Item 1: Business
(a) General Development of Business:
ML Trend-Following Futures Fund L.P. (the “Partnership”), formerly known as ML JWH Strategic Allocation Fund L.P. was organized under the Delaware Revised Uniform Limited Partnership Act on December 11, 1995 and commenced trading on July 15, 1996. The Partnership operates as a “fund of funds”, allocating and reallocating its capital, under the direction of Merrill Lynch Alternative Investments LLC (“MLAI” or the “General Partner”) the general partner of the Partnership, among five underlying FuturesAccess Funds (each a “Portfolio Fund” and collectively the “Portfolio Funds”).
MLAI, the sponsor (“Sponsor”) and general partner of the Partnership, 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 Partnership’s commodity broker, of the Portfolio Funds. Merrill Lynch is a wholly-owned subsidiary of Bank of America Corporation.
The Portfolio Funds are a group of commodity pools sponsored by MLAI, each of which places substantially all of its assets in a managed futures and forward trading account managed by a single commodity trading advisor. Each of the Portfolio Funds implements a different trading strategy.
The Partnership may offer its units of limited partnership interest (“Units”), when available for sale, as of the beginning of each month. Investors whose subscriptions are accepted during a month are admitted to the Partnership as Limited Partners as of the beginning of the following month, acquiring Units at the Net Asset Value per Unit as of the date of admission. Investors’ customer securities accounts are debited in the amount of their subscriptions on a single monthly settlement date within approximately five business days of the issuance of their Units.
The Partnership 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 Partnership’s “Net Asset Value” as of any calculation date will generally equal the value of the Partnership’s investments in the underlying funds as of such date, plus any other assets held by the Partnership, minus accrued brokerage commissions, sponsor’s, management and performance fees, organizational expense amortization and any operating costs and other liabilities of the Partnership. MLAI is authorized to make all net asset value determinations.
As of December 31, 2010, the aggregate Net Asset Value of the Partnership was $227,549,778, and the Net Asset Value per Unit, originally $100 as of July 15, 1996, had risen to $193.21.
Through December 31, 2010, the highest month-end Net Asset Value per Unit was $272.23 (May 31, 2003) and the lowest $98.89 (August 31, 1996).
(b) Financial Information about Segments:
The Partnership’s and Portfolio Funds’ business constitutes only one segment for financial reporting purposes, i.e., a speculative “commodity pool.” The Partnership and the Portfolio Funds do not engage in sales of goods or services.
(c) Narrative Description of Business:
General
The Partnership may invest in five separate funds which trade in the futures and forward markets with the objective of achieving substantial capital appreciation.
The investment objective of the Partnership is to achieve superior risk-adjusted rates of return through a “single strategy-type” fund of funds approach focusing on, but not limited to, trend-following managed futures strategies. Under the direction of MLAI, the Partnership will seek to achieve this objective by allocating its capital among a group of Portfolio Funds managed by the Portfolio Funds’ respective Trading Advisors (“Trading Advisors”) which, MLAI believes, collectively have the ability to achieve substantial capital appreciation with controlled performance volatility and draw downs.
Systematic trading generally assumes that a disciplined quantitative analysis of historical and contemporaneous market information without discretionary decision making can enable a trader to forecast price action in term of trends or other market dynamics and to take positions designed to profit from it. These systems can incur substantial losses when the market significantly deviates from its usual historical patterns, e.g. when weather-related catastrophes, international political disruptions, and unanticipated supply/demand imbalances unexpectedly dominate the market. Systematic trading systems share basic similarities, although the models which they apply to historical price data differ. Such similarities imply that there will be certain market conditions which are likely to be adverse to all or substantially all of the Portfolio Funds in the Partnership’s portfolio.
Systematic trading strategies are speculative and involve substantial risk. By operating the Partnership as a “fund of funds” and investing in a number of different Portfolio Funds, MLAI will attempt to mitigate the volatility and certain other risks of investing in a single Portfolio Fund. While diversifying among different Trading Advisors of the Partnership involves the risk of one manager’s loss frequently offsetting another’s profits, this same offsetting effect also typically reduces overall performance volatility, potentially producing a risk/return profile for the Partnership that may be more consistent with the portfolio objectives of certain investors than investing in a single Portfolio Fund.
Background
The Partnership has an extensive operating and performance history. In June 2007 the Partnership terminated the joint venture agreement under which John W. Henry & Company, Inc. served as the Partnership’s sole trading advisor. Currently MLAI allocates capital among the Portfolio Funds.
The past performance of the Partnership prior to June 1, 2007, or thereafter the past performance of the Portfolio Funds in which the Partnership invests either individually or in any combination is not indicative of the future results of the Partnership or any of the Portfolio Funds. There can be no assurance that the Partnership or any of the Portfolio Funds will achieve its objective or avoid substantial or total losses.
(a) ML Trend-Following Futures Fund L.P. currently invests in the following underlying Portfolio Funds which are advised, respectively, by the trading advisors (“Trading Advisors”) as indicated below:
(b) The allocation percentages of Trend-Following Futures Fund L.P. investment in the underlying Portfolio Funds as of December 31, 2010 is as follows:
(c) Each of the Portfolio Funds is managed by MLAI. Each Trading Advisor has entered into an Advisory Agreement with the relevant Portfolio Fund and MLAI. MLAI and/or the Portfolio Fund may terminate the relevant Advisory Agreement with the Trading Advisor but will not retain any other Trading Advisor, although MLAI may dissolve the Portfolio Fund at any time. The trading strategies and investment objectives of each of the Portfolio Funds are described below.
Employees
The Partnership has no employees.
Portfolio Funds
Aspect Fund
Trading Strategies and Investment Objectives
The Aspect Fund and MLAI have entered into an Advisory Agreement with Aspect whereby Aspect will trade in the international futures and forwards markets pursuant to the Aspect Diversified Program (the “Aspect Trading Program”).
The Aspect Trading Program, which Aspect has traded since December 1, 1998, is a fully systematic and broadly diversified global trading system that deploys multiple trading strategies that, primarily through the use of listed futures and foreign exchange over-the-counter derivative contracts, seek to identify and exploit directional moves in market behavior of a broad range of global financial instruments and other assets including (but not limited to) bonds, currencies, interest rates, equities, equity indices, debt securities and selected physical commodities (including some emerging market currencies and stock indices). By maintaining comparatively small exposure to any individual market and maintaining positions in a variety of contracts, the aim is to achieve long-term diversification. Market concentration varies according to the strength of signals, volatility and liquidity, amongst other factors.
The core objectives of the Aspect Trading Program are to: (i) produce strong medium-term capital growth; (ii) seek and exploit profit opportunities in both rising and falling markets using a disciplined quantitative and systematic investment process; (iii) seek long-term diversification away from overall movements in traditional bond and stock markets and thereby play a valuable role in enhancing the risk/return profile of traditional investment portfolios; and (iv) minimize risk by operating in a diverse range of markets and sectors using a consistent investment process that adheres to pre-defined and monitored risk limits and determines market exposure in accordance with factors including (but not limited to) market correlation, volatility, liquidity and the cost of market access.
Aspect retains the right to develop and make changes to the Aspect Trading Program at its sole discretion.
Markets
Aspect’s trading involves the speculative trading of foreign exchange over-the-counter derivative contracts and exchange traded futures contracts. The Aspect Fund trades on a variety of United States and foreign futures exchanges.
Bluetrend Fund
Trading Strategies and Investment Objectives
The Bluetrend Fund and MLAI have entered into an Advisory Agreement with Bluetrend whereby Bluetrend trades in the international futures and forwards markets pursuant to Bluetrend’s trading program (the “Bluetrend Trading Program”).
BlueTrend seeks to achieve long-term appreciation in the value of its assets and to maintain an exceptional risk/return ratio by focusing on continuous research and development. The BlueTrend Trading Program’s systematic research team combines research, model development, implementation and execution functions. It also leverages BlueCrest’s market expertise in all areas of its activity, which is designed to enable the program to have a unique competitive edge in this sector. BlueTrend FuturesAccess’ portfolio construction is regularly reviewed with a view to achieving its goal of delivering superior returns while maintaining diversity.
BlueCrest is a systematic trend follower, but its decision-making inputs are 100% technical. BlueCrest aims to apply scientific techniques to the analysis and modeling of markets, thereby seeking to deliver reliable trading systems with absolute returns and superior risk and rewards. BlueTrend FuturesAccess trades daily futures across 150+ markets in equity indexes, fixed income, foreign exchange, energy, metals, agriculturals and soft commodities. The reference price of the transaction and the daily mark to market are based on the relevant futures contract settlement price set by the exchange.
Bluetrend has the right to employ any form or method of technical analysis that it deems appropriate in trading the Bluetrend Trading Program.
Markets
BlueTrend trades daily futures across 150+ markets in equity indexes, fixed income, foreign exchange, energy, metals, agriculturals and soft commodities
Man Fund
Trading Strategies and Investment Objectives
The Man Fund and MLAI have entered into an Advisory Agreement with Man whereby Man trades in the international futures and forwards markets pursuant to the AHL Diversified Program (the “Man Trading Program”)
The Man Trading Program is specifically designed to meet the investment requirements of wealthy private investors. The Man Trading Program is engineered to capitalize on movements in a fully diversified portfolio of highly liquid stock index, interest rate, metal, energy and agricultural futures, as well as the over-the-counter dealer and interbank currency market. The Man Trading Program will utilize the following trading philosophy, investment approaches and risk management principles.
Man’s investment philosophy is that financial markets experience persistent anomalies or inefficiencies that take the form of price trends. Trends are a manifestation of serial correlation in financial markets - the phenomenon whereby past price movements influence future price behavior. Serial correlation can be explained by factors as obvious as crowd behavior, as well as more subtle factors, such as varying levels of information among different market participants. Although they vary in their intensity, duration and frequency, price trends are universally recurrent across all sectors and markets. Trends are an attractive focus for active trading styles applied across a diverse range of global markets
Man has the right to employ any form or method of technical analysis that it deems appropriate in trading the Man Trading Program.
Markets
Man invests in a diversified portfolio of instruments which may include futures, options on futures, forward contracts, swaps and other financial derivatives, both on and off exchange. These markets may be accessed directly or indirectly and include, without limitation, stock indices, bonds, currencies, short-term interest rates, energies, metals, and agricultural As well as emphasizing sector and market diversification, the Man Trading Program has been constructed to achieve diversification by combining various systems. The systems are driven by powerful computerized processes or trading algorithms, most of which work by sampling prices in real time and measuring price momentum and breakouts. In aggregate, the systems run more than 3,000 price samples each day spread across the 100 or so markets traded. The trading algorithms aim mainly to capture price trends and close out positions when there is a high probability of a different trend developing, although the Man Trading Program may include algorithmic systems based on certain forms of quantitative fundamental data that can be captured efficiently, such as interest rate data.
Transtrend Fund
Trading Strategies and Investment Objectives
Transtrend Fund and MLAI have entered into an Advisory Agreement with Transtrend whereby Transtrend trades in the international futures and forwards markets pursuant to the Diversified Trend Program - Enhanced Risk Profile (USD) (the “Transtrend Trading Program”). The Diversified Trend Program has two risk profiles: the Standard Risk Profile and the Enhanced Risk Profile, investable in various currencies. The Enhanced Risk Profile is approximately 1.5 times the leverage of the Standard Risk Profile.
The applied principles of risk management play a dominant role in Transtrend’s trading methodology. The Transtrend Trading Program is designed to pursue capital growth within the limits of a defined risk tolerance. The Transtrend Trading Program is entirely based on quantitative analysis of signaled price behavior of outright markets and of intra-market and/or inter-market combinations of the instruments concerned, and therefore not on fundamental analysis.
The Transtrend Trading Program may enter into both long and short positions in any of the instruments involved, or it may have no position. Long and short positions are likely to be leveraged and unhedged and/or uncovered. The degree of leverage is implicitly determined by the risk/reward profile selected by the Transtrend Fund. The degree of leverage can be expressed as the number of contracts traded or held in position per million U.S. dollar under management.
The Transtrend Trading Program is systematic by nature and requires a consistent application. Therefore, discretionary inputs are not essential to the effectiveness of the Transtrend Trading Program. Exceptional market circumstances of the observed past, both favorable and unfavorable, are integrally reflected in the presented performance profile of the Transtrend Trading Program. While Transtrend generally will not use discretionary inputs in trading client accounts, in the event of exceptional market circumstances Transtrend may use discretion in an attempt to limit risk to a position or an account. The use of discretion by Transtrend may have a positive or negative impact on performance of the Transtrend Fund.
