Item 1: Business
(a) General Development of Business:
ML Transtrend DTP Enhanced FuturesAccess LLC (the “Fund”) was organized under the Delaware Limited Liability Company Act on March 8, 2007 and commenced trading activities on April 2, 2007. The Fund issues new units of limited liability company interest (“Units”) at Net Asset Value per Unit (see Item 6 for discussion of net asset value and net asset value per unit for subscriptions and redemptions purposes hereinafter referred to as Net Asset Value and Net Asset Value per Unit for all other purposes) as of the beginning of each calendar month. The Fund engages in the speculative trading of futures, options on futures and forward contracts on a wide range of commodities. Transtrend B.V. (“Transtrend”) is the trading advisor of the Fund.
Merrill Lynch Alternative Investments LLC (“MLAI”), is the sponsor (“Sponsor”) and manager (“Manager”) of the Fund. MLAI is an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. (“Merrill Lynch”). Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S”), a wholly-owned subsidiary of Merrill Lynch, is the Fund’s commodity broker. On September 15, 2008, Merrill Lynch & Co., Inc. (“Merrill Lynch” or the “Company”) entered into an Agreement and Plan of Merger (as amended by Amendment No. 1 dated as of October 21, 2008, the “Merger Agreement”) with Bank of America Corporation (“Bank of America”). Pursuant to the Merger Agreement, on January 1, 2009, a wholly-owned subsidiary of Bank of America (“Merger Sub”) merged with and into Merrill Lynch, with Merrill Lynch continuing as the surviving corporation and a subsidiary of Bank of America (the “Merger”).
As of December 31, 2008, the Net Asset Value of the Fund for all other purposes was $217,362,629. As of December 31, 2008, the Net Asset Value per Unit for all other purposes was $1.3842 for Class A, $1.3208 for Class C, $1.2311 for Class D, $1.3707 for Class I, $1.6611 for Class DS and $1.7170 for Class DT. The Net Asset Value per Unit for financial reporting purposes in accordance with accounting principles generally accepted in the United States of America (“U.S.GAAP”) was $1.3842 for Class A, $1.3209 for Class C, $1.2310 for Class D, $1.3707 for Class I, $1.6610 for Class DS and $1.7165 for Class DT, and the Net Asset Value of the Fund was $217,335,124.
Since the Fund began trading activities, the highest month-end Net Asset Value per Unit for all other purposes for Class A was $1.3842 (December 31, 2008) and the lowest was $1.0780 (September 30, 2007). The highest month-end Net Asset Value per Unit for all other purposes for Class C was $1.3208 (December 31, 2008) and the lowest was $0.9228 (August 31, 2007). The highest month-end Net Asset Value per Unit for all other purposes for Class D was $1.2311 (December 31, 2008) and the lowest was $0.9336 (January 31, 2008). The highest month-end Net Asset Value per Unit for all other purposes for Class I was $1.3707 (December 31, 2008) and the lowest was $1.0475 (November 30, 2007). The highest month-end Net Asset Value per Unit for all other purposes for Class DS was $1.6611 (December 31, 2008) and the lowest was $1.0532 (April 30, 2007). The highest month-end Net Asset Value per Unit for all other purposes for Class DT was $1.7170 (December 31, 2008) and the lowest was $1.0950 (August 31, 2007).
(b) Financial Information about Segments:
The Fund’s business constitutes only one segment for financial reporting purposes, i.e., a speculative “commodity pool”. The Fund does not engage in sales of goods or services.
(c) Narrative Description of Business:
General
The Fund trades in the international futures and forward markets with the objective of achieving substantial capital appreciation.
The Fund has entered into an advisory agreement with Transtrend whereby Transtrend trades the Fund’s assets through a managed account using the Transtrend DTP Enhanced Diversified Program. In the Transtrend DTP Enhanced Diversified Program, Transtrend applies its trend-following systems to a broadly-diversified portfolio of futures and forward markets, including, but not limited to, precious and industrial metals, grains, petroleum products, soft
commodities, domestic and foreign interest rate futures, domestic and foreign stock indices (including S&P 500, DAX, and Nikkei 225), currencies and their cross rates, and minor currency markets.
Employees
The Fund has no employees.
Use of Proceeds and Cash Management Income
Subscription Proceeds
The Fund’s cash is used as security for and to pay the Fund’s trading losses as well as its expenses and redemptions. The primary use of the proceeds of the sale of the Units is to permit Transtrend to trade on a speculative basis in a wide range of different futures and forwards markets on behalf of the Fund. While being used for this purpose, the Fund’s assets are also generally available for cash management, as more fully described below under “Cash Assets”.
Market Sectors
Transtrend applies its proprietary systems to a broadly-diversified portfolio of futures and forward markets pursuant to their Transtrend DTP Enhanced Diversified Program. The Transtrend DTP Enhanced Diversified Program may trade in the following markets: CBOT, CME, EUREX, IME, LME, LIFFE, MATIF, ME, MEFF, NYMEX, NZFOE, SFE, SIMEX, TIFFE, TSE and may expand to include trading in other markets.
The Fund’s commitments to different types of markets - U.S. and non-U.S., regulated and non-regulated - differ substantially from time to time, as well as over time. The Fund has no policy restricting its relative commitment to any of these different types of markets.
Market Types
The Fund trades on a variety of United States and foreign futures exchanges. Substantially all of the Fund’s off-exchange trading takes place in the highly liquid, institutionally-based currency forward markets.
Many of the Fund’s currency trades are executed in the spot and forward foreign exchange markets (the “FX Markets”) where there are no direct execution costs. Instead, the participants, banks and dealers in the FX Markets take a “spread” between the prices at which they are prepared to buy and sell a particular currency and such spreads are built into the pricing of the spot or forward contracts with the Fund.
Custody of Assets
All of the Fund’s assets are currently held in Commodity Futures Trading Commission (“CFTC”) regulated customer accounts at MLPF&S.
Cash Assets
The Fund will generally earn interest, as described below, on its “Cash Assets”, which can be generally described as the cash actually held by the 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 foreign currencies, and are comprised of the Fund’s 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 Fund’s account on a daily basis; the Fund’s cash balance in foreign currencies derived from its 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 Fund does not earn interest income on the Fund’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 Fund’s Cash Assets may be greater than, less than or equal to the 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.
Interest Earned on the Fund’s U.S. Dollar Cash Assets
The Fund’s U.S. dollar Cash Assets are held in cash at MLPF&S, which utilizes offset accounts
Offset accounts are non-interest bearing demand deposit accounts maintained with banks unaffiliated with Merrill Lynch. An integral feature of the offset arrangements is that the participating banks specifically acknowledge that the offset accounts are MLPF&S customer accounts, not subject to any Merrill Lynch liability.
MLPF&S credits the Fund, as of the end of each month with interest at the most favorable rate payable by MLPF&S to accounts of Merrill Lynch affiliates but not less than 75% of such prevailing rate. The Fund is credited with interest on any of its assets and net gains actually held by MLPF&S non-U.S. dollar currencies at a prevailing local rate received by Merrill Lynch. Merrill Lynch may derive certain economic benefit, in excess of the interest, which Merrill Lynch pays to the Fund, from possession of such assets.
The use of the offset account arrangements for the Fund’s U.S. dollar Cash Assets may be discontinued by Merrill Lynch at any time. If Merrill Lynch were to terminate the offset arrangements, it would attempt to invest all of the Fund’s U.S. dollar Cash Assets to the maximum practicable extent in short-term Treasury bills. All interest earned on the U.S. dollar Available Assets so invested would be paid to the Fund but MLAI would expect the amount of such interest to be less than that available to the Fund under the offset account arrangements. The remaining U.S. dollar Available Assets of the Fund would be kept in cash to meet variation margin payments and pay expenses, but would not earn interest for the Fund.
The banks at which the offset accounts are maintained make available to Merrill Lynch interest-free overnight credits, loans or overdrafts in the amount of the Fund’s U.S. dollar Available Assets held in the offset accounts, charging Merrill Lynch a small fee for this service. The economic benefits derived by Merrill Lynch - net of the interest credits paid to the Fund and the fee paid to the offset banks - from the offset accounts have not exceeded 0.75% per annum of the Fund’s average daily U.S. dollar Available Assets held in the offset accounts. These revenues to Merrill Lynch are in addition to the Brokerage Commissions and Sponsor Fees paid by the Fund to MLPF&S and MLAI, respectively.
Interest Paid by Merrill Lynch on the Fund’s Non-U.S. Dollar Cash Assets
Under the single currency margining system implemented for the Fund, the Fund does not deposit foreign currencies to margin trading in non-U.S. dollar denominated futures contracts and options, if any. MLPF&S provides the necessary margin, permitting the Fund to retain the monies which would otherwise be required for such margin as part of the Fund’s U.S. dollar Cash Assets. The Fund does not earn interest on foreign margin deposits provided by MLPF&S. The Fund does, however, earn interest on its non-U.S. dollar Cash Assets. Specifically, the Fund is credited by Merrill Lynch with interest at prevailing short-term local rates on assets and net gains on non-U.S. dollar denominated positions for such gains actually held in cash by the Fund. Merrill Lynch charges the Fund Merrill Lynch’s cost of financing realized and unrealized losses on such positions.
The Fund holds foreign currency gains and finances foreign currency losses on an interim basis until converted into U.S. dollars and either paid into or out of the Fund’s U.S. dollar Cash Assets. Foreign currency gains or losses on open positions are not converted into U.S. dollars until the positions are closed. Assets of the Fund while held in foreign currencies are subject to exchange rate risk.
