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EX-32.01 - EX-32.01 - MAN FRM MANAGED FUTURES STRATEGIES LLCa10-3641_4ex32d01.htm
EX-31.02 - EX-31.02 - MAN FRM MANAGED FUTURES STRATEGIES LLCa10-3641_4ex31d02.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-K

 

x  Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the fiscal year ended: December 31, 2009

 

or

 

o  Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

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

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

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)

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Securities registered pursuant to Section 12(g) of the Act: Units of Limited Liability Company Interest

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o  No x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.  Yes o  No x

 

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or 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 Act).  Yes o  No x

 

The Units of the limited liability company interest of the registrant are not publicly traded. Accordingly, there is no aggregate market value for the registrant’s outstanding equity that is readily determinable.

 

As February 28, 2010 units of limited liability company interest with a Net Asset Value of $868,882,656 were outstanding and held by non-affiliates.

 

Documents Incorporated by Reference

 

The registrant’s 2009 Annual Reports and Report of Independent Registered Public Accounting Firms, the annual report to security holders for the period ended December 31, 2009, is incorporated by reference into Part II, Item 8, and Part IV hereof and filed as an Exhibit herewith. Copies of the annual report are available free of charge by contacting Alternative Investments Client Services at 1-866-MER-ALTS.

 

 

 



 

ML SYSTEMATIC MOMENTUM FUTURESACCESS LLC

 

ANNUAL REPORT FOR 2009 ON FORM 10-K

 

Table of Contents

 

 

 

PAGE

 

 

 

PART I

 

 

 

Item 1.

Business

1

 

 

 

Item 1A.

Risk Factors

6

 

 

 

Item 1B.

Unresolved Staff Comments

8

 

 

 

Item 2.

Properties

8

 

 

 

Item 3.

Legal Proceedings

8

 

 

 

Item 4.

Reserved

8

 

 

 

PART II

 

 

 

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

9

 

 

 

Item 6.

Selected Financial Data

11

 

 

 

Item 7.

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

20

 

 

 

Item 7A.

Quantitative and Qualitative Disclosures about Market Risks

25

 

 

 

Item 8.

Financial Statements and Supplementary Data

36

 

 

 

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

36

 

 

 

Item 9A(T).

Controls and Procedures

36

 

 

 

Item 9B.

Other Information

37

 

 

 

PART III

 

 

 

Item 10.

Directors, Executive Officers and Corporate Governance

38

 

 

 

Item 11.

Executive Compensation

40

 

 

 

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

40

 

 

 

Item 13.

Certain Relationships and Related Transactions and Director Independence

40

 

 

 

Item 14.

Principal Accountant Fees and Services

41

 

 

 

PART IV

 

 

 

Item 15.

Exhibits and Financial Statement Schedules

43

 



 

PART I

 

Item 1:          Business

 

(a)                                  General Development of Business:

 

ML Systematic Momentum FuturesAccess LLC (the “Fund”) was organized under the Delaware Limited Liability Company Act on March 8, 2007 and commenced activities on April 2, 2007. The Fund operates as a “fund of funds” allocating and reallocating its capital under the direction of Merrill Lynch Alternate Investments LLC (“MLAI”), the sponsor and manager of the Fund, among eight underlying MLAI sponsored and managed Futures Access Funds (each a “Portfolio Fund,” and collectively the “Portfolio Funds”). The Fund issues new units of limited liability company interest (“Units”) at Net Asset Value per Unit (see Item 6 for discussion of net asset value and net asset value per unit for subscriptions and redemptions purposes hereinafter referred to as Net Asset Value and Net Asset Value per Unit ) as of the beginning of each calendar month.

 

MLAI is the sponsor and the 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  commodity broker, of the Portfolio Funds. On September 15, 2008, Merrill Lynch (or the “Company”) 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 (“Merger Sub”) merged with and into Merrill Lynch, with Merrill Lynch continuing as the surviving corporation and a subsidiary of Bank of America (the “Merger”).

 

The Fund calculates the net asset value per Unit of each class of Units as of the close of business on the last business day of each calendar month and such other dates as MLAI may determine in its discretion. The Fund’s net asset value as of any calculation date will generally equal the value of the Fund’s investments in the underlying funds as of such date, plus any other assets held by the Fund, minus accrued brokerage commissions, sponsor’s, management and performance fees, organizational expense amortization and any operating costs and other liabilities of the Fund.  MLAI is authorized to make all net asset value determinations.

 

The Net Asset Value and the Net Asset Value per Unit  in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) was $868,301,244 and $1.1397 for Class A, $1.1596 for Class C, $1.3259 for Class D, $1.2024 for Class I, $1.1833 for Class D1 and $0 for Class DA.

 

The highest month-end Net Asset Value per Unit  for  Class A since the Fund began operations was $1.2561 (December 31, 2008) and the lowest was $0.9090 (August 31, 2007.) The highest month-end Net Asset Value per Unit  for Class C since the Fund began operations was $1.2909 (December 31, 2008) and the lowest was $0.9467 (August 31, 2007).  The highest month-end Net Asset Value per Unit  for Class D since the Fund began operations was $1.4396 (December 31, 2008) and the lowest was $1.0212 (August 31 2007).The highest month-end Net Asset Value per Unit  for Class I since the Fund began Operations was $1.3199 (December 31, 2008) and the lowest was $0.9500 (August 31, 2007). The highest month-end Net Asset Value per Unit  for Class D1 since the Fund began operations was $1.2848 (December 31, 2008) and the lowest was $0.9113 (August 31, 2007) .  The highest month-end Net Asset Value per Unit  for Class DA since the Fund began Operations was $1.0282 (December 31, 2008) and the lowest was $0.9460 (July 31, 2009).

 

(b)                                 Financial Information about Segments:

 

The Fund’s business constitutes only one segment for financial reporting purposes, i.e., a speculative “commodity pool”. The Fund does not engage in sales of goods or services.

 

(c)                                  Narrative Description of Business:

 

General

 

The Fund may invest in seven separate funds which trade in the futures and forward markets with the objective of achieving substantial capital appreciation.

 

The Portfolio Funds in which the Fund may invest as of December 31, 2009 are: ML Altis FuturesAccess LLC

 

1



 

(“Altis”), ML Aspect FuturesAccess LLC (“Aspect”), ML BlueTrend Futures (“BlueTrend”), ML Chesapeake FuturesAccess LLC (“Chesapeake”), ML John Locke FuturesAccess LLC (“John Locke”), ML Transtrend DTP Enhanced FuturesAccess LLC (“Transtrend”) and  ML Winton FuturesAccess LLC (“Winton”).  Each underlying fund has its own Trading Advisor. MLAI, the sponsor and manager of the Fund, may in its discretion, change the Portfolio Funds at any time. MLAI, also at it discretion may vary the percentage of the Fund’s total portfolio allocated to the different Portfolio Funds. There is no pre-established range for the minimum and maximum allocations that may be made to any given Portfolio Fund.

 

ML Systematic Momentum FuturesAccess LLC currently invests in the following underlying Portfolio Funds which are advised, respectively, by the trading advisors (“Trading Advisors”) as indicated below:

 

Portfolio Funds

 

Trading Advisors

 

 

 

ML Altis FuturesAccess LLC

 

Altis Partners (Jersey) Limited

(the “Altis Fund”)

 

(“Altis”)

ML Aspect FuturesAccess LLC

 

Aspect Capital Limited

(the “Aspect Fund”)

 

(“Aspect”)

ML Chesapeake FuturesAccess LLC

 

Chesapeake Capital Corporation

(the “Chesapeake Fund”)

 

(“Chesapeake”)

ML Transtrend DTP Enhanced FuturesAccess LLC

 

Transtrend B.V.

(the “Transtrend Fund”)

 

(“Transtrend”)

ML Winton FuturesAccess LLC

 

Winton Capital Management Limited

(the “Winton Fund”)

 

(“Winton”)

ML John Locke FuturesAccess LLC

 

John Locke Investments SA

(the “John Locke Fund”)

 

(“John Locke”)

ML BlueTrend FuturesAccess LLC

 

BlueCrest Capital Management, L.P.

(the “BlueTrend Fund”)

 

(“BlueTrend”)

ML GSA FuturesAccess LLC*

 

GSA Capital Partner, LLP

(the “GSA Fund”)

 

(“GSA”)

 


* GSA Fund Liquidated as of May 2009

 

As used herein, references to the Fund’s (i) trading activities, (ii) trading advisors, (iii) custody of assets arrangements and (iv) accounts refer to such activities, trading advisors, arrangements and accounts of the Portfolio Funds through which the Fund invests, as applicable.

 

Employees

 

The Fund has no Employees.

 

Use of Proceeds and Cash Management Income

 

Subscription Proceeds

 

The Fund’s cash is used as security for and to pay the Fund’s trading losses as well as its expenses and redemptions. The primary use of the proceeds of the sale of the Units is to permit the Portfolio Funds to trade on a speculative basis in a wide range of different futures and forwards markets on behalf of the Fund (through the Portfolio Funds).  While being used for this purpose, the Fund’s assets are also generally available for cash management, as more fully described below under “Cash Assets”.

 

Market Sectors

 

The respective advisors of the Portfolio Funds apply their proprietary systems to a broadly-diversified portfolio of futures and forward markets.

 

2



 

The Portfolio Funds’ commitments to different types of markets — U.S. and non-U.S., regulated and non-regulated — differ substantially from time to time, as well as over time.  The Portfolio Funds have no policy restricting its relative commitment to any of these different types of markets.

 

Market Types

 

The Portfolio Funds trade on a variety of United States and foreign futures exchanges as well as “over the counter”.  Substantially all of the Portfolio Funds’ off-exchange trading takes place in the highly liquid, institutionally-based currency forward markets.

 

Many of the Portfolio Funds’ currency trades are executed in the spot and forward foreign exchange markets (the “FX Markets”) where there are no direct execution costs.  Instead, the participants, banks and dealers in the FX Markets take a “spread” between the prices at which they are prepared to buy and sell a particular currency and such spreads are built into the pricing of the spot or forward contracts with the Portfolio Funds.

 

Custody of Assets

 

Substantially, all of the Portfolio Funds’ assets are currently held in one or more Commodity Futures Trading Commission (“CFTC”) regulated customer accounts at MLPF&S or at a fund managed by an affiliated entity as discussed below.

 

Cash Assets

 

Each Portfolio Fund will generally earn interest, as described below, on its “Cash Assets”, which can be generally described as the cash actually held by the Portfolio Fund plus its “open trade equity” (unrealized gain and loss marked to market daily on open positions of the Portfolio Funds).   Cash Assets are held primarily in U.S. dollars, and to a lesser extent in foreign currencies, and are comprised of each Portfolio Funds’ cash balances held in the offset accounts (as described below) — which include “open trade equity” (unrealized gain and loss on open positions) on United States futures contracts, which is paid into or out of the Portfolio Funds’ account on a daily basis; the Portfolio Funds’ cash balance in foreign currencies derived from their trading in non-U.S. dollar denominated futures and options contracts, which includes open trade equity on those exchanges which settle gains and losses on open positions in such contracts prior to closing out such positions.  Cash Assets do not include and the Portfolio Funds do not earn interest income on the Portfolio Funds’ gains or losses on its open forward, commodity option and certain foreign futures positions since such gains and losses are not collected or paid until such positions are closed out.

 

The Portfolio Funds’ Cash Assets may be greater than, less than or equal to the Portfolio Funds’ Net Asset Value (on which the redemption value of the Units is based) primarily because Net Asset Value reflects all gains and losses on open positions as well as accrued but unpaid expenses.

 

Interest Earned on the Fund’s U.S. Dollar Cash Assets

 

Certain of each FuturesAccess Fund’s U.S. dollar “Cash Assets” (as defined below) are held by MLPF&S in customer segregated accounts and primarily invested in CFTC-eligible investments (including, without limitation, commercial paper, U.S. government and government agency securities, prime non-U.S. government securities, corporate notes and money market funds). Cash Assets may also be maintained in “offset accounts” at major U.S. banks, interest bearing savings accounts maintained with major U.S. banks unaffiliated with Merrill Lynch and/or money market investment funds that are managed by third party managers, including affiliates of Merrill Lynch.

 

Offset accounts are non-interest bearing demand deposit accounts maintained with banks unaffiliated with Merrill Lynch. MLPF&S may in the future elect to maintain accounts of this nature with one or more of its affiliates. Offset account deposits reduce Merrill Lynch’s borrowing costs with such banks. An integral feature of the offset arrangements is that the participating banks specifically acknowledge that the offset accounts are for the benefit of MLPF&S’ customers, not subject to any Merrill Lynch liability.

 

To the extent that Cash Assets are placed with affiliates of Merrill Lynch, Merrill Lynch indirectly receives certain economic benefits and therefore has a conflict of interest in selecting such third parties. For example, Merrill Lynch may invest in money market funds managed by BlackRock, Inc. or its affiliates (“BlackRock”). Merrill Lynch is a substantial stockholder in BlackRock and, therefore, potentially benefits from its economic interest in BlackRock whenever BlackRock

 

3



 

receives compensation for managing Cash Assets invested in money market investment funds managed by BlackRock.

 

Interest Paid by Merrill Lynch on Non-U.S. Dollar Cash Assets

 

Each FuturesAccess Fund will generally earn interest, as described below, on its Cash Assets, which can be generally described as the cash actually held by such FuturesAccess Fund, plus its “open trade equity” (unrealized gain and loss marked to market daily on open positions). Cash Assets are held primarily in U.S. dollars, and to a lesser extent in non-U.S. currencies, and comprise the following: (a) each FuturesAccess Fund’s cash balances, plus open trade equity onU.S. futures; and (b) each FuturesAccess Fund’s cash balances held in non-U.S. currencies as a result of realized profits and losses derived from its trading in non-U.S. dollar-denominated futures and options contracts, plus open trade equity on those exchanges which settle gains and losses on open positions in such contracts prior to closing out such positions.Cash Assets do not include, and the FuturesAccess Funds do not earn interest income on, the FuturesAccess Funds’ gains or losses on their open forward, commodity option and certain non-U.S. futures positions as such gains and losses are not collected or paid until such positions are closed out.

