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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, 2015

 

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

 

(I.R.S. Employer Identification No.)

incorporation or organization)

 

 

 

c/o Merrill Lynch Alternative Investments LLC

250 Vesey Street, 11th Floor

New York, New York 10080

(Address of principal executive offices)

(Zip Code)

 

609-274-5838

(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.

 

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 in Rule 12b-2 of the Exchange Act). Yes o   No x

 

As of March 31, 2015, 48,646,575 units of limited liability company interest were outstanding.

 

 

 



 

ML TRANSTREND DTP ENHANCED FUTURESACCESS LLC

 

QUARTERLY REPORT FOR MARCH 31, 2015 ON FORM 10-Q

 

Table of Contents

 

 

PAGE

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

26

 

 

 

PART II—OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

27

 

 

 

Item 1A.

Risk Factors

27

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

27

 

 

 

Item 3.

Defaults Upon Senior Securities

28

 

 

 

Item 4.

Mine Safety Disclosures

29

 

 

 

Item 5.

Other Information

29

 

 

 

Item 6.

Exhibits

29

 



 

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,

 

 

 

2015

 

2014

 

ASSETS:

 

 

 

 

 

Equity in commodity trading accounts:

 

 

 

 

 

Cash (including restricted cash of $13,614,586 for 2015 and $10,272,575 for 2014)

 

$

75,243,071

 

$

69,094,556

 

Unrealized profit on open futures contracts

 

4,261,023

 

8,204,592

 

Cash and cash equivalents

 

533,507

 

541,412

 

Other assets

 

1,681

 

2,484

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

80,039,282

 

$

77,843,044

 

 

 

 

 

 

 

LIABILITIES AND MEMBERS’ CAPITAL:

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

Sponsor and Advisory fees payable

 

$

1,142,559

 

$

1,366,552

 

Redemptions payable

 

532,301

 

1,621,921

 

Unrealized loss on open futures contracts

 

1,933,227

 

1,668,977

 

Other liabilities

 

214,573

 

200,531

 

 

 

 

 

 

 

Total liabilities

 

3,822,660

 

4,857,981

 

 

 

 

 

 

 

MEMBERS’ CAPITAL:

 

 

 

 

 

Members’ Capital (48,646,575 Units and 48,238,660 Units outstanding; unlimited Units authorized)

 

76,216,622

 

72,985,063

 

Total members’ capital

 

76,216,622

 

72,985,063

 

 

 

 

 

 

 

TOTAL LIABILITIES AND MEMBERS’ CAPITAL

 

$

80,039,282

 

$

77,843,044

 

 

 

 

 

 

 

NET ASSET VALUE PER UNIT:

 

 

 

 

 

 

 

 

 

 

 

Class A

 

$

1.3748

 

$

1.3175

 

Class C

 

$

1.2323

 

$

1.1839

 

Class D

 

$

1.1828

 

$

1.1293

 

Class I

 

$

1.3954

 

$

1.3360

 

Class DS

 

$

1.8121

 

$

1.7301

 

Class DT

 

$

1.9797

 

$

1.8881

 

Class M

 

$

1.1750

 

$

1.1218

 

 

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

 

For the three months
ended

 

 

 

March 31, 2015

 

March 31, 2014

 

TRADING PROFIT (LOSS):

 

 

 

 

 

 

 

 

 

 

 

Realized, net

 

$

9,276,663

 

$

586,980

 

Change in unrealized, net

 

(4,207,819

)

(2,254,243

)

Brokerage commissions

 

(127,925

)

(150,832

)

 

 

 

 

 

 

Total trading profit (loss), net

 

4,940,919

 

(1,818,095

)

 

 

 

 

 

 

INVESTMENT INCOME (EXPENSE):

 

 

 

 

 

Interest, net

 

(226

)

(626

)

 

 

 

 

 

 

EXPENSES:

 

 

 

 

 

Management fee to Trading Advisor

 

191,932

 

202,377

 

Management fee to MLAI

 

80,711

 

113,499

 

Sponsor fee

 

97,776

 

96,034

 

Performance fee

 

1,023,116

 

 

Other

 

121,094

 

135,936

 

Total expenses

 

1,514,629

 

547,846

 

 

 

 

 

 

 

NET INVESTMENT INCOME (LOSS)

 

(1,514,855

)

(548,472

)

 

 

 

 

 

 

NET INCOME (LOSS)

 

$

3,426,064

 

$

(2,366,567

)

 

 

 

 

 

 

NET INCOME (LOSS) PER UNIT:

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of Units outstanding

 

 

 

 

 

Class A

 

4,626,747

 

5,643,799

 

Class C

 

9,345,550

 

11,581,773

 

Class D

 

2,433,530

 

1,954,637

 

Class I

 

908,490

 

1,158,467

 

Class DS

 

20,210,196

 

31,876,666

 

Class DT

 

6,231,360

 

8,831,863

 

Class M

 

5,554,392

 

3,714,793

 

 

 

 

 

 

 

Net income (loss) per weighted average Unit

 

 

 

 

 

Class A

 

$

0.0580

 

$

(0.0353

)

Class C

 

$

0.0484

 

$

(0.0324

)

Class D

 

$

0.0440

 

$

(0.0214

)

Class I

 

$

0.0577

 

$

(0.0334

)

Class DS

 

$

0.0831

 

$

(0.0402

)

Class DT

 

$

0.0916

 

$

(0.0389

)

Class M

 

$

0.0530

 

$

(0.0229

)

 

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, 2015 AND 2014

(unaudited) (in Units)

 

 

 

Members’ Capital
December 31, 2013

 

Subscriptions

 

Redemptions

 

Members’ Capital
March 31, 2014

 

Members’ Capital
December 31, 2014

 

Subscriptions

 

Redemptions

 

Members’ Capital
March 31, 2015

 

Class A

 

5,826,089

 

 

(586,023

)

5,240,066

 

4,750,979

 

 

(223,506

)

4,527,473

 

Class C

 

11,546,887

 

618,999

 

(1,096,116

)

11,069,770

 

9,321,459

 

83,648

 

(178,378

)

9,226,729

 

Class D

 

1,847,373

 

160,897

 

 

2,008,270

 

1,865,865

 

851,499

 

 

2,717,364

 

Class I

 

1,188,118

 

25,881

 

(136,979

)

1,077,020

 

926,308

 

3,602

 

(40,438

)

889,472

 

Class DS

 

33,027,431

 

153,276

 

(4,287,435

)

28,893,272

 

20,308,932

 

361,807

 

(1,089,721

)

19,581,018

 

Class DT

 

9,016,617

 

 

(873,815

)

8,142,802

 

6,259,149

 

 

(130,021

)

6,129,128

 

Class M

 

3,599,899

 

336,877

 

(32,777

)

3,903,999

 

