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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

x

 

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

 

For the quarterly period ended March 31, 2012

 

OR

 

o

 

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

 

For the transition period from                  to                

 

Commission File Number 0-52701

 

ML TRANSTREND DTP ENHANCED FUTURESACCESS LLC

(Exact Name of Registrant as

specified in its charter)

 

Delaware

 

30-0408288

(State or other jurisdiction of

 

(IRS Employer Identification No.)

incorporation or organization)

 

 

 

c/o Merrill Lynch Alternative Investments LLC

Four World Financial Center, 10th 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)

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer o

 

Accelerated filer o

 

 

 

Non-accelerated filer x

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

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

 

As of March 31, 2012, 137,702,260 units of limited liability company interest were outstanding.

 

 

 



 

ML TRANSTREND DTP ENHANCED FUTURESACCESS LLC

 

QUARTERLY REPORT FOR MARCH 31, 2012 ON FORM 10-Q

 

Table of Contents

 

PART I—FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

 

1

 

 

 

 

Item 2.

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

 

15

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

21

 

 

 

 

Item 4.

Controls and Procedures

 

25

 

 

 

 

PART II—OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

 

26

 

 

 

 

Item 1A.

Risk  Factors

 

26

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

26

 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

27

 

 

 

 

Item 4.

Mine Safety Disclosures

 

27

 

 

 

 

Item 5.

Other Information

 

27

 

 

 

 

Item 6.

Exhibits

 

27

 



 

PART I - FINANCIAL INFORMATION

 

Item 1.    Financial Statements

 

ML TRANSTREND DTP ENHANCED FUTURESACCESS LLC

(a Delaware Limited Liability Company)

 

STATEMENTS OF FINANCIAL CONDITION

(unaudited)

 

 

 

March 31,

 

December 31,

 

 

 

2012

 

2011

 

ASSETS:

 

 

 

 

 

Equity in commodity trading accounts:

 

 

 

 

 

Cash (including restricted cash of $26,818,477 for 2012 and $21,424,479 for 2011)

 

$

208,419,613

 

$

226,605,062

 

Net unrealized profit on open futures contracts

 

3,765,262

 

7,840,087

 

Cash and cash equivalents

 

389,589

 

368,191

 

Other assets

 

2,401

 

65,910

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

212,576,865

 

$

234,879,250

 

 

 

 

 

 

 

LIABILITIES AND MEMBERS’ CAPITAL:

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

Sponsor and Advisory fees payable

 

$

378,673

 

$

415,526

 

Redemptions payable

 

10,943,980

 

13,147,584

 

Net unrealized loss on open futures contracts

 

671,191

 

42,864

 

Other liabilities

 

167,120

 

226,967

 

 

 

 

 

 

 

Total liabilities

 

12,160,964

 

13,832,941

 

 

 

 

 

 

 

MEMBERS’ CAPITAL:

 

 

 

 

 

Members’ Interest (137,702,260 Units and 155,007,214 Units outstanding; unlimited Units authorized)

 

200,415,901

 

221,046,309

 

Total members’ capital

 

200,415,901

 

221,046,309

 

 

 

 

 

 

 

TOTAL LIABILITIES AND MEMBERS’ CAPITAL

 

$

212,576,865

 

$

234,879,250

 

 

 

 

 

 

 

NET ASSET VALUE PER UNIT:

 

 

 

 

 

 

 

 

 

 

 

Class A

 

$

1.2093

 

$

1.1801

 

Class C

 

$

1.1169

 

$

1.0927

 

Class D

 

$

0.9946

 

$

0.9670

 

Class I

 

$

1.2128

 

$

1.1823

 

Class DS

 

$

1.5238

 

$

1.4814

 

Class DT

 

$

1.6263

 

$

1.5771

 

 

See notes to financial statements.

 

1



 

ML TRANSTREND DTP ENHANCED FUTURESACCESS LLC

(a Delaware Limited Liability Company)

 

STATEMENTS OF OPERATIONS

(unaudited)

 

 

 

For the three months
ended
March 31, 2012

 

For the three months
ended
March 31, 2011

 

TRADING PROFIT (LOSS):

 

 

 

 

 

 

 

 

 

 

 

Realized, net

 

$

12,594,149

 

$

451,829

 

Change in unrealized, net

 

(4,703,152

)

(1,310,260

)

Brokerage commissions

 

(285,089

)

(301,065

)

 

 

 

 

 

 

Total trading profit (loss), net

 

7,605,908

 

(1,159,496

)

 

 

 

 

 

 

INVESTMENT INCOME (LOSS)

 

 

 

 

 

Interest, net

 

5,917

 

(365

)

 

 

 

 

 

 

EXPENSES:

 

 

 

 

 

Management fee

 

1,016,640

 

1,195,168

 

Sponsor fee

 

162,791

 

151,447

 

Other

 

154,042

 

165,230

 

Total expenses

 

1,333,473

 

1,511,845

 

 

 

 

 

 

 

NET INVESTMENT LOSS

 

(1,327,556

)

(1,512,210

)

 

 

 

 

 

 

NET INCOME (LOSS)

 

$

6,278,352

 

$

(2,671,706

)

 

 

 

 

 

 

NET INCOME (LOSS) PER UNIT:

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of Units outstanding

 

 

 

 

 

Class A

 

9,416,537

 

4,409,161

 

Class C

 

16,613,185

 

16,187,012

 

Class D

 

2,560,122

 

2,000,000

 

Class I

 

1,158,327

 

1,071,353

 

Class DS

 

99,975,747

 

113,298,345

 

Class DT

 

21,061,924

 

25,718,353

 

 

 

 

 

 

 

Net income (loss) per weighted average Unit

 

 

 

 

 

Class A

 

$

0.0287

 

$

(0.0312

)

Class C

 

$

0.0250

 

$

(0.0207

)

Class D

 

$

0.0165

 

$

(0.0103

)

Class I

 

$

0.0264

 

$

(0.0170

)

Class DS

 

$

0.0446

 

$

(0.0163

)

Class DT

 

$

0.0504

 

$

(0.0120

)

 

See notes to financial statements.