Charges
The following table summarizes the charges incurred by the Fund for the year ended December 31, 2008 and for the period April 2, 2007 (commencement of operations) to December 31, 2007.
(1) Not annualized
(2) For all other purposes
The foregoing table does not reflect the bid-ask spreads paid by the Fund on its forward trading, or the benefits which may be derived by Merrill Lynch from the deposit of certain of the Fund’s U.S. dollar assets maintained at MLPF&S.
The Fund’s average month-end Net Asset Values for all other purposes during 2008 and 2007 equaled $158,124,764 and $86,161,510, respectively.
During 2008, the Fund earned $2,502,184 in interest income, or approximately 1.58% of the Fund’s average month-end Net Asset Values for all other purposes. During 2007, the Fund earned $3,463,933 in interest income, or approximately 4.02% of the Fund’s average month-end Net Asset Values for all other purposes.
Description of Current Charges
Regulation
MLAI, Transtrend and MLPF&S are each subject to regulation by the Commodity Futures Trading Commission (“CFTC”) and the National Futures Association (“NFA”). Other than in respect of the registration requirements pertaining to the Fund’s securities under Section 12(g) of the Securities Exchange Act of 1934, the Fund is generally not subject to regulation by the Securities and Exchange Commission (the “SEC”). However, MLAI 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 Fund does not engage in material operations in foreign countries, nor is a material portion of the Fund’s revenue derived from customers in foreign countries.
The Fund trades on a number of foreign commodity exchanges. The Fund does 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 advisor’s past performance may not be representative of how it may trade in the future for the Fund.
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 advisor can predict or control - have a material effect on the performance of any managed futures strategy.
Possibility of Additional Government or Market Regulation.
Market disruptions and the dramatic increase in the capital allocated to alternative investment strategies during recent years have led to increased governmental as well as self-regulatory scrutiny of the alternative investment funds industry in general. In addition, certain legislation proposing greater regulation of the industry periodically is considered by the U.S. Congress, as well as the governing bodies of foreign jurisdictions. It is impossible to predict what, if any, changes in the regulations applicable to the Fund, its Manager (MLAI), the markets in which they trade and invest or the counterparties with which they do business may be instituted in the future. Any such regulation could have a material adverse impact on the profit potential of the Fund, as well as require increased transparency as to the identity of the Fund’s members.
Forward Trading
The Fund will trade currencies in the forward in addition to in the futures markets. The forward markets are over-the-counter, non-exchange traded markets, and by trading within these markets, the Fund will be dependent on the credit standing of the counterparties with which they trade, without the financial support of any clearinghouse system. In addition, the prices offered for the same forward contract may vary significantly among different forward market participants. Forward market counterparties are under no obligation to enter into forward transactions with a Fund, including transactions through which the Fund is attempting to liquidate open positions.
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 advisor has not agreed to limit the amount of additional equity which it may manage.
Trading Advisor Risk
The Fund is subject to the risk of the bad judgment, negligence or misconduct of its trading advisor. There have been a number of instances in recent years in which private investment funds have incurred substantial losses due to trading advisor misconduct.
Changes in Trading Strategy
The trading advisor may make material changes in its trading strategies without the knowledge of MLAI.
Illiquid Markets
Certain positions held by the Fund may become illiquid, preventing the Fund’s trading advisor from acquiring positions otherwise indicated by its strategy or making it impossible for the trading advisor 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 advisor may trade extensively on non-U.S. exchanges. These exchanges are not regulated by any United States governmental agency. The Fund could incur substantial losses trading on foreign exchanges to which it would not have been subject had its trading advisor limited its 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 Fund will be subject to a certain degree of exchange-rate risk in trading such contracts.
The Fund Could Lose Assets and Have Its Trading Disrupted Due to the Bankruptcy of One of the Parties
The Fund is subject to the risk of insolvency of its counterparties, an exchange, a clearinghouse or MLPF&S. Fund assets could be lost or impounded during lengthy bankruptcy proceedings. Were a substantial portion of the Fund’s capital tied up in a bankruptcy, MLAI might suspend or limit trading, perhaps causing the Fund to miss significant profit opportunities. There are increased risks in dealing with unregulated trading counterparties including the risk that assets may not benefit from the protection afforded to “customer funds” deposited with regulated dealers and brokers.
Item 1B:
Item 1B: Unresolved Staff Comments
Not applicable.
Item 2:
Item 2: Properties
The Fund does not use any physical properties in the conduct of its business.
The Fund’s sponsor offices are the administrative offices of MLAI (Merrill Lynch Alternative Investments LLC, Two World Financial Center, 7th Floor, New York, New York 10281). MLAI performs administrative services for the Fund from MLAI’s offices.
Item 3:
Item 3: Legal Proceedings
None.
Item 4:
Item 4: Submission of Matters to a Vote of Security Holders
None.
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. Members may redeem Units on ten days written notice to MLAI as of the last day of each month at their Net Asset Value for all other purposes, subject to certain early redemption charges.
(b) Holders:
As of December 31, 2008, there were 355 holders of Units including MLAI.
(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.
(1)Beginning of the month Net Asset Value for all other purposes
Class A Units are subject to sales commission paid to Merrill Lynch ranging from 1.0% to 2.5%. Class D and Class I Units are subject to sales commissions up to 0.50%. The rate assessed to a given subscription is based upon the subscription amount. Sales commissions are directly deducted from subscription amount. Class C, Class DS and Class DT Units are not subject to any sales commissions.
Item 5(b)
Not applicable.
Item 5(c)
Not applicable.
Item 6:
Item 6: Selected Financial Data
The following selected financial data has been derived from the financial statement of the Fund.
*Class DT commenced on June 1, 2007
**Class A commenced on September 1, 2007
***Class C commenced on July 1, 2007
****Class D commenced on November 1, 2007
*****Class I commenced on October 1, 2007
For financial reporting purposes, in conformity with U.S. GAAP, the Fund amortizes initial offering costs payable to MLAI over twelve months for purposes of determining Net Asset Value. For all other purposes, including computing Net Asset Value for purposes of member subscription and redemption activity, such payment is amortized over 60 months. Consequently, as of December 31, 2008 and 2007, the Net Asset Value and Net Asset Value per Unit of the different Classes for financial reporting purposes and for all other purposes are as follows:
December 31,
December 31,
MLAI believes that the Net Asset Value used to calculate subscription and redemption value and report performance to investors throughout the year is the most valuable financial information to the Members of the Fund. Therefore, the charts below referencing Net Asset Value and performance measurements are based on the Net Asset Value for all other purposes.
ML TRANSTREND DTP ENHANCED FUTURESACCESS LLC
(CLASS A UNITS) (5)
December 31,
Type of Pool: Single Advisor Non-“Principal Protected”(1)
Inception of Trading: September 1, 2007
Aggregate Subscriptions: $1,272,103
Current Capitalization: $1,297,669
Worst Monthly Drawdown(2): (4.91)% ( November 2007 )
Worst Peak-to-Valley Drawdown(3): (6.42)% ( November 2007 - January 2008)
Net Asset Value per Unit for Class A, December 31, 2008: $1.3842
Monthly Rates of Return (4)
(1) Certain funds, including funds sponsored by MLAI, are structured so as to guarantee to investors that their investment will be worth no less than a specified amount (typically, the initial purchase price) as of a date certain after the date of investment. The CFTC refers to such Funds as “principal protected”. The Fund has no such feature.
(2) Worst Monthly Drawdown represents the largest negative Monthly Rate of Return experienced since September 1, 2007 by the Fund; a drawdown is measured on the basis of month-end Net Asset Value only, and does not reflect intra-month figures.
(3) Worst Peak-to-Valley Drawdown represents the greatest percentage decline since September 1, 2007 from a month-end cumulative Monthly Rate of Return without such cumulative Monthly Rate of Return being equaled or exceeded as of a subsequent month-end. For example, if the Monthly Rate of Return was (1)% in each of January and February, 1% in March and (2)% in April, the Peak-to-Valley Drawdown would still be continuing at the end of April in the amount of approximately (3)%, whereas if the Monthly Rate of Return had been approximately 3% in March, the Peak-to-Valley Drawdown would have ended as of the end of February at approximately the (2)% level.
(4) Monthly Rate of Return is the net performance of the Fund during the month of determination (including interest income and after all expenses have been accrued or paid) divided by the total capital of the Fund as of the beginning of such month.
(5) The information presented is based on Net Asset Value and Net Asset Value per Unit for all other purposes. The inception to date total return based on U.S. GAAP is 38.42%.
ML TRANSTREND DTP ENHANCED FUTURESACCESS LLC
(CLASS C UNITS) (5)
December 31,
Type of Pool: Single Advisor Non-“Principal Protected”(1)
Inception of Trading: July 1, 2007
Aggregate Subscriptions: $12,908,226
Current Capitalization: $13,734,717
Worst Monthly Drawdown(2): (4.78)% (July 2007)
Worst Peak-to-Valley Drawdown(3): (7.72)% (July-August 2007)
Net Asset Value per Unit for Class C, December 31, 2008: $1.3208
Monthly Rates of Return (4)
(1) Certain funds, including funds sponsored by MLAI, are structured so as to guarantee to investors that their investment will be worth no less than a specified amount (typically, the initial purchase price) as of a date certain after the date of investment. The CFTC refers to such funds as “principal protected”. The Fund has no such feature.