Transtrend has the right to employ any form or method of technical analysis that it deems appropriate in trading the Transtrend Trading Program.
Markets
Transtrend trades the following instruments on U.S. and non-U.S. exchanges and markets: (a) futures, options, options on futures, and forward contracts on currencies, interest rates, interest rate instruments, commodities, individual stocks, stock indices and other indices; and (b) spot currencies, in all cases ((a) and (b)) traded on regulated markets and/or OTC markets. Transtrend does not, however, currently trade futures, options, options on futures or forward contracts on individual stocks for the Transtrend Fund. Over time, the underlying values of futures, options, options on futures and forward contracts traded may also include other economic variables which are now or may hereafter become the subject of organized futures, options or forward trading. Over time, the instruments that Transtrend trades may also include swaps or other derivative, margined instruments, in each case traded on regulated and/or OTC markets.
Winton Fund
Trading Strategies and Investment Objectives
The Winton Fund and MLAI have entered into an Advisory Agreement with Winton whereby Winton trades in the international futures and forwards markets pursuant to the Winton Diversified Program (the “Winton Trading Program”).
The investment objective of the Winton Trading Program is to achieve long-term capital appreciation through compound growth. Winton seeks to achieve this goal by pursuing a diversified trading scheme that does not rely upon favorable conditions in any particular market, or on market direction.
The Winton Trading Program seeks to combine highly liquid financial instruments offering positive but low Sharpe ratios, meaning that profits have been achieved with a certain level of risk and generally low correlation over the long term to other markets such as equities and fixed income.
The Winton Trading Program employs what is traditionally known as a “systematic” approach to trading financial instruments. In this context, the term “systematic” implies that the vast majority of the trading decisions are executed, without discretion, either electronically or by a team responsible for the placement of orders, based upon the instructions generated by the Winton Computer Trading System. A majority of the trades in the Winton Trading Program are executed electronically. The Winton Trading Program blends short-term trading with long-term trend following, using multiple time frames in addition to multiple models. As its name implies, the Winton Trading Program seeks to allocate for maximum diversification. A sophisticated system of risk management is used in the Winton Trading Program.
Winton’s trading principals may decide that external events fall entirely outside the scope of the research upon which the Winton Trading Program is based and may determine to exercise some discretion rather than follow the dictates of the system.
Markets
Winton trades in a variety of liquid U.S. and non-U.S. futures and forward contracts, including agricultural, currencies, energy, interest rates, metals and stock indices. The Winton Fund trades on a variety of United States and foreign futures exchanges. The Winton Trading Program’s portfolio consists mainly of positions in the following futures markets: stock indices; bonds; short-term interest rates; currencies; precious and base metals; grains; livestock; energy and agricultural products. In addition, the Winton Trading Program may trade in certain over-the-counter instruments, such as, but not limited to, forward contracts on foreign exchange and interest rates and swaps. In addition, the Winton Trading Program may trade in government securities such as bonds and other similar instruments.
Addition, Redemption and Reallocation of Capital for Commodity Pool or Partnership Accounts
Investors purchase or redeem Units at Net Asset Value (“NAV”) on the close of business on the last business day of the month. In order to provide market exposure commensurate with the Partnership’s equity on the date of these transactions, the Partnership’s general practice is to adjust positions as near as possible to the close of business on the last trading date of the month. The intention is to provide for additions and redemptions at a NAV that will be the same for each of these transactions, and to eliminate possible variations in NAVs that could occur as a result of inter-day price changes if, for example, additions were calculated on the first day of the subsequent month. Therefore, the Partnership may, at its sole discretion, adjust its investment of the assets associated with the addition or redemption as near as possible to the close of business on the last business day of the month to reflect the amount then available for trading. Based on the Partnership’s determination of liquidity or other market conditions, the Partnership may decide to commence trading earlier in the day on, or before, the last business day of the month, or at its sole discretion, delay adjustments to trading for an account to a date or time after the close of business on the last day of the month. No assurance is given that the Partnership will be able to achieve the objectives described above in connection with the Partnership’s equity level changes. The use of discretion by the Partnership in the application of this procedure may affect performance positively or negatively.
Custody of Assets.
Substantially, all of the Portfolio Funds’ assets are currently held in one or more Commodity Futures Trading Commission (“CFTC”) regulated customer accounts at MLPF&S or at a fund managed by an affiliated entity as discussed below.
Cash Assets.
The Partnership and the Portfolio Funds will generally earn interest, as described below, on its “Cash Assets”, which can be generally described as the cash actually held by the Partnership and the Portfolio Funds plus its “open trade equity” (unrealized gain and loss marked to market daily on open positions of the Portfolio Funds). Cash Assets are held primarily in U.S. dollars, and to a lesser extent in foreign currencies, and are comprised of the Partnership’s and the Portfolio Funds’ cash balances held in the offset accounts (as described below) - which include “open trade equity” (unrealized gain and loss on open positions) on United States futures contracts, which is paid into or out of the Partnership’s and the Portfolio Funds’ account on a daily basis; and the Partnership’s and the Portfolio Funds’ cash balance in foreign currencies derived from their trading in non-U.S. dollar denominated futures and options contracts, which includes open trade equity on those exchanges which settle gains and losses on open positions in such contracts prior to closing out such positions. Cash Assets do not include and the Partnership’s and the Portfolio Funds do not earn interest income on, the Partnership’s gains or losses on its open forward, commodity option and certain foreign futures positions since such gains and losses are not collected or paid until such positions are closed out.
The Partnership’s and the Portfolio Funds’ Available Assets may be greater than, less than or equal to the Partnership’s and the Portfolio Funds’ Net Asset Value (on which the redemption value of the Units is based) primarily because Net Asset Value reflects all gains and losses on open positions as well as accrued but unpaid expenses.
Interest Earned on the Partnership’s U.S. Dollar Cash Assets
The Partnership’s U.S. dollar Cash Assets are held in cash at MLPF&S, which utilizes offset accounts.
As used herein “Cash Assets” can be generally described as the cash actually held by a Portfolio Fund, plus its “open trade equity” (unrealized gain and loss marked to market daily on open positions). Certain of each Portfolio Fund’s U.S. dollar “Cash Assets” are held by MLPF&S in customer segregated accounts and primarily invested in CFTC-eligible investments (including, without limitation, commercial paper, U.S. government and government agency securities, prime non-U.S. government securities, corporate notes and money market funds). Cash Assets may also be maintained in “offset accounts” at major U.S. banks, interest bearing savings accounts maintained with major U.S. banks unaffiliated with Merrill Lynch and/or money market investment funds that are managed by third party managers, including affiliates of Merrill Lynch.
Offset accounts are non-interest bearing demand deposit accounts maintained with banks unaffiliated with Merrill Lynch. MLPF&S may in the future elect to maintain accounts of this nature with one or more of its affiliates. Offset account deposits reduce Merrill Lynch’s borrowing costs with such banks. An integral feature of the offset arrangements is that the participating banks specifically acknowledge that the offset accounts are for the benefit of MLPF&S’ customers, not subject to any Merrill Lynch liability.
To the extent that Cash Assets are placed with affiliates of Merrill Lynch, Merrill Lynch indirectly receives certain economic benefits and therefore has a conflict of interest in selecting such third parties. For example, Merrill Lynch may invest in money market funds managed by BlackRock, Inc. or its affiliates (“BlackRock”). Merrill Lynch is a substantial stockholder in BlackRock and, therefore, potentially benefits from its economic interest in BlackRock whenever BlackRock receives compensation for managing Cash Assets invested in money market investment funds managed by BlackRock.
Interest Paid by Merrill Lynch on the Partnership’s Non-U.S. Dollar Cash Assets
Each Portfolio Fund will generally earn interest, as described below, on its Cash Assets, which can be generally described as the cash actually held by such Portfolio Fund, plus its “open trade equity” (unrealized gain and loss marked to market daily on open positions). Cash Assets are held primarily in U.S. dollars, and to a lesser extent in non-U.S. currencies, and comprise the following: (a) each Portfolio Fund’s cash balances, plus open trade equity on U.S. futures; and (b) each Portfolio Fund’s cash balances held in non-U.S. currencies as a result of realized profits and losses derived from its trading in non-U.S. dollar-denominated futures and options contracts, plus open trade equity on those exchanges which settle gains and losses on open positions in such contracts prior to closing out such positions. Cash Assets do not include, and the Portfolio Funds do not earn interest income on, the Portfolio Funds’ gains or losses on their open forward, commodity option and certain non-U.S. futures positions as such gains and losses are not collected or paid until such positions are closed out.
Each Portfolio Fund’s Cash Assets may be greater than, less than or equal to such Portfolio Fund’s Net Asset Value (on which the redemption value of the Units is based) primarily because Net Asset Value reflects all gains and losses on
open positions as well as accrued but unpaid expenses.
MLPF&S intends to pay interest on the Portfolio Funds’ Cash Assets (irrespective of how such Cash Assets are held or invested) at the most favorable rate payable by MLPF&S to accounts of Merrill Lynch affiliates, from time to time, although the actual rate paid to Portfolio Funds may be lower. In no event, however, will the rate so paid on such Cash Assets be less than 75% of such prevailing rate. MLPF&S retains the additional economic benefit derived from possession of the FuturesAccess Funds’ Cash Assets.
MLPF&S, in the course of acting as commodity broker for the Portfolio Funds, lends certain currencies to, and borrows certain currencies from, the Portfolio Funds. In the course of doing so, MLPF&S both retains certain amounts of interest and receives other economic benefits. In doing so, MLPF&S follows its standard procedures (as such procedures may change over time) for paying interest on the assets of the commodity pools sponsored by MLAI and other MLPF&S affiliates and traded through MLPF&S.
The foregoing table does not reflect the bid-ask spreads paid by the Portfolio Funds on their forward trading, or the benefits which may be derived by Merrill Lynch from the deposit of certain of the Portfolio Funds’ U.S. dollar assets maintained at MLPF&S.
Management fees and performance fees are not included in the above table of charges, because the Partnership does not charge management fees or performance fees, but instead charges a “wrap fee” which is set forth in the table. While the Trading Advisors to the Portfolio Funds in which the Partnership invests do charge management fees and performance fees, these are not included in the table since such fees are not Partnership expenses. However, such management fees and performance fees reduce the Net Asset Value of the Partnership’s underlying investment in each Portfolio Fund.
Each Portfolio Fund pays the relevant Trading Advisor applicable performance fees and management fees. As an investor in the Portfolio Funds, the Partnership’s investment in the Portfolio Funds is therefore reduced by the performance fees and management fees paid by the Portfolio Fund to the Trading Advisor. As a result, the Partnership’s returns are decreased by the performance and management fees paid by the Portfolio Funds. The Portfolio Funds generally pay the performance fees and management fees out of the cash held by them, although such fees can be paid by liquidating Portfolio Fund assets. The performance fees and management fees are not charged directly to the Partnership or its limited partners.
Charges
The following table summarizes the charges incurred by the Partnership during 2010, 2009 and 2008.
The Partnership’s average month-end Net Assets during 2010, 2009 and 2008 equaled $233,236,597, $300,503,024 and $362,197,519, respectively.
During the years ended December 31 2010, 2009 and 2008 the Partnership earned $1,031, $4,357, and $10,654 in interest income, respectively, or approximately 0.0004%, 0.0014% and 0.0029% respectively, of the Partnership’s average month end Net Assets.
Description of Current Charges
The Partnership is subject to the following charges:
Regulation
The Commodity Futures Trading Commission (“CFTC”) has delegated to the National Futures Association responsibility for the registration of “commodity trading advisors,” “commodity pool operators,” “futures commission merchants,” “introducing brokers” and their respective associated persons, and “floor brokers” and “floor traders.” The Commodity Exchange Act requires commodity pool operators such as MLAI, commodity Trading Advisors such as the Portfolio Fund’s Trading Advisors and commodity brokers or futures commission merchants (“FCMs”) such as MLPF&S to be registered and to comply with various reporting and record keeping requirements. CFTC regulations also require FCMs to maintain a minimum level of net capital. In addition, the CFTC and certain commodities exchanges have established limits referred to as “speculative position limits” on the maximum net long or net short speculative positions that any person may hold or control in any particular futures or options contracts traded on U.S. commodities exchanges. All accounts owned or managed by each of the Portfolio Funds respective Trading Advisors will be combined for position limit purposes. Each of the Portfolio Funds Trading Advisors could be required to liquidate positions in order to comply with such limits. Any such liquidation could result in substantial costs to the Partnership. In addition, many futures exchanges impose limits beyond which the price of a futures contract may not trade during the course of a trading day, and there is a potential for a futures contract to reach its daily price limit for several days in a row, making it impossible for the respective Trading Advisor to liquidate a position and thereby experiencing dramatic losses. Currency forward contracts currently are not subject to regulation by any U.S. government agency.