4,805,968

 

769,423

 

 

5,575,391

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Members’ Units

 

66,052,414

 

1,295,930

 

(7,013,145

)

60,335,199

 

48,238,660

 

2,069,979

 

(1,662,064

)

48,646,575

 

 

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, 2015 AND 2014

(unaudited)

 

 

 

Members’ Capital
December 31, 2013

 

Subscriptions

 

Redemptions

 

Net Income
(Loss)

 

Members’ Capital
March 31, 2014

 

Members’ Capital
December 31, 2014

 

Subscriptions

 

Redemptions

 

Net Income
(Loss)

 

Members’ Capital
March 31, 2015

 

Class A

 

$

6,492,354

 

$

 

$

(624,151

)

$

(199,404

)

$

5,668,799

 

$

6,259,557

 

$

 

$

(303,646

)

$

268,537

 

$

6,224,448

 

Class C

 

11,678,312

 

603,000

 

(1,064,533

)

(375,148

)

10,841,631

 

11,035,343

 

100,000

 

(218,295

)

452,621

 

11,369,669

 

Class D

 

1,738,212

 

145,000

 

 

(41,893

)

1,841,319

 

2,107,079

 

1,000,000

 

 

107,049

 

3,214,128

 

Class I

 

1,337,151

 

28,000

 

(148,552

)

(38,707

)

1,177,892

 

1,237,502

 

5,000

 

(53,738

)

52,434

 

1,241,198

 

Class DS

 

47,609,112

 

211,996

 

(5,953,123

)

(1,282,659

)

40,585,326

 

35,135,941

 

624,218

 

(1,957,558

)

1,679,822

 

35,482,423

 

Class DT

 

14,111,528

 

 

(1,328,773

)

(343,745

)

12,439,010

 

11,818,184

 

 

(255,486

)

570,978

 

12,133,676

 

Class M

 

3,364,821

 

304,903

 

(28,893

)

(85,011

)

3,555,820

 

5,391,457

 

865,000

 

 

294,623

 

6,551,080

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Members’ Capital

 

$

86,331,490

 

$

1,292,899

 

$

(9,148,025

)

$

(2,366,567

)

$

76,109,797

 

$

72,985,063

 

$

2,594,218

 

$

(2,788,723

)

$

3,426,064

 

$

76,216,622

 

 

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, 2015 (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

 

Class M

 

Per Unit Operating Performance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, beginning of period

 

$

1.3175

 

$

1.1839

 

$

1.1293

 

$

1.3360

 

$

1.7301

 

$

1.8881

 

$

1.1218

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

0.0900

 

0.0808

 

0.0773

 

0.0913

 

0.1184

 

0.1293

 

0.0768

 

Brokerage commissions

 

(0.0023

)

(0.0020

)

(0.0020

)

(0.0023

)

(0.0030

)

(0.0033

)

(0.0019

)

Interest income, net (c)

 

(0.0000

)

(0.0000

)

(0.0000

)

(0.0000

)

(0.0000

)

(0.0000

)

(0.0000

)

Expenses

 

(0.0304

)

(0.0304

)

(0.0218

)

(0.0296

)

(0.0334

)

(0.0344

)

(0.0217

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, end of period

 

$

1.3748

 

$

1.2323

 

$

1.1828

 

$

1.3954

 

$

1.8121

 

$

1.9797

 

$

1.1750

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return: (a) (d)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total return before Performance fees

 

5.73

%

5.46

%

6.12

%

5.82

%

6.12

%

6.25

%

6.12

%

Performance fees

 

-1.38

%

-1.37

%

-1.38

%

-1.37

%

-1.38

%

-1.40

%

-1.38

%

Total return after Performance fees

 

4.35

%

4.09

%

4.74

%

4.45

%

4.74

%

4.85

%

4.74

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios to Average Member’s Capital: (d)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses (excluding Performance fees) (b)

 

0.92

%

1.17

%

0.54

%

0.82

%

0.54

%

0.41

%

0.54

%

Performance fees

 

1.35

%

1.35

%

1.35

%

1.35

%

1.35

%

1.37

%

1.35

%

Expenses (including Performance fees)

 

2.27

%

2.52

%

1.89

%

2.17

%

1.89

%

1.78

%

1.89

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income (loss) (excluding Performance fees)

 

-0.92

%

-1.17

%

-0.54

%

-0.82

%

-0.54

%

-0.41

%

-0.54

%

Performance fees

 

-1.35

%

-1.35

%

-1.35

%

-1.35

%

-1.35

%

-1.37

%

-1.35

%

Net investment income (loss) (including Performance fees)

 

-2.27

%

-2.52

%

-1.89

%

-2.17

%

-1.89

%

-1.78

%

-1.89

%

 


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

(b) The expense ratios do not include brokerage commissions.

(c) Interest income, net is less than $0.0001 per Unit.

(d) The ratios and total return are not annualized.

 

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, 2014 (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

 

Class M

 

Per Unit Operating Performance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, beginning of period

 

$

1.1143

 

$

1.0114

 

$

0.9409

 

$

1.1254

 

$

1.4415

 

$

1.5651

 

$

0.9347

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

(0.0203

)

(0.0185

)

(0.0171

)

(0.0205

)

(0.0262

)

(0.0283

)

(0.0170

)

Brokerage commissions

 

(0.0020

)

(0.0018

)

(0.0017

)

(0.0020

)

(0.0026

)

(0.0028

)

(0.0017

)

Interest income, net (c)

 

(0.0000

)

(0.0000

)

(0.0000

)

(0.0000

)

(0.0000

)

(0.0000

)

(0.0000

)

Expenses

 

(0.0102

)

(0.0117

)

(0.0052

)

(0.0092

)

(0.0080

)

(0.0064

)

(0.0052

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, end of period

 

$

1.0818

 

$

0.9794

 

$

0.9169

 

$

1.0937

 

$

1.4047

 

$

1.5276

 

$

0.9108

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return: (a) (d)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total return before Performance fees

 

-2.92

%

-3.16

%

-2.56

%

-2.82

%

-2.56

%

-2.39

%

-2.56

%

Performance fees

 

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

Total return after Performance fees

 

-2.92

%

-3.16

%

-2.56

%

-2.82

%

-2.56

%

-2.39

%

-2.56

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios to Average Member’s Capital: (d)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses (excluding Performance fees) (b)

 

0.96

%

1.21

%

0.58

%

0.86

%

0.58

%

0.42

%

0.58

%

Performance fees

 

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

Expenses (including Performance fees)

 

0.96

%

1.21

%

0.58

%

0.86

%

0.58

%

0.42

%

0.58

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income (loss) (excluding Performance fees)

 

-0.96

%

-1.21

%

-0.58

%

-0.86

%

-0.58

%

-0.42

%

-0.58

%

Performance fees

 

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

Net investment income (loss) (including Performance fees)

 

-0.96

%

-1.21

%

-0.58

%

-0.86

%

-0.58

%

-0.42

%

-0.58

%

 


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

(b) The expense ratios do not include brokerage commissions.