(2) Worst Monthly Drawdown represents the largest negative Monthly Rate of Return experienced since July 1, 2007 by the Fund; a drawdown is measured on the basis of month-end Net Asset Value only, and does not reflect intra-month figures.
(3) Worst Peak-to-Valley Drawdown represents the greatest percentage decline since July 1, 2007 from a month-end cumulative Monthly Rate of Return without such cumulative Monthly Rate of Return being equaled or exceeded as of a subsequent month-end. For example, if the Monthly Rate of Return was (1)% in each of January and February, 1% in March and (2)% in April, the Peak-to-Valley Drawdown would still be continuing at the end of April in the amount of approximately (3)%, whereas if the Monthly Rate of Return had been approximately 3% in March, the Peak-to-Valley Drawdown would have ended as of the end of February at approximately the (2)% level.
(4) Monthly Rate of Return is the net performance of the Fund during the month of determination (including interest income and after all expenses have been accrued or paid) divided by the total capital of the Fund as of the beginning of such month.
(5) The information presented is based on Net Asset Value and Net Asset Value per Unit for all other purposes. The inception to date total return based on U.S. GAAP is 32.09%.
ML TRANSTREND DTP ENHANCED FUTURESACCESS LLC
(CLASS D UNITS) (5)
December 31,
Type of Pool: Single Advisor Non-“Principal Protected”(1)
Inception of Trading: November 1, 2007
Aggregate Subscriptions: $4,224,999
Current Capitalization: $1,205,100
Worst Monthly Drawdown(2): (6.09)% ( November 2007)
Worst Peak-to-Valley Drawdown(3): (6.64)% ( November 2007-January 2008 )
Net Asset Value per Unit for Class D, December 31, 2008: $1.2311
Monthly Rates of Return (4)
(1) Certain funds, including funds sponsored by MLAI, are structured so as to guarantee to investors that their investment will be worth no less than a specified amount (typically, the initial purchase price) as of a date certain after the date of investment. The CFTC refers to such Funds as “principal protected”. The Fund has no such feature.
(2) Worst Monthly Drawdown represents the largest negative Monthly Rate of Return experienced since November 1, 2007 by the Fund; a drawdown is measured on the basis of month-end Net Asset Value only, and does not reflect intra-month figures.
(3) Worst Peak-to-Valley Drawdown represents the greatest percentage decline since November 1, 2007 from a month-end cumulative Monthly Rate of Return without such cumulative Monthly Rate of Return being equaled or exceeded as of a subsequent month-end. For example, if the Monthly Rate of Return was (1)% in each of January and February, 1% in March and (2)% in April, the Peak-to-Valley Drawdown would still be continuing at the end of April in the amount of approximately (3)%, whereas if the Monthly Rate of Return had been approximately 3% in March, the Peak-to-Valley Drawdown would have ended as of the end of February at approximately the (2)% level.
(4) Monthly Rate of Return is the net performance of the Fund during the month of determination (including interest income and after all expenses have been accrued or paid) divided by the total capital of the Fund as of the beginning of such month.
(5) The information presented is based on Net Asset Value and Net Asset Value per Unit for all other purposes. The inception to date total return based on U.S. GAAP is 23.10%.
ML TRANSTREND DTP ENHANCED FUTURESACCESS LLC
(CLASS I UNITS) (5)
December 31,
Type of Pool: Single Advisor Non-“Principal Protected”(1)
Inception of Trading: October 1, 2007
Aggregate Subscriptions: $821,057
Current Capitalization: $1,069,373
Worst Monthly Drawdown(2): (2.71)% ( July 2008 )
Worst Peak-to-Valley Drawdown(3): (4.25)% ( July-August 2008)
Net Asset Value per Unit for Class I, December 31, 2008: 1.3707
Monthly Rates of Return (4)
(1) Certain funds, including funds sponsored by MLAI, are structured so as to guarantee to investors that their investment will be worth no less than a specified amount (typically, the initial purchase price) as of a date certain after the date of investment. The CFTC refers to such Funds as “principal protected”. The Fund has no such feature.
(2) Worst Monthly Drawdown represents the largest negative Monthly Rate of Return experienced since October 1, 2007 by the Fund; a drawdown is measured on the basis of month-end Net Asset Value only, and does not reflect intra-month figures.
(3) Worst Peak-to-Valley Drawdown represents the greatest percentage decline since October 1, 2007 from a month-end cumulative Monthly Rate of Return without such cumulative Monthly Rate of Return being equaled or exceeded as of a subsequent month-end. For example, if the Monthly Rate of Return was (1)% in each of January and February, 1% in March and (2)% in April, the Peak-to-Valley Drawdown would still be continuing at the end of April in the amount of approximately (3)%, whereas if the Monthly Rate of Return had been approximately 3% in March, the Peak-to-Valley Drawdown would have ended as of the end of February at approximately the (2)% level.
(4) Monthly Rate of Return is the net performance of the Fund during the month of determination (including interest income and after all expenses have been accrued or paid) divided by the total capital of the Fund as of the beginning of such month.
(5) The information presented is based on Net Asset Value and Net Asset Value per Unit for all other purposes. The inception to date total return based on U.S. GAAP is 37.07%.
ML TRANSTREND DTP ENHANCED FUTURESACCESS LLC
(CLASS DS UNITS) (5)
December 31,
Type of Pool: Single Advisor Non-“Principal Protected”(1)
Inception of Trading: April 2, 2007
Aggregate Subscriptions: $96,991,172
Current Capitalization: $111,765,499
Worst Monthly Drawdown(2): (3.19)% ( July 2007 )
Worst Peak-to-Valley Drawdown(3): (5.90)% ( July - August 2007)
Net Asset Value per Unit for Class DS, December 31, 2008: 1.6611
Monthly Rates of Return (4)
(1) Certain funds, including funds sponsored by MLAI, are structured so as to guarantee to investors that their investment will be worth no less than a specified amount (typically, the initial purchase price) as of a date certain after the date of investment. The CFTC refers to such Funds as “principal protected”. The Fund has no such feature.
(2) Worst Monthly Drawdown represents the largest negative Monthly Rate of Return experienced since April 2, 2007 by the Fund; a drawdown is measured on the basis of month-end Net Asset Value only, and does not reflect intra-month figures.
(3) Worst Peak-to-Valley Drawdown represents the greatest percentage decline since April 2, 2007 from a month-end cumulative Monthly Rate of Return without such cumulative Monthly Rate of Return being equaled or exceeded as of a subsequent month-end. For example, if the Monthly Rate of Return was (1)% in each of January and February, 1% in March and (2)% in April, the Peak-to-Valley Drawdown would still be continuing at the end of April in the amount of approximately (3)%, whereas if the Monthly Rate of Return had been approximately 3% in March, the Peak-to-Valley Drawdown would have ended as of the end of February at approximately the (2)% level.
(4) Monthly Rate of Return is the net performance of the Fund during the month of determination (including interest income and after all expenses have been accrued or paid) divided by the total capital of the Fund as of the beginning of such month.
(5) The information presented is based on Net Asset Value and Net Asset Value per Unit for all other purposes. The inception to date total return based on U.S. GAAP is 66.10%.
ML TRANSTREND DTP ENHANCED FUTURESACCESS LLC
(CLASS DT UNITS) (5)
December 31,
Type of Pool: Single Advisor Non-“Principal Protected”(1)
Inception of Trading: June 1, 2007
Aggregate Subscriptions: $119,043,657
Current Capitalization: $88,290,271
Worst Monthly Drawdown(2): (2.96)% ( July 2007 )
Worst Peak-to-Valley Drawdown(3): (5.59)% ( June-August 2007)
Net Asset Value per Unit for Class DT, December 31, 2008: 1.7170
Monthly Rates of Return (4)
(1) Certain funds, including funds sponsored by MLAI, are structured so as to guarantee to investors that their investment will be worth no less than a specified amount (typically, the initial purchase price) as of a date certain after the date of investment. The CFTC refers to such Funds as “principal protected”. The Fund has no such feature.
(2) Worst Monthly Drawdown represents the largest negative Monthly Rate of Return experienced since June 1, 2007 by the Fund; a drawdown is measured on the basis of month-end Net Asset Value only, and does not reflect intra-month figures.
(3) Worst Peak-to-Valley Drawdown represents the greatest percentage decline since June 1, 2007 from a month-end cumulative Monthly Rate of Return without such cumulative Monthly Rate of Return being equaled or exceeded as of a subsequent month-end. For example, if the Monthly Rate of Return was (1)% in each of January and February, 1% in March and (2)% in April, the Peak-to-Valley Drawdown would still be continuing at the end of April in the amount of approximately (3)%, whereas if the Monthly Rate of Return had been approximately 3% in March, the Peak-to-Valley Drawdown would have ended as of the end of February at approximately the (2)% level.
(4) Monthly Rate of Return is the net performance of the Fund during the month of determination (including interest income and after all expenses have been accrued or paid) divided by the total capital of the Fund as of the beginning of such month.
(5) The information presented is based on Net Asset Value and Net Asset Value per Unit for all other purposes. The inception to date total return based on U.S.GAAP is 60.48%.
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 Fund performed in the past, not necessarily any indication of how it will perform in the future. In addition, the general causes to which certain price movements are attributed may or may not in fact have caused such movements, but simply occurred at or about the same time.
