

6,041,151

 

(2,711,187

)

76,381,531

 

Class I

 

37,718,572

 

11,355,998

 

(4,473,410

)

44,601,160

 

43,073,827

 

7,952,058

 

(9,891,534

)

41,134,351

 

Class DS*

 

13,447,784

 

40,935,807

 

(2,749,330

)

51,634,261

 

69,186,442

 

34,891,377

 

 

104,077,819

 

Class DT**

 

69,259,318

 

 

(12,520,493

)

56,738,825

 

53,758,785

 

459,179

 

(7,785,464

)

46,432,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Members’ Units

 

452,040,928

 

141,345,117

 

(72,919,507

)

520,466,538

 

500,089,110

 

87,943,826

 

(72,716,578

)

515,316,358

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A

 

9,713

 

 

 

9,713

 

9,713

 

 

 

9,713

 

Class C

 

9,757

 

 

 

9,757

 

9,757

 

 

 

9,757

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Sponsor’s Units

 

19,470

 

 

 

19,470

 

19,470

 

 

 

19,470

 

 


*Class DS was previously known as Class D-SM.  Units issued on April 2, 2007.

**Class DT was previously known as Class D-TF.  Units issued on June 1, 2007.

See notes to financial statements.

 

3



 

ML WINTON 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

 

Members’ Capital September 30, 2008

 

Members’ Capital December 31, 2008

 

Subscriptions

 

Redemptions

 

Net Loss

 

Members’ Capital September 30, 2009

 

Class A

 

$

 55,236,501

 

$

 22,692,478

 

$

 (13,418,255

)

$

 5,114,551

 

$

 69,625,275

 

$

 75,377,293

 

$

 15,777,283

 

$

 (12,754,541

)

$

 (6,639,858

)

$

 71,760,177

 

Class C

 

286,078,081

 

74,805,037

 

(48,611,957

)

23,111,200

 

335,382,361

 

340,542,258

 

43,359,316

 

(66,271,637

)

(29,735,962

)

287,893,975

 

Class D

 

103,236,597

 

34,257,385

 

(16,613,094

)

9,556,848

 

130,437,736

 

117,366,051

 

9,663,521

 

(3,989,217

)

(9,183,574

)

113,856,781

 

Class I

 

52,132,196

 

17,154,873

 

(6,880,279

)

4,927,260

 

67,334,050

 

71,357,222

 

12,705,694

 

(15,661,749

)

(5,672,454

)

62,728,713

 

Class DS*

 

17,829,738

 

60,164,637

 

(4,000,000

)

1,403,810

 

75,398,185

 

111,018,099

 

52,913,336

 

 

(8,980,195

)

154,951,240

 

Class DT**

 

92,508,127

 

 

(18,467,848

)

10,068,052

 

84,108,331

 

88,296,222

 

714,029

 

(12,285,078

)

(5,691,153

)

71,034,020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Members’ Interest

 

$

 607,021,240

 

$

 209,074,410

 

$

 (107,991,433

)

$

 54,181,721

 

$

 762,285,938

 

$

 803,957,145

 

$

 135,133,179

 

$

 (110,962,222

)

$

 (65,903,196

)

$

 762,224,906

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A

 

$

 13,381

 

$

 —

 

$

 —

 

$

 1,188

 

$

 14,569

 

$

 15,971

 

$

 —

 

$

 —

 

$

 (1,318

)

$

 14,653

 

Class C

 

13,068

 

 

 

1,054

 

$

 14,122

 

15,444

 

 

 

(1,380

)

14,064

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Sponsor’s Interest

 

$

 26,449

 

$

 —

 

$

 —

 

$

 2,242

 

$

 28,691

 

$

 31,415

 

$

 —

 

$

 —

 

$

 (2,698

)

$

 28,717

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Members’ Capital

 

$

 607,047,689

 

$

 209,074,410

 

$

 (107,991,433

)

$

 54,183,963

 

$

 762,314,629

 

$

 803,988,560

 

$

 135,133,179

 

$

 (110,962,222

)

$

 (65,905,894

)

$

 762,253,623

 

 


*Class DS was previously known as Class D-SM.  Units issued on April 2, 2007.

**Class DT was previously known as Class D-TF.  Units issued on June 1, 2007.

See notes to financial statements.

 

4



 

ML WINTON FUTURESACCESS LLC

(A Delaware Limited Liability Company)

 

FINANCIAL DATA HIGHLIGHTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 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 DS*

 

Class DT**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per Unit Operating Performance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, beginning of period

 

$

1.5024

 

$

1.4391

 

$

1.4789

 

$

1.5172

 

$

1.4771

 

$

1.5159

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Realized and change in unrealized trading profit (loss)

 

0.0202

 

0.0196

 

0.0202

 

0.0207

 

0.0202

 

0.0207

 

Brokerage commissions

 

(0.0004

)

(0.0004

)

(0.0004

)

(0.0004

)

(0.0004

)

(0.0004

)

Interest income

 

(0.0000

)

(0.0000

)

(0.0000

)

(0.0000

)

(0.0000

)

(0.0000

)

Expenses

 

(0.0136

)

(0.0168

)

(0.0081

)

(0.0125

)

(0.0081

)

(0.0064

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, end of period

 

$

1.5086

 

$

1.4415

 

$

1.4906

 

$

1.5250

 

$

1.4888

 

$

1.5298

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total return before Performance fees

 

0.41

%

0.51

%

0.79

%

0.51

%

0.79

%

0.92

%

Performance fees

 

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

Total return after Performance fees

 

0.41

%

0.51

%

0.79

%

0.51

%

0.79

%

0.92

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios to Average Members’ Capital:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses (excluding Performance fees)

 

1.18

%

0.83

%

0.55

%

0.83

%

0.55

%

0.43

%

Performance fees

 

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

Expenses (including Performance fees)

 

1.18

%

0.83

%

0.55

%

0.83

%

0.55

%

0.43

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income (loss)

 

-1.18

%

-0.83

%

-0.55

%

-0.83

%

-0.55

%

-0.43

%

 


*Class DS and was previously known as Class D-SM.