 

2



 

ML TRANSTREND DTP ENHANCED FUTURESACCESS LLC

(a Delaware Limited Liability Company)

 

STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL

FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011

(unaudited) (in Units)

 

 

 

Members’ Capital
December 31, 2010

 

Subscriptions

 

Redemptions

 

Members’ Capital
March 31, 2011

 

Members’ Capital
December 31, 2011

 

Subscriptions

 

Redemptions

 

Members’ Capital
March 31, 2012

 

Class A

 

3,458,026

 

2,394,062

 

(44,760

)

5,807,328

 

8,926,646

 

780,003

 

(262,273

)

9,444,376

 

Class C

 

15,140,200

 

1,745,793

 

(120,696

)

16,765,297

 

17,017,841

 

202,510

 

(1,999,470

)

15,220,881

 

Class D

 

2,000,000

 

 

 

2,000,000

 

2,062,362

 

1,493,280

 

(62,362

)

3,493,280

 

Class I

 

911,417

 

185,155

 

(8,956

)

1,087,616

 

952,853

 

341,581

 

 

1,294,434

 

Class DS

 

111,667,815

 

3,235,806

 

(660,664

)

114,242,957

 

104,405,795

 

 

(15,693,348

)

88,712,447

 

Class DT

 

26,281,259

 

 

(1,504,900

)

24,776,359

 

21,641,717

 

 

(2,104,875

)

19,536,842

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Members’ Units

 

159,458,717

 

7,560,816

 

(2,339,976

)

164,679,557

 

155,007,214

 

2,817,374

 

(20,122,328

)

137,702,260

 

 

See notes to financial statements.

 

3



 

ML TRANSTREND DTP ENHANCED FUTURESACCESS LLC

(a Delaware Limited Liability Company)

 

STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL

FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011

 

(unaudited)

 

 

 

Members’ Capital
December 31, 2010

 

Subscriptions

 

Redemptions

 

Net Income
(Loss)

 

Members’ Capital
March 31, 2011

 

Members’ Capital
December 31, 2011

 

Subscriptions

 

Redemptions

 

Net Income
(Loss)

 

Members’ Capital
March 31, 2012

 

Class A

 

$

4,597,909

 

$

3,217,671

 

$

(59,257

)

$

(137,534

)

$

7,618,789

 

$

10,534,052

 

$

932,981

 

$

(316,755

)

$

270,670

 

$

11,420,948

 

Class C

 

18,827,816

 

2,176,222

 

(149,222

)

(335,118

)

20,519,698

 

18,595,146

 

223,793

 

(2,234,209

)

416,097

 

17,000,827

 

Class D

 

2,146,621

 

 

 

(20,624

)

2,125,997

 

1,994,275

 

1,500,000

 

(62,025

)

42,285

 

3,474,535

 

Class I

 

1,209,298

 

246,004

 

(11,829

)

(18,184

)

1,425,289

 

1,126,558

 

412,737

 

 

30,582

 

1,569,877

 

Class DS

 

183,611,518

 

5,363,793

 

(1,082,366

)

(1,852,015

)

186,040,930

 

154,664,583

 

 

(23,944,970

)

4,457,027

 

135,176,640

 

Class DT

 

45,566,638

 

 

(2,615,846

)

(308,231

)

42,642,561

 

34,131,695

 

 

(3,420,312

)

1,061,691

 

31,773,074

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Members’ Capital

 

$

255,959,800

 

$

11,003,690

 

$

(3,918,520

)

$

(2,671,706

)

$

260,373,264

 

$

221,046,309

 

$

3,069,511

 

$

(29,978,271

)

$

6,278,352

 

$

200,415,901

 

 

See notes to financial statements.

 

4



 

ML TRANSTREND DTP ENHANCED FUTURESACCESS LLC

(A Delaware Limited Liability Company)

 

FINANCIAL DATA HIGHLIGHTS

FOR THE THREE MONTHS ENDED MARCH 31, 2012 (unaudited)

 

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

 

 

 

Class A

 

Class C

 

Class D

 

Class I

 

Class DS

 

Class DT

 

Per Unit Operating Performance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, beginning of period

 

$

1.1801

 

$

1.0927

 

$

0.9670

 

$

1.1823

 

$

1.4814

 

$

1.5771

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

0.0422

 

0.0391

 

0.0346

 

0.0423

 

0.0530

 

0.0565

 

Brokerage commissions

 

(0.0016

)

(0.0015

)

(0.0013

)

(0.0016

)

(0.0020

)

(0.0021

)

Interest income

 

0.0000

 

0.0000

 

0.0000

 

0.0000

 

0.0000

 

0.0000

 

Expenses

 

(0.0114

)

(0.0134

)

(0.0057

)

(0.0102

)

(0.0086

)

(0.0052

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, end of period

 

$

1.2093

 

$

1.1169

 

$

0.9946

 

$

1.2128

 

$

1.5238

 

$

1.6263

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return: (a)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total return before Performance fees

 

2.48

%

2.22

%

2.86

%

2.58

%

2.86

%

3.12

%

Performance fees

 

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

Total return after Performance fees

 

2.48

%

2.22

%

2.86

%

2.58

%

2.86

%

3.12

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios to Average Members’ Capital:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses (excluding Performance fees)

 

0.95

%

1.20

%

0.57

%

0.85

%

0.57

%

0.32

%

Performance fees

 

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

Expenses (including Performance fees)

 

0.95

%

1.20

%

0.57

%

0.85

%

0.57

%

0.32

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income (loss)

 

-0.95

%

-1.20

%

-0.57

%

-0.85

%

-0.57

%

-0.32

%

 


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

 

See notes to financial statements.

 

5



 

ML TRANSTREND DTP ENHANCED FUTURESACCESS LLC

(A Delaware Limited Liability Company)

 

FINANCIAL DATA HIGHLIGHTS

FOR THE THREE MONTHS ENDED MARCH 31, 2011 (unaudited)

 

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

 

 

 

Class A

 

Class C

 

Class D

 

Class I

 

Class DS

 

Class DT

 

Per Unit Operating Performance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, beginning of period

 

$

1.3296

 

$

1.2436

 

$

1.0733

 

$

1.3268

 

$

1.6443

 

$

1.7338

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

(0.0036

)

(0.0033

)

(0.0029

)

(0.0036

)

(0.0045

)

(0.0048

)

Brokerage commissions

 

(0.0015

)

(0.0014

)

(0.0012

)

(0.0015

)

(0.0019

)

(0.0020

)

Interest income

 

(0.0000

)

(0.0000

)

(0.0000

)

(0.0000

)

(0.0000

)

(0.0000

)

Expenses

 

(0.0126

)

(0.0150

)

(0.0062

)

(0.0112

)

(0.0094

)

(0.0059

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, end of period

 

$

1.3119

 

$

1.2239

 

$

1.0630

 

$

1.3105

 

$

1.6285

 

$

1.7211

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return: (a)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total return before Performance fees

 

-1.34

%

-1.59

%

-0.97

%

-1.24

%

-0.97

%

-0.72

%

Performance fees

 

-0.02

%

-0.02

%

-0.02

%

-0.02

%

-0.02

%

-0.04

%

Total return after Performance fees

 

-1.36

%

-1.61

%

-0.99

%

-1.26

%

-0.99

%

-0.76

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios to Average Members’ Capital:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses (excluding Performance fees)

 

0.94

%

1.19

%

0.56

%

0.84

%

0.56

%

0.31

%

Performance fees

 

0.01

%

0.01

%

0.01

%

0.01

%

0.01

%

0.03

%

Expenses (including Performance fees)

 

0.95

%

1.20

%

0.57

%

0.85

%

0.57

%

0.34

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income (loss)

 

-0.94

%

-1.20

%

-0.57

%

-0.84

%

-0.57

%

-0.34

%

 


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

 

See notes to financial statements.