The Fund is 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 Fund 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 Fund.
Results of Operations
General
Transtrend’s objective in providing trading management services is to effect appreciation of the assets of its clients through the speculative trading of financial instruments of any kind, which includes without limitation: (i) futures contracts that are now traded, or may be traded in the future, on exchanges located in the United States and abroad and options on such futures contracts and (ii) foreign currencies, foreign currency futures contracts, foreign currency forward contracts, foreign currency forward contracts and options relating thereto.
Performance Summary
This performance summary is an outline description of how the Fund performed in the past, not necessarily any indication of how it will perform in the future. In addition, the general causes to which certain price movements are attributed may or may not in fact have caused such movements, but simply occurred at or about the same time.
December 31, 2008
The Fund posted profits for the year in all sectors which include the following: energy, interest rates, stock indices, agriculture, metals, and currencies.
The energy sector posted profits for the year. The first quarter started with energy contracts distinguished by choppy prices which resulted in losses being posted to the Fund. Purchased crude oil, heating oil and gasoline dropped in price while natural gas contracts rose in price. The energy markets contributed to excellent results in the middle of the quarter due to an upward trend in natural gas prices and new record prices for crude oil and its derived products. As the first quarter ended as listed products in the energy markets showed sharp falls but recovered due to profits earned with purchases of natural gas and heating oil. The upward trend of energy prices continued strongly at the beginning of the second quarter as profits were posted to the Fund. The exceptionally favorable results on long positions were the most important determinants of the overall profits. Profits continued to be posted to the Fund mid-quarter as the energy markets reached new high levels especially positions in crude oil and gasoline. Profits continued to be posted to the Fund at the end of the second quarter as prices continued to rise. Purchases of Brent crude oil and gasoline were particularly profitable. Quickly sinking energy prices changed existing purchases of crude oil, and natural gas into losses being posted to the Fund at the beginning of the third quarter. The energy prices continued to fall in August and the sector posted profits to the Fund due to sales in natural gas and heating oil. Sales of various energy products posted profits to the Fund at the end of the third quarter due to energy prices continuing on a downward spin. Profits were posted to the Fund throughout the fourth quarter due to the short positions in the energy markets.
The interest rate sector posted profits for the year. In order to support the troubled banking sector and to stimulate economic growth, the U.S. Federal Reserve Bank substantially reduced the American base rate twice during the second half of January. This move caused profits being posted to the Fund throughout the first quarter due to the positive results on various short and long term interest rate positions anticipating a stronger divergence between American and European rates. The expectation that various European central banks would have to lower their base rates sooner or later led to a more inverse looking yield curve in the money markets. This development was advantageous for existing positions. In March, the financial world was stunned by the demise of the U.S. investment bank Bear Stearns. Due to various liquidity expanding measures by the U.S. Federal Reserve and other leading central banks, the negative impact was limited and profits were posted to the Fund. Losses were posted to the Fund at the beginning of the second quarter. The interest rate markets were mainly driven by increased attention to inflationary risks. More market participants were of the opinion that the interest rate cut by the U.S. Federal Reserve on April 30, 2008 could be the last one for the time being. The interest allowance on British pound deposits surged after the news that the daily United Kingdom interest rate fixing has possibly been manipulated by involved banks which influenced several related positions negatively. Long positions in Japanese government bonds also generated losses. Inflation figures released in the middle of the quarter in various countries and regions raised concerns causing interest rates to rise quickly. Various positions in the money and capital markets of Australia and the United Kingdom profited from the rising rates. A steepening of the yield curve in the United States also had a positive effect as profits were posted to the Fund in the middle of the second quarter. While the United States Federal Reserve kept the official base rate unchanged at its June meeting, most market participants started to take into account a rate rise by the European Central Bank in July. The underlying money and capital markets reflected this difference of monetary policy. Interest rates on the European mainland and in the United Kingdom rose at a much faster pace than rates in the United States. Diverse positions took advantage of this development and the second quarter ended with profits being posted to the Fund. Losses were posted to the Fund at the beginning of the third quarter as inflation fears diminished as commodity prices started to decrease. Declining European interest rates also generated losses to the Fund on various positions. However, the convergence of short term interest rates between the United Kingdom and mainland Europe was profitable but not enough to offset losses. A slowing world economy and commodities halting their price increase spawned the hope that inflation would start to come down. Government bond prices went up as a result of these developments with purchases in the United States, Canada and Australia which generated profits to the Fund in the middle of the third quarter. A disappointing economic performance and a weakening housing market in the United Kingdom exerted its influence in falling money market rates and strengthening the inversion of the yield curve. This process worked well for existing positions as profits continued to be posted to the Fund in the middle of the third quarter. The American rescue plan for the plagued banking sector (Troubled Assets Relief Program) caused strong movements in the interest rate markets against the existing trends was profitable for the Fund at the beginning of the third quarter. Long positions held in anticipating a future drop in the American Federal Fund interest rate also earned excellent profits for the Fund. Purchases in the Canadian bond markets suffered losses while comparable positions in the United States and Australia posted profits to the Fund as the third quarter ended. Profits were posted to the Fund in the fourth quarter. The British Finance Minister openly admitted that he had serious worries about the fate of the United Kingdom economy which helped fears grow about an impending United Kingdom recession. British money market rates reacted strongly and due to the Fund’s earlier taken positions profits were posted to the Fund. Also the Fund’s positions in anticipation of lower official United States interest rates were profitable for the Fund. Positions in all the principal money markets profited from the sharp interest rate falls and profits were posted to the Fund in the middle of the quarter. The sharp interest rate cuts by the central banks of Europe, the United Kingdom, and the United States had a profound effect on the money markets as profits were posted to the Fund at the end of the year. Especially in the United States where the official target rate approached zero and the not so modest upward price movements of German, British, Canadian and South Korean state Bonds were even surpassed by American government paper.
The stock indices sector posted profits for the year. The perception of the credit crisis having its toll on the real economy sent stock markets spiraling lower. Sentiment was further worsened after a massive forced liquidation of an allegedly fraudulent stock indices position by the number two French bank Société Générale. Profits were posted to the Fund on sales of Italian and American blue-chip indices while small losses were felt in the German market. Profits continued to be posted to the Fund from the middle through the end of the quarter as a result of the short sales in Australia, the United States and a long position in the Canadian index. Several short positions, such as the Nasdaq-100 index ended the month of April with losses being posted to the Fund. Although investors had to contend with various uncertainties, many stock exchanges showed certain resilience. Long positions in Canada, the United States and Brazil were profitable for the Fund in the middle of the second quarter. Despite the civil unrest in South Africa, stocks in this country still proved to be desirable. Purchases in the South African stock index added to the profits being posted to the Fund in the middle of the second quarter. A wave of sell swept over the stock markets all over the world at the end of the second quarter. Short positions on various European exchanges also posted profits to the Fund at the end of the second quarter with the biggest profits from Italy, Spain, Turkey and Sweden. Short sales in Hong Kong, Poland and the United States generated losses being posted to the Fund at the beginning of the third quarter. The stock market indices of Hong Kong and Singapore ended the month at lower levels. The profits and losses earned in the rest of Europe and the United States balanced each other out with losses being posted to the Fund in the middle of the third quarter. The continuation of the downward trend in several stock indices had a positive effect on existing positions. The biggest contribution came from Europe with Italy, Sweden and Poland being the leaders. The third quarter ended with profits posted to the Fund due to positions in Asia, South Africa and North America. The persistent selling in the stock markets pushed down stock indices even further worldwide. Various positions contributed to profits being posted to the Fund in October. Just as in September, results achieved in Italy, Poland and South Africa stood out. Additionally, profits were also earned in Australia, Hong Kong, Singapore and Canada, as well as in a European mid-cap index. Many stock markets found new lows during the month of November. The S&P 500 index reached levels not seen since 1997. Positions in North America and Europe, modest in size, posted profits to the Fund in the middle of the fourth quarter. The year ended with losses being posted to the Fund.
The agriculture sector posted profits for the year. Notwithstanding the jumpy nature of the commodity markets profits were posted to the Fund from the beginning through the middle of the first quarter. Long positions in coffee, cocoa and cotton posted profits to the Fund. Purchases of agricultural goods such as corn, wheat and soybeans not only profited from a weaker U.S. dollar but also from an increasing worldwide scarcity of supplies. At the end of the first quarter, purchases of coffee, soybeans and soybean oil suffered with losses being posted to the Fund. Losses were posted to the Fund. at the beginning of the second quarter. The relative weakness of wheat prices against the price of soybeans generated gains being posted to the Fund. However, this was not enough to offset the losses being posted to the Fund from the falling prices of lean hogs and live cattle reversed resulting in losses on short positions. Favorable expectations for the upcoming wheat harvest put wheat prices under pressure which led to profits being posted to the Fund as a result of short positions in wheat. Rising soybean prices and falling sugar prices were also profitable for the Fund in the middle of the second quarter. Heavy rainfall and flooding in the United States formed a threat for the upcoming corn and soybean harvest. Rapidly rising prices helped existing long positions post profits to the Fund at the end of the second quarter. At the beginning of the third quarter various commodity markets saw price decreases of many percentages resulting in losses begin posted to the Fund. The declining prices of soy, corn, sugar, coffee and cocoa also added to the losses being posted to the Fund. Losses continued to be posted to the Fund in the middle of the third quarter due to sales of wheat, soybeans and coffee not producing the desired results for the Fund. The consistent erosion of price levels in wheat, soybeans, soybean oil, cotton and meats were the cause of profits being posted to the Fund at the end of the third quarter. Agricultural products saw their prices drop on the exchanges at the beginning of the fourth quarter as downward trends in wheat, corn and soybean oil delivered profits being posted to the Fund. Similar returns were also achieved with short positions in coffee, cotton and the lean hogs which also added to profits being posted to the Fund. Unfavorable weather and fungus threatening the crops in important cacao-growing regions caused a trend reversal in cacao prices which pushed short positions into the red. However, this was offset by profits being posted to the Fund in the middle of the fourth quarter due to gains in the short positions in corn, cotton and cattle. The direction of prices in the grain markets was less clear in December. Sales of corn and soybeans suffered losses as the year ended with losses being posted to the Fund.