**Class DT was previously known as Class D-TF.

 

See notes to financial statements.

 

5



 

ML WINTON 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

 

 

 

Class A

 

Class C

 

Class D

 

Class I

 

Class DS*

 

Class DT**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per Unit Operating Performance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, beginning of period

 

$

1.6440

 

$

1.5827

 

$

1.6066

 

$

1.6566

 

$

1.6046

 

$

1.6425

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Realized and change in unrealized trading profit (loss)

 

(0.0915

)

(0.0879

)

(0.0897

)

(0.0922

)

(0.0895

)

(0.0918

)

Brokerage commissions

 

(0.0012

)

(0.0011

)

(0.0012

)

(0.0012

)

(0.0012

)

(0.0012

)

Interest income

 

0.0001

 

0.0001

 

0.0001

 

0.0001

 

0.0001

 

0.0001

 

Expenses

 

(0.0428

)

(0.0523

)

(0.0252

)

(0.0383

)

(0.0252

)

(0.0198

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, end of period

 

$

1.5086

 

$

1.4415

 

$

1.4906

 

$

1.5250

 

$

1.4888

 

$

1.5298

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total return before Performance fees

 

-8.25

%

-8.94

%

-7.21

%

-7.98

%

-7.21

%

-6.86

%

Performance fees

 

0.00

%

0.00

%

-0.01

%

0.00

%

-0.01

%

0.00

%

Total return after Performance fees

 

-8.25

%

-8.94

%

-7.22

%

-7.98

%

-7.22

%

-6.86

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios to Average Members’ Capital:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses (excluding Performance fees)

 

2.76

%

3.51

%

1.64

%

2.46

%

1.63

%

1.26

%

Performance fees

 

0.00

%

0.00

%

0.00

%

0.00

%

0.01

%

-0.01

%

Expenses (including Performance fees)

 

2.76

%

3.51

%

1.64

%

2.46

%

1.64

%

1.25

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income (loss)

 

-2.76

%

-3.50

%

-1.64

%

-2.46

%

-1.64

%

-1.25

%

 


*Class DS and was previously known as Class D-SM.

**Class DT was previously known as Class D-TF.

 

See notes to financial statements.

 

6



 

ML WINTON FUTURESACCESS LLC

(a Delaware Limited Liability Company)

 

NOTES TO FINANCIAL STATEMENTS

(unaudited)

 

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

ML Winton FuturesAccess LLC (the “Fund”) was organized under the Delaware Limited Liability Company Act on May 17, 2004 and commenced trading activities on February 1, 2005. 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. The Fund engages in the speculative trading of futures, options on futures and forward contracts on a wide range of commodities. Winton Capital Management Limited (“Winton”) is the trading advisor of the Fund.

 

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 to present fairly 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 periods 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.    CONDENSED SCHEDULES OF INVESTMENTS

 

The Fund’s investments, defined as Net unrealized profit (loss) on open contracts in the Statements of Financial Condition as of September 30, 2009 and December 31, 2008 are as follows:

 

September 30, 2009

 

 

 

Long Positions

 

Short Positions

 

Net Unrealized

 

 

 

 

 

Commodity Industry

 

Number of

 

Unrealized

 

Percent of

 

Number of

 

Unrealized

 

Percent of

 

Profit (Loss)

 

Percent of

 

 

 

Sector

 

Contracts

 

Profit (Loss)

 

Members’ Capital

 

Contracts

 

Profit (Loss)

 

Members’ Capital

 

on Open Positions

 

Members’ Capital

 

Maturity Dates

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agriculture

 

360

 

$

(367,151

)

-0.05

%

(1,704

)

$

302,759

 

0.04

%

$

(64,392

)

-0.01

%

October 2009 – December 2010

 

Currencies

 

4,029

 

9,388,891

 

1.23

%

(204

)

(98,106

)

-0.01

%

9,290,785

 

1.22

%

October 2009 – December 2009

 

Energy

 

32

 

(17,753

)

0.00

%

(373

)

(1,135,591

)

-0.15

%

(1,153,344

)

-0.15

%

March 2010

 

Interest rates

 

14,955

 

12,091,444

 

1.59

%

(116

)

57,697

 

0.01

%

12,149,141

 

1.60

%

October 2009 – March 2010

 

Metals

 

1,012

 

3,162,988

 

0.41

%

(123

)

(133,928

)

-0.02

%

3,029,059

 

0.39

%

October 2009 – March 2010

 

Stock indices

 

2,894

 

451,026

 

0.06

%

(31

)

70,626

 

0.01

%

521,652

 

0.07

%

October 2009 – March 2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

$

24,709,445

 

3.24

%

 

 

$

(936,543

)

-0.12

%

$

23,772,902

 

3.12

%

 

 

 

December 31, 2008

 

 

 

Long Positions

 

Short Positions

 

Net Unrealized

 

 

 

 

 

Commodity Industry

 

Number of

 

Unrealized

 

Percent of

 

Number of

 

Unrealized

 

Percent of

 

Profit (Loss)

 

Percent of

 

 

 

Sector

 

Contracts

 

Profit (Loss)

 

Members’ Capital

 

Contracts

 

Profit (Loss)

 

Members’ Capital

 

on Open Positions

 

Members’ Capital

 

Maturity Dates

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agriculture

 

197

 

$

390,804

 

0.05

%

(2,131

)

$

(3,807,410

)

-0.47

%

$

(3,416,606

)

-0.42

%

January 09 – November 10

 

Currencies

 

759

 

1,426,021

 

0.18

%

(1,366

)

(4,720,175

)

-0.59

%

(3,294,154

)

-0.41

%

March 09

 

Energy

 

 

 

0.00

%

(313

)

1,169,490

 

0.15

%

1,169,490

 

0.15

%

January 09 – December 10

 

Interest rates

 

10,483

 

17,823,721

 

2.21

%

(88

)

(21,657

)

0.00

%

17,802,064

 

2.21

%

January 09 – June 10

 

Metals

 

238

 

(635,812

)

-0.08

%

(558

)

3,463,278

 

0.42

%

2,827,466

 

0.34

%

January 09 – April 09

 

Stock indices

 

10

 

1,903

 

0.00

%

(384

)

(359,049

)

-0.04

%

(357,146

)

-0.04

%

January 09 – March 09

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

$

19,006,637

 

2.36

%

 

 

$

(4,275,523

)

-0.53

%

$

14,731,114

 

1.83

%

 

 

 

No individual contract’s unrealized gain or loss comprised greater than 5% of the Members’ Capital as of September 30, 2009 or December 31, 2008.