 

Each FuturesAccess Fund’s Cash Assets may be greater than, less than or equal to such FuturesAccess Fund’s Net Asset Value (on which the redemption value of the Units is based) primarily because Net Asset Value reflects all gains and losses on open positions as well as accrued but unpaid expenses.

 

MLPF&S intends to pay interest on the FuturesAccess Funds’ Cash Assets (irrespective of how such Cash Assets are held or invested) at the most favorable rate payable by MLPF&S to accounts of Merrill Lynch affiliates, from time to time, although the actual rate paid to FuturesAccess Funds may be lower. In no event, however, will the rate so paid on such Cash Assets be less than 75% of such prevailing rate. MLPF&S retains the additional economic benefit derived from possession of the FuturesAccess Funds’ Cash Assets.

 

MLPF&S, in the course of acting as commodity broker for the FuturesAccess Funds, lends certain currencies to, and borrows certain currencies from, the FuturesAccess Funds. In the course of doing so, MLPF&S both retains certain amounts of interest and receives other economic benefits. In doing so, MLPF&S follows its standard procedures (as such procedures may change over time) for paying interest on the assets of the commodity pools sponsored by MLAI and other MLPF&S affiliates and traded through MLPF&S.

 

Charges

 

The following table summarizes the charges incurred by the Fund for the years ended December 31, 2009, 2008 and for the period April 2, 2007 (commencement of operations) to December 31, 2007.

 

 

 

2009

 

2008

 

2007

 

Charges

 

Dollar
Amount

 

% of Average
Month-End
Net Assets

 

Dollar
Amount

 

% of Average
Month-End
Net Assets

 

Dollar
Amount

 

% of Average
Month-End
Net Assets

 

Other Expenses

 

$

1,066,617

 

0.14

%

$

632,387

 

0.18

%

$

504,521

 

0.60

%

Sponsor fees

 

14,993,578

 

1.94

%

6,953,728

 

1.97

%

485,354

 

0.58

%

Total

 

$

16,060,195

 

2.08

%

$

7,586,115

 

2.15

%

$

989,875

 

1.18

%

 

The foregoing table does not reflect the bid-ask spreads paid by the Portfolio Funds on their forward trading, or the benefits which may be derived by Merrill Lynch from the deposit of certain of the Portfolio Funds’ U.S. dollar assets maintained at MLPF&S.

 

 The Fund’s average month-end Net Asset Values during 2009, 2008 and 2007 equaled $772,699,779, $352,254,725 and $83,843,527, respectively.

 

During 2009, the Fund earned $100,827 in interest income, or approximately 0.012 % of the Fund’s average month-end Net Asset Values . During 2008, the Fund earned $97,972 in interest income, or approximately 0.028% of the Fund’s average month-end Net Asset Values . During 2007, the Fund earned $3,827 in interest income, or approximately 0.005% of the Fund’s average month-end Net Asset Values .

 

4



 

Description of Current Charges

 

Recipient

 

Nature of Payment

 

Amount of Payment

 

 

 

 

 

MLPF&S

 

Use of assets

 

Merrill Lynch may derive an economic benefit from the deposit of certain of the Portfolio Funds’ U.S. dollar assets in accounts maintained at MLPF&S.

 

 

 

 

 

MLAI

 

Sponsor Fees

 

A flat-rate monthly charge of 0.125% of 1% (1.50% annual rate) on Class A units, flat-rate monthly charge of 0.2083 of 1% (2.50% annual rate) on Class C units, a flat-rate monthly charge of 0.0917 of 1% (1.10% annual rate) on Class I units (including the monthly interest credit and before reduction for accrued month end redemptions, distributions, brokerage commissions, sponsor fees, management fees in each case as of the month of determination. Class D, D1 and DA do not pay a sponsor fee.

 

 

 

 

 

MLPF&S

 

Sales Commissions

 

Class A Units are subject to a sales commission paid to MLPF&S ranging from 1.0% to 2.5%. Class D and Class I Units are subject to sales commissions up to 0.5%. The rate assessed to a given subscription is based upon the subscription amount. Sales commissions are deducted from proceeds prior to entering the fund. Shares purchased and reflected in the fund records are net of any commissions charged by MLPF&S. Class C, D1 and DA Units are not subject to any sales commission.

 

 

 

 

 

Merrill Lynch International Bank (“MLIB”) (or an affiliate); Other counterparties

 

Bid—ask spreads

 

Bid—ask spreads are not accounted for separately as an accounting item because bid-ask spreads are an integral part of the price paid or received on all contracts for generally accepted accounting principles.

 

 

 

 

 

MLIB (or an affiliate); Other counterparties

 

EFP differentials

 

Certain of the Portfolio Funds’ currency trades may be executed in the form of “exchange of futures for physical” transactions, in which a counterparty (which may be MLIB or an affiliate) receives an additional “differential” spread for exchanging the Fund’s cash currency positions for equivalent futures positions.

 

 

 

 

 

Others

 

Operating expense of Fund including audit, legal and tax services

 

Actual payments to third parties.

 

 

 

 

 

MLPF&S; Others

 

Brokerage Commissions

 

The aggregate brokerage commissions charges should equal approximately 0.50% per annum of each of the Portfolio Funds’ average month-end asset.

 

5



 

Portfolio Funds Advisors and MLAI

 

Management fees

 

A flat monthly charge of 0.1667 of 1% of the Portfolio Funds’ month-end assets (a 2% annual rate). MLAI receives certain percentage of the management fees paid by the Portfolio Funds’ from the advisors.

 

 

 

 

 

Portfolio Funds Advisors and MLAI

 

Annual Performance Fees

 

Portfolio Funds receive 20% to 25% of their New Trading Profits, as performance fees. For Certain Portfolio Funds MLAI receives 25% of the 20% or 25% performance fee. “New Trading Profits” equal any increase in the Net Asset Value of the Fund, prior to reduction for any accrued performance fee, as of the current performance fee calculation date over the Fund’s “High Water Mark.”   The “High Water Mark” attributable to the Fund equals the highest Net Asset Value after reduction for the performance fee then paid, as of any preceding performance fee calculation date.  Net Asset Value, solely for purposes of calculating the performance fee, does not include any interest income earned by the Fund.

 

Regulation

 

The CFTC has delegated to the National Futures Association responsibility for the registration of “commodity trading advisors,” “commodity pool operators,” “futures commission merchants,” “introducing brokers” and their respective associated persons, and “floor brokers” and “floor traders.”  The Commodity Exchange Act requires commodity pool operators such as MLAI, commodity trading advisors such as the Portfolio Funds Trading Advisor and commodity brokers or futures commission merchants (“FCMs”) such as MLPF&S to be registered and to comply with various reporting and record keeping requirements.  CFTC regulations also require FCMs to maintain a minimum level of net capital.  In addition, the CFTC and certain commodities exchanges have established limits referred to as “speculative position limits” on the maximum net long or net short speculative positions that any person may hold or control in any particular futures or options contracts traded on U.S. commodities exchanges.  All accounts owned or managed by each of the Portfolio Fund’s respective Trading Advisors will be combined for position limit purposes.  The Trading Advisor could be required to liquidate positions in order to comply with such limits.  Any such liquidation could result in substantial costs to the Fund.  In addition, many futures exchanges impose limits beyond which the price of a futures contract may not trade during the course of a trading day, and there is a potential for a futures contract to reach its daily price limit for several days in a row, making it impossible for the Trading Advisor to liquidate a position and thereby experiencing dramatic losses.  Currency forward contracts are not subject to regulation by any U.S. government agency.

 

Other than in respect of the registration requirements pertaining to the Fund’s securities under Section 12(g) of the Securities Exchange Act of 1934, the Fund is generally not subject to regulation by the Securities and Exchange Commission (the “SEC”).  However, MLAI itself is registered as an “investment adviser” under the Investment Advisers Act of 1940.  MLPF&S is also regulated by the SEC and the Financial Industry Regulatory Authority (“FINRA”).

 

(d)                                 Financial Information about Geographic Areas

 

The Portfolio Funds do not engage in material operations in foreign countries, nor is a material portion of the Fund’s revenue derived from customers in foreign countries.

 

The Portfolio Funds may trade on a number of foreign commodity exchanges.  The Portfolio Funds and the Fund do not engage in the sales of goods or services.

 

Item 1A:  Risk Factors

 

Past Performance Not Necessarily Indicative of Future Results

 

Past performance is not necessarily indicative of future results.  The Trading Advisors’ past performance may not be representative of how they may trade in the future for the Portfolio Funds.

 

6



 

Volatile Markets; Highly Leveraged Trading

 

Futures and forward trading is highly leveraged, and market price levels are volatile and materially affected by unpredictable factors such as weather and governmental intervention. The combination of leverage and volatility creates a high degree of risk.

 

Importance of General Market Conditions

 

Overall market or economic conditions — which neither MLAI nor the Trading Advisors can predict or control — have a material effect on the performance of any managed futures strategy.

 

Possibility of Additional Government or Market Regulation

 

Market disruptions and the dramatic increase in the capital allocated to alternative investment strategies during recent years have led to increased governmental as well as self-regulatory scrutiny of the alternative investment funds industry in general.  In addition, certain legislation proposing greater regulation of the industry periodically is considered by the U.S. Congress, as well as the governing bodies of foreign jurisdictions. It is impossible to predict what, if any, changes in the regulations applicable to the Fund, MLAI, the markets in which they trade and invest or the counterparties with which they do business may be instituted in the future. Any such regulation could have a material adverse impact on the profit potential of the Fund, as well as require increased transparency as to the identity of the Fund’s members.

 

Forward Trading

 

The Portfolio Funds will trade in the forward markets in addition to trading in the future markets.  The forward markets are over-the-counter, non-exchange traded markets, and in trading in these forward markets, the Portfolio Funds will be dependent on the credit standing of the counterparties with which they trade, without the financial support of any clearinghouse system.  In addition, the prices offered for the same forward contract may vary significantly among different forward market participants.  Forward markets counterparties are under no obligation to enter into forward transactions, including transactions through which the Portfolio Funds are attempting to liquidate open positions.

 

Effects of Speculative Position Limits

 

The CFTC and the U.S. commodities exchanges have established limits referred to as “speculative position limits” on the maximum net long or net short speculative positions that any person may hold or control in any particular futures or options contracts traded on U.S. commodities exchanges.  For example, the CFTC currently imposes speculative position limits on a number of agricultural commodities (e.g., corn, oats, wheat, soybeans and cotton). All commodity accounts controlled by the Trading Advisor and its principals and their affiliates are combined for speculative position limit purposes. The Trading Advisor could be required to liquidate positions held for the Fund, or may not be able to fully implement trading instructions generated by its trading models, in order to comply with such limits.  Any such liquidation or limited implementation could result in substantial costs to the Fund.

 

Increased Assets Under Management

 

There appears to be a tendency for the rates of return achieved by managed futures advisors to decline as assets under management increase.  The trading advisors have not agreed to limit the amount of additional equity which it may manage.

 

Trading Advisor Risk

 

The Fund is subject to the risk of the bad judgment, negligence or misconduct of the trading advisors.  There have been a number of instances in recent years in which private investment funds have incurred substantial losses due to Trading Advisor misconduct.

 

Changes in Trading Strategy

 

The Trading Advisors may make material changes in its trading strategies without the knowledge or seeking the approval of MLAI.

 

7



 

Illiquid Markets

 

Certain positions held by the Portfolio Funds may become illiquid, preventing the Trading Advisors from acquiring positions otherwise indicated by its strategy or making it impossible for the Trading Advisors to close out positions against which the market is moving.

 

Certain futures markets are subject to “daily price limits,” restricting the maximum amount by which the price of a particular contract can change during any given trading day.  Once a contract’s price has moved “the limit,” it may be impossible or economically non-viable to execute trades in such contract.  From time to time, prices have moved “the limit” for a number of consecutive days, making it impossible for traders against whose positions the market was moving to prevent large losses.

 

Trading on Non-U.S. Exchanges

 

The Trading Advisors may trade extensively on non-U.S. exchanges.  These exchanges are not regulated by any United States governmental agency. The Portfolio Funds and consequently the Fund could incur substantial losses trading on foreign exchanges to which they would not have been subject had the Trading Advisors limited their trading to U.S. markets.

 

The profits and losses derived from trading foreign futures and forwards will generally be denominated in foreign currencies; consequently, the Portfolio Funds will be subject to a certain degree of exchange-rate risk in trading such contracts.

 

The Portfolio Funds Could Lose Assets and Have Its Trading Disrupted Due to the Bankruptcy of One of the Parties

 

The Portfolio Funds’ are subject to the risk of insolvency of a counterparty, an exchange, a clearinghouse or MLPF&S. Portfolio Funds’ assets could be lost or impounded during lengthy bankruptcy proceedings.  Were a substantial portion of the Portfolio Funds’ capital tied up in a bankruptcy, MLAI might suspend or limit trading, perhaps causing the Portfolio Funds’ 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.

 

Item 1B:  Unresolved Staff Comments

 

MLAI is currently responding to the SEC comment letter dated February 4, 2010.

 

Item 2:          Properties

 

The Fund and the Portfolio Funds do not use any physical properties in the conduct of their business.