The metals sector posted profits to the Fund. The metals sector posted losses to the Fund at the beginning of the first quarter. Trends in gold and silver continued, albeit with some dips, which helped long positions gain profit. Profits were posted to the Fund in the middle of the first quarter due to higher prices for precious metals such as silver and platinum and base metals such as copper and lead. A short position in nickel did however need to be liquidated with a loss. At the end of the first quarter, a sharp correction led to negative results on long positions of various base and precious metals posting losses to the Fund. Base metal positions added profits being posted to the Fund at the beginning of the second quarter as a result of rising copper prices and a slipping zinc price. The inconsistent direction of gold and silver prices led to losses on
purchased contracts and long positions in copper also suffered resulting in losses being posted to the Fund in the middle of the second. Gains on zinc sales and losses on aluminum sales balanced each other out posting profits for the Fund at the end of the second quarter. Losses were posted to the Fund at the beginning of the third quarter due to losses in long positions in platinum, silver, copper and aluminum. Losses on nickel sales were more than compensated by gains on aluminum and copper sales. However, choppy gold prices led to losses on both long and short positions in the middle of the third quarter posting losses to the Fund. The prices of virtually every commodity traded dropped heavily in September. Short positions in base metals, silver and platinum posted profits to the Fund. The price of gold did jump up at one point, due to investors losing faith in the continued functioning of the financial system. The third quarter ended with profits being posted to the Fund. Base metal prices of aluminum, copper and zinc suffered from the worsening economic conditions. Sales of these metals, as well as short positions in gold, generated profits being posted to the Fund at the beginning of the fourth quarter. Losses were posted to the Fund in the middle of the quarter due to short positions in gold and also losses in zinc. Profits were posted to the Fund at the end of the quarter due to short positions in copper and aluminum.
The currency sector posted profits to the Fund. The currency sector posted losses for the first quarter. At the beginning of the first quarter, increasing fears in the market led to a flight out of high interest currencies, such as the Turkish lira. The U.S. dollar and the Euro also dropped against the Japanese yen which resulted in losses for short Japanese yen positions. Due to a lack of a clear trend for the U.S. dollar against the Australian dollar, the British pound and the Hungarian forint, small losses were suffered. A seriously slowing economy in the middle of the first quarter, a generous monetary policy and increasing inflation did not do the U.S. dollar any favors. Some of the losses experienced early in the quarter were reversed but not enough to offset losses, therefore the sector posted a loss for the first quarter. Profits were posted to the Fund at the beginning of the second quarter though the U.S. dollar, after reaching new record lows against several currencies recovered strongly. Short sales against the Euro, Swiss franc and the Australian dollar resulted in profits for the Fund. Long positions in the Australian dollar and the Mexican peso against the U.S. dollar also generated profits being posted for the Fund. Purchases of Australian dollars against various other currencies posted profits for the Fund in the middle of second quarter. Many emerging currencies saw their relative values rise in the middle of the second quarter with long positions in the Hungarian forint; Polish zloty, Turkish lira and the Mexican pesos all profited resulting in profits posted to the Fund. Purchases of New Zealand dollars financed with euros and U.S. dollars led to losses being posted to the Fund at the end of the second quarter as did sales of Swiss francs versus the euro and British pound. The lack of trend shown by the Canadian dollar against the U.S. dollar and the Japanese yen also led to losses being posted to the Fund. A favorable verdict by the Turkish Constitutional Court for the ruling AK party pushed the value of the Turkish lira against the Euro and the U.S. dollar higher, resulting in profits being posted to the Fund at the beginning of the third quarter. Purchases of Mexican pesos, South African rands, Polish zlotys and Rumanian leis also contributed to profits being posted to the Fund along with a weakening Japanese yen versus the Australian dollar, the Euro and the British pound. However, many emerging market currencies lost serious terrain against the U.S. dollar causing losses to be posted to the Fund in the middle of the third quarter. The purchases of the Eastern European currencies, the South African rand and the Brazilian real also suffered losses. Other contributing factors for losses being posted to the Fund in the middle of the third quarter was the strong Japanese yen against various currencies as well as purchases of Euros against the Swiss franc, purchases of British pounds versus the Swiss franc and the Canadian dollar. The U.S. dollar continued its upward course in September due to U.S. dollar purchases against the Australian and New Zealand dollars and various European currencies posting profits to the Fund in the middle of the third quarter. The depreciation of the Taiwanese dollar, which suffered from a flight of capital from emerging markets posted profits to the Fund as the third quarter ended. In these uncertain times, the Japanese yen and the U.S. dollar gained some favor among investors. Purchases of these currencies against various others were profitable for the Fund. The Swiss franc’s strengthening against the Euro led to profits being posted to the Fund at the beginning of the fourth quarter. A depreciation of the Norwegian and Swedish crowns versus the Euro generated profits being posted to the Fund in the middle of the fourth quarter. The rise of the U.S. dollar against the Swiss franc also returned profits being posted to the Fund. Profits were posted to the Fund due to Euros bought with Czech crowns, British pounds and Canadian dollars.
December 31,
The Fund posted profits for the year with the energy, interest rates, agriculture, and the metals sector posting gains while the currency and stock indices posted losses. The Fund’s commencement of operations started April 2, 2007.
The energy sector posted profits for the Fund. The price development of various energy products showed a choppy course with losses posted to the Fund at the beginning through the middle of the second quarter. However, profits were posted at the quarter end in spite of a difficult trading environment due to weather conditions and geopolitical pressure. While crude oil prices steadily rose, natural gas prices reached new lows and profits were made with both developments at the beginning of the third quarter. Losses posted to the Fund mid-quarter were offset at the end of the third quarter due to the strong march upwards in energy prices translated into excellent profits posted to the Fund on purchases of crude oil and its derived fuels. Sales of natural gas suffered losses at the end of the year to be offset by crude oil. The price of crude oil reached its highest level for the year due to excellent profits achieved on purchases of oil and other energy derivatives. Therefore, the year ended with profits being posted to the Fund.
The interest rates sector posted profits for the Fund. Positive indications regarding the economic recovery in Europe led to rising interest rates at the beginning of the second quarter in both the short and long term segments. Various short positions in several money and capital markets profited from this development. Also, a steepening yield curve in the euro and the diminishing difference between euro and the U.S. dollar deposits were successfully exploited. After the Bank of England was called to answer to the British Parliament in April regarding the high level of inflation, a rate hike was seen mid-quarter. Other major countries also experienced rising money and capital market rates on the basis of robust economic growth expectations combined with increased inflationary pressures. Various short positions in money and capital market products were therefore very profitable. Sales in government bond contracts in Australia, Germany, the United Kingdom and the United States all achieved good results at the quarter’s end. Profits were also earned with rising money market rates in Europe. Losses were posted to the Fund at the beginning of the third quarter as interest rate markets were primarily focused on the worsening conditions of the sub-prime mortgage sector and its follow-on effect to other credit markets. Furthermore, doubts were raised about the attainability of sharply priced takeovers. This all led to a flight to safe government bonds, which in turn brought down money market rates. The situation regarding the American housing market strongly influenced the turnaround seen from a rising to a falling long term interest rate. The back end of the curve in the U.S. declined in a stronger fashion than seen in the United Kingdom and Europe. This development was profitable for British and European capital and money market sales versus purchased American equivalents was the determinate for gains being posted to the Fund the middle of the third quarter. The aggressive cut of the U.S. federal fund rate led to a strong reduction of the rate difference between the United States and continental Europe. This convergence was taken advantage of through the capital markets as well as the money markets as profits were posted to the Fund at the end of the third quarter. Half way through October, the U.S. Fed Chairman Bernanke released comments tempering runaway inflation concerns due to the weakening dollar. This was a turning point for the rising interest rates seen in the U.S. and Europe. Long German bond positions profited while short positions in comparable South Korean bond contracts showed losses. U.S. and European deposit contracts suffered minor losses. Both short and long term interest rates in continental Europe rose in relation to rates in the United States. A persistent inflation rate in Europe and disappointing American figures, which further exposed the weakness of the U.S. economy, formed the basis for this development. Various positions took advantage of this situation. Respective positions anticipating a similar divergence between the United Kingdom and the United States however, did not bring the desired results. This was partially caused by increasing expectations that the Bank of England would reduce the base rate in 2008. The year ended with profits being posted to the Fund.