 

8



 

The Fund’s net unrealized profit (loss) on open forward and futures contracts as of September 30, 2009 and December 31, 2008 are as follows:

 

September 30, 2009

 

Unrealized Long Positions

 

Unrealized Short Positions

 

Total

 

Futures

 

$

24,709,445

 

$

(936,543

)

$

23,772,902

 

Forwards

 

 

 

 

Total

 

$

24,709,445

 

$

(936,543

)

$

23,772,902

 

 

December 31, 2008

 

Unrealized Long Positions

 

Unrealized Short Positions

 

Total

 

Futures

 

$

19,006,637

 

$

(4,275,523

)

$

14,731,114

 

Forwards

 

 

 

 

Total

 

$

19,006,637

 

$

(4,275,523

)

$

14,731,114

 

 

3.    FAIR VALUE OF INVESTMENTS

 

In September 2006 FASB issued 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 the measurement date (i.e. the exit price). All investments (including derivative financial instruments and derivative commodity instruments) are held for trading purposes.  The investments are recorded on trade date and open contracts are recorded at fair value (described below) at the measurement date. Investments denominated in foreign currencies are translated into U.S. dollars at the exchange rates prevailing at the measurement date.  Gains or losses are realized when contracts are liquidated.  Unrealized gains or losses on open contracts are included in equity in commodity futures trading account.  Any change in net unrealized gain or loss from the preceding period is reported in the Statement 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.

 

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.

 

9



 

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.

 

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

 

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

 

Upon adoption of this fair value measurement guidance, the Fund has determined that Level I securities would include all of its futures and options contracts where it believes that quoted prices are available in an active market.

 

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

 

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

 

 

 

Total

 

Level I

 

Level II

 

Level III

 

Net unrealized profit (loss) on open contracts

 

 

 

 

 

 

 

 

 

September 30, 2009

 

$

23,772,902

 

$

23,772,902

 

N/A

 

N/A

 

December 31, 2008

 

$

14,731,114

 

$

14,731,114

 

N/A

 

N/A

 

 

10



 

Effective January 1, 2009, the Fund adopted the guidance on disclosures about derivative instruments and hedging activities as of January 1, 2009 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 Statements of Financial Condition or Statements of Operations and Members’ Capital.

 

The Fund engages in the speculative trading of futures, options on futures and forward contracts on a wide range of commodities. Such contracts meet the definition of a derivative as noted in the guidance for accounting for derivative and hedging Activities. The fair value amounts of and the gains and losses on derivative instruments is disclosed in the statements of financial condition and statements of operations, respectively. There are no credit related contingent features embedded in these derivative contracts.

 

The following table indicates the trading gains and losses, by commodity industry sector, on derivative instruments for each of the three month and nine month periods ended September 30, 2009:

 

 

 

For the three months ended

 

For the nine months ended

 

 

 

September 30, 2009

 

September 30, 2009

 

Commodity Industry Sector

 

Gain (loss) from trading

 

Gain (loss) from trading

 

 

 

 

 

 

 

Agriculture

 

$

(54,176

)

5,548,347

 

Currencies

 

10,685,650

 

(9,299,725

)

Energy

 

(4,607,969

)

(8,964,646

)

Interest rates

 

13,652,216

 

(7,264,243

)

Metals

 

2,284,217

 

(7,344,569

)

Stock indices

 

(11,423,439

)

(18,247,529

)

 

 

 

 

 

 

Total

 

$

10,536,499

 

(45,572,365

)

 

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

 

11



 

4.    NET ASSET VALUE PER UNIT

 

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

 

$

1.5086

 

Class C

 

1.4415

 

Class D

 

1.4906

 

Class I

 

1.5250

 

Class DS

 

1.4888

 

Class DT

 

1.5298

 

 

December 31, 2008

 

 

 

Net Asset Value per Unit

 

Class A

 

$

1.6440

 

Class C

 

1.5827

 

Class D

 

1.6066

 

Class I

 

1.6566

 

Class DS

 

1.6046

 

Class DT

 

1.6425

 

 

12



 

5.   MARKET AND CREDIT RISK

 

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

 

Market Risk

 

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

 

MLAI, has procedures in place intended to control market risk exposure, although there can be no assurance that they will, in fact, succeed in doing so.  These procedures focus primarily on monitoring the trading of Winton, calculating the Net Asset Value of the Fund as of the close of business on each day and reviewing outstanding positions for over-concentrations.  While MLAI does not intervene in the markets to hedge or diversify the Fund’s market exposure, MLAI may urge Winton 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 simply of the ongoing process of advisor monitoring, with the market risk controls being applied by Winton.

 

Credit Risk

 

The risks associated with exchange-traded contracts are typically perceived to be less than those associated with over-the-counter (non-exchange-traded) transactions, because exchanges typically (but not universally) provide clearinghouse arrangements in which the collective credit (in some cases limited in amount, in some cases not) of the members of the exchange 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. The Fund attempts to mitigate this risk by dealing exclusively with Merrill Lynch entities as clearing brokers.

 

The Fund, in its normal course of business, enters into various contracts with MLPF&S acting as its 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.