 

6



 

ML TRANSTREND DTP ENHANCED FUTURESACCESS LLC

(a Delaware Limited Liability Company)

 

NOTES TO FINANCIAL STATEMENTS

(unaudited)

 

1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

ML Transtrend DTP Enhanced FuturesAccess LLC (the “Fund”), a Merrill Lynch FuturesAccessSM Program (the “Program”) fund, was organized under the Delaware Limited Liability Company Act on March 8, 2007 and commenced trading activities on April 2, 2007. The Fund issues new units of limited liability company interest (“Units”) at Net Asset Value per Unit (see Item 2 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. The Fund engages in the speculative trading of futures, options on futures and forward contracts on a wide range of commodities. Transtrend B.V. (“Transtrend” or “trading advisor”) is the trading advisor of the Fund.

 

Merrill Lynch Alternative Investments LLC (“MLAI” or the “Sponsor”) is the Sponsor of the Fund. MLAI is an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. (“Merrill Lynch”). Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S”), a wholly-owned subsidiary of Merrill Lynch, is the Fund’s commodity broker. Merrill Lynch International Bank (“MLIB”) is the Fund’s forward contracts broker. Merrill Lynch is a wholly-owned subsidiary of Bank of America Corporation. Bank of America Corporation and its affiliates are sometimes referred to herein as “BAC”.

 

The Program is a group of commodity pools sponsored by MLAI (each pool is a “Program Fund” or collectively, “Program Funds”) each of which places substantially all of its assets in a managed futures or forward trading account managed by a single or multiple commodity trading advisors. Each Program Fund is generally similar in terms of fees, Classes of Units and redemption rights.  Each of the Program Funds implements a different trading strategy.

 

Interests in the Fund are not insured or otherwise protected by the Federal Deposit Insurance Corporation or any other government authority.  Interests are not deposits or other obligations of, and are not guaranteed by, Bank of America Corporation or any of its affiliates or by any bank.  Interests are subject to investment risks, including the possible loss of the full amount invested.

 

In the opinion of management, these interim financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the financial position of the Fund as of  March 31, 2012 and the results of its operations for the three months ended March 31, 2012 and 2011.  However, the operating results for the interim periods may not be indicative of the results for the full year.

 

Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been omitted.  These financial statements should be read in conjunction with the financial statements and notes thereto included in the Fund’s Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2011.

 

7



 

Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates and such differences could be material.

 

Initial Offering and Organizational Costs

 

Organization and Offering costs are amortized against the net asset value over 60 months, beginning with the first month-end after the initial issuance of Units for operational and investor trading purposes. However, for financial reporting purposes, organizational costs, to the extent material, will be shown as deducted from net asset value as of the date of such initial issuance and initial offering costs, to the extent material, will be amortized over a 12-month period after the initial issuance of Units.

 

8



 

2.               CONDENSED SCHEDULES OF INVESTMENTS

 

The Fund’s investments, defined as net unrealized profit (loss) on open contracts on the Statements of Financial Condition, as of March 31, 2012 and December 31, 2011 are as follows:

 

March 31, 2012

 

 

 

Long Positions

 

Short Positions

 

Net Unrealized

 

 

 

 

 

Commodity Industry

 

Number of

 

Unrealized

 

Percent of

 

Number of

 

Unrealized

 

Percent of

 

Profit (Loss)

 

Percent of

 

 

 

Sector

 

Contracts / Notional

 

Profit (Loss)

 

Members’ Capital

 

Contracts / Notional

 

Profit (Loss)

 

Members’ Capital

 

on Open Positions

 

Members’ Capital

 

Maturity Dates

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agriculture

 

1,024

 

$

1,268,742

 

0.63

%

(1,069

)

$

(247,021

)

-0.12

%

$

1,021,721

 

0.51

%

April 12 - March 13

 

Currencies

 

955

 

(90,454

)

-0.05

%

(600

)

(536,537

)

-0.27

%

(626,991

)

-0.32

%

June 12

 

Energy

 

502

 

(173,759

)

-0.09

%

(819

)

2,340,080

 

1.17

%

2,166,321

 

1.08

%

April 12 - December 14

 

Interest rates

 

3,781

 

1,131,560

 

0.56

%

(2,470

)

(853,932

)

-0.43

%

277,628

 

0.13

%

April 12 - March 16

 

Metals

 

396

 

(625,647

)

-0.31

%

(374

)

211,484

 

0.11

%

(414,163

)

-0.20

%

April 12 - February 13

 

Stock indices

 

1,769

 

334,799

 

0.17

%

(521

)

334,756

 

0.17

%

669,555

 

0.34

%

April 12 - August 12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total, net

 

 

 

$

1,845,241

 

0.91

%

 

 

$

1,248,830

 

0.63

%

$

3,094,071

 

1.54

%

 

 

 

December 31, 2011

 

 

 

Long Positions

 

Short Positions

 

Net Unrealized

 

 

 

 

 

Commodity Industry

 

Number of

 

Unrealized

 

Percent of

 

Number of

 

Unrealized

 

Percent of

 

Profit (Loss)

 

Percent of

 

 

 

Sector

 

Contracts / Notional

 

Profit (Loss)

 

Members’ Capital

 

Contracts / Notional

 

Profit (Loss)

 

Members’ Capital

 

on Open Positions

 

Members’ Capital

 

Maturity Dates

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agriculture

 

415

 

$

185,732

 

0.08

%

(1,463

)

$

(628,585

)

-0.28

%

$

(442,853

)

-0.20

%

January 12 - December 12

 

Currencies

 

551

 

273,422

 

0.12

%

(434

)

950,112

 

0.43

%

1,223,534

 

0.55

%

March 12

 

Energy

 

177

 

64,791

 

0.03

%

(1,005

)

3,491,388

 

1.58

%

3,556,179

 

1.61

%

January 12 - December 13

 

Interest rates

 

4,195

 

2,851,470

 

1.29

%

(2,341

)

(225,250

)

-0.10

%

2,626,220

 

1.19

%

March 12 - September 15

 

Metals

 

242

 

(1,005,397

)

-0.45

%

(386

)

1,437,831

 

0.65

%

432,434

 

0.20

%

January 12 - May 12

 

Stock indices

 

297

 

410,970

 

0.19

%

(182

)

(9,261

)

0.00

%

401,709

 

0.19

%

January 12 - May 12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total, net

 

 

 

$

2,780,988

 

1.26

%

 

 

$

5,016,235

 

2.28

%

$

7,797,223

 

3.54

%

 

 

 

No individual contract’s unrealized profit or loss comprised greater than 5% of Members’ Capital as of March 31, 2012 and December 31, 2011.