Other than in respect of its periodic reporting requirements under the Securities Exchange Act of 1934, and the registration of the Units for continuous public distribution under the Securities Act of 1933, the Partnership itself is generally not subject to regulation by the Securities and Exchange Commission (“SEC”). However, MLAI is registered as an “investment adviser” under the Investment Advisers Act of 1940. MLPF&S is also regulated by the SEC and the Financial Industry Regulatory Authority (“FINRA”).
(d) Financial Information about Geographic Areas:
The Partnership and the Portfolio Funds do not engage in material operations in foreign countries, nor is a material portion of the Partnership’s and the Portfolio Funds’ revenues derived from customers in foreign countries. The Portfolio Funds, however, trade from the United States on a number of foreign commodity exchanges. The Partnership and the Portfolio Funds’ do not engage in the sales of goods or services.
Item 1A:
Item 1A: Risk Factors
Past Performance Not Necessarily Indicative of Future Results
Past performance is not necessarily indicative of future results. The Trading Advisors’ past performance may not be representative of how it may trade in the future for the Partnership.
Volatile Markets; Highly Leveraged Trading
Futures and forward trading is highly leveraged, and market price levels are volatile and materially affected by unpredictable factors such as weather and governmental intervention. The combination of leverage and volatility creates a high degree of risk.
Importance of General Market Conditions
Overall market or economic conditions - which neither MLAI nor the Trading Advisors can predict or control - have a material effect on the performance of any managed futures strategy.
Possibility of Additional Government or Market Regulation
Market disruptions and the dramatic increase in the capital allocated to alternative investment strategies during recent years have led to increased governmental as well as self-regulatory scrutiny of the alternative investment funds industry in general. In addition, certain legislation proposing greater regulation of the industry periodically is considered by the U.S. Congress, as well as the governing bodies of foreign jurisdictions. It is impossible to predict what, if any, changes in the regulations applicable to the Partnership, its general partner (MLAI), the Portfolio Funds, the markets in which they trade and invest or the counterparties with which they do business may be instituted in the future. Any such regulation could have a material adverse impact on the profit potential of the Partnership, as well as require increased transparency as to the identity of the Partnership’s limited partners.
Forward Trading
The Portfolio Funds will trade in the forward markets, in addition to trading in the futures markets. None of the CFTC, the NFA, futures exchanges or banking authorities currently regulates the forward markets, and accordingly such markets are not subject to the breadth of regulations applicable to the futures markets. The forward markets are over-the-counter, non-exchange traded markets, and in trading in these forward markets, the Portfolio Funds will be dependent on the credit standing of the counterparties with which they trade, without the financial support of any clearinghouse system, as well as on the continued operation of the counterparties. This results in the risk that a counterparty may not settle a transaction with the Portfolio Fund in accordance with its terms, because the counterparty is either unwilling or unable to do so, for example, because of credit or liquidity problems affecting the counterparty, potentially resulting in significant loss. In addition, the prices offered for the same forward contract may vary significantly among different forward market participants. Forward markets counterparties are under no obligation to enter into forward transactions, including transactions through which the Portfolio Funds are attempting to liquidate open positions.
Effects of Speculative Position Limits
The CFTC and the U.S. commodities exchanges have established limits referred to as “speculative position limits” on the maximum net long or net short speculative positions that any person may hold or control in any particular futures or options contracts traded on U.S. commodities exchanges. For example, the CFTC currently imposes speculative position limits on a number of agricultural commodities (e.g., corn, oats, wheat, soybeans and cotton). All commodity accounts controlled by the Trading Advisors and its principals and their affiliates are combined for speculative position limit purposes. The Trading Advisors could be required to liquidate positions held for the Partnership, or may not be able to fully implement trading instructions generated by its trading models, in order to comply with such limits. Any such liquidation or limited implementation could result in substantial costs to the Partnership.
Regulatory Change Could Restrict the Fund’s Operations
The Portfolio Funds implement speculative, highly leveraged strategies. From time to time there is governmental scrutiny of these types of strategies and political pressure to regulate their activities. The CFTC and the exchanges are authorized to take extraordinary actions in the event of a market emergency, including, for example, the retroactive implementation of speculative position limits or higher margin requirements, the establishment of daily price limits and the suspension of trading. The regulation of futures, forward and option transactions in the United States is a rapidly changing area of law and is subject to modification by government and judicial action. In addition, several U.S. legislators and the CFTC have expressed the concern that speculative futures traders, and commodity funds in particular, may be responsible for unwarranted and dramatic swings in the prices of commodities. Non-U.S. governments have from time to time blamed the declines of their currencies on speculative currency trading and imposed restrictions on speculative trading in certain markets.
Regulatory changes could adversely affect the Portfolio Fund by restricting its markets, limiting its trading and/or increasing the taxes to which investors are subject. Adverse regulatory initiatives could develop suddenly and without notice.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Reform Act”) was enacted in July 2010. The Reform Act includes provisions that comprehensively regulate the over-the-counter derivatives markets for the first time. The Reform Act requires that a substantial portion of over-the-counter derivatives be executed in regulated markets and submitted for clearing to regulated clearinghouses. Those over-the-counter derivatives may include over-the-counter foreign exchange forwards and swaps which are traded by the Portfolio Fund, although the U.S. Treasury has the discretion to exclude foreign exchange forwards and swaps from certain of the regulatory requirements. If these forwards and swaps are not so excluded, the Reform Act may require them to be cleared and may subject the Portfolio Fund, the Trading Advisor, the Sponsor and/or the Portfolio Fund’s counterparties to additional regulatory requirements including minimum initial and variation margin requirements, minimum capital requirements, registration with the SEC and/or the CFTC, new business conduct standards, disclosure requirements, reporting and recordkeeping requirements, transparency requirements, position limits, limitations on conflicts of interest and other regulatory burdens. Some or all of these requirements may apply even if forwards and swaps are excluded by the U.S. Treasury. These new regulatory burdens would further increase the dealers’ costs, which costs are expected to be passed through to other market participants such as the Portfolio Fund in the form of higher fees and less favorable dealer marks. They may also render certain strategies in which the Trading Advisor might otherwise engage impossible, or so costly that they will no longer be economical, to implement.
Additionally, the Reform Act, under what is commonly referred to as the “Volcker Rule,” may restrict banking entities or their affiliates, such as MLAI and certain other financial entities, from (i) purchasing units or other ownership interests in, or sponsoring, hedge funds or private equity funds (such as the Partnership), with the exception of maintaining a de minimis investment, subject to certain other conditions and/or exceptions, (ii) engaging in proprietary trading and (iii) certain transactions involving conflicts of interest. The regulations and interpretations with respect to the Reform Act have yet to be issued, and the full import of the Reform Act is not yet clear. Once such regulations are issued and become effective, MLAI may take certain actions that it determines, in its sole discretion, to be necessary or advisable to comply with the Reform Act. Such charges may include, but are not limited to, the complete or partial redemption or transfer of any Units held by MLAI and/or the compulsory redemption of U.S. persons from the Partnership. These actions may have a material adverse effect on the Partnership and investors.
Increased Assets Under Management
There appears to be a tendency for the rates of return achieved by managed futures advisors to decline as assets under management increase. The Trading Advisors have not agreed to limit the amount of additional equity which it may manage.
Trading Advisor Risk
The Partnership is subject to the risk of the bad judgment, negligence or misconduct of the Trading Advisors. There have been a number of instances in recent years in which private investment funds have incurred substantial losses due to manager misconduct.
Changes in Trading Strategy
The Trading Advisors may make material changes in its trading strategies without the knowledge or seeking the approval of MLAI.
Illiquid Markets
Certain positions held by the Partnership or the Portfolio Funds may become illiquid, preventing the Trading Advisors from acquiring positions otherwise indicated by its strategy or making it impossible for the Trading Advisors to close out positions against which the market is moving.
Certain futures markets are subject to “daily price limits,” restricting the maximum amount by which the price of a particular contract can change during any given trading day. Once a contract’s price has moved “the limit,” it may be impossible or economically non-viable to execute trades in such contract. From time to time, prices have moved “the limit” for a number of consecutive days, making it impossible for traders against whose positions the market was moving to prevent large losses.
Trading on Non-U.S. Exchanges
The Trading Advisors may trade extensively on non-U.S. exchanges. These exchanges are not regulated by any United States governmental agency. The Partnership could incur substantial losses trading on foreign exchanges to which they would not have been subject had the Trading Advisors limited their trading to U.S. markets.
The profits and losses derived from trading foreign futures and forwards will generally be denominated in foreign currencies; consequently, the Partnership will be subject to a certain degree of exchange-rate risk in trading such contracts.
The Partnership Could Lose Assets and Have Its Trading Disrupted Due to the Bankruptcy of One of the Parties
The Partnership is subject to the risk of insolvency of a counterparty, an exchange, a clearinghouse or MLPF&S. The Partnership’s assets could be lost or impounded during lengthy bankruptcy proceedings. Were a substantial portion of the Partnership’s capital tied up in a bankruptcy, MLAI might suspend or limit trading, perhaps causing the Partnership’s 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.
Risk of Loss Due to the Bankruptcy or Failure of Counterparties, Brokers and Exchanges
The Portfolio Funds are subject to the risk of the insolvency of its counterparties (such as broker-dealers, futures commission merchants, exchanges, clearinghouses, banks or other financial institutions, including MLPF&S). Consequently, losses to the Portfolio Fund could develop and substantially affect performance if insolvency of any of these counterparties occurs. The Portfolio Fund’s assets could be lost or impounded during a counterparty’s bankruptcy or insolvency proceedings and a substantial portion or all of the Portfolio Fund’s assets may become unavailable to it either permanently or for a matter of years. Were any such bankruptcy or insolvency to occur or were the threat of such bankruptcy or insolvency here to occur, MLAI might decide to liquidate the Portfolio Fund or suspend, limit or otherwise alter trading, perhaps causing the Portfolio Fund to miss significant profit opportunities. In connection with offshore futures and over-the-counter forward trading, there are increased risks in dealing with offshore brokers and unregulated trading counterparties, including the risk that assets may not benefit from the protection afforded to “customer funds” deposited with regulatedbrokers and dealers.
Item 1B:
Item 1B: Unresolved Staff Comments
None
Item 2:
Item 2: Properties
The Partnership does not use any physical properties in the conduct of its business.
The Partnership’s administrative office is the office of MLAI (Merrill Lynch Alternative Investments LLC, Four World Financial Center, 10th Floor, 250 Vesey Street, New York New York 10080). MLAI performs administrative services for the Partnership from MLAI’s offices.
Item 3:
Item 3: Legal Proceedings
None.
Item 4:
Item 4: Removed and Reserved
PART II
Item 5:
Item 5: Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 5(a)
(a) Market Information:
There is no established public trading market for the Units, and none is likely to develop. Limited Partners may redeem Units as of the end of each month at Net Asset Value, subject to certain early redemption charges.
(b) Holders:
As of December 31, 2010, there were 8,492 holders of Units, including MLAI, none of whom owned 5% or more of the Fund’s Units.
(c) Dividends:
MLAI has not made, and does not contemplate making, any distributions on the Units.
(d) Securities Authorized for Issuance Under Equity Compensation Plans:
Not applicable.
(e) Performance Graph:
Not applicable.
(f) Recent Sales of Unregistered Securities:
Issuance to accredited investors pursuant to Regulation D and Section 4(6) under the Securities Act. The selling agent of the following Class of Units was MLPF&S.
During 2010, the Partnership issued Units as set forth in the following chart:
CLASS D
(1) Beginning of the month Net Asset Value
Item 5(b)
Not applicable.
Item 5(c)
Not applicable.