 

The Fund’s offices are the administrative offices of MLAI (Merrill Lynch Alternative Investments LLC, Four World Financial Center, 6th Floor, 250 Vesey Street, New York, New York 10080).  MLAI performs administrative services for the Fund from MLAI’s offices.

 

Item 3:          Legal Proceedings

 

None

 

Item 4:          Reserved

 

8



 

PART II

 

Item 5:          Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

Item 5(a)

 

(a)                                  Market Information:

 

There is no established public trading market for the Units, and none is likely to develop.  Members may redeem Units on ten days written notice to MLAI as of the last day of each month at their Net Asset Value , subject to certain early redemption charges.

 

(b)                                 Holders:

 

As of December 31, 2009, there were 9,847 holders of Units, none of whom owned 5% or more of the Fund’s Units.

 

(c)                                  Dividends:

 

Fund has not made and does not contemplate making any distributions on the Units.

 

(d)                                 Securities Authorized for Issuance Under Equity Compensation Plans:

 

Not applicable.

 

(e)                                  Performance Graph

 

Not applicable.

 

9



 

(f)                                    Recent Sales of Unregistered Securities:

 

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

 

6,120,723

 

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

 

Nov-09

 

5,007,503

 

4,415,009

 

1.1342

 

Dec-09

 

5,237,644

 

4,439,810

 

1.1797

 

Jan-10

 

8,495,734

 

7,454,360

 

1.1397

 

Feb-10

 

4,599,449

 

4,167,678

 

1.1036

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Nov-09

 

18,657,066

 

16,140,727

 

1.1559

 

Dec-09

 

13,317,583

 

11,086,899

 

1.2012

 

Jan-10

 

10,791,109

 

9,305,889

 

1.1596

 

Feb-10

 

13,643,857

 

12,160,300

 

1.1220

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Nov-09

 

4,568,999

 

3,471,620

 

1.3161

 

Dec-09

 

1,258,000

 

917,846

 

1.3706

 

Jan-10

 

1,391,999

 

1,049,852

 

1.3259

 

Feb-10

 

990,000

 

770,128

 

1.2855

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Nov-09

 

1,787,328

 

1,494,796

 

1.1957

 

Dec-09

 

2,691,529

 

2,163,435

 

1.2440

 

Jan-10

 

1,914,992

 

1,592,641

 

1.2024

 

Feb-10

 

3,819,726

 

3,279,579

 

1.1647

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Nov-09

 

 

 

1.1746

 

Dec-09

 

332,104

 

271,482

 

1.2233

 

Jan-10

 

 

 

1.1833

 

Feb-10

 

928,469

 

809,264

 

1.1473

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Nov-09

 

 

 

 

Dec-09

 

 

 

 

Jan-10

 

 

 

 

Feb-10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


(1) Beginning of the month Net Asset Value

 

Item 5(b)

 

Not applicable.

 

Item 5(c)

 

Not applicable.

 

10



 

Item 6:   Selected Financial Data

 

The following selected financial data has been derived from the financial statements of the Fund.

 

Statement of Operations

 

For the year
ended
December 31,
2009

 

For the year
ended
December 31,
2008

 

For the period April 2,
2007 (Commencement of
operations) to December
31, 2007

 

 

 

 

 

 

 

 

 

Trading profit (loss)

 

 

 

 

 

 

 

Realized, net

 

$

(4,551,852

)

$

9,202,478

 

$

(560,037

)

Change in unrealized, net

 

(57,300,048

)

71,910,257

 

14,550,075

 

Total trading profit (loss)

 

(61,851,900

)

81,112,735

 

13,990,038

 

 

 

 

 

 

 

 

 

INVESTMENT INCOME:

 

 

 

 

 

 

 

Interest

 

100,827

 

97,972

 

3,827

 

 

 

 

 

 

 

 

 

EXPENSES:

 

 

 

 

 

 

 

Sponsor fees

 

14,993,578

 

6,953,728

 

485,354

 

Other

 

1,066,617

 

651,887

 

504,521

 

Total Expenses

 

16,060,195

 

7,605,615

 

989,875

 

 

 

 

 

 

 

 

 

NET INVESTMENT INCOME (LOSS)

 

(15,959,368

)

(7,507,643

)

(986,048

)

 

 

 

 

 

 

 

 

NET INCOME (LOSS)

 

$

(77,811,268

)

$

73,605,092

 

$

13,003,990

 

 

Balance Sheet Data

 

December 31,
2009

 

December 31,
2008

 

December 31, 2007

 

 

 

 

 

 

 

 

 

Members’ Capital

 

$

868,301,244

 

$

678,698,088

 

$

120,224,077

 

Net Asset Value per Class A Unit

 

1.1397

 

1.2561

 

1.0273

 

Net Asset Value per Class C Unit

 

1.1596

 

1.2908

 

1.0664

 

Net Asset Value per Class D Unit

 

1.3259

 

1.4379

 

1.1571

 

Net Asset Value per Class I Unit

 

1.2024

 

1.3197

 

1.0752

 

Net Asset Value per Class D1 Unit

 

1.1833

 

1.2847

 

1.0350

 

Net Asset Value per Class DA Unit

 

 

1.0282

 

 

 

See notes to financial statements

 

11



 

As of December 31, 2009 and 2008 the Net Asset Value per Unit of the different Classes are as follows:

 

December 31, 2009

 

Net Asset Value per Unit

 

Class A

 

$

1.1397

 

Class C

 

1.1596

 

Class D

 

1.3259

 

Class I

 

1.2024

 

Class D1

 

1.1833

 

Class DA

 

 

 

December 31, 2008

 

Net Asset Value per Unit

 

Class A

 

$

1.2561

 

Class C

 

1.2909

 

Class D

 

1.4396

 

Class I

 

1.3199

 

Class D1

 

1.2848

 

Class DA

 

1.0282

 

 

12



 

MLAI believes that the Net Asset Value used to calculate subscription and redemption value and report performance to investors throughout the year is the most valuable financial information to the Members of the Fund.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS A

 

 

 

Jan.

 

Feb.

 

Mar.

 

Apr.

 

May

 

June

 

July

 

Aug.

 

Sept.

 

Oct.

 

Nov.

 

Dec.

 

2007

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

$

0.9588

 

$

0.9090

 

$

0.9705

 

$

1.0272

 

$

1.0093

 

$

1.0278

 

2008

 

$

1.0416

 

$

1.1508

 

$

1.1243

 

$

1.1183

 

$

1.1597

 

$

1.2164

 

$

1.1364

 

$

1.1075

 

$

1.1220

 

$

1.1807

 

$

1.2232

 

$

1.2561

 

2009

 

$

1.2473

 

$

1.2484

 

$

1.2081

 

$

1.1729

 

$

1.1861

 

$

1.1601

 

$

1.1456

 

$

1.1597

 

$

1.1737

 

$

1.1342

 

$

1.1797

 

$

1.1397

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS C

 

 

 

Jan.

 

Feb.

 

Mar.

 

Apr.

 

May

 

June

 

July

 

Aug.

 

Sept.

 

Oct.

 

Nov.

 

Dec.

 

2007

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

$

1.0432

 

$

0.9993

 

$

0.9467

 

$

1.0099

 

$

1.0680

 

$

1.0486

 

$

1.0668

 

2008

 

$

1.0803

 

$

1.1926

 

$

1.1642

 

$

1.1570

 

$

1.1988

 

$

1.2564

 

$

1.1727

 

$

1.1420

 

$

1.1559

 

$

1.2154

 

$

1.2581

 

$

1.2909

 

2009

 

$

1.2807

 

$

1.2808

 

$

1.2385

 

$

1.2014

 

$

1.2139

 

$

1.1863

 

$

1.1705

 

$

1.1839

 

$

1.1972

 

$

1.1559

 

$

1.2012

 

$

1.1596

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS D

 

 

 

Jan. 

 

Feb.

 

Mar.

 

Apr.

 

May

 

June

 

July

 

Aug.

 

Sept.

 

Oct.

 

Nov.

 

Dec.

 

2007

 

n/a

 

n/a

 

n/a

 

$

1.0339

 

$

1.0719

 

$

1.1206

 

$

1.0757

 

$

1.0212

 

$

1.0916

 

$

1.1569

 

$

1.1381

 

$

1.1603

 

2008

 

$

1.1774

 

$

1.3025

 

$

1.2741

 

$

1.2689

 

$

1.3175

 

$

1.3836

 

$

1.2942

 

$

1.2629

 

$

1.2810

 

$

1.3497

 

$

1.4001

 

$

1.4396

 

2009

 

$

1.4312

 

$

1.4343

 

$

1.3898

 

$

1.3509

 

$

1.3679

 

$

1.3395

 

$

1.3244

 

$

1.3424

 

$

1.3603

 

$

1.3161

 

$

1.3706

 

$

1.3259

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS I

 

 

 

Jan. 

 

Feb.

 

Mar.

 

Apr.

 

May

 

June

 

July

 

Aug.

 

Sept.

 

Oct.

 

Nov.

 

Dec.

 

2007

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

$

1.0444

 

$

1.0017

 

$

0.9500

 

$

1.0146

 

$

1.0743

 

$

1.0559

 

$

1.0756

 

2008

 

$

1.0905

 

$

1.2052

 

$

1.1779

 

$

1.1719

 

$

1.2157

 

$

1.2756

 

$

1.1920

 

$

1.1622

 

$

1.1777

 

$

1.2397

 

$

1.2848

 

$

1.3199

 

2009

 

$

1.3110

 

$

1.3126

 

$

1.2708

 

$

1.2341

 

$

1.2484

 

$

1.2214

 

$

1.2066

 

$

1.2219

 

$

1.2370

 

$

1.1957

 

$

1.2440

 

$

1.2024

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS D1

 

 

 

Jan. 

 

Feb.

 

Mar.

 

Apr.

 

May

 

June

 

July

 

Aug.

 

Sept.

 

Oct.

 

Nov.

 

Dec.

 

2007

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

$

0.9600

 

$

0.9113

 

$

0.9741

 

$

1.0324

 

$

1.0157

 

$

1.0356

 

2008

 

$

1.0508

 

$

1.1624

 

$

1.1371

 

$

1.1324

 

$

1.1758

 

$

1.2348

 

$

1.1550

 

$

1.1271

 

$

1.1432

 

$

1.2045

 

$

1.2495

 

$

1.2848

 

2009

 

$

1.2773

 

$

1.2800

 

$

1.2403

 

$

1.2057

 

$

1.2208

 

$

1.1955

 

$

1.1820

 

$

1.1981

 

$

1.2141

 

$

1.1746

 

$

1.2233

 

$

1.1833

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS DA

 

 

 

Jan. 

 

Feb.

 

Mar.

 

Apr.

 

May

 

June

 

July

 

Aug.

 

Sept.

 

Oct.

 

Nov.

 

Dec.

 

2008

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

$

1.0282

 

2009

 

$

1.0222

 

$

1.0244

 

$

0.9927

 

$

0.9649

 

$

0.9770

 

$

0.9568

 

$

0.9460

 

$

0.9588

 

$

0.9716

 

n/a

 

n/a

 

n/a

 

 

13



 

ML SYSTEMATIC MOMENTUM FUTURESACCESS LLC

(CLASS A UNITS) (5)

December 31, 2009

 

Type of Pool:  Single Advisor Non-“Principal Protected”(1)

Inception of Trading:  July 1, 2007

Aggregate Subscriptions $137,287,249

Current Capitalization:   $115,433,499

Worst Monthly Drawdown(2):  (6.58)% (July 2008)

Worst Peak-to-Valley Drawdown(3):  (9.70)%  (January-October 2009)

 

Net Asset Value per Unit for Class A, December 31, 2009:   $1.1397

 

Monthly Rates of Return (4)

 

Month

 

2009

 

2008

 

2007

 

January

 

.70

%

1.34

%

 

February

 

0.09

 

10.48

 

 

March

 

(3.22

)

(2.29

)

 

April

 

(2.92

)

(0.54

)

 

May

 

1.13

 

3.70

 

 

June

 

(2.19

)

4.89

 

 

July

 

(1.25

)

(6.58

)

-4.12

%

August

 

1.23

 

(2.54

)

(5.19

)

September

 

1.21

 

1.31

 

6.76

 

October

 

(3.37

)

5.23

 

5.85

 

November

 

4.01

 

3.60

 

(1.74

)

December

 

-3.39

 

2.69

 

1.83

 

 

 

 

 

 

 

 

 

Compound Annual Rate of Return

 

(9.27

)%

22.21

%

2.78

%

 


(1) Certain funds are structured so as to guarantee to investors that their investment will be worth no less than a specified amount (typically, the initial purchase price) as of a date certain after the date of investment.  The CFTC refers to such funds as “principal protected”.

 

(2) Worst Monthly Drawdown represents the largest negative Monthly Rate of Return experienced since July 1, 2007 by the Fund; a drawdown is measured on the basis of month-end Net Asset Value only, and does not reflect intra-month figures.

 

(3) Worst Peak-to-Valley Drawdown represents the greatest percentage decline since July 1, 2007 from a month-end cumulative Monthly Rate of Return without such cumulative Monthly Rate of Return being equaled or exceeded as of a subsequent month-end.  For example, if the Monthly Rate of Return was (1)% in each of January and February, 1% in March and (2)% in April, the Peak-to-Valley Drawdown would still be continuing at the end of April in the amount of approximately (3)%, whereas if the Monthly Rate of Return had been approximately 3% in March, the Peak-to-Valley Drawdown would have ended as of the end of February at approximately the (2)% level.

 

(4) Monthly Rate of Return is the net performance of the Fund during the month of determination (including interest income and after all expenses have been accrued or paid) divided by the total equity of the Fund as of the beginning of such month.

 

(5) The information presented is based on Net Asset Value and Net Asset Value per Unit . The inception to date total return is 13.97%.