(c) Interest income, net is less than $0.0001 per Unit.

(d) The ratios and total return are not annualized.

 

See notes to financial statements.

 

6



 

ML TRANSTREND DTP ENHANCED FUTURESACCESS LLC

(a Delaware Limited Liability Company)

 

NOTES TO FINANCIAL STATEMENTS

(unaudited)

 

1.              ORGANIZATION

 

ML Transtrend DTP Enhanced FuturesAccess LLC (the “Fund”), a FuturesAccessSM Program (“FuturesAccess”) fund, which is an investment company as defined by Accounting Standards Codification (“ASC”) guidance, was organized under the Delaware Limited Liability Company Act on March 8, 2007 and commenced trading activities on April 2, 2007. The Fund engages in the speculative trading of futures on a wide range of commodities. Transtrend B.V. (“Trading Advisor”) is the trading advisor of the Fund.

 

Merrill Lynch Alternative Investments LLC (“MLAI”, the “Sponsor” or the “Managing Member”) is the sponsor and manager of the Fund. MLAI is an indirect wholly-owned subsidiary of Bank of America Corporation. Bank of America Corporation and its affiliates are referred to herein as “BAC”. Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S”) is currently the exclusive clearing broker for the Fund. The Sponsor may select other parties as clearing broker(s). Merrill Lynch International (“MLI”) is the primary foreign exchange (“F/X”) forward prime broker for the Fund. The Sponsor may select other of its affiliates or third parties as F/X or other over-the-counter (“OTC”) prime brokers. MLPF&S and MLI are BAC affiliates.

 

FuturesAccess is a group of managed futures funds sponsored by MLAI (“FuturesAccess Funds”).  FuturesAccess is exclusively available to investors that have investment accounts with Merrill Lynch Wealth Management, U.S. Trust and other divisions or affiliates of BAC.  FuturesAccess Funds currently are composed of direct-trading funds advised by a single trading advisor or funds of funds for which MLAI acts as the advisor and allocates capital among multiple trading advisors.  Although redemption terms vary among FuturesAccess Funds, FuturesAccess applies, with some exceptions, the same minimum investment amounts, fees and other operational criteria across all FuturesAccess Funds. Each trading advisor participating in FuturesAccess employs different technical, fundamental, systematic and/or discretionary trading strategies.

 

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, BAC or by any bank.  Interests are subject to investment risks, including the possible loss of the full amount invested.

 

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, 2015 the Fund holds cash equivalents. Cash was held at a nationally recognized financial institution.

 

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, 2015 and December 31, 2014 and the results of its operations for the three month periods ended March 31, 2015 and 2014.  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

 

7



 

conjunction with the financial statements and notes thereto included in the Fund’s report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2014.

 

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. Certain prior year items have been reclassified to conform to the current year presentation.

 

8



 

2.              CONDENSED SCHEDULES OF INVESTMENTS

 

The Fund’s investments, defined as unrealized profit (loss) on open contracts on the Statements of Financial Condition, as of March 31, 2015 and December 31, 2014 are as follows:

 

March 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long Positions

 

Short Positions

 

Net Unrealized

 

 

 

 

 

Commodity Industry

 

Number of

 

Unrealized

 

Percent of

 

Number of

 

Unrealized

 

Percent of

 

Profit (Loss)

 

Percent of

 

 

 

Sector

 

Contracts

 

Profit (Loss)

 

Members’ Capital

 

Contracts

 

Profit (Loss)

 

Members’ Capital

 

on Open Positions

 

Members’ Capital

 

Maturity Dates

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agriculture

 

326

 

$

(140,063

)

-0.18

%

(1,025

)

$

1,180,119

 

1.55

%

$

1,040,056

 

1.37

%

April 2015 - March 2016

 

Currencies

 

724

 

(15,196

)

-0.02

%

(600

)

(61,663

)

-0.08

%

(76,859

)

-0.10

%

April 2015 - June 2015

 

Energy

 

6

 

(27,059

)

-0.04

%

(275

)

152,627

 

0.20

%

125,568

 

0.16

%

April 2015 - November 2016

 

Interest rates

 

2,110

 

860,037

 

1.13

%

(483

)

(28,260

)

-0.04

%

831,777

 

1.09

%

June 2015 - March 2019

 

Metals

 

87

 

(321,875

)

-0.42

%

(220

)

350,570

 

0.46

%

28,695

 

0.04

%

April 2015 - February 2016

 

Stock indices

 

970

 

422,215

 

0.55

%

(249

)

(43,656

)

-0.06

%

378,559

 

0.49

%

April 2015 - September 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

$

778,059

 

1.02

%

 

 

$

1,549,737

 

2.03

%

$

2,327,796

 

3.05

%

 

 

 

December 31, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long Positions

 

Short Positions

 

Net Unrealized

 

 

 

 

 

Commodity Industry

 

Number of

 

Unrealized

 

Percent of

 

Number of

 

Unrealized

 

Percent of

 

Profit (Loss)

 

Percent of

 

 

 

Sector

 

Contracts

 

Profit (Loss)

 

Members’ Capital

 

Contracts

 

Profit (Loss)

 

Members’ Capital

 

on Open Positions

 

Members’ Capital

 

Maturity Dates

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agriculture

 

240

 

$

(109,289

)

-0.15

%

(781

)

$

914,930

 

1.25

%

$

805,641

 

1.10

%

January 2015 - March 2016

 

Currencies

 

263

 

(67,357

)

-0.09

%

(394

)

81,614

 

0.11

%

14,257

 

0.02

%

January 2015 - March 2015

 

Energy

 

23

 

5,797

 

0.01

%

(332

)

2,501,921

 

3.43

%

2,507,718

 

3.44

%

January 2015 - December 2016

 

Interest rates

 

2,795

 

2,761,045

 

3.78

%

(780

)

(59,807

)

-0.08

%

2,701,238

 

3.70

%

March 2015 - December 2018

 

Metals

 

218

 

(776,487

)

-1.06

%

(256

)

641,852

 

0.88

%

(134,635

)

-0.18

%

January 2015 - October 2015

 

Stock indices

 

634

 

763,820

 

1.05

%

(142

)

(122,424

)

-0.17

%

641,396

 

0.88

%

January 2015 - June 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

$

2,577,529

 

3.54

%

 

 

$

3,958,086

 

5.42

%

$

6,535,615

 

8.96

%

 

 

 

No individual contract’s unrealized profit or loss comprised greater than 5% of Members’ Capital as of March 31, 2015 and December 31, 2014. With respect to each commodity industry sector listed in the above chart, the net unrealized profit (loss) on open positions is the sum of the unrealized profits (loss) of long positions and short positions of the open contracts, netting unrealized losses against unrealized profits as applicable.  Net unrealized profit and loss provides a rough measure of the exposure of the Fund to the various sectors as of the date listed, although such exposure can change at any time.