 

9


 


 

3.  FAIR VALUE OF INVESTMENTS

 

The Financial Accounting Standards Board (“FASB”) issued the Accounting Standards Codification (“ASC”) which provides authoritative guidance on fair value measurement. This guidance defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.

 

Fair value of an investment is the amount that would be received to sell the investment in an orderly transaction between market participants at the measurement date (i.e. the exit price). All investments (including derivative financial instruments and derivative commodity instruments) are held for trading purposes.  The investments are recorded on trade date and open contracts are recorded at fair value (described below) at the measurement date. Investments denominated in foreign currencies are translated into U.S. dollars at the exchange rates prevailing at the measurement date.  Profits or losses are realized when contracts are liquidated.  Unrealized profits or losses on open contracts are included in Equity in commodity trading account on the Statements of Financial Condition.  Any change in net unrealized profit or loss from the preceding year is reported on the Statements of Operations.

 

The fair value measurement guidance established a hierarchal disclosure framework which prioritizes and ranks the level of market price observability used in measuring investments at fair value. Market price observability is impacted by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

 

Investments measured and reported at fair value are classified and disclosed in one of the following categories:

 

Level I — Quoted prices are available in active markets for identical investments as of the reporting date. The type of investments included in Level I are publicly traded investments. As required by the fair market value measurement guidance, the Fund does not adjust the quoted price for these investments even in situations where the Fund holds a large position and a sale could reasonably impact the quoted price.

 

Level II — Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of generally accepted and understood models or other valuation methodologies. Investments which are generally included in this category are investments valued using market data.

 

Level III — Pricing inputs are unobservable and include situations where there is little, if any, market activity for the investment. Fair value for these investments is determined using valuation methodologies that consider a range of factors, including but not limited to the nature of the investment, local market conditions, trading values on public exchanges for comparable securities, current and projected operating performance and financing transactions subsequent to the acquisition of the investment. The inputs into the determination of fair value require significant management judgment. Due to the inherent uncertainty of these estimates, these values may differ materially from the values that would have been used had a ready market for these investments existed. Investments that are included in this category generally are privately held debt and equity securities.

 

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level

 

10



 

of input that is significant to the fair value measurement. MLAI’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment.

 

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

 

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

 

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

 

The Fund has determined that Level I securities would include its futures and options contracts where it believes that quoted prices are available in an active market.

 

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

 

The Fund’s net unrealized profit (loss) on open forward and futures contracts, by the above fair value hierarchy levels, as of March 31, 2012 and December 31, 2011 are as follows:

 

Net unrealized profit (loss) 

 

 

 

 

 

 

 

 

 

on open contracts

 

Total

 

Level I

 

Level II

 

Level III

 

 

 

 

 

 

 

 

 

 

 

Futures

 

 

 

 

 

 

 

 

 

Long

 

$

1,845,241

 

$

2,274,954

 

$

(429,713

)

$

 

Short

 

1,248,830

 

1,038,631

 

210,199

 

 

 

 

3,094,071

 

3,313,585

 

(219,514

)

 

 

 

 

 

 

 

 

 

 

 

Forwards

 

 

 

 

 

 

 

 

 

Long

 

 

 

 

 

Short

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2012

 

$

3,094,071

 

$

3,313,585

 

$

(219,514

)

$

 

 

11



 

Net unrealized profit (loss) 

 

 

 

 

 

 

 

 

 

on open contracts

 

Total

 

Level I

 

Level II

 

Level III

 

 

 

 

 

 

 

 

 

 

 

Futures

 

 

 

 

 

 

 

 

 

Long

 

$

2,780,988

 

$

3,786,386

 

$

(1,005,398

)

$

 

Short

 

5,016,235

 

3,882,964

 

1,133,271

 

 

 

 

7,797,223

 

7,669,350

 

127,873

 

 

 

 

 

 

 

 

 

 

 

 

Forwards

 

 

 

 

 

 

 

 

 

Long

 

 

 

 

 

Short

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2011

 

$

7,797,223

 

$

7,669,350

 

$

127,873

 

$

 

 

The Fund’s volume of trading futures as of the period and year ended March 31, 2012 and December 31, 2011, respectively, are representative of the activity throughout these periods. There were no transfers to or from any level during the quarter ended March 31, 2012.

 

The Fund engages in the speculative trading of futures, options on futures and forward contracts on a wide range of commodities. Such contracts meet the definition of a derivative as noted in the ASC guidance for accounting for derivative and hedging activities. The fair value amounts of and the net profits and losses on derivative instruments is disclosed in the Statements of Financial Condition and Statements of Operations, respectively. There are no credit related contingent features embedded in these derivative contracts. The total notional, contract amount, or number of contracts and fair values of derivative instruments by contract type/commodity sector are disclosed in Note 2, above.

 

The following table indicates the trading profits and losses, before brokerage commissions, by commodity industry sector on derivative instruments for each of the three month periods ended March 31, 2012 and 2011:

 

 

 

For the three months ended

 

For the three months ended

 

 

 

March 31, 2012

 

March 31, 2011

 

Commodity Industry Sector

 

profit (loss) from trading, net

 

profit (loss) from trading, net

 

 

 

 

 

 

 

Agriculture

 

$

(3,192,757

)

$

(1,769,166

)

Currencies

 

2,051,198

 

(969,175

)

Energy

 

8,281,327

 

(184,790

)

Interest rates

 

(3,710,658

)

(1,529,184

)

Metals

 

(917,129

)

2,761,541

 

Stock indices

 

5,379,016

 

832,343

 

 

 

 

 

 

 

Total, net

 

$

7,890,997

 

$

(858,431

)

 

12



 

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

 

4.   MARKET AND CREDIT RISKS

 

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

 

Market Risk

 

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

 

MLAI has procedures in place intended to control market risk exposure, although there can be no assurance that they will, in fact, succeed in doing so.  These procedures focus primarily on monitoring the trading of Transtrend, calculating the Net Asset Value of the Fund as of the close of business on each day and reviewing outstanding positions for over-concentrations.  While MLAI does not intervene in the markets to hedge or diversify the Fund’s market exposure, MLAI may urge Transtrend to reallocate positions in an attempt to avoid over-concentrations.  However, such interventions are expected to be unusual.  It is expected that MLAI’s basic risk control procedures which consist simply of the ongoing process of advisor monitoring, along with monitoring the market risk controls being applied by Transtrend is sufficient to detect if any such intervention if needed.