The agriculture sector posted profits for the Fund. More than usual rain and frost in North America and extreme drought in Europe brought an abrupt end to falling wheat prices at the beginning of the second quarter which did not offset short sales that closed out with losses being post to the Fund. Soybean purchases did return a profit mid-quarter due to rising prices after lower than expected crop prospects. Meat and hog purchases did not fare as well. Losses on corn purchases were partially offset by long positions in soybeans and wheat as the second quarter ended with profits being posted to the Fund. Due to promising prospects for the upcoming corn harvest, corn prices fell which favored short positions in grain posting profits to the Fund at the beginning of the third quarter. In contrast to many other markets, fundamental reasons did play an important role in the world markets for wheat. Lower harvest expectations resulted in profits to the Fund mid-quarter. Wheat purchases also scored well when prices sharply rose after news released on low supply figures and difficult weather conditions in important wheat growing areas. Further expected scarcity in various commodities forced wheat, soybean, and soybean meal and soybean oil prices upwards resulting in gains posted to the Fund at the end of the third quarter. The prices of corn, soybeans, soybean meal, and soybean oil continued their upward trend with strength. Long positions in these products therefore delivered good results. Sales of wheat and sugar produced losses which were partially offset by profits earned on coffee purchases as the year ended with profits being posted to the Fund.
The metals sector posted profits for the Fund. The metals markets at the beginning of the second quarter achieved positive results with purchases of platinum, nickel and zinc which could not offset losses suffered on silver purchases. Purchases of metal contracts were closed with losses due to earlier rising trends not continuing in May. The purchases of gold and silver, as well as copper and nickel were however loss-making which produced losses being posted to the Fund at quarters end. Copper and lead purchases posted profits to the Fund which was not enough to offset losses in purchases of gold and silver. Long positions in aluminum also posted losses to the Fund at the beginning of the third quarter. The commodity markets were in general defined by a massive liquidation of positions leading to the breaking of existing trends. Even a safe haven such as gold was sold “en masse” as fears had reached their peak posting losses to the Fund. The third quarter ended with small profits being posted to the Fund due to the rising trend of gold and copper prices as well as the falling price of aluminum. Besides purchases of the precious metals gold and silver producing gains, sales of base metals such as aluminum, copper, nickel and zinc produced profits to the Fund as the year ended.
The currency sector posted losses for the fund. A slower growing pace of the economy in the United States pushed the U.S. dollar to a historic low against the euro at the beginning of the second quarter. Purchases of euros, British pounds, Australian and New Zealand dollars versus the U.S. dollar produced excellent profits. The currencies of emerging economies such as the Hungarian forint, Turkish lira and Israel shekel also generated healthy profits due to their appreciation against the U.S. dollar. Sales of the Japanese yen, which again weakened in relation to other important currencies, also appeared to be highly profitable. In relation to the euro, gains were earned on long positions in the Polish zloty. The weaker Japanese yen and the stronger Canadian dollar formed the basis of profits being posted to the Fund mid-quarter. Profits were also earned on short positions in the Japanese yen against the U.S. dollar and Mexican Nuevo peso. Profits were posted to the Fund at the end of the second quarter due to the weakness of the Japanese yen, which reached new historical lows versus various currencies. An unexpected rate hike from the Central Bank of New Zealand caused an appreciation of the local currency as well as bringing up the Australian dollar. The appreciation of the British pound against the Swiss franc and the euro also generated profits to the Fund. The third quarter began with losses as being posted to the Fund due to the unwinding of the Japanese yen financed loans, so called “carry trades”, the value of the Japanese yen shot up against the other important currencies. Losses continued to be posted to the Fund mid-quarter as the currency markets were also scathed by the increased uncertainties. The U.S. dollar appreciated against many other currencies with losses on purchases of the Australian and New Zealand dollars; Euros and the British pound as a consequence. The British pound also weakened against sold Swiss francs, however, the British pound proved profitable versus purchases of Canadian dollars. The U.S. dollar footed the bill at the end of the third quarter with the American housing and mortgage market, a forceful rate cut and increasing fear for inflation. Terrain was lost not just against the main G7 Currencies but especially in relation to emerging markets currencies. Purchases of South African rand, the Hungarian forint, the Czech crown and the Indian rupee all scored excellently against the U.S. dollar. Furthermore, profits were earned on various purchases of a strengthening Canadian dollar as it reached parity versus the U.S. dollar for the first time in 31 years. The appreciation of the Turkish lira versus the Euro and the U.S. dollar also generated a positive contribution. The weakening U.S. dollar, the Canadian dollar, often perceived by the market as an energy currency experienced a very robust appreciation against many other currencies. The unexpected revival of the U.S. dollar in the first half of December forced short U.S. dollar positions against several European currencies, the Mexican peso and the South African rand into the red. Various sales of the Japanese yen were affected by its choppy character so sizable losses were suffered. The euro currency purchased with Canadian dollars also booked a negative result. Despite tensions along the Turkish Iraqi border, the Turkish lira still appreciated versus the euro and the U.S. dollar. This produced profits but not enough to keep the losses being posted to the Fund as the year ended.
Stock indices posted losses for the Fund. Profits were posted to the Fund at the beginning of the second quarter with purchases of various index futures, especially in Europe and the United States. Within Europe, positions in
Germany, Switzerland and Sweden were the lead performers. A climate of heightened merger and acquisition activity and a still relatively low interest rate perception gave enough impetus for further rises in stock market levels mid-quarter. Exceptional results were achieved through purchases of broad-based indices in South Korea, as well as Canada, the UK and the US. Chinese government officials hinted at the possibility to introduce various new regulations in June which could ease cross-border investment and at the same time narrow the gap between respectively higher mainland China and lower Hong Kong equity valuations. The local Chinese stock market fell harshly while a euphoric mood reigned over the Hong Kong stock market, which led to existing long positions delivering profits to the Fund. However, various stock markets in Europe and North America suffered under the weight of higher interest rates and worries regarding the housing and mortgage market in the United States. As a consequence, the second quarter ended with losses being posted to the Fund. The sudden change of investor sentiment took its toll at the beginning of the third quarter especially in the United States where many indices earlier in the year reached new contract highs and in Europe losses were felt. The stock markets in Australia and Japan also put in a disappointing performance. Positive exceptions were the purchases in Hong Kong and South Korea which limited the losses to the Fund. The stock market was distinguished by an increasing risk awareness and aversion. Financial stocks had an especially difficult time due to uncertainties of potential sub-prime related losses mid-quarter. Purchases in Hong Kong experienced a significant loss while profits were recorded on sales in Japan. Despite investor concern, most stock indices worldwide, partly due to the confidence instilled by the central banks, ended the third quarter with profits being posted to the Fund. This development produced a positive result for various long positions. Positions in technology and telecom related stock indices did especially well. Other over-achievers were purchases of Chinese, South African and Canadian stock indices. The stock markets showed a mixed picture at the beginning of the fourth quarter. Chinese shares listed in Hong Kong reached new highs which led to gains on long positions. Purchases of blue chip indices in the U.S. and Sweden suffered losses while similar positions in Australia and Canada were profitable. Technology and telecom stocks were very much in demand in Europe and the U.S. which translated in profits being posted to the Fund. Increased insecurity and suspicions regarding future yet to be released losses on sub-prime portfolios held by major financial institutions caused many investors to adjust their trust levels, thus pushing the stock markets lower. Very few clear directions were experienced in the stock markets. Purchases in Japan, Australia, the United Kingdom, and Spain let to disappointing results. Losses were felt in North and South America on both long and short positions ending the year with losses.
Variables Affecting Performance
The principal variables that determine the net performance of the Fund are gross profitability from the Fund’s trading activities and interest income.
During the period set forth above in “Selected Financial Data”, the interest rates in many countries were at unusually low levels. The low interest rates in the United States (although higher than in many other countries) negatively impacted revenues because interest income is typically a major component of the Fund’s profitability. In addition, low interest rates are frequently associated with reduced fixed income market volatility, and in static markets the Fund’s profit potential generally tends to be diminished. On the other hand, during periods of higher interest rates, the relative attractiveness of a high risk investment such as the Fund may be reduced as compared to high yielding and much lower risk fixed-income investments.
The Fund’s Management Fees and Sponsor Fees are a constant percentage of the Fund’s assets. Brokerage Commissions, which are not based on a percentage of the Fund’s assets, are based on actual round turns. The Performance Fees payable to Transtrend are based on the new Trading Profits generated by the Fund excluding interest and after reduction of the Brokerage Commissions.
Unlike many investment fields, there is no meaningful distinction in the operation of the Fund between realized and unrealized profits. Most of the contracts traded by the Fund are highly liquid and can be closed out at any time.
Except in unusual circumstances, factors-regulatory approvals, cost of goods sold, employee relations and the like-which often materially affect an operating business have no material impact on the Fund.
Liquidity; Capital Resources
The Fund borrows only to a limited extent and only on a strictly short-term basis in order to finance losses on non-U.S. dollar denominated trading positions pending the conversion of the Fund’s U.S. dollar deposits. These borrowings are at a prevailing short-term rate in the relevant currency.
Substantially all of the Fund’s assets are held in cash. The Net Asset Value of the Fund’s cash is not affected by inflation. However, changes in interest rates could cause periods of strong up or down price trends, during which the Fund’s profit potential generally increases. Inflation in commodity prices could also generate price movements, which the strategies might successfully follow.