 

14



 

ML SYSTEMATIC MOMENTUM FUTURESACCESS LLC

(CLASS C UNITS) (5)

December 31, 2009

 

Type of Pool:  Single Advisor Non-“Principal Protected”(1)

Inception of Trading: June 1, 2007

Aggregate Subscriptions:    $719,845,732

Current Capitalization:   $574,889,256

Worst Monthly Drawdown(2):  (6.66)% (July 2008)

Worst Peak-to-Valley Drawdown(3):  (10.46)%  (January-October 2009)

 

Net Asset Value per Unit for Class C, December 31, 2009:   $1.1596

 

Monthly Rates of Return (4)

 

Month

 

2009

 

2008

 

2007

 

January

 

(.79

)%

1.27

%

 

February

 

0.01

 

10.40

 

 

March

 

(3.30

)

(2.38

)

 

April

 

(3.00

)

(0.62

)

 

May

 

1.04

 

3.61

 

 

June

 

(2.27

)

4.80

 

4.32

%

July

 

(1.33

)

(6.66

)

(4.20

)

August

 

1.14

 

(2.62

)

(5.27

)

September

 

1.12

 

1.22

 

6.67

 

October

 

(3.45

)

5.15

 

5.76

 

November

 

3.92

 

3.51

 

(1.82

)

December

 

-3.46

 

2.61

 

1.74

 

 

 

 

 

 

 

 

 

Compound Annual Rate of Return

 

(10.17

)%

21.00

%

6.68

%

 


(1) Certain funds are structured so as to guarantee to investors that their investment will be worth no less than a specified amount (typically, the initial purchase price) as of a date certain after the date of investment.  The CFTC refers to such funds as “principal protected”.

 

(2) Worst Monthly Drawdown represents the largest negative Monthly Rate of Return experienced since June 1, 2007 by the Fund; a drawdown is measured on the basis of month-end Net Asset Value only, and does not reflect intra-month figures.

 

(3) Worst Peak-to-Valley Drawdown represents the greatest percentage decline since June 1, 2007 from a month-end cumulative Monthly Rate of Return without such cumulative Monthly Rate of Return being equaled or exceeded as of a subsequent month-end.  For example, if the Monthly Rate of Return was (1)% in each of January and February, 1% in March and (2)% in April, the Peak-to-Valley Drawdown would still be continuing at the end of April in the amount of approximately (3)%, whereas if the Monthly Rate of Return had been approximately 3% in March, the Peak-to-Valley Drawdown would have ended as of the end of February at approximately the (2)% level.

 

(4) Monthly Rate of Return is the net performance of the Fund during the month of determination (including interest income and after all expenses have been accrued or paid) divided by the total equity of the Fund as of the beginning of such month.

 

(5) The information presented is based on Net Asset Value and Net Asset Value per Unit . The inception to date total return is 15.95%.

 

15



 

ML SYSTEMATIC MOMENTUM FUTURESACCESS LLC

(CLASS D UNITS) (5)

December 31, 2009

 

Type of Pool:  Single Advisor Non-“Principal Protected”(1)

Inception of Trading: April 2, 2007

Aggregate Subscriptions:    $145,222,642

Current Capitalization:   $39,754,375

Worst Monthly Drawdown(2):  (6.46)% (July 2008)

Worst Peak-to-Valley Drawdown(3):  (8.87)%  (July-August 2007)

 

Net Asset Value per Unit for Class D, December 31, 2009:   $1.3259

 

Monthly Rates of Return (4)

 

Month

 

2009

 

2008

 

2007

 

January

 

(.58

)%

1.47

%

 

February

 

0.22

 

10.63

 

 

March

 

(3.10

)

(2.18

)

 

April

 

(2.80

)

(0.41

)

3.43

%

May

 

1.26

 

3.83

 

3.64

 

June

 

(2.08

)

5.02

 

4.54

 

July

 

(1.13

)

(6.46

)

(4.00

)

August

 

1.36

 

(2.42

)

(5.07

)

September

 

1.33

 

1.43

 

6.90

 

October

 

(3.25

)

5.36

 

5.98

 

November

 

4.14

 

3.73

 

(1.62

)

December

 

-3.26

 

2.82

 

1.96

 

 

 

 

 

 

 

 

 

Compound Annual Rate of Return

 

(7.90

)%

24.06

%

16.04

%

 


(1) Certain funds are structured so as to guarantee to investors that their investment will be worth no less than a specified amount (typically, the initial purchase price) as of a date certain after the date of investment.  The CFTC refers to such funds as “principal protected”.

 

(2) Worst Monthly Drawdown represents the largest negative Monthly Rate of Return experienced since April 2, 2007 by the Fund; a drawdown is measured on the basis of month-end Net Asset Value only, and does not reflect intra-month figures.

 

(3) Worst Peak-to-Valley Drawdown represents the greatest percentage decline since April 2, 2007 from a month-end cumulative Monthly Rate of Return without such cumulative Monthly Rate of Return being equaled or exceeded as of a subsequent month-end.  For example, if the Monthly Rate of Return was (1)% in each of January and February, 1% in March and (2)% in April, the Peak-to-Valley Drawdown would still be continuing at the end of April in the amount of approximately (3)%, whereas if the Monthly Rate of Return had been approximately 3% in March, the Peak-to-Valley Drawdown would have ended as of the end of February at approximately the (2)% level.

 

(4) Monthly Rate of Return is the net performance of the Fund during the month of determination (including interest income and after all expenses have been accrued or paid) divided by the total equity of the Fund as of the beginning of such month.

 

(5) The information presented is based on Net Asset Value and Net Asset Value per Unit . The inception to date total return is 32.40%.

 

16



 

ML SYSTEMATIC MOMENTUM FUTURESACCESS LLC

(CLASS I UNITS) (5)

December 31, 2009

 

Type of Pool:  Single Advisor Non-“Principal Protected”(1)

Inception of Trading: June 1, 2007

Aggregate Subscriptions:    $122,231,597

Current Capitalization:   $91,156,074

Worst Monthly Drawdown(2):  (6.55)% (July 2008)

Worst Peak-to-Valley Drawdown(3):  (9.40)%  ( January-October 2009)

 

Net Asset Value per Unit for Class I, December 31, 2009:  $1.2024

 

Monthly Rates of Return (4)

 

Month

 

2009

 

2008

 

2007

 

January

 

(.67

)%

1.39

%

 

February

 

0.12

 

10.52

 

 

March

 

(3.18

)

(2.27

)

 

April

 

(2.89

)

(0.51

)

 

May

 

1.16

 

3.74

 

 

June

 

(2.16

)

4.93

 

4.44

%

July

 

(1.21

)

(6.55

)

(4.09

)

August

 

1.27

 

(2.50

)

(5.16

)

September

 

1.24

 

1.33

 

6.80

 

October

 

(3.34

)

5.26

 

5.88

 

November

 

4.05

 

3.65

 

(1.71

)

December

 

(3.35

)

2.72

 

1.86

 

 

 

 

 

 

 

 

 

Compound Annual Rate of Return

 

(8.90

)%

22.71

%

7.56

%

 


(1) Certain funds are structured so as to guarantee to investors that their investment will be worth no less than a specified amount (typically, the initial purchase price) as of a date certain after the date of investment.  The CFTC refers to such funds as “principal protected”.

 

(2) Worst Monthly Drawdown represents the largest negative Monthly Rate of Return experienced since June 1, 2007 by the Fund; a drawdown is measured on the basis of month-end Net Asset Value only, and does not reflect intra-month figures.

 

(3) Worst Peak-to-Valley Drawdown represents the greatest percentage decline since June 1, 2007 from a month-end cumulative Monthly Rate of Return without such cumulative Monthly Rate of Return being equaled or exceeded as of a subsequent month-end.  For example, if the Monthly Rate of Return was (1)% in each of January and February, 1% in March and (2)% in April, the Peak-to-Valley Drawdown would still be continuing at the end of April in the amount of approximately (3)%, whereas if the Monthly Rate of Return had been approximately 3% in March, the Peak-to-Valley Drawdown would have ended as of the end of February at approximately the (2)% level.

 

(4) Monthly Rate of Return is the net performance of the Fund during the month of determination (including interest income and after all expenses have been accrued or paid) divided by the total equity of the Fund as of the beginning of such month.

 

(5) The information presented is based on Net Asset Value and Net Asset Value per Unit . The inception to date total return is 20.23%.

 

17



 

ML SYSTEMATIC MOMENTUM FUTURESACCESS LLC

(CLASS D1 UNITS) (5)

December 31, 2009

 

Type of Pool:  Single Advisor Non-“Principal Protected”(1)

Inception of Trading: July 1, 2007

Aggregate Subscriptions:    $51,434,332

Current Capitalization:   $47,068,068

Worst Monthly Drawdown(2):  (6.46)% ( July 2008)

Worst Peak-to-Valley Drawdown(3):  (8.87)%  (July-August 2007)

 

Net Asset Value per Unit for Class D1, December 31, 2009:   $1.1833

 

Monthly Rates of Return (4)

 

Month

 

2009

 

2008

 

2007

 

January

 

(.58

)%

1.47

%

 

February

 

0.21

 

10.62

 

 

March

 

(3.10

)

(2.18

)

 

April

 

(2.79

)

(0.41

)

 

May

 

1.25

 

3.83

 

 

June

 

(2.07

)

5.02

 

 

July

 

(1.13

)

(6.46

)

(4.00

)

August

 

1.36

 

(2.42

)

(5.07

)

September

 

1.34

 

1.43

 

6.90

 

October

 

(3.25

)

5.36

 

5.98

 

November

 

4.15

 

3.74

 

(1.62

)

December

 

(3.27

)

2.83

 

1.96

 

 

 

 

 

 

 

 

 

Compound Annual Rate of Return

 

(7.90

)%

24.07

%

3.56

%

 


(1) Certain funds are structured so as to guarantee to investors that their investment will be worth no less than a specified amount (typically, the initial purchase price) as of a date certain after the date of investment.  The CFTC refers to such funds as “principal protected”.

 

(2) Worst Monthly Drawdown represents the largest negative Monthly Rate of Return experienced since July 1, 2007 by the Fund; a drawdown is measured on the basis of month-end Net Asset Value only, and does not reflect intra-month figures.

 

(3) Worst Peak-to-Valley Drawdown represents the greatest percentage decline since July 1, 2007 from a month-end cumulative Monthly Rate of Return without such cumulative Monthly Rate of Return being equaled or exceeded as of a subsequent month-end.  For example, if the Monthly Rate of Return was (1)% in each of January and February, 1% in March and (2)% in April, the Peak-to-Valley Drawdown would still be continuing at the end of April in the amount of approximately (3)%, whereas if the Monthly Rate of Return had been approximately 3% in March, the Peak-to-Valley Drawdown would have ended as of the end of February at approximately the (2)% level.

 

(4) Monthly Rate of Return is the net performance of the Fund during the month of determination (including interest income and after all expenses have been accrued or paid) divided by the total equity of the Fund as of the beginning of such month.

 

(5) The information presented is based on Net Asset Value and Net Asset Value per Unit . The inception to date total return is 18.33%.

 

18



 

ML SYSTEMATIC MOMENTUM FUTURESACCESS LLC

(CLASS DA UNITS) (5)

December 31, 2009

 

Type of Pool:  Single Advisor Non-“Principal Protected”(1)

Inception of Trading: December 1, 2008

Aggregate Subscriptions:    $56,445,187

Current Capitalization:   $ 0

Worst Monthly Drawdown(2): (3.09)% ( March 2009)

Worst Peak-to-Valley Drawdown(3):  (7.99)%  (Jan-July 2009)

 

Net Asset Value per Unit for Class DA, December 31, 2009:  $0

 

Monthly Rates of Return (4)

 

Month

 

2009

 

2008

 

January

 

(0.58

)%

 

February

 

0.22

 

 

March

 

(3.09

)

 

April

 

(2.80

)

 

May

 

1.25

 

 

June

 

(2.07

)

 

July

 

(1.13

)

 

August

 

1.35

 

 

September

 

1.34

 

 

October

 

 

 

November

 

 

 

December

 

 

2.82

%

 

 

 

 

 

 

Compound Annual Rate of Return

 

(5.50

)%

2.82

%

 


(1) Certain funds are structured so as to guarantee to investors that their investment will be worth no less than a specified amount (typically, the initial purchase price) as of a date certain after the date of investment.  The CFTC refers to such funds as “principal protected”.

 

(2) Worst Monthly Drawdown represents the largest negative Monthly Rate of Return experienced since December 1, 2008 by the Fund; a drawdown is measured on the basis of month-end Net Asset Value only, and does not reflect intra-month figures.

 

(3) Worst Peak-to-Valley Drawdown represents the greatest percentage decline since December 1, 2008 from a month-end cumulative Monthly Rate of Return without such cumulative Monthly Rate of Return being equaled or exceeded as of a subsequent month-end.  For example, if the Monthly Rate of Return was (1)% in each of January and February, 1% in March and (2)% in April, the Peak-to-Valley Drawdown would still be continuing at the end of April in the amount of approximately (3)%, whereas if the Monthly Rate of Return had been approximately 3% in March, the Peak-to-Valley Drawdown would have ended as of the end of February at approximately the (2)% level.

 

(4) Monthly Rate of Return is the net performance of the Fund during the month of determination (including interest income and after all expenses have been accrued or paid) divided by the total equity of the Fund as of the beginning of such month.

 

(5) The information presented is based on Net Asset Value and Net Asset Value per Unit . The inception to date of liquidation total return is (2.84)%.  Class DA was liquidated on September 30, 2009.