 

9



 

3.  FAIR VALUE OF INVESTMENTS

 

Fair value of an investment is the amount that would be received to sell the investment in an orderly transaction between market participants at 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 accounts on the Statements of Financial Condition.  Any change in net unrealized profit or loss from the preceding period/year is reported in the respective Statements of Operations.

 

The fair value measurement guidance established by U.S. GAAP is a hierarchical 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 in U.S. GAAP, the Fund does not adjust the quoted price for these investments even in situations where the Fund holds a large position and a sale could reasonably impact the quoted price.

 

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

 

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

 

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. MLAI’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment.

 

The 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.

 

10



 

Exchange traded investments are fair valued by the Fund by using the reported closing price on the primary exchange where such investments are traded.  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 the process for determining fair values.

 

The Fund has determined that Level I investments 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 observable prices of investments with similar characteristics and these are generally classified as Level II investments. The Fund determined that Level II investments would include its forwards and certain futures contracts.

 

Transfers of investments between different levels of the fair value hierarchy, if any, are recorded as of the beginning of the reporting period.

 

The Fund’s unrealized profit (loss) on open forwards and futures contracts, by the above fair value hierarchy levels, as of March 31, 2015 and December 31, 2014 are as follows:

 

Net unrealized profit (loss) 

 

 

 

 

 

 

 

 

 

on open contracts

 

Total

 

Level I

 

Level II

 

Level III

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

Futures

 

$

4,261,023

 

$

3,703,596

 

$

557,427

 

$

 

Forwards

 

 

 

 

 

 

 

$

4,261,023

 

$

3,703,596

 

$

557,427

 

$

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

Futures

 

$

1,933,227

 

$

1,514,579

 

$

418,648

 

$

 

Forwards

 

 

 

 

 

 

 

$

1,933,227

 

$

1,514,579

 

$

418,648

 

$

 

 

 

 

 

 

 

 

 

 

 

March 31, 2015

 

$

2,327,796

 

$

2,189,017

 

$

138,779

 

$

 

 

11



 

Net unrealized profit (loss) 

 

 

 

 

 

 

 

 

 

on open contracts

 

Total

 

Level I

 

Level II

 

Level III

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

Futures

 

$

8,204,592

 

$

7,556,022

 

$

648,570

 

$

 

Forwards

 

 

 

 

 

 

 

$

8,204,592

 

$

7,556,022

 

$

648,570

 

$

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

Futures

 

$

1,668,977

 

$

926,364

 

$

742,613

 

$

 

Forwards

 

 

 

 

 

 

 

$

1,668,977

 

$

926,364

 

$

742,613

 

$

 

 

 

 

 

 

 

 

 

 

 

December 31, 2014

 

$

6,535,615

 

$

6,629,658

 

$

(94,043

)

$

 

 

The Fund’s volume of trading forwards and futures as of the three month period ended March 31, 2015 and year ended December 31, 2014 are representative of the activity throughout these periods. There were no transfers to or from any level during the three month period ended March 31, 2015 or the year ended December 31, 2014.

 

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, number of contracts and fair values of derivative instruments by contract type/commodity sector are disclosed in Note 2.

 

The Fund maintains margin deposits and cash collateral with its futures and forwards brokers, respectively, based on the greater of exchange margin or amounts determined by the respective broker. At March 31, 2015 and December 31, 2014, the initial margin deposits (cash) are used to satisfy the margin requirements to establish the futures or forward contracts and are presented on the Statements of Financial Condition in Cash in the Equity in commodity trading accounts. The variation margin on open contracts is presented gross on the Statements of Financial Condition in Unrealized profit or loss on futures or forwards contracts, respectively. The Fund is subject to agreements which support the ability to settle net with their counterparties; however, the Fund has elected to present the related balances on the Statements of Financial Condition on a gross basis. The net of these amounts less the restricted cash presented within the Cash in the Equity in commodity trading accounts on the Statements of Financial Condition represents the Fund’s net exposure.

 

The following table indicates the trading profits and losses before brokerage commissions, by type/commodity industry sector on derivative instruments for each of the three month periods ended March 31, 2015 and 2014:

 

12



 

 

 

For the three months ended

 

For the three months ended

 

 

 

March 31, 2015

 

March 31, 2014

 

Commodity Industry Sector

 

profit (loss) from trading, net

 

profit (loss) from trading, net

 

 

 

 

 

 

 

Agriculture

 

$

4,219

 

$

1,564,406

 

Currencies

 

204,951

 

(1,583,929

)

Energy

 

215,334

 

(1,399,545

)

Interest rates

 

2,104,374

 

2,578,409

 

Metals

 

(622,503

)

(1,392,560

)

Stock indices

 

3,162,469

 

(1,434,044

)

 

 

 

 

 

 

Total, net

 

$

5,068,844

 

$

(1,667,263

)

 

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 in 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 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 it will, in fact, succeed in doing so.  These procedures focus primarily on monitoring the trading of the Trading Advisor, 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 the Trading Advisor to reallocate positions in an attempt to avoid over-concentrations.  However, such interventions are expected to be unusual.  It is expected that MLAI’s basic risk control procedures will consist of the ongoing process of Trading Advisor monitoring, with the market risk controls being applied by the Trading Advisor.

 

13



 

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/clearinghouse is pledged to support the financial integrity of the exchange/clearinghouse.  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 traded contracts, and in the over-the-counter markets counterparties may also require margin.

 

The credit risk associated with these instruments from counterparty nonperformance is the unrealized profit (loss) on open contracts, if any, included in the Statements of Financial Condition. MLAI, as sponsor of the Fund, has a general policy of maintaining clearing and prime brokerage arrangements with BAC affiliates, such as MLPF&S and MLI, although MLAI may engage non-BAC affiliated service providers as clearing brokers or prime brokers for the Fund. This policy may increase risk to the Fund by preventing the diversification of brokers used by the Fund.

 

The Fund, in its normal course of business, enters into various contracts, with MLPF&S acting as its futures clearing broker. Due to the relationship with MLPF&S, in the event of default, all futures balances are eligible for offset with a net settlement due to MLPF&S.  Due to the relationship with MLI, in the event of default, all forwards balances are eligible for offset with a net settlement due to MLI.

 

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 certain parties, including BAC affiliates. 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 expects the risk of loss to be remote and, therefore, no provision has been recorded.