 

Credit Risk

 

The risks associated with exchange-traded contracts are typically perceived to be less than those associated with over-the-counter (non-exchange-traded) transactions, because exchanges typically (but not universally) provide clearinghouse arrangements in which the collective credit (in some cases limited in amount, in some cases not) of the members of the exchange is pledged to support the financial integrity of the exchange.  In over-the-counter transactions, on the other hand, traders must rely solely on the credit of their respective individual counterparties.  Margins, which may be subject to loss in the event of a default, are generally required in exchange trading, and counterparties may also require margin in the over-the-counter markets.

 

The credit risk associated with these instruments from counterparty nonperformance is the net unrealized profit (loss) on open contracts, if any, included in the Statements of Financial Condition. The Fund attempts to mitigate this risk by dealing exclusively with Merrill Lynch entities as clearing brokers.

 

13



 

The Portfolio Fund, in its normal course of business, enters into various contracts, with MLPF&S acting as its commodity broker and MLIB as its foreign currency forward counterpart.  Pursuant to the arrangements with MLPF&S and MLIB (which each includes a netting arrangement), to the extent that such trading results in receivables from and payables to MLPF&S or MLIB, respectively, the receivables and payables are offset and reported as unrealized profit or loss on open futures contracts for MLPF&S and as unrealized gain or loss on forward contracts for MLIB on the Statements of Financial Condition.

 

Indemnifications

 

In the normal course of business, the Fund has entered, or may in the future enter into agreements that obligate the Fund to indemnify third parties, including affiliates of the Fund, for breach of certain representations and warranties made by the Fund. No claims have actually been made with respect to such indemnities and any quantification would involve hypothetical claims that have not been made. Based on the Fund’s experience, MLAI expected the risk of loss to be remote and, therefore, no provision has been recorded.

 

5.   RELATED PARTY TRANSACTIONS

 

Financial Data Services, Inc. (the “Transfer Agent”), a related party of Merrill Lynch through MLAI performs the transfer agent and investor services functions for the Fund.  The agreement with the transfer agent calls for a fee to be paid based on the collective net asset of funds managed or sponsored by MLAI with the minimum annual fee of $2,700,000.  The fee rate ranges from 0.016% to 0.02% based on aggregate net assets.  MLAI allocates the Transfer Agent fees to each of the managed/sponsored funds on a monthly basis based on the Fund’s net assets and the fee is payable monthly in arrears.  The Transfer Agent fee, which ranged between 0.018% and 0.02% of aggregate asset level, allocated to the Fund for the quarter ended March 31, 2012 amounted to $10,897, of which $6,984 was payable to the Transfer Agent as of March 31, 2012.

 

6.   SUBSEQUENT EVENTS

 

Management has evaluated the impact of subsequent events on the Fund through the date the financials were able to be issued and has determined that there were no subsequent events that require adjustments to, or disclosure in, the financial statements.

 

14



 

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

 

MONTH-END NET ASSET VALUE PER UNIT

 

MLAI believes that the Net Asset Value used to calculate subscription and redemption value and to report performance to investors throughout the period is a useful performance measure for the investors of the Fund. Therefore, the charts below referencing Net Asset Value and performance measurements are based on the Net Asset Value for financial reporting purposes.

 

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 account under the management of its trading advisor as of such date, plus any other assets held by the Fund, minus accrued brokerage commissions, sponsor’s, management and performance fees, and any operating costs and other liabilities of the Fund. MLAI is authorized to make all Net Asset Value determinations.

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS A

 

 

 

Jan.

 

Feb.

 

Mar.

 

2011

 

$

1.3232

 

$

1.3463

 

$

1.3119

 

2012

 

$

1.1928

 

$

1.2228

 

$

1.2093

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS C

 

 

 

Jan.

 

Feb.

 

Mar.

 

2011

 

$

1.2365

 

$

1.2571

 

$

1.2239

 

2012

 

$

1.1035

 

$

1.1304

 

$

1.1169

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS D

 

 

 

Jan.

 

Feb.

 

Mar.

 

2011

 

$

1.0694

 

$

1.0895

 

$

1.0630

 

2012

 

$

0.9786

 

$

1.0045

 

$

0.9946

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS I

 

 

 

Jan.

 

Feb.

 

Mar.

 

2011

 

$

1.3208

 

$

1.3444

 

$

1.3105

 

2012

 

$

1.1954

 

$

1.2260

 

$

1.2128

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS DS

 

 

 

Jan.

 

Feb.

 

Mar.

 

2011

 

$

1.6383

 

$

1.6690

 

$

1.6285

 

2012

 

$

1.4992

 

$

1.5389

 

$

1.5238

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS DT

 

 

 

Jan.

 

Feb.

 

Mar.

 

2011

 

$

1.7290

 

$

1.7625

 

$

1.7211

 

2012

 

$

1.5974

 

$

1.6411

 

$

1.6263

 

 

15



 

Liquidity and Capital Resources

 

The Fund does not engage in the sale of goods or services. The Fund’s assets generally are its (i) equity in its trading account, consisting of cash (including restricted cash), and unrealized profit net of unrealized losses and (ii) interest receivable.       Because of the low margin deposits normally required in commodity futures trading relatively small price movements may result in substantial losses to the Fund. While substantial losses could lead to a material decrease in liquidity, no such material losses occurred during the first quarter of 2012 and there was no impact on the Fund’s liquidity.

 

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

 

For the three months ended March 31, 2012, Fund capital decreased 9.33% from $221,046,309 to $200,415,901. This decrease was attributable to the net profit from operations of $6,278,352 coupled with the redemption of 20,122,328 Redeemable Units resulting in an outflow of $29,978,271. The cash outflow was offset with cash inflow of $3,069,511 due to subscriptions of 2,817,374 Units. Future redemptions could impact the amount of funds available for investment in commodity contract positions in subsequent months.

 

Critical Accounting Policies

 

Statement of Cash Flows

 

The Fund is not required to provide a Statement of Cash Flows.

 

Investments

 

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

 

Cash and Cash Equivalents

 

The Fund considers all highly liquid investments, with a maturity of three months or less when acquired, to be cash equivalents. As of March 31, 2012 the Fund holds no cash equivalents. Cash was held at a nationally recognized financial institution.

 

Fair Value Measurements

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. For more information on our treatment of fair value, see Note 3, Fair Value of Investments.