Item 6:
Item 6: Selected Financial Data
The following selected month-end Net Asset Value per Unit information has been derived from the financial and accounting data of the Partnership:
MONTH-END NET ASSET VALUE PER INITIAL UNIT
Pursuant to CFTC policy, monthly performance is presented from January 1, 2003, even though the Units were outstanding prior to such date.
ML TREND FOLLOWING FUTURES FUND L.P.
December 31, 2010
Type of Pool: Single-Advisor/Publicly-Offered/Not “Principal Protected”(1)
Inception of Trading: July 15, 1996
Aggregate Subscriptions: $1,712,959,331
Current Capitalization: $227,549,778
Worst Monthly Drawdown:(2) (13.89)% (January 2005)
Worst Peak-to-Valley Drawdown:(3) (47.47)% (June 2003 - August 2007)
Monthly Rates of Return (4)
(1) Certain Partnerships are structured so as to guarantee to investors that their investment will be worth no less than a specified amount (typically, the amount initially invested) as of a date certain after the date of investment. The CFTC refers to such Partnerships as “principal protected.” The Partnership has no such feature.
(2) Worst Monthly Drawdown represents the largest negative Monthly Rate of Return experienced by the Partnership since January 1, 2003; a drawdown is measured on the basis of month-end Net Asset Value only, and does not reflect intra-month figures.
(3) Worst Peak-to-Valley Drawdown represents the greatest percentage decline from a month-end cumulative Monthly Rate of Return without such cumulative Monthly Rate of Return being equaled or exceeded as of a subsequent month-end experienced by the Partnership since January 1, 2003. For example, if the Monthly Rate of Return was (1)% in each of January and February, 1% in March and (2)% in April, the Peak-to-Valley Drawdown would still be continuing at the end of April in the amount of approximately (3)%, whereas if the Monthly Rate of Return had been approximately 3% in March, the Peak-to-Valley Drawdown would have ended as of the end of February at approximately the (2)% level.
(4) Monthly Rate of Return is the net performance of the Partnership during the month of determination (including interest income and after all expenses accrued or paid) divided by the total equity of the Partnership as of the beginning of such month, inclusive of subscription activity.
Item 7:
Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations
Operational Overview
This performance summary is an outline description of how the Partnership performed in the past, not necessarily any indication of how it will perform in the future. In addition, the general causes to which certain price movements are attributed may or may not in fact have caused such movements, but simply occurred at or about the same time.
The Portfolio Funds are unlikely to be profitable in markets in which such trends do not occur. Static or erratic prices are likely to result in losses. Similarly, unexpected events (for example, a political upheaval, natural disaster or governmental intervention) can lead to major short-term losses, as well as gains.
While there can be no assurance that the Portfolio Funds will be profitable under any given market condition, markets in which substantial and sustained price movements occur typically offer the best profit potential for the Portfolio Funds and consequently the Partnership.
This performance summary is an outline description of how the Partnership performed in the past, not necessarily any indication of how it will perform in the future. In addition, the general causes to which certain price movements are attributed may or may not have caused such movements, but simply occurred at or about the same time.
The Partnership experienced a net trading profit for the year ended of $31,282,395.
The Partnership posted profits for the first quarter. The Portfolio Funds’ long positions in equities, commodities and short positions in the U.S. dollar resulted in profits posted to the Partnership at the beginning of the first quarter. Markets then reversed and losses were posted in each of these asset classes and all gains accumulated through the middle of the month were given back in these various markets. Fixed income was one asset class where existing positioning were profitable. Long positions in short term interest rate contracts posted gains however, these gains were not enough to offset losses in the three other major asset classes resulting in losses being posted to the Partnership at the end of January. The Portfolio Funds had positive performance in the middle of the first quarter resulting in profits being posted to the Partnership. Long positions in fixed income drove performance. Yields generally moved lower over the course of the month and the Portfolio Funds benefited from having long exposure to both bonds and short term interest rate contracts. The managers benefited from short positions in European currency exposure due to the Euro and British pound losing value against the U.S. dollar. In other asset classes, some choppiness and a lack of significant trends meant that equity indices and commodities did not have much of an impact on the month’s returns. The Portfolio Funds had positive performance at the end of the first quarter resulting in profits being posted to the Partnership. Equity indices drove performance for most Portfolio Funds’ trading advisors. Positioning was firmly on the long side due to the strength of the current up trends in global equity indices. Commodities were also profitable across the board due to long positions in oil and metals and short positions in natural gas and grains. Positioning was spot on in most of these sub sectors. Oil and metals generally rose and natural gas and grains declined in March. Currencies also posted profits to the Partnership. The euro and British pound ended the month down, benefiting short positions in these currencies. On the other hand the Canadian and Australian dollars
rose, resulting in profits due to their long positions in these currencies. Fixed income was the only losing asset class. Short term interest rate contracts generally stayed flat, but yields on longer term government bonds rose during the month, causing some losses to long positions in those instruments. Overall, the yield moves were not very large, so losses were contained.
The Partnership posted losses for the second quarter. The Portfolio Funds had positive performance in the beginning of the second quarter resulting in profits being posted to the Partnership. In fixed income, falling overall G7 (Canada, France, Germany, Italy, Japan, United Kingdom and United States) yields meant that long positions were profitable. In currencies, a balanced posture with short European currencies against long positions in commodity and emerging markets currencies posted profits to the Partnership. In commodities, some sectors lost money which was offset by gains in the energies and metals sectors. While U.S. equity indices ended the month up, European and Asian markets generally ended the month lower. All trading advisors were long in global equity indices with profits or losses dependent upon their relative size in various geographies. The Portfolio Funds had a negative performance in the middle of the second quarter resulting in losses posted to the Partnership. Equities, oil, natural gas and industrial metals all saw reversals with some markets moving more than 10% in the opposite direction of the trend. By the end of May, most Portfolio Funds were very light in equities (but still long) and slightly short positions in energies. Other losing commodity positions were also cut, with the only remaining long exposure being in precious metals. Currencies performance varied as some trading advisors posted profits and some lost money in the asset class. Performance depended on the relative size of short European currency positions vs. long positions in commodities and emerging markets currency positions. The trading advisors with larger short positions in European currencies managed to make money in the asset class. Fixed income yields came down during the month of May as investors sought safety in government securities. The trading advisors long positioning benefited from these moves however, the gains were not enough to offset losses in other portfolio areas. The Portfolio Funds posted losses to the Partnership as performance was quite mixed among trading advisors. Equities and many commodity sectors incurred significant reversals with the trading advisors being caught on the wrong side of trades. As a result, they had moved to cut risk in those asset classes. Coming into June, the trading advisors still had on some long equity exposure. They were also long precious metals, short grains and neutral in the energy sector. But in general, position sizes tended to be small. When equities continued to move downward during June and commodities continued to experience some moves that were adverse to positioning, losses were incurred. In June, currencies were generally the worst performing asset class for the trading advisors. Having significant short European currency exposure was bad for performance as two major currencies, the British pound and Swiss franc rallied. There were some gains from short euro positions, but these were not enough to counter losses incurred from reversals in the British pound and Swiss franc. Fixed income was a solid winning asset class for the trading advisors. Long positions across the yield curve generated positive returns as yields came down as a result of stronger risk adverse sentiment, especially in the second half of June. Fixed income also happened to be a portfolio area where risk was relatively greater than in other asset classes, so gains here were able to counter losses or mixed performance in all other sectors. The second quarter ended with profits being posted to the Fund.
The Partnership posted profits for the third quarter. The Portfolio Funds posted losses to the Partnership at the beginning of the third quarter as performance was quite mixed among trading advisors, following a difficult May and June. The only significant and consistent exposure was that all of the trading advisors had long positions fixed income. This was a result of a long term down trend in yields across the board. In July, yields generally continued their downward trend. This meant that both short term interest rates contracts and bond futures appreciated in value, generating profits for the trading advisors who had long positions in these contracts. In addition, equities showed some volatility intra month, but ended July higher. The trading advisors generally benefited from these moves as they still had long positions in equity indices remaining despite the reversals from May and June. The gains from fixed income were healthy, but equity indices contributed little to performance given a relatively smaller risk allocation. Currencies and commodities detracted from performance. European currencies broke the trend and moved up during July as concerns relating to European growth and bank health subsided. This caused losses to short positions in those currencies. Gold fell in July and wheat rose due to supply and weather concerns. Since these were significant commodity exposures for most of the trading advisors, the Portfolio Funds posted losses. The best performing trading advisor was BlueTrend due to long positions in equity and energy allocations where the trend was up. Most of the other trading advisors were closer to being neutral in both sectors. Winton had been the best performer coming into the second half of the year, but incurred losses in July. Winton’s loss was larger than several other trend followers due to its long positions in gold, short positions in grains and short euro positions. The Portfolio Funds posted profits to the Partnership in the middle of the third quarter. May, June and July were generally characterized by reversals and choppiness in all asset classes except fixed income. As a result, coming into August, the Partnership’s main exposure was to be long fixed income. This positioning did very well as yields generally continue their long term down trend during the month. With risk aversion the dominant sentiment in August, fixed income yields moved significantly lower across the curve, benefiting the trading advisors with long exposure. An absence of trends in equities, currencies and commodities meant that risk in those asset classes was not very significant. The main exposures in those sectors were small long positions in equity indices, small short positions in the euro against long positions in most other major currencies, and relatively
neutral positions in commodities (short positions in natural gas, long positions in oil, metals and agricultural). These positions came in flat during August. The short positions in euro and natural gas and long positions in metals resulted in profits posted to the Partnership. However, long positions in equities, oil and FX lost money. Having little risk in these sectors meant that gains and losses were small, and they generally canceled each other out. Aspect was the best performing trading advisor due to its risk allocation to fixed income was greater than the other Portfolio Funds. BlueTrend posted losses in August due to its long positioning in commodities and equities, offsetting profits from fixed income. The Portfolio Funds posted profits to the Partnership at the end of the third quarter. Coming into August, the Partnership’s main exposure was to be long fixed income and that positioning performed well as yields generally continued their long term down trend during the month. In September, a similar positioning produced good results, but for different reasons. Fixed income was the dominant exposure for most trading advisors at the start of September as yields initially moved higher. This was due to improving investor optimism, following strong manufacturing numbers out of China and the United States. Then mid-month, the Federal Reserve talked about the possibility of a further round of quantitative easing. Yields reversed, ending the month close to where they started, and the Portfolio Funds recouped most of their losses from earlier in the month. They also profited from long positions in equity indices, as global equity markets had a strong month. In commodities, long positions in precious metals and agricultural gained as up trends continued. In currencies, overall short positions in the U.S. dollar generated profits and lost money in fixed income.
The Partnership posted profits for the fourth quarter. The Portfolio Funds posted profits to the Partnership at the beginning of the fourth quarter. Commodities were the best performer as most sectors continued in their up trend in October. Grains, softs and metals all rose, with some markets making very strong gains as the trading advisors generally took advantage of these moves. Some remaining short exposure in the energy sector caused losses as oil reversed and rose during the month, but these losses were minimal. In equity indices, the global rally that began in September continued unabated in most geographies and managers who had long positions benefited. Finally, the risk seeking trade manifested itself in the currency sector as well and the U.S. dollar continued to depreciate. Long positions held broadly by all trading advisors in major foreign currencies benefited from this. Fixed income was the only losing asset class for the trading advisors in October. After strong moves in August, yields generally bottomed in early September and have been rising slightly in a volatile manner since. The trading advisors who had long positions in fixed income posted losses as a result of these moves while also trimming these positions. Transtrend was the best performer trading advisor in October as the Transtrend Fund was able to increase risk taking coming into the month of October and strong trends led it to be profitable given its higher gearing. Winton had the weakest return. While the return was positive, it lagged other trading advisors. Winton has a lower volatility target and thus has less leverage in its portfolio. In strongly trending environments, it will typically underperform its peers. This is the cost of having a more conservative risk taking approach. That said, the difference between Transtrend and Winton’s performance is not large, so dispersion among the trading advisors was not that significant. They all made and lost money in a similar manner and leverage determined where each manager fell within a narrow range. The Portfolio Funds posted losses to the Partnership in the middle of the fourth quarter. The first few days of November generally saw existing trends extend themselves. The rally in risk assets continued unabated while yields were down. Thus, all the Portfolio Funds posted profits to the Partnership. Starting in the second week of November, markets began to shift and many of the trends that had been in place for the last few months reversed. The most violent moves were seen in fixed income and currencies as yields shot up and foreign currencies began losing value against the U.S. dollar. These moves represented sharp reversals and thus all trading advisors who had long positions posted losses. In addition, equity indices and many agricultural markets also reversed, giving up profits for the month. Only precious metals continued the trend. At month end, returns from trading equity indices were slightly negative for many trading advisors and commodities slightly positive thanks to markets like gold and silver. Overall, the trading advisors generally had some risk in every asset class and any from equity indices and commodities were fully offset by bigger losses in fixed income and FX. Transtrend was the best performer trading advisor in November. Transtrend reduced its fixed income exposure as well as switching to short positions in European currencies. Thus, it avoided larger losses in those critical asset classes in November. MAN was the worst performing trading advisor in November. MAN has a relatively higher long term risk allocation to the liquid FX and fixed income sectors which happened to suffer the worst reversals last month. While positions in those two asset classes were reduced, the delivering did not happen as fast and as strongly as one would have hoped. The Portfolio Funds posted profits to the Partnership at the end of the fourth quarter. During December, commodities and equities continued to move up, generating strong profits for the Partnership. In general, the U.S. dollar lost value. This was positive for long positions in the currency sector, but there were some losses from the short European currency positions. Finally, in fixed income, yields continued to move up during the month and that was negative for the trading advisor’s long bias in the sector. Overall, the gains from the commodity and equity run up were much greater than any losses elsewhere. BlueTrend was the best performing trading advisor in December. The Fund had 80% of risk allocated to equity indices and the energy sector. Both areas did extremely well during the month as global equities and oil rose in line with existing trends. Winton was the weakest trading advisor with a return of 3.1%. As a result, in environments with strong trends, it will tend to underperform due to lower portfolio gearing and leverage.