Because substantially all of the Fund’s assets are held in cash, the Fund should be able to close out any or all of its open trading positions and liquidate any or all of its securities holdings quickly and at market prices, except in very unusual circumstances. This permits the Fund to limit losses as well as reduce market exposure on short notice should its strategies indicate doing so. In addition, because there is a readily available market value for the Fund’s positions and assets, the Fund’s monthly Net Asset Value calculations are precise, and investors need to provide ten business days notice to receive the full redemption proceeds of their Units on the last business day of any month.
(The Fund has no applicable off-balance sheet arrangements and tabular disclosure or contractual obligations of the type described in Items 3.03(a)(4) and 3.03(a)(5) of Regulation S-K.)
Item 7A:
Item 7A: Quantitative and Qualitative Disclosures About Market Risks
Introduction
The Fund is a speculative commodity pool. The market sensitive instruments held by it are acquired for speculative trading purposes and all or substantially all of the Fund’s assets are subject to the risk of trading loss. Unlike an operating company, the risk of market sensitive instruments is integral, not incidental, to the Fund’s main line of business.
Market movements result in frequent changes in the fair market value of the Fund’s open positions and, consequently, in its earnings and cash flow. The Fund’s market risk is influenced by a wide variety of factors, including the level and volatility of interest rates, exchange rates, equity price levels, the market value of financial instruments and contracts, the diversification effects among the Fund’s open positions and the liquidity of the markets in which it trades.
The Fund, under the direction of Transtrend, rapidly acquires and liquidates both long and short positions in currency markets. Consequently, it is not possible to predict how a particular future market scenario will affect performance, and the Fund’s past performance is not necessarily indicative of its future results.
Value at Risk is a measure of the maximum amount which the Fund could reasonably be expected to lose in a given market sector. However, the inherent uncertainty of the Fund’s speculative trading and the recurrence in the markets traded by the Fund of market movements far exceeding expectations could result in actual trading or non-trading losses far beyond the indicated Value at Risk or the Fund’s experience to date (i.e., “risk of ruin”). In light of the foregoing, as well as the risks and uncertainties intrinsic to all future projections, the quantifications included in this section should not be considered to constitute any assurance or representation that the Fund’s losses in any market sector will be limited to Value at Risk or by the Fund’s attempts to manage its market risk.
Quantifying The Fund’s Trading Value At Risk
Quantitative Forward-Looking Statements
The following quantitative disclosures regarding the Fund’s market risk exposures contain “forward-looking statement” within the meaning of the safe harbor form civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). All quantitative disclosures in this section are deemed to be forward-looking statements for purposes of the safe harbor, except for statements of historical fact.
The Fund’s risk exposure in the various market sectors traded by the Fund is quantified below in terms of Value at Risk. Due to the Fund’s mark-to-market accounting, any loss in the fair value of the Fund’s open positions is directly reflected in the Fund’s earnings (realized or unrealized) and cash flow (at least in the case of exchange-traded contracts in which profits and losses on open positions are settled daily through variation margin).
Exchange maintenance margin requirements have been used by the Fund as the measure of its Value at Risk. Maintenance margin requirements are set by exchanges to equal or exceed the maximum loss in the fair value of any given contract incurred in 95%-99% of the one-day time periods included in the historical sample (generally approximately one
year) researched for purposes of establishing margin levels. The maintenance margin levels are established by dealers and exchanges using historical price studies as well as an assessment of current market volatility (including the implied volatility of the options on a given futures contract) and economic fundamentals to provide a probabilistic estimate of the maximum expected near-term one-day price fluctuation.
In the case of market sensitive instruments which are not exchange-traded (almost exclusively currencies in the case of the Fund), the margin requirements for the equivalent futures positions have been used as Value at Risk. In those rare cases in which a futures-equivalent margin is not available, dealers’ margins have been used.
100% positive correlation in the different positions held in each market risk category has been assumed. Consequently, the margin requirements applicable to the open contracts have been aggregated to determine each trading category’s aggregate Value at Risk. The diversification effects resulting from the fact that the Fund’s positions are rarely, if ever, 100% positively correlated have not been reflected.
The Fund’s Trading Value at Risk in Different Market Sectors
The following table indicates the average, highest and lowest trading Value at Risk associated with the Fund’s open positions by market category for the fiscal periods. During the Year ended December 31, 2008 and period ended December 31, 2007, the Fund’s average month-end Net Asset Value for all other purposes was approximately $158,124,764 and 86,161,510, respectively.
December 31, 2008
December 31, 2007
Material Limitations on Value at Risk as an Assessment of Market Risk.
The face value of the market sector instruments held by the Fund is typically many times the applicable maintenance margin requirement (maintenance margin requirements generally ranging between approximately 1% and 10% of contract face value) as well as many times the capitalization of the Fund. The magnitude of the Fund’s open positions creates a “risk of ruin” not typically found in most other investment vehicles. Because of the size of its positions, certain market conditions - unusual, but historically recurring from time to time - could cause the Fund to incur severe losses over a short period of time. The foregoing Value at Risk table - as well as the past performance of the Fund - gives no indication of this “risk of ruin.”
Non-Trading Risk
Foreign Currency Balances; Cash on Deposit with MLPF&S
The Fund has non-trading market risk on its foreign cash balances not needed for margin. However, these balances (as well as the market risk they represent) are immaterial.
The Fund also has non-trading market risk on the approximately 90%-95% of its assets which are held in cash at MLPF&S. The value of this cash is not interest rate sensitive, but there is cash flow risk in that if interest rates decline so will the cash flow generated on these monies. This cash flow risk is immaterial.
Qualitative Disclosures Regarding Primary Trading Risk Exposures
The following qualitative disclosures regarding the Fund’s market risk exposures - except for (i) those disclosures that are statements of historical fact and (ii) the descriptions of how the manages its primary market risk exposures - constitute forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. The Fund’s primary market risk exposures as well as the strategies used and to be used by MLAI and Transtrend for managing such exposures are subject to numerous uncertainties, contingencies and risks, any one of which could cause the actual results of the Fund’s risk controls to differ materially from the objectives of such strategies. Government interventions, defaults and expropriations, illiquid markets, the emergence of dominant fundamental factors, political upheavals, changes in historical price relationships, an influx of new market participants, increased regulation and many other factors could result in material losses as well as in material changes to the risk exposures and the risk management strategies of the Fund. There can be no assurance that the Fund’s current market exposure and/or risk management strategies will not change materially or that any such strategies will be effective in either the short- or long-term. Investors must be prepared to lose all or substantially all of the time value of their investment in the Fund.
The following were the primary trading risk exposures of the Fund as of December 31, 2008, by market sector.
Interest Rates.
Interest rate risk is the principal market exposure of the Fund. Interest rate movements directly affect the price of derivative sovereign bond positions held by the Fund and indirectly the value of its stock index and currency positions. Interest rate movements in one country as well as relative interest rate movements between countries materially impact the Fund’s profitability. The Fund’s primary interest rate exposure is to interest rate fluctuations in the United States and the other G-7 countries. However, the Fund also takes positions in the government debt of smaller nations e.g., Australia. MLAI anticipates that G-7 interest rates will remain the primary market exposure of the Fund for the foreseeable future.
Currencies.
The Fund trades in a number of currencies. The Fund does not anticipate that the risk profile of the Fund’s currency sector will change significantly in the future. The currency trading Value at Risk figure includes foreign margin amounts converted into U.S. dollars with an incremental adjustment to reflect the exchange rate risk of maintaining Value at Risk in a functional currency other than U.S. dollars.
Metals.
The Fund’s metals market exposure is to fluctuations in the price of precious and non-precious metals.
Agricultural Commodities
The Fund’s primary agricultural commodities exposure is to agricultural price movements which are often directly affected by severe or unexpected weather conditions. Soybeans, grains, and livestock accounted for the substantial bulk of the Fund’s agricultural commodities exposure as of December 31, 2008. However, it is anticipated that the Fund will maintain an emphasis on cotton, grains and sugar, in which the Fund has historically taken its largest positions.
Energy.
The Fund’s primary energy market exposure is to natural gas and crude oil price movements, often resulting from political developments in the Middle East. Oil prices can be volatile and substantial profits and losses have been and are expected to continue to be experienced in this market.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following were the only non-trading risk exposures of the Fund as of December 31, 2008.
Foreign Currency Balances.
The Fund’s primary foreign currency balances are in Japanese yen, Swedish Krona and Euros.
U.S. Dollar Cash Balance.
The Fund holds U.S. dollars only in cash at MLPF&S. The Fund has immaterial cash flow interest rate risk on its cash on deposit with MLPF&S in that declining interest rates would cause the income from such cash to decline.
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 Fund’s market exposure, MLAI may urge Transtrend to reallocate positions in an attempt to avoid over-concentrations. However, such interventions are unusual, except in cases in which it appears that Transtrend has begun to deviate from past practice and trading policies or to be trading erratically, MLAI’s basic control procedures consist of simply of the ongoing process of monitoring Transtrend with the market risk controls being applied by Transtrend itself.
Risk Management
Transtrend attempts 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. Transtrend double checks the accuracy of market data, and will not trade a market without multiple price sources for analytical input. In constructing a portfolio, Transtrend seeks to control overall risk as well as the risk of any one position, and Transtrend trades 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. Transtrend factors the point of exit into the decision to enter (stop loss). The size of the Funds’ 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 Transtrend 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 Transtrend may vary the weighting at its discretion as market conditions, liquidity, position limit considerations and other factors warrant.
Transtrend 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, Transtrend at its sole discretion may override computer-generated signals and may at times use discretion in the application of its quantitative models, which may affect performance positively or negatively.