 

5.   RELATED PARTY TRANSACTIONS

 

MLAI and the Fund entered into a transfer agency and investor services agreement with Financial Data Services, Inc. (the “Transfer Agent”), a wholly-owned subsidiary of BAC and affiliate of MLAI. The Transfer Agent provides registrar, distribution disbursing agent, transfer agent and certain other services related to the issuance, redemption, exchange and transfer of Units. The fees charged by the Transfer Agent for its services are based on the aggregate net assets of funds managed or sponsored by MLAI. The fee rate ranges from 0.016% to 0.02% per year of the aggregate net assets managed or sponsored by MLAI. During the quarter ended March 31, 2015, the rate ranged from 0.018% to 0.02%. The fee is payable monthly in arrears. MLAI allocates the Transfer Agent fees to each of the managed or sponsored funds, including the Fund, on a monthly basis based on each fund’s net assets. The Transfer Agent fee allocated to the Fund for the three month periods ended March 31, 2015 and 2014 amounted to $3,776 and $4,297, respectively, of which $2,759 and $2,467 was payable to the Transfer Agent as of March 31, 2015 and December 31, 2014, respectively.

 

Brokerage commissions, Interest, Management fees to MLAI and Sponsor fees, as presented on the Statements of Operations, are all received from or paid to related parties. Equity in commodity trading

 

14



 

accounts, including cash and Unrealized profit/loss, as presented on the Statements of Financial Condition are held with a related party.

 

6.              RECENT ACCOUNTING PRONOUNCEMENTS

 

In May 2015, the Financial Accounting Standards Board (“FASB”) issued ASU 2015-07, Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent. ASU 2015-07 removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient.  It also removes the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient.  Rather, those disclosures are limited to investments for which the entity has elected to measure the fair value using that practical expedient.  ASU 2015-07 will be effective for the Fund beginning in the first quarter of 2016, with early adoption permitted, and will be applied retrospectively.  MLAI is currently evaluating the standard and does not believe it will have a material impact on the Fund’s financial statements.

 

7.              SUBSEQUENT EVENTS

 

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

 

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

 

MONTH-END NET ASSET VALUE PER UNIT

 

MLAI believes that the Net Asset Value used to calculate subscription and redemption value and to report performance to investors 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 last calendar day of each month, the fifteenth calendar day of each month and as of any other dates MLAI may determine in its discretion (each, a “Calculation Date”). The Fund’s Net Asset Value as of any Calculation Date generally equals the value of the Fund’s account under the management of the Trading Advisor as of that date, plus any other assets held by the Fund, minus accrued Sponsor, management and performance fees, trading liabilities, including brokerage commissions, any offering or operating costs, amortized organizational and initial offering costs and all other liabilities of the Fund.  MLAI or its delegates are authorized to make all Net Asset Value determinations.

 

15



 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS A

 

 

 

Jan. 15th

 

Jan.

 

Feb. 15th

 

Feb.

 

Mar. 15th

 

Mar.

 

2014

 

$

1.0685

 

$

1.0659

 

$

1.0489

 

$

1.0787

 

$

1.0540

 

$

1.0818

 

2015

 

$

1.3294

 

$

1.3685

 

$

1.3099

 

$

1.3479

 

$

1.3777

 

$

1.3748

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS C

 

 

 

Jan. 15th

 

Jan.

 

Feb. 15th

 

Feb.

 

Mar. 15th

 

Mar.

 

2014

 

$

0.9694

 

$

0.9666

 

$

0.9508

 

$

0.9774

 

$

0.9546

 

$

0.9794

 

2015

 

$

1.1941

 

$

1.2286

 

$

1.1755

 

$

1.2091

 

$

1.2353

 

$

1.2323

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS D

 

 

 

Jan. 15th

 

Jan.

 

Feb. 15th

 

Feb.

 

Mar. 15th

 

Mar.

 

2014

 

$

0.9028

 

$

0.9012

 

$

0.8873

 

$

0.9131

 

$

0.8928

 

$

0.9169

 

2015

 

$

1.1402

 

$

1.1744

 

$

1.1248

 

$

1.1582

 

$

1.1845

 

$

1.1828

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS I

 

 

 

Jan. 15th

 

Jan.

 

Feb. 15th

 

Feb.

 

Mar. 15th

 

Mar.

 

2014

 

$

1.0793

 

$

1.0769

 

$

1.0599

 

$

1.0902

 

$

1.0654

 

$

1.0937

 

2015

 

$

1.3483

 

$

1.3880

 

$

1.3289

 

$

1.3677

 

$

1.3981

 

$

1.3954

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS DS

 

 

 

Jan. 15th

 

Jan.

 

Feb. 15th

 

Feb.

 

Mar. 15th

 

Mar.

 

2014

 

$

1.3831

 

$

1.3806

 

$

1.3594

 

$

1.3989

 

$

1.3677

 

$

1.4047

 

2015

 

$

1.7468

 

$

1.7992

 

$

1.7232

 

$

1.7744

 

$

1.8147

 

$

1.8121

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS DT

 

 

 

Jan. 15th

 

Jan.

 

Feb. 15th

 

Feb.

 

Mar. 15th

 

Mar.

 

2014

 

$

1.5022

 

$

1.5002

 

$

1.4775

 

$

1.5207

 

$

1.4871

 

$

1.5276

 

2015

 

$

1.9067

 

$

1.9642

 

$

1.8817

 

$

1.9379

 

$

1.9822

 

$

1.9797

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS M

 

 

 

Jan. 15th

 

Jan.

 

Feb. 15th

 

Feb.

 

Mar. 15th

 

Mar.

 

2014

 

$

0.8968

 

$

0.8952

 

$

0.8815

 

$

0.9071

 

$

0.8869

 

$

0.9108

 

2015

 

$

1.1327

 

$

1.1666

 

$

1.1174

 

$

1.1506

 

$

1.1767

 

$

1.1750

 

 

Liquidity and Capital Resources

 

The Fund borrows 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 Fund’s U.S. dollar deposits.  These borrowings are at a prevailing short-term rate in the relevant currency.

 

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

 

16



 

The Fund should be able to close out its open trading positions and liquidate its holdings relatively quickly and at market prices, except in unusual circumstances.  This typically permits the Fund to limit losses as well as reduce market exposure on short notice should its strategies indicate doing so.

 

There is no established public trading market for the Units. Investors in the Fund generally may redeem any or all of their Units at Net Asset Value, in whole or fractional Units, effective as of (i) the 15th calendar day of each month and/or (ii) the last calendar day of each month (each a “Redemption Date”), upon submitting a redemption request by the “Subscription/Redemption Notice Date,” which is eight business days prior to the 1st and 16th of every month.  MLAI may eliminate investors’ mid-month redemption right at any time.  The Net Asset Value of redeemed Units is determined as of the Redemption Date.  Investors will remain exposed to fluctuations in Net Asset Value during the period between submission of their redemption request and the applicable Redemption Date.