 

13



 

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 the fair value measurements when the volume and level of activity for the asset or liability have significantly decreased. This guidance 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.

 

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.

 

14



 

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

 

MONTH-END NET ASSET VALUE PER UNIT

 

MLAI believes that the Net Asset Value used to calculate subscription and redemption value and to report performance to investors throughout the 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

 

$

1.4285

 

$

1.5377

 

$

1.5208

 

$

1.5075

 

$

1.5302

 

$

1.6005

 

$

1.5348

 

$

1.4963

 

$

1.5000

 

2009

 

$

1.6553

 

$

1.6464

 

$

1.6155

 

$

1.5632

 

$

1.5257

 

$

1.5024

 

$

1.4745

 

$

1.4752

 

$

1.5086

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS C

 

 

 

Jan.

 

Feb.

 

Mar.

 

Apr.

 

May.

 

Jun.

 

Jul.

 

Aug.

 

Sept.

 

2008

 

$

1.3876

 

$

1.4924

 

$

1.4747

 

$

1.4607

 

$

1.4814

 

$

1.5482

 

$

1.4835

 

$

1.4450

 

$

1.4474

 

2009

 

$

1.5921

 

$

1.5822

 

$

1.5513

 

$

1.4998

 

$

1.4626

 

$

1.4391

 

$

1.4112

 

$

1.4107

 

$

1.4415

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS D

 

 

 

Jan.

 

Feb.

 

Mar.

 

Apr.

 

May.

 

Jun.

 

Jul.

 

Aug.

 

Sept.

 

2008

 

$

1.3765

 

$

1.4836

 

$

1.4691

 

$

1.4581

 

$

1.4819

 

$

1.5519

 

$

1.4903

 

$

1.4548

 

$

1.4602

 

2009

 

$

1.6193

 

$

1.6126

 

$

1.5842

 

$

1.5349

 

$

1.4999

 

$

1.4789

 

$

1.4532

 

$

1.4558

 

$

1.4906

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS I

 

 

 

Jan.

 

Feb.

 

Mar.

 

Apr.

 

May.

 

Jun.

 

Jul.

 

Aug.

 

Sept.

 

2008

 

$

1.4343

 

$

1.5444

 

$

1.5279

 

$

1.5151

 

$

1.5385

 

$

1.6098

 

$

1.5442

 

$

1.5059

 

$

1.5102

 

2009

 

$

1.6687

 

$

1.6603

 

$

1.6297

 

$

1.5774

 

$

1.5401

 

$

1.5172

 

$

1.4894

 

$

1.4907

 

$

1.5250

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS DS

 

 

 

Jan.

 

Feb.

 

Mar.

 

Apr.

 

May.

 

Jun.

 

Jul.

 

Aug.

 

Sept.

 

2008

 

$

1.3765

 

$

1.4835

 

$

1.4690

 

$

1.4582

 

$

1.4817

 

$

1.5509

 

$

1.4900

 

$

1.4549

 

$

1.4602

 

2009

 

$

1.6173

 

$

1.6106

 

$

1.5822

 

$

1.5329

 

$

1.4980

 

$

1.4771

 

$

1.4514

 

$

1.4540

 

$

1.4888

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS DT

 

 

 

Jan.

 

Feb.

 

Mar.

 

Apr.

 

May.

 

Jun.

 

Jul.

 

Aug.

 

Sept.

 

2008

 

$

1.3901

 

$

1.5051

 

$

1.4899

 

$

1.4785

 

$

1.5045

 

$

1.5802

 

$

1.5141

 

$

1.4761

 

$

1.4824

 

2009

 

$

1.6568

 

$

1.6500

 

$

1.6217

 

$

1.5718

 

$

1.5367

 

$

1.5159

 

$

1.4902

 

$

1.4934

 

$

1.5298

 

 

15



 

Liquidity and Capital Resources

 

The Fund does not engage in the sale of goods or services.  The Fund’s assets are its (i) equity in its trading account, consisting of cash and cash equivalents and (ii) interest receivable.    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 no 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 decreased 5.19% from $803,988,560 to $762,253,623.  This decrease was attributable to the net loss from operations of $65,905,894, coupled with the redemption of 72,716,578 Redeemable Units resulting in an outflow of $110,962,222.  The cash outflow was offset with cash inflow of $135,133,179 due to subscription of 87,943,826 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 classification of cash flows from certain securities acquired for resale.

 

Investments

 

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

 

16



 

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.

 

Futures Contracts

 

The Fund trades futures contracts.  A futures contract is a firm commitment to buy or sell a specified quantity of investments, currency or a standardized amount of a deliverable grade commodity, at a specified price on a specified future date, unless the contract is closed before the delivery date or if the delivery quantity is something where physical delivery cannot occur (such as S&P 500 Index), whereby such contract is settled in cash.  Payments (“variation margin”) may be made or received by the Fund each business day, depending on the daily fluctuations in the value of the underlying contracts, and are recorded as unrealized gains or losses by the Fund.  When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed.  Because transactions in futures contracts require participants to make both initial margin deposits of cash or other assets and variation margin deposits, through the futures broker, directly with the exchange on which the contracts are traded, credit exposure is limited.  Realized gains (losses) and changes in unrealized gains (losses) on futures contracts are included in the Statement of Operations and Statements of Changes in Members’ Capital.

 

Forward Foreign Currency Contracts

 

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

 

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 ASC guidance on accounting for uncertainty in income taxes.  This guidance provides guidance for 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.

 

17



 

Results of Operations

 

January 1, 2009 through March 31, 2009

 

The Fund experienced a net trading loss before brokerage commissions and related fees in the first quarter of 2009 of $6,805,508.  The Fund posted overall losses for the quarter with the stock indices, agriculture and the energy sectors posting gains while the metals, interest rates and currencies sectors posting losses.