The Partnership experienced a net trading loss for the year ended December 31, 2009 of $26,457,304.
Performances of the Portfolio Funds were mixed in January which reflected the choppy markets and diversification of the Portfolio Funds approach to trading. The Portfolio Funds profited from falling equities, with long-term Trading Advisors capturing more of the move. The Portfolio Funds also profited from a continuous down-trend in commodities. Largest losses were suffered in fixed income positions as the U.S. Treasury yields rallied and other global bonds shadowed the move. Time horizon focus did not seem to be a driver of returns in the middle of the first quarter, while asset allocation played a more significant role. The Portfolio Funds had small net short exposures to equity markets and thus registered gains in this asset class. In addition, most of the Portfolio Funds that had long positions in the U.S. dollar against various currencies posted profits. Some of the Portfolio Funds that had long positions in the Japanese yen vs. the U.S. dollar posted losses due to the Japanese yen ending the month of February down significantly relative to the U.S. dollar. Fixed income markets experienced volatile swings during February as most of the Portfolio Funds ended with small losses in this sector. At the start of March, most of the Portfolio Funds had long positions in the fixed income markets. and kept this position throughout the month of March and benefited from falling yields. All other sectors had posted losses in March as a result of significant reversals in many markets. During March, equity markets rallied following some positive corporate news in the first week. When the U.S. Federal Reserve announced the start of quantitative easing mid-month, the U.S. dollar began losing value against most major currencies and the commodity markets which are negatively correlated with the U.S. dollar and risk aversion moved up. Given that most Trading Advisors are medium to long term trend followers, they were not in a position to cut exposures very fast and were negatively affected by these reversals.
The market environment that caused a loss for the Partnership in March continued through April as well. In March, being long fixed income helped to offset losses in equity indices, currencies and commodities. In April, the losses in equity indices, currencies and commodities were more muted as many Portfolio Funds had trimmed risk in those sectors; however, long positions in fixed income proved to be a problem as global bond yields rose significantly, hurting those long positions. Overall, fixed income was the worst performing sector for the Portfolio Funds, followed by currencies. The Portfolio Funds approach to trading was mixed exposure in commodities, making money in some markets and losing money in others. In equities the positioning was more on the short side, but with extremely small exposures; losses thus were muted. May was a continuation of March and April in terms of market direction and moves. Equities and commodities were up, and bonds and the U.S. dollar was down. These new trends gave many Trading Advisors a reason to adjust their portfolios to match the new environment resulting in profits being posted to the Partnership. Short and medium term Portfolio Funds were more in sync with markets given that they adjust faster to new trends, while longer term Portfolio Funds have held on to their pre-March positioning somewhat longer and were not able to avoid losses. So the main difference in May relative to March and April was that many Portfolio Funds were now correctly positioned to take advantage of current trends. Short to medium term Trading Advisors such as Transtrend had better performance than the longer term managers (Winton, Chesapeake, and Aspect). The shorter term Trading Advisor adjusted better to the current market environment where equities and commodities are doing well and the U.S. dollar and bonds performed poorly. Risk by asset class continued to be biased towards fixed income which had a roughly 50% risk allocation, down from more than 80% in April. Fixed income was the asset class with the fewest reversals and thus risk had moved there as equities, commodities and currencies experienced changes in trend during March. But the risk allocated to other asset classes were moving up: commodities were a third
of the total and the remainder was split between currencies and equities. March, April and May had been characterized by market moves most commonly seen during periods where investors were risk seeking. There were up moves in equities and commodities and down moves in bonds and the U.S. dollar. The Portfolio Fund managers were just beginning to adjust their portfolios to match these new market directions. After suffering losses during March and April (as they were not positioned for the new trends that began in early March), most managers had begun turning around their portfolios to be more in line with where markets were going and many were able to post gains in May, but came to a stop in June as several events took place. First, short term interest rates suffered a sharp reversal during the first week of the month and the U.S. dollar had a similar reversal, gaining against most currencies. Then, mid-month, the up trends in equities and commodities reversed, as sentiment became risk averse again. As a result of these moves, most asset classes ended the month with negative attribution. The worst were short term rates and commodities. The second quarter ended with losses being posted to the Partnership due to the short term rates and commodities. Medium term Trading Advisors had the worst performance as they not only suffered from the rates and U.S. dollar moves, but also the reversals in equities and commodities. Winton and Chesapeake, the longest term Trading Advisors, had relatively smaller losses because the equity and commodity reversals were actually good for them since they were still holding on to their pre-March positions in those asset classes.
Losses were posted to the Partnership in July which was characterized by two types of moves in many markets. At the beginning of the month, equities, commodities and bond yields were moving lower while the United States dollar gained ground against other major currencies. In mid-July, sentiment reversed and equities and commodities resumed their up trends from prior month and the United States dollar lost value against other major currencies. The moves in the second part of the month were larger in magnitude, therefore, the Portfolio Funds who shifted towards ‘risk seeking’ trades faster performed better. Transtrend was an underperformer resulting in losses in the synthetic markets it trades in. Losses were posted to the Partnership in August attributable to a continuation of trends from the second half of July. Equities and fixed income ended the month up. Similarly, most commodities finished up (except oil, natural gas and grains) and currency performance was mixed. In August the Portfolio Funds had more long positions than short positions i.e. long positions in crude oil, softs and metals with short positions in natural gas, grains and livestock. In currencies, the Portfolio Funds held short positions in the United States dollar and in fixed income; it was long across the yield curve. In general, the equity and fixed income positioning posted profits for the Portfolio Funds throughout the month of August. Similarly, the Portfolio Funds were spot on in their commodity positioning except in crude oil. Currencies were mixed and losses in some markets canceled out profits in others. Sugar, metals and equity positions were the best performers. In September, the Portfolio Funds made most of their profits in equity indices and currencies as trends from late summer continued. Short positions in the United States dollar performed the best as the United States dollar continued to slide against other major currencies. Long equity index and long fixed income positions also continued to be profitable for the Portfolio Funds as there were neither reversals nor choppiness in those asset classes as trends from late summer continued. Commodities detracted from performance due to choppiness in crude oil and huge adverse moves in natural gas. Transtrend was the only Portfolio Fund showing a loss for the month due to its short positions in natural gas.
In October the Portfolio Funds had the positioning that had been working in August and September with long positions in equity indices and fixed income and short positions in the U.S. dollar. In commodities, there were long positions in metals with short positions in energy and grains. These positions worked in the first three weeks of the month. Equities and metals appreciated and the U.S. dollar continued its decline, so those positions posted profits to the Partnership. However, the gains were offset by losses from the bond positions where yields rose and in the energy positions prices went up. Overall, the Portfolio Funds finished the first three weeks of October slightly up. In the last week of October, big reversals hit most markets. Equities and commodities declined and the U.S. dollar and bonds rallied posting losses to the Partnership. Those reversals proved to be temporary and trends that had been in place since earlier in the year resumed during November. The Portfolio Funds kept their positioning during the week of reversals and thus were able to capitalize on the resumption of trends resulting in profits being posted to the Partnership. In November, market moves were well aligned with positioning. Long positions in equity indices and global equity markets ended the month up significantly, resulting in profits being posted to the Partnership. Similarly, the U.S. dollar continued its slid and the Portfolio Funds benefiting from the short positions in the U.S. dollar. In fixed income, global interest rates continued to come down, resulting in profits for the Portfolio Funds posting profits to the Partnership in their long positions in interest rates and bond positions. Commodities also contributed positively to performance due to long positions in precious metals. Overall, three out of the four Trading Advisors made money in all asset classes as trends continued in the direction of their positioning. Losses were posted to the Partnership in December. This was due primarily to reversals in three of the six major asset classes in which the Partnership invests. Fixed income was the worst performer where yields rose sharply during the month, hurting long positioning in both interest rates and bonds. Currencies also saw a big reversal as the U.S. dollar appreciated sharply against major foreign currencies which went against the Portfolio Funds short positions in the U.S. dollar. Finally in commodities, oil, natural gas and precious metals saw big reversals, especially in the first part of December, hurting existing positions. Equity indices posted profits with the long term up trend continued, generating profits. However, the profits were not enough to offset the losses.
Most of the losses in 2009 came during the March-July period. March marked the beginning of significant reversals in equities, currencies and commodities which medium and long term trend Trading Advisors were not well prepared to deal with. These reversals caused relatively large losses at first until mid summer when the Trading Advisors finally turned around their portfolios to match the new trends. The rest of the year was marked by choppiness in a very large number of markets and smaller frequent reversals, which prevented the Partnership from making back earlier losses.
The Partnership experienced a net trading profit for the year ended December 31, 2008 of $86,654,343
The beginning of the first quarter was positive for the Partnership despite dramatic declines in global stock indices, illustrating the Partnership’s low correlation with equities over a market cycle. All four Portfolio Funds had long positions in fixed income and precious metals, both of which benefited from fears of a U.S. recession, as well as sharp U.S. Federal Reserve rate cuts totaling 1.25% for the month and the continuing rally in grain markets. Losses came primarily from energy markets as oil prices weakened and natural gas rebounded. Profits continued to be posted to the Partnership in February. The bulk of returns were earned in surging commodity markets as grains and softs rallied strongly due to low inventories and positive forecasts of demand. Energy and metals climbed as these sectors are perceived as an inflation hedge. The other profitable trades included short currency positions against the U.S. dollar. The Partnership posted losses at the end of the first quarter. Transtrend, the most diversified manager in the vertical, was the top performer while Chesapeake was the bottom performer. The Portfolio Funds were able to limit the damage in at the end of the first quarter by reducing leverage and scaling back positions in inverse proportion to rising volatility in the commodity markets.
The Partnership posted losses at the beginning of the second quarter. Although most Portfolio Funds made gains in April with their long energy positions, as oil and natural gas hit historic highs, these were offset by losses from reversals in the financial futures markets. Most Portfolio Funds came into April with short positions in the United States dollar, long positions on bonds and short positions in equities. However, markets experienced a relief rally in April as investors began to believe the credit crisis might be over. This caused the United States dollar to rebound, bonds to fall and equities to rise, resulting in losses for the Partnership. Profits were posted to the Partnership in May due to the Portfolio Funds long energy positions with crude oil up from April and natural gas was up continuing the trends from previous months. Profits continued to be posted to the Partnership at the end of the second quarter due to the Portfolio Funds long positions in commodities and short positions in equities.