 

As a commodity pool, the Fund maintains an extremely large percentage of its assets in cash, which it must have available to post initial and variation margin on futures contracts.  This cash is also used to fund redemptions.  While the Fund has the ability to fund redemption proceeds from liquidating positions, as a practical matter positions are not liquidated to fund redemptions.  In the event that positions were liquidated to fund redemptions, MLAI, as the manager of the Fund, has the ability to override decisions of the Trading Advisor to fund redemptions if necessary, but in practice the Trading Advisor would determine in its discretion which investments should be liquidated.

 

For the three months ended March 31, 2015, Fund capital increased 4.43% from $72,985,063 to $76,216,622.  This increase was attributable to the net profit from operations of $3,426,064 coupled with the redemption of 1,662,064 Redeemable Units resulting in an outflow of $2,788,723. The cash outflow was offset with cash inflow of $2,594,218 due to subscriptions of 2,069,979 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 commodity trading accounts 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.

 

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 the Fund’s treatment of fair value see Financial Statements Note 3, Fair Value of Investments.

 

17



 

Futures Contracts

 

The Fund trades exchange 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 Statements of Financial Condition.  Contracts are priced daily by the Fund and the profit or loss is based on the daily mark to market and is recorded as unrealized profit (loss).  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 profit (loss), net and change in unrealized profit (loss), net on futures 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.  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 bids 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 profit (loss), net and change in unrealized profit (loss) 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 federal 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.

 

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

 

18



 

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. A prospective investor should be aware that, among other things, income taxes could have a material adverse effect on the periodic calculations of the net asset value of the Fund, including reducing the net asset value of the Fund to reflect reserves for income taxes, such as foreign withholding taxes, that may be payable by the Fund. This could cause benefits or detriments to certain investors, depending upon the timing of their entry and exit from the Fund. 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 — 2011.

 

Reform Act

 

The Dodd-Frank Wall Street Reform and Consumer Protection Act amended the definition of “eligible contract participant,” and the Fund expects to meet the amended definition as it applies to trading in “retail forex” transactions so long as its total assets exceed $10 million.  If the Fund does not meet the definition of “eligible contract participant” for purposes of trading in “retail forex” transactions, it could lead to the Fund being unable to trade such transactions in the interbank market and bearing higher upfront and mark-to-market margin, less favorable trade pricing, and the possible imposition of new or increased fees.  “Retail forex” markets available to parties that do not meet the definition of “eligible contract participant” could also be significantly less liquid than the interbank market.  Moreover, the creditworthiness of the counterparties with whom the Fund may be required to trade in such circumstances could be significantly weaker than the creditworthiness of MLI and the currency forward counterparties with which the Fund would otherwise engage for its currency forward transactions.

 

Results of Operations

 

January 1, 2015 to March 31, 2015

 

January 1, 2015 to March 31, 2015

 

The Fund experienced a net trading profit of $5,068,844 before brokerage commissions and related fees in the first quarter of 2015. The Fund’s profits were primarily attributable to the stock indices, interest rates, energy, currency and agriculture sectors posting profits. The metals sector posted losses.

 

The stock indices sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the first quarter. Profits were posted to the Fund in the middle of the quarter due to the Fund’s long positions in European equity markets. Profits were posted to the Fund at the end of the quarter. Throughout March the Fund’s largest extreme risk concentration was ‘long equity markets’. The majority of these equity longs were located in QE-economies: the Eurozone and Japan. These equities did well. The European equities also formed the backbone of one of the Fund’s largest trend concentrations: ‘long ECB QE’. Long positions in the Xinhua China A50 ultimately became the most profitable equity long.

 

The interest rate sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the first quarter due to the Fund’s long positions in ECB-QE positions (short euro and long European bond and equity markets), but also from long positions in bond markets elsewhere. The Fund shifted its “long bonds” positions from Europe to North America. Losses were posted to the Fund in the middle of the quarter due to the Fund’s long positions in U.S. bond markets. Profits were posted to the Fund at the end

 

19



 

of the quarter due to the Fund’s long Eurozone bond positions as well as longs in continental European interest rate instruments. Also, the interest rate instruments in both U.S. and U.K. economies started to rise again. The Fund was able to profit from this movement by re-building long positions in these markets.

 

The energy sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the first quarter from the Fund’s short positions in this sector. Throughout January, one of the largest “trend risk” concentrations of the Fund was “short commodities”, with “short energy” being its largest contributor. Despite a rally in oil markets at the end of January, the Fund scored well in this position, profiting from oil and oil products as well as from gas, electricity and coal. Losses were posted to the Fund in the middle of the quarter due to the Fund’s short positions in energy markets. Profits were posted to the Fund at the end of the quarter. The concerns over the Chinese growth were dominating, reflected by declining commodity markets. The Fund profited from these declines, mostly with its short positions in crude oil.

 

The currency sector posted profits to the Fund. Losses were posted to the Fund at the beginning of the first quarter due to the short positions in Japanese yen. In January the Swiss National Bank announced the abandonment of the cap on the euro/Swiss franc exchange rate. As a result, the Fund lost on Swiss franc shorts versus the British pound and on long positions in Swiss equity markets. Profits were posted to the Fund in the middle of the quarter. The Trading Program ended February with a large net long position in the British pound versus a wide range of currencies. The profits on these positions compensated for the losses suffered earlier. It also helped the Fund score positively in the currency cluster, despite the losses on the longs in emerging market currencies. Also longs in the New Zealand dollar and shorts in the Swiss franc contributed to the profits. Profits were posted to the Fund at the end of the quarter due to the Fund’s short positions in the euro and Brazilian real. The Russian ruble delivered the highest currency return on the long side.

 

The agriculture sector posted profits to the Fund. Losses were posted to the Fund at the beginning of the first quarter due to the Fund’s position in long cattle and short sugar. Down-turning cattle prices caused losses on long positions in the first half of January, only partially compensated for by profits on short positions in the last part of January. Losses were posted to the Fund in the middle of the quarter. Many commodity markets showed upward reactions in the first half of February, such as softs, grains and oilseeds. In some cases these reactions lasted long enough for the Fund to liquidate a large part of its shorts (soybeans) or even reverse to longs (cotton), leaving losses on these liquidated shorts, the largest ones in the soybean markets. Profits were posted to the Fund at the end of the quarter due to the Fund’s short positions in agricultural commodities like sugar, coffee and soybeans. The largest profits from the declining markets in Brazil came from sugar and coffee.

 

The metals sector posted losses to the Fund.  Losses were posted to the Fund at the beginning of the first quarter due to the Fund’s short positions in silver. Losses were posted to the Fund in the middle of the quarter due to the Fund’s liquidated short positions in copper. Losses were posted to the Fund at the end of the quarter due to the Fund’s short positions in silver.