 

The stock indices sector posted profits for the Fund. Profits were posted to the Fund at the beginning through the middle of the quarter as the global financial and commodity markets worsened. No regions, countries, sectors or companies appeared to be immune from the recessionary conditions. Against this recessionary background and with volatility levels still elevated, the Fund kept its low margin exposure as profits were made in short positions in equities with most stock indices falling more than 10% in February. March proved a difficult month to navigate as markets either reversed previous direction or simply became range bound resulting in losses being posted to the Fund.

 

The agriculture sector posted profits for the Fund. Profits were posted to the Fund at the beginning through the middle of the quarter. The continued plunge in demand and concomitant build up in stock levels kept a lid on prices in February. Grain markets came under renewed price pressure as the Fund profited from short positions in grains. Losses were posted to the Fund at the end of the quarter due to volatility in the markets.

 

The energy sector posted profits for the Fund throughout the quarter as a rally in energy derived from crude oil prices.

 

The metals sector posted losses for the Fund. Profits were posted to the Fund at the beginning of the quarter. Losses were posted for the Fund from the middle to the end of the quarter due to the commodity sector mixed with the main features being the vacillations in the gold price making it hard to gain headway.

 

The interest rates sector posted losses for the Fund. Losses were posted to the Fund at the beginning of the quarter due to losses in Bonds as yields rose in the United States. It is the Fund’s plan to gradually loosen up “Government Paper” only approach for the cash held by the Fund. The Fund intends to make a tactical shift to allocate small percentages to Agency Paper, Corporate Bonds and in due course Commodity Cash and Carries. Yields in the 10 year bond markets firmed up fractionally but not enough to offset losses posted to the Fund in the middle of the quarter. The macro economic background continues to weigh heavily on sentiment, and the discussion or implementation of aggressive “quantitative easing” by governments created sharp moves during the month of March. The short term rates continue to decline at the end of the quarter resulting in profits being posted to the Fund.

 

The currency sector posted losses for the Fund. Profits were posted to the Fund at the beginning of the quarter as the U.S. dollar and the Japanese yen remain strong while the British sterling remained under pressure. Losses were posted to the Fund in the middle of the quarter from the fluctuating currency markets where losses occurred from the weakening of the U.S. dollar. The long exposure in the U.S. dollar was damaged by both the increasing indebtedness of the United States following President Obama’s latest fiscal stimulus package and rumors of it being sidelined as the reserve currency and the Japanese yen position also suffered posting losses as the quarter ended.

 

18



 

April 1, 2009 to June 30, 2009

 

The Fund experienced a net trading loss before brokerage commissions and related fees in the second quarter of 2009 of $(49,303,355).  The Fund posted losses for the quarter with the agriculture sector posted gains and the energy, metals, currencies, stock indices and interest rates sectors posted losses.

 

The agriculture sector posted profits for the Fund. Profits were posted to the Fund at the beginning of quarter as general trading conditions returned to something approaching normality with daily ranges more constrained and volatility declining. Losses were posted to the Fund in the middle of the quarter in the agricultural complex due to the program had a mixture of long and shorts within the same sector i.e. long soybeans/short bean oil. Profits were posted to the Fund at the end of the quarter due to crops doing well.

 

The energy sector posted losses for the Fund. Losses were posted to the Fund at the beginning of the quarter. Losses continued to be posted to the Fund as crude oil was up in May, despite inventories at 19 year highs, demand falling and offshore floating storage estimated at over 100 million barrels.  Losses were posted to the Fund at the end of the quarter as commodities retreated in June.

 

The metals sector posted losses for the Fund. Losses were posted to the Fund at the beginning of the quarter as gold went lower against their recent trend. Losses were also posted to the Fund in the middle through the end of the quarter as base metals retreated.

 

The currency sector posted losses for the Fund. Losses were posted to the Fund at the beginning of the quarter due to the currency markets were in flux with the Japanese yen remaining steady and the U.S. dollar marginally low. Losses were posted to the Fund in the middle of the quarter from the fluctuating currency markets where losses occurred from the weakening of the U.S. dollar. The quarter ended with profits being posted to the Fund as the month of June was clearly a “game of two halves” with a subtle and possibly significant change in recent investor appetite for risky assets being reversed.

 

The stock indices sector posted losses for the Fund. The flurry of “green shoots” of recovery, which started mid March, began to wane (at least temporarily), and there is renewed talk of “yellow weeds” appearing. As such, Equities came off the boil as the S&P ended flat and markets such as Russia fell from their highs resulting in losses posted the Fund in April. The underlying structure of markets exposure for the Fund during May was somewhat out of sync that the recent market action with this new sense of relative confidence has engendered posting losses to the Fund. Against this recessionary background and with volatility in global markets the Fund posted profits at the end of the quarter.

 

The interest rates sector posted losses for the Fund. Losses were posted to the Fund at the beginning of the quarter due to bonds yield rising on the ten year U.S. Treasury note. Profits were posted to the Fund in the middle of the quarter due to short positions in the German Government bund but long the Australian ten year bond.  Losses were posted to the Fund at the end of the quarter with the Fund losing in the Bond sector and also in short term interest rates.

 

19



 

July 1, 2009 to September 30, 2009

 

The fund experienced a net trading profit of $10,536,499 before brokerage commissions and related fees in the third quarter of 2009. The fund posted overall profits for the quarter with interest rates, currencies and metals sectors posting gains while the agriculture, energy and stock indices sectors posted losses.

 

The interest rate sector posted overall profits for the Fund. Losses were posted to the Fund at the beginning of the quarter. Uncertainty continued in the fixed income markets, with U.S. Federal Reserve Chairman Bernanke tempering the optimism by saying that interest rates will need to remain low for “an extended period”. Against this background the Fund’s returns were dominated by losses in equity and bond sectors.  Profits were posted to the Fund in the middle of the quarter due to continued economic recovery, with a further stream of positive data being released. At the annual Jackson Hole meeting of Central Bankers, they chose not to declare an end to the Global Crisis, with U.S. Federal Reserve Chairman Bernanke stating that “critical challenges remain”. The U.S. Federal Reserve again committed to leaving interest rates near zero for an “extended period” while the Bank of England moved to continue its program of quantitative easing. Profits were posted to the Fund at the end of the quarter due to short term interest rate which registered further gains and have become the Fund’s best performing sector for this year.