 

19



 

Item 7:                                       Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Operational Overview

 

This performance summary is an outline description of how the Fund performed in the past, not necessarily any indication of how it will perform in the future.  In addition, the general causes to which certain price movements are attributed may or may not in fact have caused such movements, but simply occurred at or about the same time.

 

The Portfolio Funds are unlikely to be profitable in markets in which such trends do not occur.  Static or erratic prices are likely to result in losses.  Similarly, unexpected events (for example, a political upheaval, natural disaster or governmental intervention) can lead to major short-term losses, as well as gains.

 

While there can be no assurance that the Portfolio Funds will be profitable under any given market condition, markets in which substantial and sustained price movements occur typically offer the best profit potential for the Portfolio Funds and consequently the Fund.

 

Results of Operations/Performance Summary

 

2009

 

This performance summary is an outline description of how the Fund performed in the past, not necessarily any indication of how it will perform in the future.  In addition, the general causes to which certain price movements are attributed may or may not in fact have caused such movements, but simply occurred at or about the same time.

 

 

 

Total Trading

 

Year ended December 31, 2009

 

Profit (Loss)

 

Chesapeake

 

$

548,547

 

Transtrend

 

(25,830,157

)

Altis

 

(8,896,043

)

Winton

 

(8,375,671

)

Aspect

 

(8,874,084

)

John Locke

 

(9,350,844

)

BlueTrend

 

2,608,281

 

GSA*

 

(3,681,929

)

 

 

 

 

 

 

$

(61,851,900

)


*Liquidated as of May 30, 2009

 

The Fund experienced a net trading loss for the year ended December 31, 2009 of $61,851,900

 

Performance of the Portfolio Funds was 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 first 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, since 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

 

20



 

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.

 

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, 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 the 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, BlueTrend, Altis, Transtrend) had better performance than longer term managers (Winton, Chesapeake, Aspect). The shorter term managers adjusted better to the current market environment where equities and commodities performed well and the U.S. dollar and bonds performed poorly. Risk by asset class continued to be biased towards fixed income which had a roughly 50% risk allocation, down from more than 80% in April. Fixed income was the asset class with the fewest reversals and thus risk had moved there as equities, commodities and currencies experienced changes in trend during March. But the risk allocated to other asset classes were moving up: commodities were a third of the total and the remainder was split between currencies and equities. March, April and May had been characterized by market moves most commonly seen during periods where investors were 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, but 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 second 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.

 

Losses were posted to the Fund in July which was characterized by two types of moves in many 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, Portfolio Funds had small long positions in all geographies in equity indices. In commodities, the Portfolio Funds had more long positions than short positions i.e. 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

 

21



 

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.

 

In October the Portfolio Funds had the positioning that had been working in August and September with long positions in equity indices and fixed income and short positions in the U.S. dollar. In commodities, there were long positions in metals with short positions in energy and grains. These positions worked in the first three weeks of the month. Equities and metals appreciated and the U.S. dollar continued its decline, so those positions posted profits to the Fund. However, the gains were offset by losses from the bond positions where yields rose and in the energy positions prices went up. Overall, the Portfolio Funds finished the first three weeks of October slightly up. In the last week of October, big reversals hit most markets. Equities and commodities declined and the U.S. dollar and bonds rallied posting losses to the Fund. Those reversals proved to be temporary and trends that had been in place since earlier in the year resumed during November. The Portfolio Funds kept their positioning during the week of reversals and thus were able to capitalize on the resumption of trends resulting in profits being posted to the Fund.  In November, market moves were well aligned with positioning. Long positions in equity indices and global equity markets ended the month up significantly, resulting in profits being posted to the Fund. Similarly, the U.S. dollar continued its slid and the Portfolio Funds benefiting from the short positions in the U.S. dollar. In fixed income, global interest rates continued to come down, resulting in profits for the Portfolio Funds posting profits to the Fund in their long positions in interest rates and bond positions. Commodities also contributed positively to performance due to long positions in precious metals. Overall, most managers made money in all asset classes as trends continued in the direction of their positioning. Losses were posted to the Fund in December. This was due primarily to reversals in three of the six major asset classes in which the Fund invests through the Portfolio Funds. Fixed income was the worst performer where yields rose sharply during the month, hurting long positioning in both interest rates and bonds. Currencies also saw a big reversal as the U.S. dollar appreciated sharply against major foreign currencies which went against the Portfolio Funds short positions in the U.S. dollar. Finally in commodities, oil, natural gas and precious metals saw big reversals, especially in the first part of December, hurting existing positions. Equity indices posted profits with the long term up trend continued, generating profits. However, the profits were not enough to offset the losses.

 

Most of the losses in 2009 came during the March-July period. March marked the beginning of some significant reversals in equities, currencies and commodities which medium and long term trend followers were not well prepared to deal with. These reversals caused relatively large losses at first until mid summer when managers finally turned around their portfolios to match the new trends. The rest of the year was marked by choppiness in a very large number of markets and smaller frequent reversals, which prevented funds from making back earlier losses. Certain Portfolio Funds had relatively weak returns in 2009, underperforming their peers, and Transtrend and Aspect were two such Portfolio Funds. These Poftfolio Funds had some concentrated positions over the course of the year that went against them, causing them to have worse than average returns. BlueTrend was an outperformer as it dealt with reversal periods better and was able to shift its exposures around faster during these periods.

 

2008

 

 

 

Total Trading

 

Year ended December 31, 2008

 

Profit (Loss)

 

Chesapeake

 

$

3,583,563

 

Transtrend

 

16,444,848

 

Altis

 

29,676,850

 

Winton

 

10,361,844

 

Aspect

 

10,548,013

 

John Locke

 

10,325,464

 

BlueTrend

 

7,948,538

 

GSA

 

(7,776,386

)

 

 

 

 

 

 

$

81,112,735

 

 

The Fund experienced a net trading profit for the year ended December 31, 2008 of $81,112,735

 

Profits were posted to the Fund for the first quarter. The Portfolio Funds had long positions in fixed income and precious metals, both of which benefited from fears of a United States recession, as well as sharp U.S. rate cuts. The continuing rally in grain markets was another source of profit for the Portfolio Funds. Losses came primarily from energy markets as oil prices weakened and natural gas rebounded. Going into February, commodities and fixed income are the two

 

22



 

largest risk allocations for the Portfolio Funds as they 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. Profits continue to be posted to the Fund in the middle of the quarter due to returns 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 U.S. dollar.  The Fund posted losses at the end of the quarter. The strong trends in commodity markets in February made a sharp reversal in March, hurting most funds in the vertical. The grains and precious metals sectors recorded particularly large reversals. The Portfolio Funds were able to participate more in the upward move in February than in the March reversal thereby preserving its gains for the first quarter. The Portfolio Funds 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.

 

Profits were posted to the Fund for the second 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  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. Profits continued to be posted to the Fund in the middle of the quarter. May was a month where energies jumped to record levels. Crude oil was up 13% and natural gas was up 6.6%, continuing trends from previous months. The primary drivers of performance for the Fund was in the commodities and energy sectors. Non-commodity markets were mixed as most of the Funds managed to be flat to positive in the financial markets overall. The second quarter ended with profits being posted to the Fund. The Portfolio Funds made money through long positions in commodities and short equities positions.

 

Losses were posted to the Fund at the beginning of the third 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 to the Fund in the middle of the quarter. The second trend was the continued decline in commodities, following the dramatic reversal from July. Profits were posted to the Fund at the end of the third 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.

 

Profits were posted to the Fund in the fourth quarter. October was a story of two months. The first half of the month was characterized by an acute panic in financial markets with global equities, commodities, and high yielding currencies dropping and dollar rising. The second half that started with the equity market rally on Monday October 13th was characterized by wild day to day volatility but kept most markets relatively range bound. Most Portfolio Funds generated sizable returns in the first half of the month and then succeeded to keep most of these gains. Altis, Bluetrend, and Transtrend were the best performers. All three benefited from bearish moves in commodities and equities and a strong U.S. dollar in the first half of the month. The majority of the losses came from GSA short term models going long Japanese and Hong Kong equities towards the beginning of the month anticipating a bounce in stock markets. Unfortunately, these models were caught in a significant market drop and experienced sizable losses. All other Portfolio Funds had a positive performance in October. Profits were posted to the Fund in November in lieu of a stormy month in the financial markets.  Most of the Portfolio Funds stayed away from volatile equity markets and instead benefited from long positions in global bonds as bonds rallied and short positions in commodities as commodities continued to decline. On average, fixed income was the best contributor to the performance, followed by commodities, and then currencies as a distant third place. The Fund posted profits at the end of the year. The largest gains were made in fixed income as the Portfolio Funds profited from long positions across the curve as yields continued to fall dramatically. Short positions in commodities, particularly energy, and long positions in the Euro versus the short British pound positions also proved profitable. Equity returns were flat on the month as risk in stocks was minimal.

 

23



 

2007

 

 

 

Total Trading

 

Year ended December 31, 2007

 

Profit (Loss)

 

Chesapeake

 

$

907,352

 

Transtrend

 

3,553,620

 

Altis

 

2,911,774

 

Winton

 

2,796,394

 

Aspect

 

1,770,147

 

John Locke

 

1,760,297

 

Alphasimplex

 

(943,062

)

GSA

 

1,233,516

 

 

 

 

 

 

 

$

13,990,038

 

 

The Fund experienced a net trading profit for the period ended December 31, 2007 of $13,990,038

 

The beginning of the second quarter profits were posted for the Fund through mid-quarter. However, as the second quarter ended there was resurgence in market volatility as bonds sold off heavily in the first half of the month on growing optimism for global growth and then rallied on renewed concerns in the sub-prime lending market. Similarly, equity markets experienced wide swings and ended the second quarter lower partly on concerns about the potential for contagion on the back of Bear Stearns’ troubled credit focused hedge funds. Although the core long term trend followers performed well throughout the month of June, the out-performance in the portfolio came from the short term models of Altis and GSA. Both of these managers captured reversals in equity markets and were able to profit both long and short over the course of the month. Natural gas shorts also generated positive results. In currencies, most managers were successful capturing strength in the Australian dollar, Canadian dollar, and the British pound as well as continuing to underweight the persistently weak Japanese yen.

 

The third quarter began with extreme market reversals. Practically all markets which were trending upward retraced as investors exited in an attempt to reduce risk. Credit worries and a softening housing market finally caught up to the equity markets and led to a big rally in global bonds. The Japanese yen, which has been persistently weak for years, suddenly rallied against all of its higher yielding counterparts. As a result of the reversals, losses were posted to the Fund. Long term market trends continued to unwind at the middle part of the third quarter as the long positions in the Foreign Exchange carry trades, long international equities, long energy and long metals due to a spike in risk aversion on August 16th caused significant losses in each of these trades posting losses for the Fund. The third quarter ended with a very strong performance after a turbulent summer. Strong trends re-emerged in commodities in particular, as wheat gained 21%, and crude oil rose 11% due to supply factors. In addition, precious metals rallied, with gold up by 10% and silver up by 13% due to the U.S. dollar weakening which caused demand for precious metals as a store of value. The U.S Federal Reserve’s 50 basis points mid-month rate cut also helped to invigorate investor risk appetite, helping FX carry trades and boosting global equity markets.

 

The year ended with gains being posted for the Fund (1.7% for December) bringing the return since its April 2007 inception to 16.04%. Trends were particularly strong in commodities, with rallies in grains, oil and gold, as well as continued declines in base metals. Individual managers with a larger allocation to the commodity space tended to outperform during the month of December. Financial futures markets were more difficult to trade due to choppy conditions. In bonds, several managers came into December  with a long bias, but yields rose at the start of the month due to better than expected United States economic news, as well the decision of the U.S. Federal Government to lower rates by only 25 basis points, which was less than some had expected. In Futures and Exchange currencies, an early strengthening of the U.S. dollar caught several managers by surprise, as they were generally positioned for further U.S. dollar weakness. Finally, in equities a lack of trends meant that risk exposures were limited in this area.

 

Variables Affecting Performance

 

The principal variables that determine the net performance of the Fund are gross profitability from the Portfolio Funds’ trading activities and interest income.

 

The Fund currently earns interest based on the prevailing Fed Funds rate plus a spread for short cash

 

24



 

positions and minus a spread for long cash positions.  The current short term interest rates have remained extremely low when compared with historical rates and thus has contributed negligible amounts to overall Fund performance.

 

During the period set forth above in “Selected Financial Data”, the interest rates in many countries were at unusually low levels. In addition, low interest rates are frequently associated with reduced fixed income market volatility, and in static markets the Fund’s profit potential generally tends to be diminished.  On the other hand, during periods of higher interest rates, the relative attractiveness of a high risk investment such as the Fund may be reduced as compared to high yielding and much lower risk fixed-income investments.

 

The Fund’s Sponsor Fees are a constant percentage of the Fund’s net assets.

 

Unlike many investment fields, there is no meaningful distinction in the operation of the Fund between realized and unrealized profits.  Most of the contracts traded by the Portfolio Funds are highly liquid and can be closed out at any time.

 

Except in unusual circumstances, factors—regulatory approvals, cost of goods sold, employee relations and the like—which often materially affect an operating business, have no material impact on the Fund.

 

Liquidity; Capital Resources

 

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

 

Substantially all of the Portfolio Funds’ assets are held in cash at the underlying Fund. The Net Asset Value of the Portfolio Funds’ cash is not affected by inflation. However, changes in interest rates could cause periods of strong up or down price trends, during which the profit potential generally increases. Inflation in commodity prices could also generate price movements, which the strategies might successfully follow.