Losses were posted to the Partnership at the beginning of the third quarter. The Portfolio Funds suffered their worst monthly performance of the year at the beginning of the third quarter, as bullish trends in commodities dramatically reversed. Losses continued to be posted to the Partnership due to the Portfolio Funds long positions in most of the commodity markets. After having made most of their year to-date gains in commodities, the Portfolio Funds had their largest losses in these markets in July. The Goldman Sachs Commodity Index fell for the month and the energy sub-index was also down as the correction was particularly severe in natural gas. Losses continued to be posted to the Partnership in August due to two major trend themes. The first was the strengthening in the U.S. dollar, following a long period of declines against most major currencies due to the Portfolio Funds short positions in the U.S. dollar which caused them to lose money. The second big theme was the continued decline in commodities, following the dramatic reversal from July. The Goldman Sachs Commodity Index was down for a second month in a row. Most of the Portfolio Funds within the vertical reduced their commodity exposure, however they were still long for most of the month and were down accordingly. The end of the third quarter witnessed an extended weakness in the financial markets that was manifested in a sharp sell-off in global equities and commodities, including energies, grains, and industrial metals. The Commodity Research Bureau Futures Index finished the end of the quarter down, bond yields fell moderately, while the U.S. dollar continued its upward move against other major currencies with the U.S. Dollar Index Future, finishing the month
up. In light of September’s market volatility, the Portfolios Funds performance exhibited a fair amount of variance which was the function of the time frame of the underlying strategy.
Profits were posted to the Partnership at the beginning of the fourth quarter that contained a story of two months. The first half of the month was characterized by an acute panic in financial markets with global equities, commodities, and high yielding currencies dropping and dollar rising. The second half that started with the equity market rally on Monday October 13th was characterized by wild day to day volatility but kept most markets relatively range bound. All four Portfolio Funds generated positive returns in the first half of the month and then succeeded to keep most of these gains. All Portfolio Funds benefited from bearish moves in commodities and equities and strong U.S. dollar in the first half of the month. November was a stormy month in the financial markets however profits were posted to the Partnership. The Portfolio Funds made money in November as most stayed away from volatile equity markets and instead benefited from long positions in global bonds as bonds rallied and short positions in commodities as commodities continued to decline. On average, fixed income was the best contributor to the performance, followed by commodities, and then currencies as a distant third place. The year ended with profits being posted to the Partnership. The largest gains were made in fixed income as the Portfolio Funds profited from long positions across the curve as yields continued to fall dramatically. Short positions in commodities, particularly energy, and long positions in the Euro and short positions in the British pound positions also proved profitable and equity returns were flat.
Variables Affecting Performance
The principal variables that determine the net performance of the Partnership and the Portfolio Funds are gross profitability from the Partnership’s and the Portfolio Funds’ trading activities and interest income.
The Partnership 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 Partnership performance.
During all periods set forth above in “Selected Financial Data”, the interest rates in many countries were at unusually low levels. In addition, low interest rates are frequently associated with reduced fixed income market volatility, and in static markets the Partnership’s profit potential generally tends to be diminished. On the other hand, during periods of higher interest rates, the relative attractiveness of a high risk investment such as the Partnership may be reduced as compared to high yielding and much lower risk fixed-income investments.
The Partnership’s Brokerage Commissions and Administrative Fees are a constant percentage of the Partnership costs, other than the insignificant currency trading costs which are not based on a percentage of the Partnership’s assets allocated to trading or total, and the Profit Shares payable to the Advisor based on the new Trading Profits generated by the Partnership excluding interest and after reduction for a portion of the Brokerage Commissions.
Unlike many investment Partnerships, there is no meaningful distinction in the operation of the Partnership between realized and unrealized profits. Most of the contracts traded by the Partnership and the Portfolio Funds are highly liquid and can be closed out at any time.
Except in unusual circumstances, factors-regulatory approvals, cost of goods sold, employee relations and the like-which often materially affect an operating business, have no material impact on the Partnership.
Liquidity; Capital Resources
The Partnership and the Portfolio Funds borrow only to a limited extent and only on a strictly short-term basis in order to finance losses on non-U.S. dollar denominated trading positions pending the conversion of the Partnership’s and the Portfolio Funds’ U.S. dollar deposits. These borrowings are at a prevailing short-term rate in the relevant currency.
Inflation by itself does not affect profitability, but it can cause price movements that do so.
The Partnership’s and the Portfolio Funds’ assets and open positions are generally highly liquid.
The Partnership and the Portfolio Funds changes its positions and market focus frequently. Consequently, the fact that the Partnership and the Portfolio Funds realized gains or incurred losses in certain markets (gold, stock indices, currencies, etc.) in the past is not necessarily indicative of whether the Partnership and the Portfolio Funds will do so in the future.
As a commodity pool, the Partnership maintains an extremely large percentage of its assets in cash at the underlying Fund, which it must have available to post initial and variation margin on futures contracts. This cash is also used to fund redemptions. While the Partnership 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 General Partner of the Partnership, has the ability to override decisions of one or more of the Trading Advisors to fund redemptions if necessary, but in practice the respective Trading Advisors would determine, in its discretion which investments should be liquidated.
(The Partnership has no off-balance sheet arrangements or tabular disclosure of contractual obligations of the type described in Items 3.03(a)(4) and 3.03(a)(5) of Regulation S-K.)
Recent Accounting Developments
Recent accounting developments are discussed in Exhibit 13.01.
Item 7A:
Item 7A: Quantitative and Qualitative Disclosures about Market Risk
Introduction
The Portfolio Funds are a speculative commodity pools. The market sensitive instruments held by the Portfolio Funds’ are acquired for speculative trading purposes and all or substantially all of the Portfolio Funds’ 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 Portfolio Funds’ main line of business.
Market movements result in frequent changes in the fair market value of the Portfolio Funds’ open positions and, consequently, in its earnings and cash flow. The Portfolio Funds’ 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 Portfolio Funds’ open positions and the liquidity of the markets in which it trades.
The Portfolio Funds’ under the direction of their respective Trading Advisors rapidly acquire and liquidate both long and short positions in a wide range of different markets. Consequently, it is not possible to predict how a possible future market scenario will affect performance, and the Partnership’s and the Portfolio Funds’ past performance is not necessarily indicative of its future results.
Value at Risk is a measure of the maximum amount which the Partnership and the Portfolio Funds could reasonably be expected to lose in a given market sector. However, the inherent uncertainty of the Partnership’s and the Portfolio Funds’ speculative trading and the recurrence in the markets traded by the Partnership and the Portfolio Funds of market movements far exceeding expectations could result in actual trading or non-trading losses far beyond the indicated Value at Risk or the Partnership’s and the Portfolio Funds’ 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 inclusion of the quantification in this section should not be considered to constitute any assurance or representation that the Partnership’s and the Portfolio Funds’ losses in any market sector will be limited to Value at Risk or by the Partnership’s and the Portfolio Funds’ attempts to manage its market risk.
Quantifying the Partnership’s Trading Value at Risk
Quantitative Forward-Looking Statements
The following quantitative disclosures regarding the Partnership’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 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 Partnership’s risk exposure in the various market sectors traded by the Portfolio Funds is quantified below in terms of Value at Risk. Due to the Portfolio Funds’ fair value accounting, any loss in the fair value of the Portfolio Funds’ open positions is directly reflected in the Portfolio Funds’ 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 Portfolio Funds as the measure of their Value at Risk. Maintenance margin requirements are set by exchanges to equal or exceed the maximum loss in the fair value of any given contract incurred in 95% to 99% of the one-day time periods included in the historical sample (approximately one year, generally)
researched for purposes of establishing margin levels. The maintenance margin levels are established by dealers and exchanges using historical price studies as well as an assessment of current market volatility (including the implied volatility of the options on a given futures contract) and economic fundamentals to provide a probabilistic estimate of the maximum expected near-term one-day price fluctuation.
In the case of market sensitive instruments which are not exchange-traded (almost exclusively currencies in the case of the Portfolio Funds), the margin requirements for the equivalent futures positions have been used as Value at Risk. In those rare cases in which a futures-equivalent margin is not available, dealers’ margins have been used.
100% positive correlation in the different positions held in each market risk category has been assumed. Consequently, the margin requirements applicable to the open contracts have been aggregated to determine each trading category’s aggregate Value at Risk. The diversification effects (which would reduce the Value at Risk estimates) resulting from the fact that the Portfolio Funds’ positions are rarely, if ever, 100% positively correlated have not been reflected.
The following information with respect to Value At Risk (“VAR”) is set forth in respect of the Portfolio Funds separately, rather than for the Partnership on a stand-alone basis.
The Partnership’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 Partnership’s open positions by market category for the fiscal years 2010, 2009 and 2008. The Partnership’s average capitalization was approximately $249,798,281. During the fiscal years 2009 and 2008, the Partnership’s average capitalization was approximately $301,100,477 and $362,407,230.
Aspect Class DT (3)
December 31, 2010
(3) Average Capitalization of Aspect Class DT is $53,430,843.
Aspect Class DT (3)
December 31, 2009
(3) Average Capitalization of Aspect Class DT is $75,120,990.
Bluetrend Class DT (2)
December 31, 2010
(2) Average capitalization of Bluetrend Class DT is $44,114,061.
Transtrend Class DT (2)
December 31, 2010
(2) Average capitalization of Transtrend Class DT is $53,391,089.
Transtrend Class DT (2)
December 31, 2009
(2) Average capitalization of Transtrend Class DT is $75,287,863.
Winton Class DT (5)
December 31, 2010
(5) Average capitalization of Winton Class DT is $53,430,843.
Winton Class DT (5)
December 31, 2009
(5) Average capitalization of Winton Class DT is $75,340,044.
Man AHL LLC Class DT (5)
December 31, 2010
(5) Average capitalization of Man AHL LLC Class DT is $45,431,446.
Material Limitations on Value at Risk as an Assessment of Market Risk
The face value of the market sector instruments held by the Partnership and the Portfolio Funds are typically many times the applicable maintenance margin requirement (maintenance margin requirements generally ranging between approximately 1% and 10% of contract face value) as well as many times the capitalization of the Partnership and the Portfolio Funds. The magnitude of the Partnership’s and the Portfolio Funds’ open positions creates a “risk of ruin” not typically found in most other investment vehicles. Because of the size of their positions, certain market conditions - unusual, but historically recurring from time to time - could cause the Partnership and the Portfolio Funds to incur severe losses over a short period of time. Even comparatively minor losses could cause MLAI to further deleverage or terminate the Partnership’s and the Portfolio Funds’ trading. The foregoing Value at Risk table - as well as the past performance of the Partnership and the Portfolio Funds - gives no indication of this “risk of ruin.”
Non-Trading Risk
Foreign Currency Balances; Cash on Deposit with MLPF&S
The Portfolio Funds have non-trading market risk on its foreign cash balances not needed for margin. These balances (as well as the market risk they represent) are generally immaterial.
The Portfolio Funds also have non-trading market risk on the approximately 90-95% of its assets which are held in cash at MLPF&S or BlackRock. 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 Partnership’s market risk exposures through the Portfolio Funds after the change in structure- except for (i) those disclosures that are statements of historical fact and (ii) the descriptions of how the Partnership 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 Partnership’s primary market risk exposures as well as the strategies used and to be used by MLAI and the Trading Advisors of the Portfolio Funds for managing such exposures are subject to numerous uncertainties, contingencies and risks, any one of which could cause the actual results of the risk controls for the Partnership and for the trading conducted through Portfolio Funds 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 Partnership. There can be no assurance that the Partnership’s 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 value of their investment in the Partnership.
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 intervene in the markets to hedge or diversify the Partnership’s market exposure MLAI may urge the Portfolio Funds to reallocate positions in an attempt to avoid over-concentrations. However, such interventions are unusual. Except in cases in which it appears that the Portfolio Funds has begun to deviate from past practice and trading policies or to be trading erratically, MLAI basic risk control procedures consist simply of the ongoing process of monitoring the Portfolio Funds with the market risk controls being applied by the Portfolio Funds.
Risk Management
Portfolio Funds attempt to control risk in all aspects of the investment process - from confirmation of a trend to determining the optimal exposure in a given market, and to money management issues such as the startup or upgrade of investor accounts. Portfolio Funds double check the accuracy of market data, and will not trade a market without multiple price sources for analytical input. In constructing a portfolio, Portfolio Funds seek to control overall risk as well as the risk of any one position, and Portfolio Funds trade only markets that have been identified as having positive performance characteristics. Trading discipline requires plans for the exit of a market as well as for entry. Portfolio Funds factor the point of exit into the decision to enter (stop loss). The size of Portfolio Fund’s positions in a particular market is not a matter of how large a return can be generated but of how much risk it is willing to take relative to that expected return.