 

The currency sector posted profits for the Fund. Profits were posted to the Fund at the beginning and end of the quarter as currency positions continued to bring some diversification to the Fund with margin to equity rising. At the end of the quarter, the currencies sector was the strongest sector due to the benefits from the falling United States dollar.

 

The metals sector posted profits for the Fund. Losses were posted to the Fund at the beginning of the quarter only. Profits were posted to the Fund throughout the remainder of the quarter. Gold was close in reaching an all time high at the end of the quarter as the level of debt by Governments created a real fear of future inflation in debtor economies.

 

The agriculture sector posted losses for the Fund. Overall losses were posted to the Fund at the beginning and end of the quarter due to volatility in the global markets.

 

The energy sector posted losses to the Fund throughout the quarter with crude oil starting the quarter by falling $10 a barrel to $60 a barrel. At the end of the quarter, system changes were focused on the energies sector, where a new forecasting variable was added, albeit at a very low weight.

 

The Stock Indices Sector posted losses for the Fund. Losses were posted to the Fund at the beginning of the quarter due to economic sentiment continuing to hang on the metaphor of “green shoots”. In August, the Dow Jones was up 46% from its March low. The last time that the Dow managed this level of return in the space of six months was in 1975, when it staged a recovery from the 1973-74 stock market crash. During this move the Fund’s stock index systems have been slow to reverse their short positions resulting in losses being posted to the Fund. Global stock indices continued their strong rally into September, causing much comment as to weather the moves were sustainable as there seems little doubt that these are the direct result of Government and Central Bank stimulus. Therefore, the quarter ended with profits being posted to the Fund.

 

20



 

January 1, 2008 to March 31, 2008

 

The Fund experienced a net trading gain before brokerage commissions and related fees in the first quarter of 2008 of $81,855,916.  Gains were primarily attributable to the Fund’s trading in interest rates, currencies, agriculture, energy and the metals sectors posting gains while the stock indices sectors posted losses.

 

The interest rates sector posted profits for the Fund. The Fund profited at the beginning of the quarter by rises in bonds and interest rate futures, led by the aggressive U.S. Federal Reserve cutting interest rates by a total of 125 basis points. Profits continued to be posted for the Fund through mid-quarter. The quarter ended with profits being posted for the fund due to the U.S. Federal Reserve lowering overnight rates by 75 basis points to 2.25% which was the 6th reduction since September 2007.

 

The currency sector posted profits for the Fund. Profits were posted for the Fund throughout the quarter. The U.S. dollar renewed its overall decline mid-quarter with the Fund’s long positions in the Euro benefiting resulting in profits being posted for the Fund. The dominant theme at the end of the quarter was the continued weakness of the U.S. dollar which the Fund exploited primarily with the U.S. dollar versus the Euro and the U.S. dollar versus the Japanese yen posting profits for the Fund.

 

The agriculture sector posted profits for the Fund. Profits were posted for the Fund at the beginning of the quarter through the middle of the quarter due to the Fund’s long positions in the sector. The reversal of the recent up trends in grains caused losses being posted for the Fund at the end of the quarter.

 

The energy sector posted profits for the Fund. Losses were posted for the Fund at the beginning of the quarter from the falling back of energy prices from recent highs. The Fund experienced renewed strength in the commodity markets with long positions in the energy sectors posting profits for the Fund at the middle of the quarter which continued through the end of the quarter.

 

The metals sector posted profits for the Fund. Profits were posted to the Fund at the beginning of the year. The Fund’s long positions in precious metals accounted for much of the gains posted for the Fund in the middle of the quarter. The Fund struggled in the final weeks of the quarter with losses posted for the Fund from precious metals by the subsequent largest one day drop in gold since 1981.

 

The stock indices posted losses for the Fund. The stock sector suffered the largest losses among the financial sectors as global equities experienced sharp losses to begin the New Year. Despite the overall volatility in global equities, the stock sector posted gains for the Fund mid-quarter through the end of the quarter.

 

April 1, 2008 to June 30, 2008

 

The Fund posted profits for the quarter with the energy, agriculture, stock indices and currencies sectors posting gains while the metal and interest rate sectors posted losses.

 

The energy sector posted profits for the fund. The energy sector was the stand out performer for the Fund at the beginning of the quarter with crude oil, unleaded gasoline and natural gas markets all contributing to the profit. The continued boom in crude oil prices dominated the mid-quarter as the price has increased over 50% from the first week of February. Profits continued to be posted to the Fund as the quarter ended in particular with the renewed surge in crude oil.

 

21



 

The agriculture sector posted profits for the Fund. Profits were posted for the Fund at the beginning of the quarter as grains were the top performer for the sector. Losses were posted to the Fund mid-quarter as grains were mixed, tending to net off against each other. Due to the escalation of grain prices profits were posted to the Fund at the end of the quarter.

 

The stock indices sector posted profits for the Fund. Losses were posted to the Fund at the beginning of the quarter through mid-quarter as financial markets continued to be range bound. June saw a further crystallization of market ranges which had been threatening to break out of their ranges for some time. There was a sharp decline in global equity markets, as the cumulative weight of poor financial figures, inflationary fears and an increase in negative sentiment combined to depress both G7  (seven industrialized nations of the world: Canada, France, Germany, Italy, Japan, United Kingdom, and the United States of America) and the global markets. Most markets fell between 5-10% in June and a technical bear market looks to be in place in the United States where a 20% peak to trough decline has occurred. The Fund was well positioned to benefit from these conditions, with equity indices accounting for nearly half the monthly return as the quarter ended with profits being posted to the Fund.