 

16



 

Futures Contracts

 

The Fund trades listed futures contracts. A listed futures contract is a firm commitment to buy or sell a standardized quantity of an underlying asset over a specified duration. The Fund buys and sells contracts based on indices of financial assets such as stocks, domestic and global stock indices, as well as contracts on various physical commodities. Prices paid or received on these contracts are determined by the ask or bid provided by the exchanges on which they are traded.       Contracts may be settled in physical form or cash settled depending upon the contract. Upon the execution of a trade, margin requirements determine the amount of cash that must be on deposit to secure the transaction. These amounts are considered restricted cash on the Fund’s Statement of Financial Condition. Contracts are priced daily by the Fund and the profit or loss based on the daily mark to market are recorded as unrealized profits. When the contract is closed, the Fund records a realized profit or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Because transactions in futures contracts require participants to make both initial margin deposits of cash or other assets and variation margin deposits, through the futures broker, directly with the exchange on which the contracts are traded, credit exposure is limited. Realized profits (losses), net and changes in unrealized profits (losses), net on futures contracts are included in the Statements of Operations. The Fund also trades futures contracts on the London Metals Exchange (LME) The valuation pricing for LME contracts is based on action of a committee that incorporates prices from the most liquid trading sessions of the day and can also rely on other inputs such as supply and demand factors and bid and asks from open outcry sessions.

 

Forward Foreign Currency Contracts

 

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

 

Interest Rates and Income

 

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

 

Income Taxes

 

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

 

17



 

The Fund follows the ASC guidance on accounting for uncertainty in income taxes. This guidance provides how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. This guidance also requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Fund’s financial statements to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority. Tax positions with respect to tax at the Fund level not deemed to meet the “more-likely-than-not” threshold would be recorded as a tax benefit or expense in the current year. MLAI has analyzed the Fund’s tax positions and has concluded that no provision for income tax is required in the Fund’s financial statements. The following is the major tax jurisdiction for the Fund and the earliest tax year subject to examination: United States — 2008.

 

Reform Act

 

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Reform Act”) was signed into law on July 21, 2010. The Reform Act enacts financial regulatory reform, and may alter the way in which the Fund conducts certain trading activities. The Reform Act includes measures to broaden the scope of derivative instruments subject to regulation, including by requiring clearing and exchange trading of certain derivatives, imposing new capital and margin reporting, registration and business conduct requirements for certain market participants and imposing position limits on certain over-the-counter derivatives. The Reform Act grants the U.S. Commodity Futures Trading Commission and the Securities and Exchange Commission substantial new authority and requires numerous rulemakings by these agencies. The ultimate impact of these derivatives regulations, and the time it will take to comply, remains uncertain. The final regulations may impose additional operational and compliance costs on the Fund.

 

Results of Operations

 

January 1, 2012 to March 31, 2012

 

January 1, 2012 to March 31, 2012

 

The Fund experienced a net trading gain of $7,890,997 before brokerage commissions and related fees in the first quarter of 2012. The Fund’s profits were primarily attributable to the energy, stock indices and the currency sectors posting profits. The metals, agriculture and interest rate sectors posted losses.

 

The energy sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the quarter with gains on both shorts (natural gas, electricity, coal) and longs (gasoline). Profits continued to be posted to the Fund in the middle to the end of the quarter from short positions in natural gas and electricity.

 

The stock indices posted profits to the Fund. Profits were posted to the Fund at the beginning of the quarter. Positions anticipating declining equity markets, particularly those in the East, suffer losses. Growing positions responding to rising stock markets and a declining volatility offset the losses with their earnings. Profits were posted to the Fund in the middle of the quarter in connection with the rising equity markets. The Trading program profits globally, but especially where it concerns oil-rich or technology stocks. Profits were posted to the Fund at the end of the quarter. The U.S. and Japanese equities did not seem to be sensitive to signs of slowing growth in China. The trading program’s

 

18



 

positions in these markets provided profits for the Fund, despite some losses suffered on positions in several other countries including Hong Kong, Taiwan, Russia and South Africa.

 

The currency sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the quarter. The largest gains stem from positions that consist of a short in a European currency versus a long in a commodity-rich currency. These ensure for a positive outcome in the sector, despite losses on various other short positions in European currencies and various other long positions in the U.S. dollar. Profits were posted to the Fund in the middle of the quarter as the largest gains again stem from long positions in commodity-rich currencies. Profits were posted to the Fund at the end of the quarter. In March more via shorts in the U.S. dollar or the Japanese yen than via a short in the euro.

 

The metals sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the quarter as the trading program rotation from short to long is not accompanied by large losses. Profits were posted to the Fund in the middle of the quarter due to the trading program’s short positions. Losses were posted to the Fund at the end of the quarter.

 

The agriculture sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the quarter. Particularly difficult are the agricultural markets, partly due to the release of startling figures from the U.S. corn crop report. Losses were posted to the Fund in the middle of the quarter through the end of the quarter. Most commodities weakened in March resulting in losses on long positions such as sugar.

 

The interest rate sector posted losses to the Fund. Profits were posted to the Fund at the beginning of the quarter. Positions anticipating continued falling interest rates run into difficulty during the month, but turn back to profit when the U.S. Federal Reserve announces to continue its low rate policy. This result is due to losses suffered on positions responding to changing spread levels between interest rates of different countries and of different maturities. Losses were posted to the Fund in the middle of the quarter as interest rate markets were difficult for trend followers as the large recognized safe havens do not show continuing trends. Because the Fund is also in these markets shuns large concentrated risks, the losses in these markets remain limited. Gains on various positions anticipating rising interest rates in commodity-rich countries like Australia and Canada was not enough to offset losses. Losses were posted to the Fund at the end of the quarter. The mid-month March fall in prices created losses on long positions in treasuries from the U.S., Europe and Japan.

 

January 1, 2011 to March 31, 2011

 

January 1, 2011 to March 31, 2011

 

The Fund experienced a net trading loss of $858,431 before brokerage commissions and related fees in the first quarter of 2011. The Fund’s profits were primarily attributable to metals and stock indices posting profits. The energy, currencies, interest rates and agriculture sectors posted losses.

 

The metals sector posted profits to the Fund. Losses were posted to the Fund at the beginning of the quarter which was offset with profits posted to the Fund in the middle of the quarter. Textbook positions profited in February from political unrest are the trading program’s long positions in metals in comparing the price of gold with the value of the “commodity-rich” South African equity index (JSE Top 40) is illustrative. These markets jointly move up in an inflationary environment driven by a commodity shortage. The trading program will have long position in both markets in this environment, taking into account their strong correlation for the purpose of determining position sizes. Profits were posted to the

 

19



 

Fund at the end of the quarter. Long positions in base metals resulted in losses posted to the Fund which was offset by positions in silver which continue to offer diversification.