 

Because substantially all of the Portfolio Funds’ assets are held in cash at the underlying Fund, the Portfolio Funds should be able to close out any or all of its open trading positions and liquidate any or all of its securities holdings quickly and at market prices, except in very unusual circumstances. This permits the advisors to limit losses as well as reduce market exposure on short notice should its strategies indicate doing so. In addition, because there is a readily available market value for the Portfolio Funds positions and assets, the Fund’s monthly Net Asset Value calculations are precise, and investors need only wait ten business days to receive the full redemption proceeds of their Units.

 

(The Portfolio Funds and the Fund have no applicable off-balance sheet arrangements or tabular disclosure of contractual obligations of the type described in Items 3.03(a)(4) and 3.03(a)(5) of Regulation S-K.)

 

Recent Accounting Developments

 

Recent accounting developments are discussed in Exhibit 13.01.

 

Item 7A: Quantitative and Qualitative Disclosures About Market Risks

 

Introduction

 

The Portfolio Funds are a speculative commodity pools. The market sensitive instruments held by the Portfolio Funds 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 Portfolio Fund’s open positions and, consequently, in its earnings and cash flow. The Portfolio 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

 

25



 

and contracts, the diversification effects among the Portfolio Fund’s open positions and the liquidity of the markets in which it trades.

 

The Portfolio Funds, under the direction of their respective advisors, rapidly acquire and liquidate 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 past performance is not necessarily indicative of its future results.

 

Value at Risk is a measure of the maximum amount which the Portfolio Funds could reasonably be expected to lose in a given market sector. However, the inherent uncertainty of the Portfolio Funds’ speculative trading and the recurrence in the markets traded by the Portfolio Funds of market movements far exceeding expectations could result in actual trading or non-trading losses far beyond the indicated Value at Risk or the 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 Portfolio Funds’ losses in any market sector will be limited to Value at Risk or by each Portfolio Funds’ 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 Portfolio Fund’s risk exposure in the various market sectors traded by the advisors is quantified below in terms of Value at Risk.  Due to the Portfolio Fund’s fair value accounting, any loss in the fair value of the Portfolio Fund’s open positions is directly reflected in the Portfolio 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 of the Portfolio Funds have been used 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 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 Fund’s positions are rarely, if ever, 100% positively correlated have not been reflected.

 

26



 

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

 

The following information with respect to Value at Risk (“VAR”) is set forth in respect of Portfolio Funds separately, rather than for the Partnership on a stand alone basis.

 

Altis Class DS (1)

December 31, 2009

 

 

 

 

Average

 

% of Average

 

Highest Value

 

Lowest Value

 

Market Sector

 

Value at Risk

 

Capitalization

 

At Risk

 

At Risk

 

 

 

 

 

 

 

 

 

 

 

Agricultural Commodities

 

$

143,099

 

0.14

%

$

253,440

 

$

30,906

 

Energy

 

173,925

 

0.17

%

479,521

 

27,763

 

Interest Rates

 

8,974,327

 

8.72

%

11,279,824

 

6,852,385

 

Metals

 

377,634

 

0.37

%

846,000

 

79,345

 

Stock Indices

 

514,223

 

0.50

%

1,284,200

 

32,824

 

Currencies

 

268,591

 

0.26

%

614,380

 

32,398

 

 

 

 

 

 

 

 

 

 

 

TOTAL

 

$

10,451,799

 

10.16

%

$

14,757,365

 

$

7,055,621

 

 


(1) Average capitalization of Altis Class DS is $102,900,268.

 

Altis Class DS (1)

December 31, 2008

 

 

 

 

Average

 

% of Average

 

Highest Value

 

Lowest Value

 

Market Sector

 

Value at Risk

 

Capitalization

 

At Risk

 

At Risk

 

 

 

 

 

 

 

 

 

 

 

Agricultural Commodities

 

$

537,989

 

1.05

%

$

1,457,645

 

$

54,072

 

Energy

 

484,425

 

0.95

%

1,866,010

 

12,268

 

Interest Rates

 

5,445,032

 

10.64

%

9,901,636

 

189,310

 

Metals

 

363,811

 

0.71

%

1,102,077

 

76,849

 

Stock Indices

 

454,286

 

0.89

%

2,255,421

 

17,466

 

Currencies

 

587,321

 

1.15

%

3,175,386

 

60,466

 

 

 

 

 

 

 

 

 

 

 

TOTAL

 

$

7,872,864

 

15.39

%

$

19,758,175

 

$

410,431

 

 


(1) Average capitalization of Altis Class DS is $51,152,408.

 

27



 

Transtrend Class DS (2)

December 31, 2009

 

 

 

 

Average

 

% of Average

 

Highest Value

 

Lowest Value

 

Market Sector

 

Value at Risk

 

Capitalization

 

At Risk

 

At Risk

 

 

 

 

 

 

 

 

 

 

 

Agricultural Commodities

 

$

287,291

 

0.21

%

$

1,249,337

 

$

25,964

 

Energy

 

473,736

 

0.35

%

1,767,710

 

8,648

 

Interest Rates

 

11,698,484

 

8.71

%

17,620,289

 

6,258,260

 

Metals

 

184,060

 

0.14

%

568,495

 

2,859

 

Stock Indices

 

703,797

 

0.52

%

1,882,750

 

35,158

 

Currencies

 

551,625

 

0.41

%

1,936,468

 

63,452

 

 

 

 

 

 

 

 

 

 

 

TOTAL

 

$

13,898,993

 

10.34

%

$

25,025,049

 

$

6,394,341

 

 


(2) Average capitalization of Transtrend Class DS is $134,299,237.

 

Transtrend Class DS (2)

December 31, 2008

 

 

 

 

Average

 

% of Average

 

Highest Value

 

Lowest Value

 

Market Sector

 

Value at Risk

 

Capitalization

 

At Risk

 

At Risk

 

 

 

 

 

 

 

 

 

 

 

Agricultural Commodities

 

$

230,975

 

0.41

%

$

737,580

 

$

11,638

 

Energy

 

361,749

 

0.65

%

1,088,792

 

7,598

 

Interest Rates

 

4,203,179

 

7.55

%

5,982,076

 

1,355,396

 

Metals

 

171,708

 

0.31

%

464,718

 

6,735

 

Stock Indices

 

340,747

 

0.61

%

708,767

 

93,824

 

Currencies

 

839,469

 

1.51

%

2,386,648

 

28,161

 

 

 

 

 

 

 

 

 

 

 

TOTAL

 

$

6,147,827

 

11.04

%

$

11,368,581

 

$

1,503,352

 

 


(2) Average capitalization of Transtrend Class DS is $55,662,905.

 

28



 

Aspect Class DS (3)

December 31, 2009

 

 

 

 

Average

 

% of Average

 

Highest Value

 

Lowest Value

 

Market Sector

 

Value at Risk

 

Capitalization

 

At Risk

 

At Risk

 

 

 

 

 

 

 

 

 

 

 

Agricultural Commodities

 

$

80,011

 

0.10

%

$

304,395

 

$

2,532

 

Energy

 

64,288

 

0.08

%

156,172

 

8,652

 

Interest Rates

 

8,234,058

 

10.46

%

15,531,929

 

4,899,067

 

Metals

 

160,258

 

0.20

%

642,631

 

3,770

 

Stock Indices

 

225,044

 

0.29

%

874,765

 

6,162

 

Currencies

 

417,518

 

0.53

%

1,162,691

 

101,820

 

 

 

 

 

 

 

 

 

 

 

TOTAL

 

$

9,181,177

 

11.66

%

$

18,672,583

 

$

5,022,003

 

 


(3) Average Capitalization of Aspect Class DS is $78,704,541.

 

Aspect Class DS (3)

December 31, 2008

 

 

 

 

Average

 

% of Average

 

Highest Value

 

Lowest Value

 

Market Sector

 

Value at Risk

 

Capitalization

 

At Risk

 

At Risk

 

 

 

 

 

 

 

 

 

 

 

Agricultural Commodities

 

$

148,700

 

0.34

%

$

714,478

 

$

32,584

 

Energy

 

233,858

 

0.53

%

986,545

 

34,838

 

Interest Rates

 

4,320,580

 

9.83

%

9,259,536

 

1,806,236

 

Metals

 

100,382

 

0.23

%

453,072

 

30,959

 

Stock Indices

 

286,373

 

0.65

%

1,162,802

 

12,758

 

Currencies

 

519,459

 

1.18

%

1,999,966

 

21,707

 

 

 

 

 

 

 

 

 

 

 

TOTAL

 

$

5,609,352

 

12.76

%

$

14,576,399

 

$

1,939,082

 

 


(3) Average Capitalization of Aspect Class DS is $43,969,426.

 

29



 

Chesapeake Class DS (4)

December 31, 2009

 

 

 

 

Average

 

% of Average

 

Highest Value

 

Lowest Value

 

Market Sector

 

Value at Risk

 

Capitalization

 

At Risk

 

At Risk

 

 

 

 

 

 

 

 

 

 

 

Agricultural Commodities

 

$

497,738

 

0.63

%

$

1,421,839

 

$

82,583

 

Energy

 

286,359

 

0.36

%

1,259,154

 

 

Interest Rates

 

6,197,947

 

7.82

%

12,519,402

 

3,643,951

 

Metals

 

749,491

 

0.95

%

2,270,314

 

36,503

 

Stock Indices

 

5,263

 

0.01

%

60,929

 

 

Stock Futures

 

622,603

 

0.79

%

2,759,350

 

 

Currencies

 

334,975

 

0.42

%

1,066,633

 

24,613

 

 

 

 

 

 

 

 

 

 

 

TOTAL

 

$

8,694,376

 

10.98

%

$

21,357,621

 

$

3,787,650

 

 


(4) Average capitalization of Chesapeake Class DS is $79,257,947.

 

Chesapeake Class DS (4)

December 31, 2008

 

 

 

 

Average

 

% of Average

 

Highest Value

 

Lowest Value

 

Market Sector

 

Value at Risk

 

Capitalization

 

At Risk

 

At Risk

 

 

 

 

 

 

 

 

 

 

 

Agricultural Commodities

 

$

424,562

 

0.97

%

$

1,109,107

 

$

37,416

 

Energy

 

326,563

 

0.75

%

831,598

 

 

Interest Rates

 

3,795,627

 

8.70

%

5,290,783

 

1,900,688

 

Metals

 

177,554

 

0.41

%

463,991

 

16,817

 

Stock Indices

 

0

 

0.00

%

0

 

 

Stock Futures

 

77,646

 

0.18

%

194,747

 

 

Currencies

 

563,387

 

1.29

%

1,593,178

 

8,064

 

 

 

 

 

 

 

 

 

 

 

TOTAL

 

$

5,365,339

 

12.30

%

$

9,483,404

 

$

1,962,985

 

 


(4) Average capitalization of Chesapeake Class DS is $43,646,766.

 

30



 

Winton Class DS (5)

December 31, 2009

 

 

 

 

Average

 

% of Average

 

Highest Value

 

Lowest Value

 

Market Sector

 

Value at Risk

 

Capitalization

 

At Risk

 

At Risk

 

 

 

 

 

 

 

 

 

 

 

Agricultural Commodities

 

$

58,746

 

0.04

%

$

149,603

 

$

2,205

 

Energy

 

31,407

 

0.02

%

71,287

 

951

 

Interest Rates

 

7,461,866

 

5.51

%

8,893,168

 

6,431,814

 

Metals

 

154,343

 

0.11

%

511,177

 

12,354

 

Stock Indices

 

310,604

 

0.23

%

1,122,663

 

55,130

 

Currencies

 

645,294

 

0.48

%

1,287,106

 

132,495

 

 

 

 

 

 

 

 

 

 

 

TOTAL

 

$

8,662,260

 

6.39

%

$

12,035,004

 

$

6,634,949

 

 


(5) Average capitalization of Winton Class DS is $135,368,736.

 

Winton Class DS (5)

December 31, 2008

 

 

 

 

Average

 

% of Average

 

Highest Value

 

Lowest Value

 

Market Sector

 

Value at Risk

 

Capitalization

 

At Risk

 

At Risk

 

 

 

 

 

 

 

 

 

 

 

Agricultural Commodities

 

$

214,796

 

0.39

%

$

519,675

 

$

18,738

 

Energy

 

225,550

 

0.41

%

595,566

 

25,326

 

Interest Rates

 

3,710,683

 

6.73

%

5,492,995

 

2,436,724

 

Metals

 

142,340

 

0.26

%

342,340

 

2,260

 

Stock Indices

 

357,042

 

0.65

%

1,461,669

 

13,188

 

Currencies

 

633,040

 

1.15

%

1,425,678

 

48,123

 

 

 

 

 

 

 

 

 

 

 

TOTAL

 

$

5,283,451

 

9.59

%

$

9,837,923

 

$

2,544,359

 

 


(5) Average capitalization of Winton Class DS is $55,171,794.

 

31



 

John Locke Class DS (6)

December 31, 2009

 

 

 

 

Average

 

% of Average

 

Highest Value

 

Lowest Value

 

Market Sector

 

Value at Risk

 

Capitalization

 

At Risk

 

At Risk

 

 

 

 

 

 

 

 

 

 

 

Agricultural Commodities

 

$

313,590

 

0.24

%

$

968,849

 

$

6,390

 

Energy

 

403,371

 

0.31

%

1,812,797

 

16,382

 

Interest Rates

 

34,726,623

 

26.79

%

305,915,780

 

1,922,404

 

Metals

 

553,205

 

0.43

%

3,324,914

 

30,523

 

Stock Indices

 

467,182

 

0.36

%

1,976,182

 

10,675

 

Currencies

 

2,189,133

 

1.69

%

13,102,677

 

284,578

 

 

 

 

 

 

 

 

 

 

 

TOTAL

 

$

38,653,104

 

29.82

%

$

327,101,199

 

$

2,270,952

 

 


(6) Average capitalization of John Locke Class DS is $129,613,433.