 

The currency sector posted profits for the Fund. Losses were posted to the Fund at the beginning of the quarter due to the United States dollar becoming range bound, albeit near its recent lows.  Profits were posted to the Fund mid-quarter through the end of the quarter due to the Fund’s long positions in currencies.

 

The metals sector posted losses for the Fund. Losses were posted to the Fund at the beginning of the quarter as trends in the markets ebbed and flowed. Gold resumed its uptrend mid-quarter as did a number of base metals posting profits to the Fund through the end of the quarter.

 

The interest rates sector posted profits for the Fund. Losses were posted to the Fund at the beginning of the quarter due to the Fund’s position in long term bonds. Small profits in short term interest rates were offset by equivalent losses in Bonds in the middle of the quarter. Profits continued to be posted to the Fund at the end of the quarter.

 

July 1, 2008 to September 30, 2008

 

The Fund posted overall losses for the quarter with the stock indices and the interest rate sector posting gains while the metals, currencies, agriculture and the energy sectors posted losses.

 

The stock indices sector posted profits for the Fund. Profits were posted to the Fund at the beginning of the quarter. Intervention from the Securities and Exchange Commission to restrict short selling and to prop up beleaguered institutions caused some short term effects, however, equity indices stabilized against the recent bear trend. Due to market volatility, losses were posted to the Fund in the middle of the quarter. High volatility continued to cause the Fund to reduce positions so that the Fund’s margin exposure was at a record low which produced profits being posted to the Fund at the end of the quarter.

 

The interest rates sector posted profits for the Fund. Losses were posted to the Fund at the beginning of the quarter only to be reversed in the middle of the quarter due to the Fund’s position in long term bonds. The Fund profited from a long bias in bond futures as the 10 year bond yields declined. Profits continued to be posted to the Fund at the end of the quarter as there was a renewed strength in Government bonds worldwide.

 

The metals sector posted overall losses for the Fund. Losses were posted to the Fund at the beginning through the middle of the quarter as precious metals slipped under downward pressure. Profits were posted to the Fund at the end of the quarter in lieu of the global market volatility.

 

22



 

The currency sector posted losses for the Fund. Losses were posted to the Fund at the beginning of the quarter as currencies were in a state of flux, as the Euro, the Japanese yen and the British pound all softened with the U.S. dollar rising. Losses continued to be posted to the Fund in the middle of the quarter as the long standing negative trend in the U.S. dollar reversed and the U.S. dollar posted a significant recovery with the U.S. dollar index being up. The U.S. dollar continued to rally as the quarter ended posting losses for the Fund.

 

The agriculture sector posted losses for the Fund. Losses were posted to the Fund at the beginning through the middle of the quarter as grains sectors experienced dramatic price fluctuations. In the grain sector both corn and the soy complex fell significantly. The Fund posted losses at the end of the quarter due to the extreme volatility in the market.

 

The energy sector posted losses for the fund. Losses were posted to the Fund at the beginning of the quarter due to the fluctuation of crude oil moving from $140 per barrel up to $147 per barrel and then down to $125 per barrel . Losses continued to be posted to the Fund in the middle of the quarter to the end as crude oil continued to fall in price.

 

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.

 

Item 3.   Quantitative and Qualitative Disclosures About Market Risk

 

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

 

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

 

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

 

23



 

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

 

Quantifying The Fund’s Trading Value At Risk

 

Quantitative Forward-Looking Statements

 

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

 

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

 

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

 

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

 

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

 

24



 

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

 

The following table indicates the average, highest and lowest trading Value at Risk associated with the Fund’s open positions by market category for the fiscal period. For the nine months ended September 30, 2009 and 2008, the Fund’s average Month-end Net Asset Value for all other purposes was approximately $773,083,280 and $703,465,203 respectively.

 

September 30, 2009

 

 

 

Average

 

% of Average

 

Highest Value

 

Lowest Value

 

Market Sector

 

Value at Risk

 

Capitalization

 

At Risk

 

At Risk

 

 

 

 

 

 

 

 

 

 

 

Agriculture

 

$

326,739

 

0.04

%

$

707,394

 

$

10,427

 

Currencies

 

2,352,545

 

0.30

%

4,619,813

 

626,499

 

Energy

 

175,249

 

0.02

%

337,061

 

35,708

 

Interest Rates

 

34,838,989

 

4.51

%

42,048,600

 

30,410,845

 

Metals

 

322,198

 

0.04

%

1,083,466

 

58,410

 

Stock Indices

 

742,764

 

0.10

%

1,761,946

 

260,665

 

 

 

 

 

 

 

 

 

 

 

TOTAL

 

$

38,758,484

 

5.02

%

$

50,558,280

 

$

31,402,554

 

 

September 30, 2008

 

 

 

Average

 

% of Average

 

Highest Value

 

Lowest Value

 

Market Sector

 

Value at Risk

 

Capitalization

 

At Risk

 

At Risk

 

 

 

 

 

 

 

 

 

 

 

Agriculture

 

$

1,911,192

 

0.27

%

$

3,763,862

 

$

135,712

 

Currencies

 

5,785,078

 

0.82

%

10,325,792

 

1,192,969

 

Energy

 

2,069,604

 

0.29

%

4,313,519

 

461,150

 

Interest Rates

 

25,703,394

 

3.65

%

39,784,252

 

17,648,522

 

Metals

 

1,284,303

 

0.18

%

2,479,475

 

16,372

 

Stock Indices

 

3,289,013

 

0.47

%

10,586,469

 

95,514

 

 

 

 

 

 

 

 

 

 

 

TOTAL

 

$

40,042,584

 

5.68

%

$

71,253,369

 

$

19,550,239

 

 

25



 

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

 

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

 

Non-Trading Risk

 

Foreign Currency Balances; Cash on Deposit with MLPF&S

 

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

 

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

 

Qualitative Disclosures Regarding Primary Trading Risk Exposures

 

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

 

The following were the primary trading risk exposures of the Fund as of September 30, 2009, by market sector.