 

The stock indices posted profits to the Fund. Profits were posted to the Fund at the beginning of the quarter. The restored confidence in the stability of the euro zone had a positive influence on the southern European stock markets. Positions in Italian equities earned profits. “Agricultural-rich” stock indices (Food & Beverage (Europe), Nifty, Bovespa) were remarkably weak. Through the steady and continuous rise of many other stock markets, the stock indices sector resulted in profits posted to the Fund. Profits were posted to the Fund in the middle of the quarter. The political unrest has a negative impact on stocks of emerging economies especially in the trading program’s long positions in Taiwan resulted in losses posted which were offset by profits in the European, Canadian and United States equities markets. Losses were posted to the Fund at the end of the quarter. At the time of the earthquake, the trading program had a very marginal position in Japanese equities, which is (systematically) closed that same day. Losses occurred in other countries, especially within Europe, for example with positions in insurers. Even through some recovery in the second half of the month and profits earned in South Korea and Thailand was not enough to offset losses posted to the Fund.

 

The energy sector posted losses to the Fund. Profits were posted to the Fund at the beginning of the quarter. In the oil markets, Texas oil lost on the North Sea variant over the course of the month. Although the Texan flavor did jump up in the last two days of the month in response to the unrest in Egypt, nearly all of the trading program’s earnings in oil markets were achieved outside of the United States. Profits were posted to the Fund in the middle of the quarter due to the trading program’s long positions in crude oil. Losses were posted to the Fund at the end of the quarter. When Germany shuts down some of its nuclear reactors in response to the difficulties experienced in Japan, the trading program’s positions in electricity, carbon emissions and Rotterdam coal result in profits for the Fund only to be offset by losses in the trading program’s short positions in natural gas.

 

The currency sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the quarter. The revival in the euro resulted in losses on the trading program’s short positions versus many emerging market currencies. Commodity-rich currencies exhibited different price behaviors. The oil-rich currencies, such as those of Russia and Mexico, remained strong, while the metal- and agricultural-rich currencies, such as those of Chile, South Africa and Australia, weakened. Profits were posted to the Fund in the middle of the quarter. The currencies of emerging markets were also impacted by the political events, resulting in losses on positions in the Korean won and the Mexican peso with the Indonesian rupiah remaining exceptionally strong. Also, profits were posted to the Fund from the strength of various peripheral European currencies including the British pound, Norwegian and Swedish “crowns”, Hungarian forint, Romanian leu and Russian ruble. Profits were posted to the Fund at the end of the quarter. The Japanese yen responded to the tsunami with a huge swing. The Japanese yen shot up extremely for a number of days, and then in response to successful interventions, fell just as extremely. The trading program’s short positions versus various non United States currencies, losses were locked during the rise. The trading program’s long positions against the U.S. dollar resulted in losses after the intervention. Measured by the extremity of the swing, the total damage actually remained limited, mainly through DTP not reacting too hastily. Although long positions in British pounds suffered unfortunate results, various other short U.S. dollar positions offset losses resulting in profits posted to the Fund.

 

The interest rate sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the quarter. The revival in the euro was accompanied by falling euro interest rate futures. Losses resulted from the trading program’s long positions on the shorter end of the yield curve (euribor, German short term government paper). Losses were posted to the Fund in the middle of the

 

20



 

quarter. The flight to safe bond markets is unfavorable for a number of “long inflation” positions that anticipate rising interest rates. The trading program could not identify enough profitable trends to compensate for these losses. Losses were posted to the Fund at the end of the quarter. The trading program could not find any significant trends in the interest rate markets, resulting in limited positions with a near zero result.

 

The agriculture sector posted losses to the Fund. Profits were posted to the Fund at the beginning of the quarter due to the trading program’s positions in wheat and hogs. Losses were posted to the Fund in the middle of the quarter due to various agricultural markets that had large price movements. Losses were posted to the Fund at the end of the quarter. The turn in the commodities markets in March resulted in losses in the trading program’s long positions in corn, sugar and cocoa.

 

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

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Introduction

 

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

 

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

 

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

 

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

 

21



 

Quantifying The Fund’s Trading Value At Risk

 

Quantitative Forward-Looking Statements

 

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

 

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

 

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

 

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

 

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

 

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

 

The following table indicates the average, highest and lowest trading Value at Risk associated with the Fund’s open positions by market category for the fiscal period. For the three months ended March 31, 2012 and 2011 the Fund’s average Month-end Net Asset Value was approximately $212,784,746 and $258,420,500, respectively.

 

22



 

March 31, 2012

 

 

 

Average Value

 

% of Average

 

Highest Value

 

Lowest Value

 

Market Sector

 

at Risk

 

Capitalization

 

at Risk

 

at Risk

 

 

 

 

 

 

 

 

 

 

 

Agricultural Commodities

 

$

4,595,229

 

2.16

%

$

4,978,827

 

$

4,167,320

 

Currencies

 

2,819,916

 

1.33

%

3,055,315

 

2,557,325

 

Energy

 

9,743,111

 

4.58

%

10,556,440

 

8,835,830

 

Interest Rates

 

1,248,642

 

0.59

%

1,352,876

 

1,132,369

 

Metals

 

1,862,714

 

0.88

%

2,018,208

 

1,689,257

 

Stock Indices

 

3,011,349

 

1.42

%

3,262,729

 

2,730,931

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

23,280,961

 

10.96

%

$

25,224,395

 

$

21,113,032

 

 

March 31, 2011

 

 

 

Average

 

% of Average

 

Highest Value

 

Lowest Value

 

Market Sector

 

Value at Risk

 

Capitalization

 

At Risk

 

At Risk

 

 

 

 

 

 

 

 

 

 

 

Agricultural Commodities

 

$

2,456,968

 

0.95

%

$

2,900,050

 

$

2,012,248

 

Currencies

 

9,648,197

 

3.73

%

11,388,125

 

7,901,839

 

Energy

 

1,295,979

 

0.50

%

1,529,692

 

1,061,402

 

Interest Rates

 

396,106

 

0.15

%

467,539

 

324,409

 

Metals

 

4,064,420

 

1.57

%

4,797,386

 

3,328,746

 

Stock Indices

 

7,291,815

 

2.82

%

8,606,799

 

5,971,970

 

 

 

 

 

 

 

 

 

 

 

TOTAL

 

$

25,153,485

 

9.72

%

$

29,689,591

 

$

20,600,614

 

 

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

 

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

 

Non-Trading Risk

 

Foreign Currency Balances; Cash on Deposit with MLPF&S

 

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

 

23



 

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

 

Qualitative Disclosures Regarding Primary Trading Risk Exposures

 

The following qualitative disclosures regarding the Fund’s market risk exposures — except for (i) those disclosures that are statements of historical fact and (ii) the descriptions of how the Fund manages its primary market risk exposures — constitute forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. The Fund’s primary market risk exposures as well as the strategies used and to be used by MLAI and Transtrend 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, and an influx of new market participants, increased regulation and many other factors could result in material losses as well as in material changes to the risk exposures and the risk management strategies of the Fund. There can be no assurance that the Fund’s current market exposure and/or risk management strategies will not change materially or that any such strategies will be effective in either the short- or long-term. Investors must be prepared to lose all or substantially all of the time value of their investment in the Fund.