 

John Locke Class DS (6)

December 31, 2008

 

 

 

 

Average

 

% of Average

 

Highest Value

 

Lowest Value

 

Market Sector

 

Value at Risk

 

Capitalization

 

At Risk

 

At Risk

 

 

 

 

 

 

 

 

 

 

 

Agricultural Commodities

 

$

81,008

 

0.16

%

$

264,554

 

$

3,386

 

Energy

 

93,615

 

0.19

%

368,725

 

9,148

 

Interest Rates

 

2,846,509

 

5.78

%

4,922,791

 

769,897

 

Metals

 

72,635

 

0.15

%

221,857

 

24,169

 

Stock Indices

 

79,826

 

0.16

%

261,571

 

9,144

 

Currencies

 

302,614

 

0.61

%

585,364

 

36,707

 

 

 

 

 

 

 

 

 

 

 

TOTAL

 

$

3,476,207

 

7.05

%

$

6,624,862

 

$

852,451

 

 


(6) Average capitalization of John Locke Class DS is $49,220,916.

 

32



 

GSA Class DS (7)

December 31, 2009

 

 

 

 

Average

 

% of Average

 

Highest Value

 

Lowest Value

 

Market Sector

 

Value at Risk

 

Capitalization

 

At Risk

 

At Risk

 

 

 

 

 

 

 

 

 

 

 

Agricultural Commodities

 

$

435,011

 

0.46

%

$

815,648

 

$

3,108

 

Energy

 

526,153

 

0.56

%

1,174,250

 

46,954

 

Interest Rates

 

3,525,322

 

3.73

%

5,661,734

 

60,305

 

Metals

 

340,934

 

0.36

%

1,145,669

 

31,825

 

Stock Indices

 

1,859,526

 

1.97

%

4,304,255

 

49,439

 

Currencies

 

631,915

 

0.67

%

1,553,411

 

126,297

 

 

 

 

 

 

 

 

 

 

 

TOTAL

 

$

7,318,861

 

7.75

%

$

14,654,967

 

$

317,928

 

 


(7) Average capitalization of GSA Class DS is $94,571,167

* Fund Liquidated as of May 2009

 

GSA Class DS (7)

December 31, 2008

 

 

 

 

Average

 

% of Average

 

Highest Value

 

Lowest Value

 

Market Sector

 

Value at Risk

 

Capitalization

 

At Risk

 

At Risk

 

 

 

 

 

 

 

 

 

 

 

Agricultural Commodities

 

$

285,166

 

0.64

%

$

1,152,955

 

$

2,042

 

Energy

 

202,513

 

0.46

%

1,064,598

 

73

 

Interest Rates

 

3,436,052

 

7.75

%

6,162,630

 

733,412

 

Metals

 

95,405

 

0.22

%

383,155

 

1,862

 

Stock Indices

 

1,418,651

 

3.20

%

4,930,657

 

32,488

 

Currencies

 

796,969

 

1.80

%

3,194,233

 

15,376

 

 

 

 

 

 

 

 

 

 

 

TOTAL

 

$

6,234,756

 

14.07

%

$

16,888,228

 

$

785,253

 

 


(7) Average capitalization of GSA Class DS is $44,330,539

 

33



 

BlueTrend Class DS (8)

December 31, 2009

 

 

 

 

Average

 

% of Average

 

Highest Value

 

Lowest Value

 

Market Sector

 

Value at Risk

 

Capitalization

 

At Risk

 

At Risk

 

 

 

 

 

 

 

 

 

 

 

Agricultural Commodities

 

$

8,854

 

0.02

%

$

18,143

 

$

1,911

 

Energy

 

73,830

 

0.13

%

203,775

 

3,359

 

Interest Rates

 

4,042,757

 

7.27

%

7,381,548

 

2,075,299

 

Metals

 

16,462

 

0.03

%

46,937

 

2,774

 

Stock Indices

 

149,273

 

0.27

%

503,568

 

6,718

 

Currencies

 

36,183

 

0.07

%

124,434

 

1,492

 

 

 

 

 

 

 

 

 

 

 

TOTAL

 

$

4,327,359

 

7.79

%

$

8,278,405

 

$

2,091,553

 

 


(8) Average capitalization of BlueTrend Class DS is $55,643,996

 

BlueTrend Class DS (8)

December 31, 2008

 

 

 

 

Average

 

% of Average

 

Highest Value

 

Lowest Value

 

Market Sector

 

Value at Risk

 

Capitalization

 

At Risk

 

At Risk

 

 

 

 

 

 

 

 

 

 

 

Agricultural Commodities

 

$

9,193

 

0.02

%

$

12,073

 

$

5,601

 

Energy

 

19,281

 

0.05

%

23,984

 

15,292

 

Interest Rates

 

2,114,861

 

5.06

%

2,819,418

 

1,731,202

 

Metals

 

12,429

 

0.03

%

24,924

 

4,706

 

Stock Indices

 

81,211

 

0.19

%

193,271

 

23,960

 

Currencies

 

23,859

 

0.06

%

35,515

 

11,374

 

 

 

 

 

 

 

 

 

 

 

TOTAL

 

$

2,260,834

 

5.41

%

$

3,109,185

 

$

1,792,135

 

 


(8) Average capitalization of BlueTrend Class DS is $44,805,928

 

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.”

 

Non-Trading Risk

 

The Portfolio Funds have non-trading market risk on their foreign cash balances not needed for margin.

 

34


 


 

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 manages its primary market risk exposures — constitute forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. The Fund’s primary market risk exposures as well as the strategies used and to be used by MLAI and the Portfolio Funds’ advisors 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.

 

Qualitative Disclosures Regarding Means of Managing Risk Exposure

 

Trading Risk

 

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

 

Risk Management

 

Portfolio Funds attempt to control risk in all aspects of the investment process — from confirmation of a trend to determining the optimal exposure in a given market, and to money management issues such as the startup or upgrade of investor accounts.  Portfolio Funds double check the accuracy of market data, and will not trade a market without multiple price sources for analytical input.  In constructing a portfolio, Portfolio Funds seek to control overall risk as well as the risk of any one position, and Portfolio Funds trade only markets that have been identified as having positive performance characteristics.  Trading discipline requires plans for the exit of a market as well as for entry.  Portfolio Funds factor the point of exit into the decision to enter (stop loss).  The size of Portfolio Fund’s positions in a particular market is not a matter of how large a return can be generated but of how much risk it is willing to take relative to that expected return.

 

To attempt to reduce the risk of volatility while maintaining the potential for excellent performance, proprietary research is conducted on an ongoing basis to refine the Portfolio Funds investment strategies.  Research may suggest substitution of alternative investment methodologies with respect to particular contracts; this may occur, for example, when the testing of a new methodology has indicated that its use might have resulted in different historical performance.  In addition, risk management research and analysis may suggest modifications regarding the relative weighting among various contracts, the addition or deletion of particular contracts for a program, or a change in position size in relation to account equity.  The weighting of capital committed to various markets in the investment programs is dynamic, and Portfolio Funds may vary the weighting at its discretion as market conditions, liquidity, position limit considerations and other factors warrant.

 

Portfolio Funds may determine that risks arise when markets are illiquid or erratic, which may occur cyclically during holiday seasons, or on the basis of irregularly occurring market events.  In such cases, Portfolio Funds at its sole discretion may override computer-generated signals and may at times use discretion in the application of its quantitative models, which may affect performance positively or negatively.

 

Adjustments in position size in relation to account equity have been and continue to be an integral part of Portfolio Fund’s investment strategy.  At its discretion, Portfolio Funds may adjust the size of a position in relation to equity in certain markets or entire programs.  Such adjustments may be made at certain times for some programs but not for others.  Factors which may affect the decision to adjust the size of a position in relation to account equity include ongoing research, program volatility, assessments of current market volatility and risk exposure, subjective judgment, and evaluation of these and other general market conditions.

 

35



 

Non-Trading Risk

 

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

 

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

 

Item 8: Financial Statements and Supplementary Data

Net Income (Loss) by Quarter

Eight Quarters through December 31, 2009

 

 

 

Fourth

 

Third

 

Second

 

First

 

Fourth

 

Third

 

Second

 

First

 

 

 

Quarter

 

Quarter

 

Quarter

 

Quarter

 

Quarter

 

Quarter

 

Quarter

 

Quarter

 

 

 

2009

 

2009

 

2009

 

2009

 

2008

 

2008

 

2008

 

2008

 

Total Income (Loss)

 

$

(21,795,932

)

$

13,613,925

 

$

(27,712,377

)

$

(25,856,689

)

$

69,068,458

 

$

(29,629,492

)

$

28,127,418

 

$

13,644,323

 

Total Expenses

 

4,679,304

 

4,290,343

 

3,649,738

 

3,440,810

 

2,710,614

 

2,267,381

 

1,544,586

 

1,063,534

 

Net Income (Loss)

 

$

(26,475,236

)

$

9,323,582

 

$

(31,362,115

)

$

(29,297,499

)

$

66,357,844

 

$

(31,896,873

)

$

26,582,832

 

$

12,580,789

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income (Loss) per weighted average Unit (a)

 

$

(0.0359

)

$

0.0133

 

$

(0.0488

)

$

(0.0504

)

$

0.1347

 

$

(0.0851

)

$

0.1059

 

$

0.0942

 

 


(a) The Net Income (Loss) per weighted average Unit is based on the weighted average of the total Units for each quarter.

 

The financial statements required by this Item are included in Exhibit 13.01.

 

The supplementary financial information (“information about oil and gas producing activities”) specified by Item 302(b) of Regulation S-K is not applicable.

 

Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

The Board of Managers of MLAI, the Manager of the Fund, dismissed Deloitte & Touche as the independent registered public accounting firm for the Fund, effective April 20, 2009. The Board of Managers of the Manager, on behalf of the Fund, approved the engagement of PricewaterhouseCoopers LLP as the independent registered public accounting firm of the Fund effective April 20, 2009.

 

There were no disagreements with the respective independent registered public accounting firms on accounting and financial disclosure.

 

Item 9A(T): Controls and Procedures

 

MLAI’s Chief Executive Officer and the Chief Financial Officer, on behalf of the Fund, has evaluated the effectiveness of the design and operation of its disclosure controls and procedures with respect to the Fund as of the year ended December 31, 2009, and, based on its evaluation, has concluded that these disclosure controls and procedures are effective.

 

36



 

Changes in Internal Control over Financial Reporting

 

No change in internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) occurred during the quarter ended December 31, 2009 that has materially affected, or is reasonable likely to materially affect, the Fund’s internal control, over financial reporting.

 

Management’s Report on Internal Control over Financial Reporting

 

The Fund’s management is responsible for establishing and maintaining adequate internal control over financial reporting.  The Fund’s internal control over financial reporting is a process designed under the supervision of MLAI’s Chief Executive Officer and the Chief Financial Officer, on behalf of the Fund and is effected by management, other personnel and service providers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and included those policy and procedures that:

 

·                 Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Fund.

 

·                 Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that  receipts and expenditures of the Fund are being made only in accordance with authorizations of management and directors of the Fund; and

 

·                 Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use or disposition of the Fund’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation and presentation.  Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in condition, or that the degree of compliance with the policies or procedures may deteriorate.

 

The Fund’s management assessed the effectiveness of the Funds’ internal control over financial reporting as of December 31, 2009.  In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “Internal Control-Integrated Framework”.

 

Based on its assessment the Fund’s management concluded that at December 31, 2009, the Fund’s internal control over financial reporting was effective.

 

This annual report does not include an attestation report of the Fund’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Fund’s independent registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Fund to provide only management’s report for this annual report.

 

Item 9B:  Other Information

 

  Not applicable.

 

37



 

PART III

 

Item 10: Directors, Executive Officers and Corporate Governance

 

10(a) and 10(b)                 Identification of Directors and Executive Officers:

 

As a limited company, the Fund has no officers or directors and is managed by MLAI. Trading decisions are made by Portfolio Funds’ Trading Advisors on behalf of the Fund.

 

The managers and executive officers of MLAI and their respective business backgrounds are as follows:

 

Justin C. Ferri                                                            Chief Executive Officer, President and Manager

 

Barbra E. Kocsis                                                 Chief Financial Officer

(Principal Financial and Accounting Officer)

 

Deann Morgan                                                            Vice President and Manager

 

Justin C. Ferri is the Chief Executive Officer, President and Manager of MLAI. Mr. Ferri, 34 years old, has been the Chief Executive Officer and President of MLAI since August 2009. Mr. Ferri has been a Manager of MLAI and has been listed as a principal of MLAI since July 29, 2008. He has been registered with NFA as an associated person of MLAI since September 11, 2009. He also serves as Managing Director within the Merrill Lynch Global Wealth & Investment Management group and the Global Investments Solutions group (“GWIM” and “GIS,” respectively), responsible for heading GWIM’s Alternative Investments business. In addition, Mr. Ferri serves as Vice President of IQ Investment Advisors LLC (“IQ”), an indirect, wholly-owned investment adviser subsidiary of Merrill Lynch & Co., and serves as President of each of IQ’s publicly traded closed-end mutual fund companies. Prior to his role in GIS, Mr. Ferri was a Director in the MLPF&S Global Private Client Market Investments & Origination group, and before that, he served as a Vice President and head of the MLPF&S Global Private Client Rampart Equity Derivatives team. Prior to joining Merrill Lynch in 2002, Mr. Ferri was a Vice President within the Quantitative Development group of mPower Advisors LLC from 1999 to 2002, and prior to that, he worked in the Private Client division of J.P. Morgan & Co. He holds a B.A. degree from Loyola College in Maryland.