 

Interest Rates

 

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

 

26



 

Currencies

 

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

 

Stock Indices

 

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

 

Metals

 

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

 

Agricultural Commodities

 

The Fund’s primary agricultural commodities exposure is to agricultural price movements which are often directly affected by severe or unexpected weather conditions. Soybeans, grains, livestock, cotton, corn and coffee accounted for the substantial bulk of the Fund’s agricultural commodities exposure as of September 30, 2009.

 

Energy

 

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

 

Qualitative Disclosures Regarding Non-Trading Risk Exposure

 

The following were the only non-trading risk exposures of the Fund as of September 30, 2009.

 

Foreign Currency Balances

 

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

 

U.S. Dollar Cash Balance

 

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

 

27



 

Item 4T. Controls and Procedures

 

MLAI, the Sponsor of ML Winton 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 significant 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.

 

28



 

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

 

$

2,016,403

 

1,226,299

 

$

1.6443

 

Feb-09

 

1,172,901

 

708,573

 

1.6553

 

Mar-09

 

3,841,763

 

2,333,432

 

1.6464

 

Apr-09

 

2,392,607

 

1,481,032

 

1.6155

 

May-09

 

1,944,708

 

1,244,056

 

1.5632

 

Jun-09

 

859,934

 

563,633

 

1.5257

 

Jul-09

 

1,009,563

 

671,967

 

1.5024

 

Aug-09

 

1,077,904

 

731,030

 

1.4745

 

Sep-09

 

1,461,500

 

990,713

 

1.4752

 

Oct-09

 

1,182,184

 

783,630

 

1.5086

 

 

CLASS C

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

Jan-09

 

$

6,451,429

 

4,075,703

 

$

1.5829

 

Feb-09

 

5,081,580

 

3,191,747

 

1.5921

 

Mar-09

 

4,939,272

 

3,121,774

 

1.5822

 

Apr-09

 

7,230,339

 

4,660,826

 

1.5513

 

May-09

 

4,070,929

 

2,714,315

 

1.4998

 

Jun-09

 

3,424,358

 

2,341,281

 

1.4626

 

Jul-09

 

5,445,474

 

3,783,944

 

1.4391

 

Aug-09

 

3,878,980

 

2,748,710

 

1.4112

 

Sep-09

 

2,836,955

 

2,011,026

 

1.4107

 

Oct-09

 

5,003,422

 

3,470,983

 

1.4415

 

 

CLASS D

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

Jan-09

 

$

5,367,524

 

3,341,129

 

$

1.6065

 

Feb-09

 

1,990,000

 

1,228,926

 

1.6193

 

Mar-09

 

1,499,999

 

930,174

 

1.6126

 

Apr-09

 

 

 

1.5842

 

May-09

 

200,000

 

130,301

 

1.5349

 

Jun-09

 

 

 

1.4999

 

Jul-09

 

525,999

 

355,669

 

1.4789

 

Aug-09

 

 

 

1.4532

 

Sep-09

 

79,999

 

54,952

 

1.4558

 

Oct-09

 

1,896,904

 

1,272,578

 

1.4906

 

 

29



 

 

CLASS I

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

Jan-09

 

$

837,728

 

505,539

 

$

1.6571

 

Feb-09

 

3,674,992

 

2,202,309

 

1.6687

 

Mar-09

 

553,998

 

333,673

 

1.6603

 

Apr-09

 

3,154,692

 

1,935,750

 

1.6297

 

May-09

 

124,999

 

79,242

 

1.5774

 

Jun-09

 

1,150,993

 

747,351

 

1.5401

 

Jul-09

 

354,872

 

233,899

 

1.5172

 

Aug-09

 

255,203

 

171,346

 

1.4894

 

Sep-09

 

2,598,217

 

1,742,949

 

1.4907

 

Oct-09

 

379,893

 

249,110

 

1.5250

 

 

CLASS DS

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

Jan-09

 

$

1,242,710

 

774,467

 

$

1.6046

 

Feb-09

 

5,628,413

 

3,480,129

 

1.6173

 

Mar-09

 

2,795,089

 

1,735,434

 

1.6106

 

Apr-09

 

3,131,252

 

1,979,050

 

1.5822

 

May-09

 

5,772,859

 

3,765,973

 

1.5329

 

Jun-09

 

20,420,298

 

13,631,707

 

1.4980

 

Jul-09

 

5,200,060

 

3,520,452

 

1.4771

 

Aug-09

 

4,130,867

 

2,846,126

 

1.4514

 

Sep-09

 

4,591,788

 

3,158,039

 

1.4540

 

Oct-09

 

 

 

1.4888

 

 

CLASS DT

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

Jan-09

 

$

 

 

$

1.6423

 

Feb-09

 

 

 

1.6568

 

Mar-09

 

 

 

1.6500

 

Apr-09

 

 

 

1.6217

 

May-09

 

567,184

 

360,850

 

1.5718

 

Jun-09

 

 

 

1.5367

 

Jul-09

 

 

 

1.5159

 

Aug-09

 

 

 

1.4902

 

Sep-09

 

146,845

 

98,329

 

1.4934

 

Oct-09

 

1,674,175

 

1,094,375

 

1.5298

 

 


(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 WINTON FUTURESACCESS LLC

 

 

 

 

 

By: MERRILL LYNCH ALTERNATIVE

 

INVESTMENTS LLC

 

(Manager)

 

 

 

 

Date: November 12, 2009

By

/s/ JUSTIN C. FERRI

 

 

Justin C. Ferri

 

 

Chief Executive Officer, President and Manager
(Principal Executive Officer)

 

 

 

 

Date: November 12, 2009

 

 

By

/s/ BARBRA E. KOCSIS

 

 

Barbra E. Kocsis

 

 

Chief Financial Officer

 

 

(Principal Financial and Accounting Officer)

 

32