 

The following were the primary trading risk exposures of the Fund as of March 31, 2012, by market sector.

 

Interest Rates

 

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

 

Currencies

 

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

 

Stock Indices

 

The Fund’s primary equity exposure is to FTSE, OMXS3U and STOXX 600 equity index price movements. The Fund is primarily exposed to the risk of adverse price trends or static markets in the major U.S., European and Asian indices.

 

24



 

Metals

 

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

 

Agricultural Commodities

 

The Fund’s primary agricultural commodities exposure is to agricultural price movements which are often directly affected by severe or unexpected weather conditions. Soybeans, grains and corn accounted for the substantial bulk of the Fund’s agricultural commodities exposure as of March 31, 2012. However, it is anticipated that Transtrend will maintain an emphasis on cotton, grains and sugar, in which the Fund has historically taken its largest positions.

 

Energy

 

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

 

Qualitative Disclosures Regarding Non-Trading Risk Exposure

 

The following were the only non-trading risk exposures of the Fund as of March 31, 2012.

 

Foreign Currency Balances

 

The Fund’s primary foreign currency balances are in Japanese yen and Hungarian forint.

 

U.S. Dollar Cash Balance

 

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

 

Item 4. Controls and Procedures

 

MLAI, the Sponsor of ML Transtrend DTP Enhanced FuturesAccess LLC, with the participation of the Sponsor’s Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Securities Exchange Act of 1934) with respect to the Fund as of the end of the period covered by this quarterly report, and, based on this evaluation, has concluded that these disclosure controls and procedures are effective. No change in internal control over financial reporting (in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 under the Securities Exchange Act of 1934) occurred during the quarter ended March 31, 2012 that has materially affected, or is reasonably likely to materially affect, the Fund’s internal control over financial reporting.

 

25



 

PART II - OTHER INFORMATION

 

Item 1.           Legal Proceedings

 

None.

 

Item 1A. Risk Factors

 

There are no material changes from risk factors as previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2011, filed with the Securities and Exchange Commission on March 23, 2012.

 

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

 

(a)  Units are privately offered and sold to “accredited investors” (as defined in Rule 501(a) under the Securities Act in reliance on the exemption from registration provided by Section 4(2) of the Securities Act and Rule 506 thereunder. The selling agent of the Units was MLPF&S.

 

CLASS A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

Jan-12

 

$

382,542

 

324,161

 

$

1.1801

 

Feb-12

 

276,898

 

232,141

 

1.1928

 

Mar-12

 

273,541

 

223,701

 

1.2228

 

Apr-12

 

53,625

 

44,344

 

1.2093

 

 

 

 

 

 

 

 

 

 

CLASS C

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

Jan-12

 

$

135,099

 

123,638

 

$

1.0927

 

Feb-12

 

18,999

 

17,217

 

1.1035

 

Mar-12

 

69,694

 

61,655

 

1.1304

 

Apr-12

 

98,284

 

87,997

 

1.1169

 

 

CLASS D

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

Jan-12

 

$

 

 

$

0.9670

 

Feb-12

 

 

 

0.9786

 

Mar-12

 

1,500,000

 

1,493,280

 

1.0045

 

Apr-12

 

 

 

0.9946

 

 

CLASS I

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

Jan-12

 

$

159,999

 

135,329

 

$

1.1823

 

Feb-12

 

4,999

 

4,182

 

1.1954

 

Mar-12

 

247,738

 

202,070

 

1.2260

 

Apr-12

 

309,124

 

254,884

 

1.2128

 

 

CLASS DS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

Jan-12

 

$

 

 

$

1.4814

 

Feb-12

 

 

 

1.4992

 

Mar-12

 

 

 

1.5389

 

Apr-12

 

 

 

1.5238

 

 

CLASS DT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

Jan-12

 

$

 

 

$

1.5771

 

Feb-12

 

 

 

1.5974

 

Mar-12

 

 

 

1.6411

 

Apr-12

 

 

 

1.6263

 

 


(1) Beginning of the month Net Asset Value

 

26



 

Class A Units are subject to 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 0.50%. The rate assessed to a given subscription is based upon the subscription amount. Sales commissions are directly deducted from subscription amounts. Class C, Class DS and Class DT Units are not subject to any sales commissions.

 

(b)         Not applicable.

(c)          Not applicable.

 

Item 3.                                  Defaults Upon Senior Securities

 

None.

 

Item 4.                                  Mine Safety Disclosures

 

Not Applicable.

 

Item 5.                                  Other Information

 

None.

 

Item 6.                                  Exhibits

 

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

 

31.01 and

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

 

Exhibit 31.01

and 31.02 Are filed herewith.

 

32.01 and

32.02                     Section 1350 Certifications

 

Exhibit 32.01

and 32.02 Are filed herewith.

 

Exhibit 101                                       Are filed herewith.

The following materials from the Fund’s quarterly Report on Form 10-Q for the three month period ended March 31, 2012 formatted in XBRL (Extensible Business Reporting Language): (i) Statements of Financial Condition (ii) Statements of Operations (iii) Statements of Changes in Members’ Capital (iv) Financial Data Highlights and (v) Notes to Financial Statements, tagged as blocks of text. (1)

 


(1)          These interactive data files shall not be deemed filed for purposes of Section 11 or 12 of the Securities Act as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under those sections.

 

27



 

SIGNATURES

 

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

 

 

 

ML TRANSTREND DTP ENHANCED FUTURESACCESS LLC

 

 

 

 

 

 

 

 

 

By:

MERRILL LYNCH ALTERNATIVE

 

 

 

INVESTMENTS LLC

 

 

 

(Manager)

 

 

 

 

 

 

 

 

Date: May 11, 2012

 

By:

/s/ DEANN MORGAN

 

 

 

Deann Morgan

 

 

 

Chief Executive Officer and President

 

 

 

(Principal Executive Officer)

 

 

 

 

 

 

 

 

Date May 11, 2012

 

By:

/s/ BARBRA E. KOCSIS

 

 

 

Barbra E. Kocsis

 

 

 

Chief Financial Officer

 

 

 

(Principal Financial and Accounting Officer)

 

28