 

January 1, 2014 to March 31, 2014

 

January 1, 2014 to March 31, 2014

 

The Fund experienced a net trading loss of $1,667,263 before brokerage commissions and related fees in the first quarter of 2014. The Fund’s profits were primarily attributable to the interest rates and agriculture sectors posting profits. The metals, energy, stock indices and currency sectors posted losses.

 

20



 

The interest rate sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the first quarter due to the Fund’s long positions in this sector. Profits were posted to the Fund in the middle through the end of the quarter due to the Fund’s long bonds positions.

 

The agriculture sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the first quarter due to the rising prices of milk and oats. Profits were posted to the Fund in the middle of the quarter. Profits were posted to the Fund at the end of the quarter due to the Fund’s long positions in some agricultural markets (especially soy markets). In March a drought in Brazil caused uptrends in soybeans and coffee.

 

The metals sector posted losses to the Fund.  Losses were posted to the Fund at the beginning of the first quarter due to the Fund’s short positions in gold. Losses were posted to the Fund in the middle of the quarter due to the Fund’s short positions in silver. Profits were posted to the Fund at the end of the quarter due to the Fund’s short positions in copper and silver.

 

The energy sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the first quarter from the Fund’s long positions in oil markets only to be reversed in the middle of the quarter.  Profits were posted to the Fund in the middle of the quarter from the Fund’s long positions in gas and oil. Losses posted to the Fund at the end of the quarter came from long positions in the oil markets.

 

The stock indices sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the first quarter. In January the losses came from long positions in Japanese, American and European equities. Profits were posted to the Fund in the middle of the quarter from the Fund’s long positions in stocks only to be reversed at the end of the quarter with losses posted to the Fund.

 

The currency sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the first quarter.  The Fund, as intended, participated significantly in the weak Japanese yen and the rising Eastern European currencies, but remained too cautious on the “‘risk-off” side with regard to short positions in the currencies of the emerging economies and some other commodity-rich countries. Especially in the South African rand and the Canadian dollar, the Fund did not take advantage of the apparent potential for gains to the fullest extent. This was reflected by losses in the currency sector. Losses were posted to the Fund in the middle of the quarter only to be reversed at the end of the quarter. The largest profits in March came from the Fund’s long positions in emerging market currencies (especially the Indian rupee and the Brazilian real).

 

(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.

 

21



 

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 the Trading Advisor, 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 (“VaR”) 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 VaR 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 VaR or by the Fund’s attempts to manage its market risk.

 

Quantifying The Fund’s Trading Value At Risk

 

Quantitative Forward-Looking Statements

 

The following quantitative disclosures regarding the Fund’s market risk exposures contain “forward-looking statements” 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 (“Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (“Securities Exchange Act”)). 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 the Trading Advisor is quantified below in terms of VaR.  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 (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 VaR.  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

 

22



 

VaR.  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 VaR.  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 VaR associated with the Fund’s open positions by market category for the fiscal period. For the three month periods ended March 31, 2015 and 2014 the Fund’s average month-end Net Asset Value was $75,255,826 and $80,353,916, respectively.

 

March 31, 2015

 

 

 

Average Value

 

% of Average

 

Highest Value

 

Lowest Value

 

Market Sector

 

at Risk

 

Capitalization

 

at Risk

 

at Risk

 

 

 

 

 

 

 

 

 

 

 

Agricultural Commodities

 

$

4,860,457

 

6.46

%

$

5,359,321

 

$

4,468,990

 

Currencies

 

359,185

 

0.48

%

396,051

 

330,256

 

Energy

 

586,814

 

0.78

%

647,043

 

539,551

 

Interest Rates

 

3,887,117

 

5.17

%

4,286,079

 

3,574,043

 

Metals

 

134,097

 

0.18

%

147,861

 

123,297

 

Stock Indices

 

1,769,109

 

2.35

%

1,950,685

 

1,626,623

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

11,596,779

 

15.42

%

$

12,787,040

 

$

10,662,760

 

 

March 31, 2014

 

 

 

Average Value

 

% of Average

 

Highest Value

 

Lowest Value

 

Market Sector

 

at Risk

 

Capitalization

 

at Risk

 

at Risk

 

 

 

 

 

 

 

 

 

 

 

Agricultural Commodities

 

$

4,526,491

 

5.63

%

$

5,165,177

 

$

4,162,004

 

Currencies

 

3,188,858

 

3.97

%

3,638,805

 

2,932,082

 

Energy

 

662,795

 

0.82

%

756,315

 

609,425

 

Interest Rates

 

2,731,487

 

3.40

%

3,116,899

 

2,511,540

 

Metals

 

219,781

 

0.27

%

250,792

 

202,084

 

Stock Indices

 

1,455,792

 

1.81

%

1,661,203

 

1,338,567

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

12,785,204

 

15.90

%

$

14,589,191

 

$

11,755,702

 

 

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

 

23



 

of time.   The foregoing VaR 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 and MLI

 

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

 

The Fund also has non-trading market risk on approximately 90% 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 the Trading Advisor for managing such exposures are subject to numerous uncertainties, contingencies and risks, any one of which could cause the actual results of the Fund’s risk controls to differ materially from the objectives of such strategies. Government interventions, defaults and expropriations, illiquid markets, the emergence of dominant fundamental factors, political upheavals, changes in historical price relationships, an influx of new market participants, increased regulation and many other factors could result in material losses as well as in material changes to the risk exposures and the risk management strategies of the Fund. There can be no assurance that the Fund’s current market exposure and/or risk management strategies will not change materially or that any such strategies will be effective in either the short- or long-term. Investors must be prepared to lose all or substantially all of the time value of their investment in the Fund.

 

The following were the primary trading risk exposures of the Fund as of March 31, 2015, 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 may 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 may also take 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. However, the Fund’s major exposures have typically been in the Japanese yen/U.S. dollar, New Zealand dollar/Japanese yen and Swiss franc/Japanese yen positions. The Fund does not anticipate that the risk profile of the Fund’s currency sector will change significantly in the future. The currency trading VaR figure includes foreign margin amounts converted into U.S.

 

24



 

dollars with an incremental adjustment to reflect the exchange rate risk of maintaining VaR in a functional currency other than U.S. dollars.

 

Stock Indices

 

The Fund’s primary equity exposure is to S&P 500, Nikkei and German DAX equity index price movements. The Fund is primarily exposed to the risk of adverse price trends or static markets in the major U.S., European and Asian indices.

 

Metals

 

The Fund’s metals market exposure is to fluctuations in 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, corn, and livestock accounted for the substantial bulk of the Fund’s agricultural commodities exposure as of March 31, 2015. However, it is anticipated that the Fund 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 primary non-trading risk exposures of the Fund as of March 31, 2015.