To attempt to reduce the risk of volatility while maintaining the potential for excellent performance, proprietary research is conducted on an ongoing basis to refine the Portfolio Funds investment strategies. Research may suggest substitution of alternative investment methodologies with respect to particular contracts; this may occur, for example, when the testing of a new methodology has indicated that its use might have resulted in different historical performance. In addition, risk management research and analysis may suggest modifications regarding the relative weighting among various contracts, the addition or deletion of particular contracts for a program, or a change in position size in relation to account equity. The weighting of capital committed to various markets in the investment programs is dynamic, and Portfolio Funds may vary the weighting at its discretion as market conditions, liquidity, position limit considerations and other factors warrant.
Portfolio Funds may determine that risks arise when markets are illiquid or erratic, which may occur cyclically during holiday seasons, or on the basis of irregularly occurring market events. In such cases, Portfolio Funds at their sole discretion, may override computer-generated signals and may at times use discretion in the application of its quantitative models, which may affect performance positively or negatively.
Adjustments in position size in relation to account equity have been and continue to be an integral part of Portfolio Fund’s investment strategy. At its discretion, Portfolio Funds may adjust the size of a position in relation to equity in certain markets or entire programs. Such adjustments may be made at certain times for some programs but not for others. Factors which may affect the decision to adjust the size of a position in relation to account equity include ongoing research, program volatility, assessments of current market volatility and risk exposure, subjective judgment, and evaluation of these and other general market conditions.
Non-Trading Risk
The Partnership and the Portfolio Funds control the non-trading exchange rate risk by regularly converting foreign currency balances back into U.S. dollars at least once per week and more frequently if a particular foreign currency balance becomes unusually high.
The Partnership and the Portfolio Funds have cash flow interest rate risk on its cash on deposit with MLPF&S and in the BlackRock sponsored money market fund in that declining interest rates would cause the income from such cash to decline. However, a certain amount of cash or cash equivalents must be held by the Partnership in order to facilitate margin payments and pay expenses and redemptions. MLAI does not take any steps to limit the cash flow risk on the cash held on deposit at MLPF&S and in the BlackRock sponsored money market fund.
Item 8:
Item 8: Financial Statements and Supplementary Data
Net Income by Quarter
Eight Quarters through December 31, 2010
(a) The Net Income (Loss) per weighted average Unit is based on the weighted average of the total Units for each quarter.
The financial statements required by this Item are included in Exhibit 13.01.
The supplementary financial information (“information about oil and gas producing activities”) specified by Item 302(b) of Regulation S-K is not applicable.
Item 9:
Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
There were no disagreements with the respective independent registered public accounting firms on accounting and financial disclosure.
Item 9A:
Item 9A: Controls and Procedures
Disclosure controls and Procedures
MLAI’s Chief Executive Officer and the Chief Financial Officer, on behalf of the Partnership, has evaluated the effectiveness of the design and operation of its disclosure controls and procedures with respect to the Partnership’s as of and for the year which ended December 31, 2010, and, based on its evaluation, has concluded that these disclosure controls and procedures are effective.
Management’s Annual Report on Internal Control over Financial Reporting:
The Partnership’s management is responsible for establishing and maintaining adequate internal control over financial reporting. The Partnership’s internal control over financial reporting is a process designed under the supervision of MLAI’s Chief Executive Officer and the Chief Financial Officer, on behalf of the Partnership and is effected by management, other personnel and service providers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and included those policy and procedures that:
· Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Partnership.
· Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Partnership are being made only in accordance with authorizations of management and directors of the Partnership; and
· Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use or disposition of the Partnership’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting can only provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in condition, or that the degree of compliance with the policies or procedures may deteriorate.
The Partnership’s management assessed the effectiveness of the Partnerships’ internal control over financial reporting as of December 31, 2010. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “Internal Control-Integrated Framework”.
Based on its assessment the Partnership’s management concluded that at December 31, 2010, the Partnership’s internal control over financial reporting was effective.
This annual report does not include an attestation report of the Partnership’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Partnership’s independent registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Partnership to provide only management’s report for this annual report.
Changes in Internal Control over Financial Reporting
No change in internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) occurred during the quarter ended December 31, 2010 that has materially affected, or is reasonable likely to materially affect, the Partnership’s internal control, over financial reporting.
Item 9B:
Item 9B: Other Information
Not applicable.
PART III
Item 10:
Item 10: Directors, Executive Officers and Corporate Governance
10(a) and 10(b) Identification of Directors and Executive Officers:
As a limited partnership, the Partnership has no officers or directors and is managed by MLAI. Trading decisions are made by the Trading Advisors on behalf of the Portfolio Funds.
The managers and executive officers of MLAI and their respective business backgrounds are as follows:
Justin C. Ferri
Chief Executive Officer, President and Manager
Barbra E. Kocsis
Chief Financial Officer
(Principal Financial and Accounting Officer)
Deann Morgan
Vice President and Manager
James L. Costabile
Vice President and Manager
Paul D. Harris
Vice President and Manager
Colleen R. Rusch
Vice President and Manager
Justin C. Ferri is the Chief Executive Officer, President and Manager of MLAI. Mr. Ferri, 35 years old, has been the Chief Executive Officer and President of MLAI since August 2009. Mr. Ferri has been a Manager of MLAI and has been listed as a principal of MLAI since July 29, 2008. He has been registered with NFA as an associated person of MLAI since September 11, 2009. He also serves as Managing Director within the Merrill Lynch Global Wealth & Investment Management group and the Global Investments Solutions group (“GWIM” and “GIS,” respectively), responsible for heading GWIM’s Alternative Investments business. In addition, Mr. Ferri also serves as President of IQ Investment Advisors LLC (“IQ”), an indirect, wholly-owned investment adviser subsidiary of Merrill Lynch & Co., and through December 10, 2010, served as President of each of IQ’s publicly traded closed-end mutual fund companies. Prior to his role in GIS, Mr. Ferri was a Director in the MLPF&S Global Private Client Market Investments & Origination group, and before that, he served as a Vice President and head of the MLPF&S Global Private Client Rampart Equity Derivatives team. Prior to joining Merrill Lynch in 2002, Mr. Ferri was a Vice President within the Quantitative Development group of mPower Advisors LLC from 1999 to 2002, and prior to that, he worked in the Private Client division of J.P. Morgan & Co. He holds a B.A. degree from Loyola College in Maryland.
Barbra E. Kocsis is the Chief Financial Officer for MLAI. Ms. Kocsis, 44 years old, has been the Chief Financial Officer of MLAI since October 2006. Ms. Kocsis has been listed with the NFA as a principal of MLAI since May 21, 2007 and is a Director within the Merrill Lynch Global Wealth Investment Management Services group, positions she has held since October 2006. Prior to serving in her current roles, she was the Fund Controller of MLAI from May 1999 to September 2006. Before joining MLAI, Ms. Kocsis held various accounting and tax positions at Derivatives Portfolio Management LLC from May 1992 until May 1999, at which time she held the position of accounting director. Prior to that, she was an associate at Coopers & Lybrand in both the audit and tax practices from September 1988 to February 1992. She graduated cum laude from Monmouth College with a Bachelor of Science in Business Administration - Accounting.
Deann Morgan is a Vice President and Manager of MLAI. Ms. Morgan, 41 years old, has been a Vice President of MLAI since March 2008 and Managing Director of GIS since January 2009. As Managing Director of GIS, Ms. Morgan heads Alternative Investments Origination. From April 2006 until March 2008, Ms. Morgan was a Director for Merrill Lynch’s Investments, Wealth Management & Insurance group, where she was responsible for origination of private equity and listed alternative investments. Between August 1999 and April 2006, Ms. Morgan worked for Merrill Lynch’s Investment Banking Group covering Asian corporate clients. She received her M.B.A. from University of Chicago and her B.B.A. from University of Michigan. Ms. Morgan has been registered with NFA as an associated person and listed as a principal of MLAI since August 21, 2009. Ms. Morgan has also been registered with NFA as an associated person of MLPF&S since April 13, 2009.
James L. Costabile, is a Vice President and Manager of MLAI. Mr. Costabile, 34 years old, has been a Managing Director within the Global Investments Solutions group (“GIS”) responsible for alternative investment distribution for Merrill Lynch since June 2007 and US Trust since January 2009. Mr. Costabile has been listed as a principal of MLAI since July 14, 2010. He has also been registered with NFA as an associated person of Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S”) since August 20, 2007. Mr. Costabile was previously registered as an associated person of Citigroup Global Markets Inc. from November 13, 2003 to July 6, 2007. As part of the MLAI management team, Mr. Costabile oversees a team of specialists responsible for supporting hedge funds, private equity and real asset offerings. Prior to joining Merrill Lynch in 2007, Mr. Costabile spent ten years with Citigroup Inc., most recently as a Managing Director for Citigroup Alternative Investments responsible for co-heading Smith Barney Alternative Investment Distribution from February 2005 to June 2007. Prior to that, Mr. Costabile held a number of positions involving sales, marketing, product management and financial advisor training within different divisions of Citigroup, Inc. including: Citigroup Alternative Investments from May 2003 to February 2005 (sales manager for hedge funds, private equity funds, structured products and exchange funds); the Private Capital Group from February 2001 to May 2003 (sales desk manager for alternative funds for Smith Barney and Citi Private Bank); Salomon Smith Barney Alternative Investment Group from February 1999 to February 2001 (producing sales desk manager for alternative investment funds); Smith Barney Alternative Investments from March 1998 to February 1999 (sales desk supervisor for alternative investment funds) and Smith Barney Capital Management from November 1997 to March 1998 (participating in sales, marketing and product management). Mr. Costabile received a B.S. from Fordham University and holds the Chartered Alternative Investment Analyst designation.
Paul D. Harris, is a Vice President and Manager of MLAI. Mr. Harris, 40 years old, has been Managing Director and head of Strategy and Marketing in the Alternative Investment group within GIS since December 2009. Mr. Harris has been listed as a principal of MLAI since August 26, 2010. Mr. Harris is responsible for leading Strategy, Marketing and Information Management functional teams in developing alternative investment solutions, including hedge funds, managed futures, private equity and real assets investments for financial advisors. Prior to joining Merrill Lynch in December 2009, Mr. Harris was a Managing Director at PH Investment Group, LLC from May 2008 to November 2009, and before that a Director at Bridgewater Associates from June 2007 to March 2008. Mr. Harris was also a Director at Citigroup Alternative Investments and the Strategy and M&A team at Citigroup’s investment bank from January 2003 to January 2007. From January 2002 to January 2003, Mr. Harris was the Director of Business Development at Pomona Capital. In addition, Mr. Harris worked in strategic consulting as a Project Leader at the Boston Consulting Group from September 1999 to January 2002. Mr. Harris began his career with Barclays Capital and Goldman Sachs in investment banking and capital markets in September 1992. Mr. Harris holds an MBA from Harvard Business School and a BA in Economics and Politics from Essex University, UK.
Colleen R. Rusch, is a Vice President and Manager of MLAI. Ms. Rusch, 42 years old, has been a Director within GIS responsible for overseeing Merrill Lynch Global Wealth & Investment Management group’s Alternative Investments product and trading platform since 2007. Ms. Rusch has applied to be listed as a principal of MLAI. In addition, Ms. Rusch serves as Chief Administrative Officer and Vice President of IQ Investment Advisors LLC (“IQ”), an indirect wholly-owned investment adviser subsidiary of Merrill Lynch & Co., and serves as Vice President and Secretary of each of IQ’s publicly-traded closed-end mutual funds. Prior to her role in GIS, Ms. Rusch was a Director in the MLPF&S Global Private Client - Market Investment & Origination Group (“MIO”) from July 2005 to 2007. Prior to her role as a Director in MIO, Ms. Rusch was a Director of Merrill Lynch Investment Managers from January 2005 to July 2005 and a Vice President from April 1993 to December 2004. Ms. Rusch holds a B.S. degree in Business Administration from Saint Peter’s College in New Jersey.
As of December 31, 2010, the principals of MLAI had no investment in the Partnership, and MLAI’s general partner interest in the Partnership was valued at $8,313,413.
MLAI acts as the sponsor, general partner or manager to eight public futures funds whose units of limited partner or member interests are registered under the Securities Exchange Act of 1934: ML Aspect Futures Access LLC, ML Bluetrend FuturesAccess LLC, MAN AHL FuturesAccess LLC, ML Select Futures I L.P., ML Systematic Momentum FuturesAccess LLC, ML Transtrend DTP Enhanced FuturesAccess LLC, ML Trend-Following Futures Fund L.P, and ML Winton FuturesAccess LLC. Because MLAI serves as the sole sponsor, general partner or manager of each of these funds, the officers and managers of MLAI effectively manage them as officers and directors of such funds.