 

Barbra E. Kocsis is the Chief Financial Officer for MLAI. Ms. Kocsis,43 years old, has been the Chief Financial Officer of MLAI since October 2006. Ms. Kocsis has been listed with the NFA as a principal of MLAI since May 21, 2007 and is a Director within the Merrill Lynch Global Wealth Management Investment Services group, positions she has held since October 2006. Prior to serving in her current roles, she was the Fund Controller of MLAI from May 1999 to September 2006. Before joining MLAI, Ms. Kocsis held various accounting and tax positions at Derivatives Portfolio Management LLC from May 1992 until May 1999, at which time she held the position of accounting director. Prior to that, she was an associate at Coopers & Lybrand in both the audit and tax practices from September 1988 to February 1992. She graduated cum laude from Monmouth College with a Bachelor of Science in Business Administration - Accounting.

 

Deann Morgan is a Vice President and Manager of MLAI. Ms. Morgan, 40 years old, has been a Vice President of MLAI and Managing Director of GIS since March 2008. As Managing Director of GIS, Ms. Morgan heads Alternative Investments Origination. From April 2006 until March 2008, Ms. Morgan was a Director for Merrill Lynch’s Investments, Wealth Management & Insurance group, where she was responsible for origination of private equity and listed alternative investments. Between August 2004 and April 2006, Ms. Morgan worked for Merrill Lynch’s Investment Banking Group covering Asian corporate clients. She received her M.B.A. from University of Chicago and her B.B.A. from University of Michigan. Ms. Morgan has been registered with NFA as an associated person and listed as a principal of MLAI since August 21, 2009. Ms. Morgan has also been registered with NFA as an associated person of MLPF&S since April 13, 2009.

 

As of December 31, 2009, the principals of MLAI had no investment in the Fund.

 

MLAI acts as the sponsor, general partner or manager to  seven public futures funds whose units of limited

 

38



 

partner or member interests are registered under the Securities Exchange Act of 1934: ML Aspect FuturesAccess LLC, ML Select Futures I L.P., ML Systematic Momentum FuturesAccess LLC, Bluetrend FuturesAccess LLC, ML Transtrend DTP Enhanced FuturesAccess LLC, ML Trend-Following Futures Fund L.P, and ML Winton FuturesAccess LLC. Because MLAI serves as the sole sponsor, general partner or manager of each of these Funds, the officers and managers of MLAI effectively manage them as officers and directors of such funds.

 

(c)                                 Identification of Certain Significant Employees:

 

None.

 

(d)                                Family Relationships:

 

None.

 

(e)                                 Business Experience:

 

See Item 10(a) and (b) above.

 

(f)                                   Involvement in Certain Legal Proceedings:

 

None.

 

(g)                                Promoters and Control Persons:

 

Not applicable.

 

(h)                                Section 16(a) Beneficial Ownership Reporting Compliance:

 

Not applicable.

 

Code of Ethics:

 

MLAI and Merrill Lynch have adopted a code of ethics which applies to the Fund’s (MLAI’s) principal executive officer and principal financial officer or persons performing similar functions on behalf of the Fund.  A copy of the code of ethics is available to any person, without charge, upon request by calling 1-866-MER-ALTS.

 

Nominating Committee:

 

Not applicable. (Neither the Fund nor MLAI has nominating committee.)

 

Audit Committee: Audit Committee Financial Expert:

 

Not applicable. (Neither the Fund nor MLAI has an audit committee.  There are no listed shares of the Fund or MLAI.)

 

39



 

Item 11: Executive Compensation

 

The managers and officers of MLAI are remunerated by Merrill Lynch in their respective positions. The Fund does not itself have any officers, managers or employees.  The Portfolio Funds pay Brokerage Commissions to an affiliate of MLAI and the Fund pays Sponsor Fees to MLAI.  MLAI or its affiliates may also receive certain economic benefits from possession of the Fund’s and Portfolio Funds’ U.S. dollar assets.  The managers and officers receive no “other compensation” from the Fund, and the managers receive no compensation for serving as managers of MLAI.  There are no compensation plans or arrangements relating to a change in control of either the Fund or MLAI.

 

Item 12: Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

(a)                                  Security Ownership of Certain Beneficial Owners:

 

Not applicable. (The Units are non-voting securities limited liability company interests. The Fund is managed by MLAI, its sponsor and manager.)

 

(b)                                 Security Ownership of Management:

 

As of December 31, 2009, MLAI owned no Unit-equivalent member interests, and the principals of MLAI did not own any Units.

 

(c)                                  Changes in Control:

 

None.

 

(d)                                 Securities Authorized of Issuance Under Equity Compensation Plans:

 

Not applicable.

 

Item 13: Certain Relationships and Related Transactions and Director Independence

 

(a)                                  Transactions between Merrill Lynch and the Fund

 

Some of the service providers to the Fund are affiliates of Merrill Lynch. However, none of the fees paid by the Fund to such Merrill Lynch affiliates were negotiated and such fees charged to the Fund might be higher than would have been obtained in arms-length negotiations.

 

The Portfolio Funds pay MLPF&S and its affiliates  substantial Brokerage Commissions and Sponsor Fees as well as bid-ask spreads on forward currency trades.  The Portfolio Funds also pay MLPF&S interest on short-term loans extended by MLPF&S to cover losses on foreign currency positions.

 

Within the Merrill Lynch organization, MLAI is the beneficiary of the revenues received by different Merrill Lynch entities from the Fund and Portfolio Funds.  MLAI controls the management of the Fund and serves as its promoter.  Although MLAI has not sold any assets, directly or indirectly, to the Fund, MLAI makes substantial profits from the Fund due to the foregoing revenues.

 

No loans have been, are or will be outstanding between MLAI or any of its principals and the Fund.

 

MLAI pays substantial selling commissions and trailing commissions to MLPF&S for distributing the Units.  MLAI is ultimately paid back for these expenditures from the revenues it receives from the Fund.

 

40



 

(b)                                Certain Business Relationships:

 

MLPF&S, an affiliate of MLAI, acts as the principal commodity broker for the Portfolio Funds.

 

In 2009, the Fund expensed (i) Sponsor fees of $14,993,578 earned by MLAI.

 

The Fund holds cash at an unaffiliated bank which invests such cash in a money market fund which is managed by BlackRock, a related party to MLAI.  The Cash and cash equivalents as seen on the Statements of Financial Condition is the amount held by the related party.

 

See Item 1(c), “Narrative Description of Business — Charges” and “— Description of Current Charges” for a discussion of other business dealings between MLAI affiliates and the Fund.

 

(c)                                 Indebtedness of Management:

 

None.

 

(d)                                Transactions with Promoters:

 

Not applicable.

 

(e)                                 Director Independence

 

No person who served as a manager of MLAI during 2009 would be considered independent (based on the definition of an independent director under the NASDAQ rules.)

 

Item 14: Principal Accountant Fees and Services

 

(a)                                 Audit Fees

 

Aggregate fees billed for professional services rendered by PricewaterhouseCoopers LLP in connection with the audit of the Fund’s financial statements as of and for the year ended December 31, 2009 were $93,000.

 

Aggregate fees billed for professional services rendered by Deloitte & Touche LLP in connection with the audits of the Fund’s financial statements as of and for the year ended December 31, 2008 were $93,000, respectively.

 

(b)                                Audit-Related Fees

 

There were no other audit-related fees billed for the years ended December 31, 2009 and 2008 related to the Fund.

 

(c)                                 Tax Fees

 

No fees were billed by PricewaterhouseCoopers LLP or any member firms of PricewaterhouseCoopers and their respective affilitates for the year ended December 31, 2009 for professional services rendered to the fund in connection with tax compliance, tax advice and tax planning.

 

Aggregate fees billed for professional services rendered by Deloitte Tax LLP in connection with the tax compliance, advice and preparation of the Fund’s tax returns for the year ended December 31, 2009 were $52,250.

 

Aggregate fees billed for professional services rendered by Deloitte Tax LLP in connection with the tax compliance, advice and preparation of the Fund’s tax returns for the year ended December 31, 2008 were $65,000, respectively.

 

41



 

(d)                                All Other Fees

 

No fees were billed by PricewaterhouseCoopers LLP or any member firms of PricewaterhouseCoopers and their respective affiliates for the year ended December 31, 2009 and for any other professional services in relation to the Fund.

 

No fees were billed by Deloitte & Touche LLP, Deloitte Tax LLP, or any member firms of Deloitte Touche Tohmatsu and their respective affiliates during the year ended December 31, 2008 and the period ended December 31, 2007 for any other professional services in relation to the Fund.

 

Neither the Fund nor MLAI has an audit committee to pre-approve principal accountant fees and services.  In lieu of an audit committee, the managers and the principal financial officer pre-approve all billings prior to the commencement of services.

 

42



 

PART IV

 

Item 15: Exhibits and Financial Statement Schedules

 

 

 

Page:

1.

Financial Statements (found in Exhibit 13.01):

 

 

 

 

 

REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS

1

 

 

 

 

Statements of Financial Condition as of December 31, 2009 and 2008

3

 

 

 

 

Statements of Operations for the years ended December 31, 2009 and 2008 and for the period April 2, 2007 (commencement of operations) to December 31, 2007:

4

 

 

 

 

Statement of Changes in Members’ Capital for the years ended December 31, 2009 and 2008 and for the period April 2, 2007 (commencement of operations) to December 31, 2007:

5

 

 

 

 

Financial Data Highlights for the year ended December 31, 2009 and 2008 and for the period April 2, 2007 (commencement of operations) to December 31, 2007:

7

 

 

 

 

Notes to Financial Statements

10

 

 

 

2.

Financial Statement Schedules:

 

 

 

 

 

(a)  Financial Statements of ML TransTrend DTP Enhanced FuturesAccess LLC

 

 

 

 

 

Report of Independent Registered Public Accounting Firm

1

 

 

 

 

Statements of Financial Condition as of December 31, 2009 and 2008

2

 

 

 

 

Statements of Operations for the years ended December 31, 2009, 2008 and for the period April 2, 2007 (commencement of operations) to December 31, 2007

3

 

 

 

 

Statements of Changes in Member’s Capital for the years ended December 31, 2009, 2008 and for the period April 2, 2007 (commencement of operations) to December 31, 2007

4

 

 

 

 

Financial Data Highlights for the years ended December 31, 2009, 2008 and for period April 2, 2007 (commencement of operations) to December 31, 2007

6

 

 

 

 

Notes to Financial Statements

9

 

 

 

 

Financial statement schedules not included in this Form 10-K have been omitted for the reason that they are not required or are not applicable or that equivalent information has been included in the financial statements or notes thereto.

 

43



 

3.                                      Exhibits:

 

The following exhibits are incorporated by reference or are filed herewith to this Annual Report on Form 10-K:

 

Designation

 

Description

 

 

 

3.01

 

Certificate of Formation of ML Systematic Momentum FuturesAccess LLC.

 

 

 

Exhibit 3.01:

 

Is incorporated herein by reference from Exhibit 3.1 contained in the Registration Statement (File No. 0-52505) filed on November 14, 2007, on Form 10 under the Securities Exchange Act of 1934 (the Registrant’s Registration Statement).

 

 

 

3.02

 

Amended and Restated Limited Liability Company Operating Agreement of ML Systematic Momentum FuturesAccess LLC.

 

 

 

Exhibit 3.02

 

Is filed herewith.

 

 

 

13.01

 

2009 Annual Report and Report of Independent Registered Public Accounting Firm.

 

 

 

13.02

 

Financial Statements of ML TransTrend DTP Enhanced FuturesAccess LLC

 

 

 

Exhibit 13.01

 

 

Exhibit 13.02:

 

are filed herewith.

 

 

 

31.01 and 31.02

 

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

 

 

 

Exhibit 31.01

 

Are filed herewith.

and 31.02:

 

 

 

 

 

32.01 and 32.02

 

Section 1350 Certifications

 

 

 

Exhibit 32.01

 

 

and 32.02:

 

Are filed herewith.

 

44



 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) 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

By:

/s/Justin C. Ferri

 

Justin C. Ferri

 

Chief Executive Officer, President and Manager

 

(Principal Executive Officer)

 

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed on March 31, 2010 by the following persons on behalf of the Registrant and in the capacities indicated.

 

Signature

 

Title

 

Date

 

 

 

 

 

/s/ Justin C. Ferri

 

Chief Executive Officer, President and Manager

 

March 31, 2010

Justin C. Ferri

 

 

 

 

 

 

 

 

 

/s/ Barbra E. Kocsis

 

Chief Financial Officer

 

March 31, 2010

Barbra E. Kocsis

 

(Principal Financial and Accounting Officer)

 

 

 

 

 

 

 

s/ Deann Morgan

 

Vice President and Manager

 

March 31, 2010

Deann Morgan

 

 

 

 

 

(Being the principal executive officer, the principal financial and accounting officer and a majority of the managers of Merrill Lynch Alternative Investments LLC)

 

45



 

ML SYSTEMATIC MOMENTUM FUTURESACCESS LLC

 

2009 FORM 10-K

 

INDEX TO EXHIBITS

 

 

 

Exhibit

 

 

 

Exhibit 3.02

 

Amended and Restated Limited Liability Company Operating Agreement of ML Systematic Momentum FuturesAccess LLC.

 

 

 

Exhibit 13.01

 

2009 Annual Report and Report of Independent Registered Public Accounting Firm

 

 

 

Exhibit 13.02

 

ML Transtrend DTP Enchanced FuturesAccess LLC Financial Statements as of and for the years ended December 31, 2009 and 2008 and for the period April 2, 2007 (Commencement of Operations) to December 31, 2007 and Report of Independent Registered Public Accounting Firms

 

 

 

Exhibit 31.01 and 31.02

 

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

 

 

 

Exhibit 32.01 and 32.02

 

Sections 1350 Certifications

 

46