 

Foreign Currency Balances

 

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

 

U.S. Dollar Cash Balance

 

The Fund holds the vast majority of its U.S. dollars in cash at MLPF&S and MLI. 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.

 

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 Fund’s market exposure, MLAI may urge the Trading Advisor to reallocate positions in an attempt to avoid over-concentrations.  However, such interventions are unusual, except in cases in which

 

25



 

it appears that the Trading Advisor has begun to deviate from past practice and trading policies or to be trading erratically. MLAI’s basic control procedures consist of the ongoing process of monitoring the Trading Advisor with the market risk controls being applied by the Trading Advisor itself.

 

Risk Management

 

With respect to market and liquidity risk, the Trading Advisor employs a value-at-risk methodology and other risk management procedures to monitor the exposure of the Trading Program to this risk within pre-defined guidelines.  If risk exceeds the maximum prescribed level, risk reducing investments will be entered into.  Additionally, the Trading Advisor has developed mechanisms designed to provide that risk is controlled effectively at both an individual market and portfolio level.  In seeking to control the risks of the Trading Program, the Trading Advisor may intervene in the risk management framework in extreme market situations where the Trading Advisor believes that an intervention is in the best interests of its clients.  The Trading Advisor has an Operational Risk Committee, chaired by the Trading Advisor’s Chief Risk Officer, which is responsible for managing all operational risk affecting the Trading Advisor.  Operational risk is defined as the risk of loss resulting from inadequate or failed processes, people and systems or external events.  It includes the risk of failure of a broker or other service provider, the risk of the loss of investment or operational capability at the Trading Advisor, the risk of breaches of intellectual property security and the risk of breaches of law or regulation.

 

Non-Trading Risk

 

The Fund controls the non-trading exchange rate risk by regularly converting foreign 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 has 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. 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 its cash held on deposit at MLPF&S.

 

Item 4. Controls and Procedures

 

Disclosure Controls and Procedures

 

MLAI’s Chief Executive Officer and Chief Financial Officer, on behalf of the Fund, have 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) with respect to the Fund as of and for the quarter which ended March 31, 2015, and, based on their evaluation, have concluded that these disclosure controls and procedures are effective.

 

Changes in Internal Control over Financial Reporting

 

No change in internal control over financial reporting (in connection with Rule 13a-15 or Rule 15d-15 under the Securities Exchange Act) occurred during the quarter ended March 31, 2015 that has materially affected, or is reasonably likely to materially affect, the Fund’s internal control over financial reporting.

 

26



 

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 Fund’s report on Form 10-K for the year ended December 31, 2014, filed with the Securities and Exchange Commission on March 20, 2015.

 

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.

 

27



 

CLASS A

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

1/01/2015

 

$

 

 

$

1.3175

 

1/16/2015

 

 

 

1.3294

 

2/1/2015

 

 

 

1.3685

 

2/16/2015

 

 

 

1.3099

 

3/01/2015

 

 

 

1.3479

 

3/16/2015

 

 

 

1.3777

 

4/01/2015

 

24,688

 

17,957

 

1.3748

 

 

CLASS C

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

1/01/2015

 

$

65,000

 

54,903

 

$

1.1839

 

1/16/2015

 

 

 

1.1941

 

2/1/2015

 

 

 

1.2286

 

2/16/2015

 

10,000

 

8,507

 

1.1755

 

3/01/2015

 

 

 

1.2091

 

3/16/2015

 

25,000

 

20,238

 

1.2353

 

4/01/2015

 

117,000

 

94,944

 

1.2323

 

 

CLASS D

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

1/01/2015

 

$

 

 

$

1.1293

 

1/16/2015

 

 

 

1.1402

 

2/1/2015

 

1,000,000

 

851,499

 

1.1744

 

2/16/2015

 

 

 

1.1248

 

3/01/2015

 

 

 

1.1582

 

3/16/2015

 

 

 

1.1845

 

4/01/2015

 

 

 

1.1828

 

 

CLASS I

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

1/01/2015

 

$

 

 

$

1.3360

 

1/16/2015

 

 

 

1.3483

 

2/1/2015

 

5,000

 

3,602

 

1.3880

 

2/16/2015

 

 

 

1.3289

 

3/01/2015

 

 

 

1.3677

 

3/16/2015

 

 

 

1.3981

 

4/01/2015

 

 

 

1.3954

 

 

CLASS DS

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

1/01/2015

 

$

 

 

$

1.7301

 

1/16/2015

 

55,676

 

31,873

 

1.7468

 

2/1/2015

 

 

 

1.7992

 

2/16/2015

 

568,542

 

329,934

 

1.7232

 

3/01/2015

 

 

 

1.7744

 

3/16/2015

 

 

 

1.8147

 

4/01/2015

 

 

 

1.8121

 

 

CLASS DT

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

1/01/2015

 

$

 

 

$

1.8881

 

1/16/2015

 

 

 

1.9067

 

2/1/2015

 

 

 

1.9642

 

2/16/2015

 

 

 

1.8817

 

3/01/2015

 

 

 

1.9379

 

3/16/2015

 

 

 

1.9822

 

4/01/2015

 

 

 

1.9797

 

 

CLASS M

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

1/01/2015

 

$

800,000

 

713,140

 

$

1.1218

 

1/16/2015

 

 

 

1.1327

 

2/1/2015

 

50,000

 

42,860

 

1.1666

 

2/16/2015

 

15,000

 

13,424

 

1.1174

 

3/01/2015

 

 

 

1.1506

 

3/16/2015

 

 

 

1.1767

 

4/01/2015

 

550,000

 

468,085

 

1.1750

 

 


(1)  Beginning of the period Net Asset Value

 

Class A Units are subject to upfront sales commissions paid to MLPF&S ranging from 1.0% to 2.5% of an investor’s gross subscription amount. Class D Units and Class I Units are subject to upfront sales commissions paid to MLPF&S up to 2.5% of an investor’s gross subscription amount. Sales commissions are directly deducted from subscription amounts.  Class C Units, Class DS Units, Class DT Units and Class M Units are not subject to upfront sales commissions.

 

(b)         Not applicable.

(c)          Not applicable.

 

Item 3.           Defaults Upon Senior Securities

 

None.

 

28



 

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, 2015 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.

 

29



 

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 15, 2015

 

By:

/s/ KEITH GLENFIELD

 

 

 

Keith Glenfield

 

 

 

Chief Executive Officer and President

 

 

 

(Principal Executive Officer)

 

 

 

 

 

 

Date May 15, 2015

 

By:

/s/ BARBRA E. KOCSIS

 

 

 

Barbra E. Kocsis

 

 

 

Chief Financial Officer

 

 

 

(Principal Financial Officer)

 

30