(c)
Identification of Certain Significant Employees:
None.
(d)
Family Relationships:
None.
(e)
Business Experience:
See Item 10(a) and (b) above.
(f)
Involvement in Certain Legal Proceedings:
None.
(g)
Promoters and Control Persons:
Not applicable.
(h)
Section 16(a) Beneficial Ownership Reporting Compliance
Not contained herein.
Code of Ethics:
MLAI and Merrill Lynch have adopted a code of ethics, which applies to the Partnership’s (MLAI’s) principal executive officer and principal financial officer or persons performing similar functions on behalf of the Partnership. A copy of the code of ethics is available to any person, without charge, upon request by calling 1-866-MER-ALTS.
Nominating Committee:
Not applicable. (Neither the Partnership nor MLAI has a nominating committee.)
Audit Committee: Audit Committee Financial Expert:
Not applicable. (Neither the Partnership nor MLAI has an audit committee.) There are no listed shares of the Partnership or MLAI.
Item 11:
Item 11: Executive Compensation
The managers and officers of MLAI are remunerated by MLAI in their respective positions. The Partnership does not have any officers, managers or employees. The Partnership pays Brokerage Commissions to an affiliate of MLAI and Administrative Fees to MLAI. MLAI or its affiliates may also receive certain economic benefits from holding certain of the Partnership’s U.S. dollar Available Assets in offset accounts, as described in Item 1(c) above. The managers and officers receive no “other compensation” from the Partnership, and the managers receive no compensation for serving as managers of MLAI. There are no compensation plans or arrangements relating to a change in control of either the Partnership or MLAI.
Item 12:
Item 12: Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
(a) Security Ownership of Certain Beneficial Owners:
Not applicable (The Units represent limited partnership interests. The Partnership is managed by its general partner, MLAI).
(b) Security Ownership of Management:
As of December 31, 2010, MLAI owned 41,734 Unit-equivalent general partnership interests, which was 3.54% of the total Units outstanding and the principals of MLAI did not own any Units. No partner holder owns 5% or more of the Fund’s Partnership Units.
(c) Changes in Control:
None.
(d) Securities Authorized for Issuance Under Equity Compensation Plans:
Not applicable.
Item 13:
Item 13: Certain Relationships and Related Transactions and Director Independence
(a) Transactions between Merrill Lynch and the Partnership
Some of the service providers to the Partnership are affiliates of Merrill Lynch. However, none of the fees paid by the Partnership to such Merrill Lynch affiliates were negotiated and such fees charged to the Partnership might be higher than would have been obtained in arms-length negotiations.
The Partnership pays indirectly Merrill Lynch through MLPF&S and MLAI substantial Brokerage Commissions and Administrative Fees, respectively, as well as bid-ask spreads on forward currency trades. The Partnership also pays MLPF&S interest on short-term loans extended by MLPF&S to cover losses on foreign currency positions.
Within the Merrill Lynch organization, MLAI is the direct beneficiary of the revenues received by different Merrill Lynch entities from the Partnership. MLAI controls the management of the Partnership and serves as its promoter. Although MLAI has not sold any assets, directly or indirectly, to the Partnership, MLAI makes substantial profits from the Partnership due to the foregoing revenues.
No loans have been, are or will be outstanding between MLAI or any of its principals and the Partnership.
MLAI pays substantial selling commissions and trailing commissions to MLPF&S for distributing the Units. MLAI is ultimately paid back for these expenditures from the revenues it receives from the Partnership.
(b) Certain Business Relationships:
MLPF&S, an affiliate of MLAI, acts as the principal commodity broker for the Partnership.
See Item 1(c), “Narrative Description of Business - Charges” and “- Description of Current Charges” for a discussion of other business dealings between MLAI affiliates and the Partnership.
(c) Indebtedness of Management:
The Partnership is prohibited from making any loans, to management or otherwise.
(d) Transactions with Promoters:
Not applicable.
(e) Director Independence
No person who served as a manager of MLAI would be considered independent (based on the definition of an independent director under NASDAQ rules).
Item 14:
Item 14: Principal Accounting Fees and Services
(a) Audit Fees
Aggregate fees billed for professional services rendered by PricewaterhouseCoopers LLP in connection with the audit of the Partnership’s financial statements as of and for the years ended December 31, 2010 and 2009 were $85,000 and $85,000, respectively.
(b) Audit-Related Fees
There were no other audit-related fees billed for the years ended December 31, 2010 and 2009 related to the Partnership.
(c) Tax Fees
No fees were billed by PricewaterhouseCoopers LLP or any member firms of PricewaterhouseCoopers and their respective affiliates for the years ended December 31, 2010 and 2009 for professional services rendered to the Partnership in connection with tax compliance, tax advice and tax planning.
(d) All Other Fees
Aggregate fees billed for professional services rendered by PricewaterhouseCoopers LLP in connection with the quarterly review of the Fund’s financial statements as of and for the years ended December 31, 2010 and 2009 were $63,750 and $63,750, respectively.
Neither the Partnership nor MLAI has an audit committee to pre-approve principal accountant fees and services. In lieu of an audit committee, the managers and the principal financial officer pre-approve all billings prior to the commencement of services.
PART IV
Item 15:
Item 15: Exhibits and Financial Statement Schedules
Page
1.
Financial Statements:
REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS
FINANCIAL STATEMENTS:
Statements of Financial Condition as of December 31, 2010 and 2009
Statements of Operations for the years ended December 31, 2010, 2009 and 2008
Statements of Changes in Partners’ Capital for the years ended December 31, 2010, 2009 and 2008
Financial Data Highlights for the years ended December 31, 2010, 2009 and 2008
Notes to Financial Statements
2.
Financial Statement Schedules:
(a) Financial Statements of ML Aspect FuturesAccess LLC
Report of Independent Registered Public Accounting Firms
Statements of Financial Condition as of December 31, 2010 and 2009
Statements of Operations for the years ended December 31, 2010, 2009 and 2008
Statements of Changes in Members’ Capital for the years ended December 31, 2010, 2009 and 2008
Financial Data Highlights for the years ended December 31, 2010, 2009 and 2008
Notes to Financial Statements
(b) Financial Statements of ML Bluetrend FuturesAccess LLC
Report of Independent Auditors
Statements of Financial Condition as of December 31, 2010 and 2009
Statements of Operations for the years ended December 31, 2010, 2009 and 2008
Statements of Changes in Members’ Capital for the years ended December 31, 2010 2009 and 2008
Financial Data Highlights for the years ended December 31, 2010, 2009 and 2008
Notes to Financial Statements
(c) Financial Statements of Man AHL FuturesAccess LLC
Report of Independent Registered Public Accounting Firms
Financial Statements
Statement of Financial Condition as of December 31, 2010 and 2009
Statement of Operations for the period August 1, 2010 (commencement of operations) to December 31, 2010
Statement of Changes in Members’ Capital for the period August 1, 2010 (commencement of operations) to December 31, 2010
Financial Data Highlights for the period August 1, 2010 (commencement of operations) to December 31, 2010
Notes to Financial Statements
(d) Financial Statements of ML TransTrend DTP Enhanced FuturesAccess LLC
Report of Independent Registered Public Accounting Firms
Financial Statements
Statements of Financial Condition as of December 31, 2010 and 2009
Statements of Operations for the years ended December 31, 2010, 2009 and and 2008
Statements of Changes in Members’ Capital for the years ended December 31, 2010 2009 and 2008
Financial Data Highlights for the years ended December 31, 2010, 2009 and 2008
Notes to Financial Statements
(e) Financial Statements of ML Winton FuturesAccess LLC
Report of Independent Registered Public Accounting Firms
Financial Statements
Statements of Financial Condition as of December 31, 2010 and 2009
Statements of Operations for the years ended December 31, 2010, 2009 and 2008
Statements of Changes in Members’ Capital for the years ended December 31, 2010, 2009 and 2008
Financial Data Highlights for the years ended December 31, 2010, 2009 and 2008
Notes to Financial Statements
Financial statement schedules not included in this Form 10-K have been omitted for the reason that they are not required or are not applicable or that equivalent information has been included in the financial statements or notes thereto.
3. Exhibits:
The following exhibits are incorporated by reference or are filed herewith to this Annual Report on Form 10-K:
Designation
Description
3.01(i)
Amended and Restated Certificate of Limited Partnership of ML JWH Strategic Allocation Fund L.P.
Exhibit 3.01(i):
Is incorporated herein by reference from Exhibit 3.01(i) contained in the Registrant’s Form 8-K filed August 13, 2007.
3.01(ii)
Eighth Amended and Restated Limited Partnership Agreement.
Exhibit 3.01(ii):
Is incorporated herein by reference from Exhibit 3.01(ii) contained in the Registrant’s Report on Form 10-K for the year ended December 31, 2009 filed on March 31, 2010.
13.01
2010 Annual Report and Report of Independent Registered Public Accounting Firm.
13.02
Financial Statements of ML Aspect FuturesAccess LLC
13.03
Financial Statements of ML Bluetrend FuturesAccess LLC
13.04
Financial Statements of Man AHL FuturesAccess LLC
13.05
Financial Statements of ML Transtrend DTP Enhanced FuturesAccess LLC
13.06
Financial Statements of ML Winton FuturesAccess LLC
Exhibit 13.01, Exhibit 13.02, Exhibit 13.03, Exhibit 13.04 and Exhibit 13.05:
Are filed herewith.
31.01 and 31.02
Rule 13a-14(a)/15d-14(a) Certifications.
Exhibits 31.01 and 31.02:
Are filed herewith.
32.01 and 32.02
Section 1350 Certifications.
Exhibits 32.01 and 32.02:
Are filed herewith.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ML TREND-FOLLOWING FUTURES FUND L.P.
By: MERRILL LYNCH ALTERNATIVE INVESTMENTS LLC, GENERAL PARTNER
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed on March 31, 2010 by the following persons on behalf of the Registrant and in the capacities indicated.
Signature
Title
Date
/s/ Justin C. Ferri
Chief Executive Officer, President and Manager
March 15, 2011
Justin C. Ferri
/s/ Barbra E. Kocsis
Chief Financial Officer
March 15, 2011
Barbra E. Kocsis
(Principal Financial and Accounting Officer)
/s/ Dean Morgan
Vice President and Manager
March 15, 2011
Dean Morgan
/s/ James L. Costabile
Vice President and Manager
March 15, 2011
James L. Costabile
/s/ Paul D. Harris
Vice President and Manager
March 15, 2011
Paul D. Harris
/s/ Colleen R. Rusch
Vice President and Manager
March 15, 2011
Colleen R. Rusch
(Being the principal executive officer, the principal financial and accounting officer and a majority of the managers of Merrill Lynch Alternative Investments LLC)
ML TREND-FOLLOWING FUTURES FUND L.P.
2009 FORM 10-K
INDEX TO EXHIBITS
Exhibits
Exhibit 13.01
Registrant’s 2010 Annual Report and Report of Independent Registered Public Accounting Firm
Exhibit 13.02
ML Aspect FuturesAccess Financial Statements as of and for the years ended December 31, 2010, 2009 and 2008 and Report of Independent Registered Public Accounting Firms
Exhibit 13.03
ML BlueTrend FuturesAccess LLC Financial Statements as of and for the years ended December 31, 2010, 2009 and 2008 and Report of Independent Registered Public Accounting Firms
Exhibit 13.04
Man AHL FuturesAccess LLC Financial Statements as of and for the period August 1, 2010 (Commencement of Operations) to December 31, 2010 and Report of Independent Registered Public Accounting Firms
Exhibit 13.05
ML Transtrend DTP Enhanced FuturesAccess LLC Financial Statements as of and for the years ended December 31, 2010, 2009 and 2008and Report of Independent Registered Public Accounting Firms
Exhibit 13.06
ML Winton FuturesAccess LLC Financial Statements as of and for the years ended December 31, 2009, 2008 and 2007and Report of Independent Registered Public Accounting Firms
Exhibit 31.01 and 31.02
Rule 13a - 14(a) / 15d - 14(a) Certifications
Exhibit 32.01 and 32.02
Sections 1350 Certifications