Adjustments in position size in relation to account equity have been and continue to be an integral part of Transtrend’s investment strategy. At its discretion, Transtrend 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 Fund controls the non-trading exchange rate risk by regularly converting foreign balances back into U.S. dollars at least once per week, and more frequently if a particular foreign currency balance becomes unusually high.
The Fund has cash flow interest rate risk on its cash on deposit with MLPF&S in that declining interest rates would cause the income from such cash to decline. However, a certain amount of cash or cash equivalents must be held by the
Fund in order to facilitate margin payments and pay expenses and redemptions. MLAI does not take any steps to limit the cash flow risk on its cash held on deposit at MLPF&S.
Item 8:
Item 8: Financial Statements and Supplementary Data
Net Income(Loss) by Quarter
Seven Quarters through December 31, 2008
(1) The net income per weighted average unit is based on the weighted average of the total units for each quarter.
(2) Commencement of operations April 2, 2007
The financial statements required by this Item are included in Exhibit 13.01.
The supplementary financial information specified by Item 302 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 changes in or disagreements with the Fund’s independent registered public accounting firm on accounting and financial disclosure.
Item 9A
Item 9A (T): Controls and Procedures
MLAI’s Chief Executive Officer and the Chief Financial Officer, on behalf of the Fund, has evaluated the effectiveness of the design and operation of its disclosure controls and procedures with respect to the Fund as of and for the year which ended December 31, 2008, and, based on its evaluation, has concluded that these disclosure controls and procedures are effective. Additionally, there were no significant changes in the Fund’s internal controls over financial reporting which materially affect such internal control.
Changes in Internal Control over Financial Reporting
No change in internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) occurred during the year ended December 31, 2008 that has materially affected, or is reasonable likely to materially affect, the Fund’s internal control, over financial reporting.
Management’s Report on Internal Control over Financial Reporting:
The Fund’s management is responsible for establishing and maintaining adequate internal control over financial reporting. The Fund’s internal control over financial reporting is a process designed under the supervision of MLAI’s Chief Executive Officer and the Chief Financial Officer, on behalf of the Fund and is effected by management, other personnel and service providers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and included those policy and procedures that:
· Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Fund.
· Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Fund are being made only in accordance with authorizations of management and directors of the Fund; and
· Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use or disposition of the Fund’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in condition, or that the degree of compliance with the policies or procedures may deteriorate.
The Fund’s management assessed the effectiveness of the Funds’ internal control over financial reporting at December 31, 2008. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “Internal Control-Integrated Framework”.
Based on its assessment the Fund’s management concluded that at December 31, 2008, the Fund’s internal control over financial report was effective.
This annual report does not include an attestation report of the Fund’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Fund’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Fund to provide only management’s report for this annual report.
Item 9B:
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:
The managers and executive officers of MLAI and their respective business backgrounds are as follows:
Paul Morton
Chief Executive Officer, President and Manager
Barbra E. Kocsis
Chief Financial Officer
Thomas W. Lee
Vice President and Manager
Justin C. Ferri
Vice President and Manager
Paul Morton is the Chief Executive Officer, President, and Manager of MLAI. He also serves as the Chief Operating Officer for the Global Investment and Insurance Solutions (GIIS) group for Merrill Lynch. As Chief Operating Officer of GIIS, Mr. Morton leads the market investments business within the group, which includes secondary equity, debt, listed options, futures and FX for Merrill Lynch’s Global Wealth Management division. Prior to serving as COO of GIIS, Mr. Morton worked in the equity and debt trading management of Merrill Lynch. Prior to joining Merrill Lynch in 1996, Mr. Morton worked in the equity derivatives at Paine Webber. From 1988-1993, Mr. Morton served as an officer in the US Army for five years. Mr. Morton holds a BS (Aerospace Engineering) from the United States Military Academy at West Point (1988) and a MBA (Finance) from the Wharton School at the University of Pennsylvania (1995).
Barbra E. Kocsis is Chief Financial Officer for MLAI. She is also a Director within the Merrill Lynch Global Private Client Global Infrastructure Solutions group. Prior to that, she was the Fund Controller of MLAI. Before coming to 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. She graduated cum laude from Monmouth College in 1988 with a Bachelor of Science in Business Administration - Accounting.
Thomas W. Lee is Vice President and Manager of MLAI. He is also a Managing Director in Merrill Lynch’s Market Investments and Origination Group, responsible for Global Private Client’s equity and debt new issue businesses, and is a Vice President and Manager of the Manager, and his registration as a principal of the Manager is pending with NFA. Prior to joining Merrill Lynch in 1998, Mr. Lee was a corporate securities attorney at the law firm of Brown & Wood. Mr. Lee received his J.D. from Emory University School of Law and a B.S. from Cornell University.
Justin C. Ferri is a Vice President and Manager of MLAI. He is also a Director within the MLPF&S Structured and Alternative Solutions (SAS) group and is a Vice President of IQ Investment Advisors LLC. Prior to his role in SAS, 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 Global Private Client Rampart Equity Derivatives group. 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. He graduated with a Bachelor of Arts Degree from Loyola College in Baltimore, Maryland.
MLAI acts as the sponsor, general partner or manager to seven 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 Select Futures I L.P., ML Systematic Momentum FuturesAccess LLC, Systematic Momentum II 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.
Section 16(a) Beneficial Ownership Reporting Compliance:
Not applicable.
Code of Ethics:
MLAI and Merrill Lynch have adopted a code of ethics which applies to the Fund’s (MLAI’s) principal executive officer and principal financial officer or persons performing similar functions on behalf of the Fund. A copy of the code of ethics is available to any person, without charge, upon request by calling 1-866-MER-ALTS.
Nominating Committee:
Not applicable. (Neither the Fund nor MLAI has nominating committee.)
Audit Committee: Audit Committee Financial Expert:
Not applicable. (Neither the Fund nor MLAI has an audit committee. There are no listed
shares of the Fund or MLAI.)
Item 11:
Item 11: Executive Compensation
The managers and officers of MLAI are remunerated by Merrill Lynch in their respective positions. The Fund does not have any officers, managers or employees. The Fund pays Brokerage Commissions to an affiliate of MLAI and Sponsor Fees to MLAI. MLAI or its affiliates may also receive certain economic benefits from possession of the Fund’s U.S. dollar assets. The managers and officers receive no “other compensation” from the Fund, and the managers receive no compensation for serving as managers of MLAI. There are no compensation plans or arrangements relating to a change in control of either the Fund or MLAI.
Item 12:
Item 12: Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
(a) Security Ownership of Certain Beneficial Owners:
Not applicable. (The Units are non-voting securities limited liability company interests. The Fund is managed by MLAI, its sponsor.)
(b) Security Ownership of Management:
As of December 31, 2008, MLAI owned no Unit-equivalent Member interests. The principals of MLAI did not own any Units, and Transtrend did not own any Units.
(c) Changes in Control:
None.
Item 13:
Item 13: Certain Relationships and Related Transactions, and Director Independence
(a) Transactions between Merrill Lynch and the Fund
Some of the service providers to the Fund are affiliates of Merrill Lynch. However, none of the fees paid by the Fund to such Merrill Lynch affiliates were negotiated and such fees charged to the Fund might be higher
than would have been obtained in arms-length negotiations.
The Fund pays Merrill Lynch substantial Brokerage Commissions and Sponsor Fees as well as bid-ask spreads on forward currency trades. The Fund 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 beneficiary of the revenues received by different Merrill Lynch entities from the Fund. MLAI controls the management of the Fund and serves as its promoter. Although MLAI has not sold any assets, directly or indirectly, to the Fund, MLAI makes substantial profits from the Fund due to the foregoing revenues.
No loans have been, are or will be outstanding between MLAI or any of its principals and the Fund.
MLAI pays substantial selling commissions and trailing commissions to MLPF&S for distributing the Units. MLAI is ultimately paid back for these expenditures from the revenues it receives from the Fund.
(b) Certain Business Relationships:
MLPF&S, an affiliate of MLAI, acts as the principal commodity broker for the Fund.
In 2008, the Fund expensed: (i) Brokerage Commissions of $642,724 to MLPF&S and $2,462,288 in management fees earned by Transtrend and MLAI, (ii) Sponsor Fees of $255,504 to MLAI. In addition, MLAI and its affiliates may have derived certain economic benefits from possession of a portion of the Fund’s assets, as well as from foreign exchange and EFP trading.
See Item 1(c), “Narrative Description of Business - Charges” and “- Description of Current Charges” for a discussion of other business dealings between MLAI affiliates and the Fund.
(c) Indebtedness of Management:
None.
(d) Transactions with Promoters:
Not applicable.
Item 14:
Item 14: Principal Accountant Fees and Services
(a) Audit Fees
Aggregate fees billed for professional services rendered by Deloitte & Touche LLP in connection with the audit of the Fund’s financial statements as of and for the year ended December 31, 2008 and for the period ended December 31, 2007 were $91,000 for each period.
(b) Audit-Related Fees
There were no other audit-related fees billed for the year ended December 31, 2008, related to the Fund.
(c) Tax Fees
Aggregate fees billed for professional services rendered by Deloitte Tax LLP in connection with the tax compliance, advice and preparation of the Fund’s tax returns for the year ended December 31, 2008 and for the period ended December 31, 2007 were $72,000 and $64,000 for each period, respectively.
(d) All Other Fees
No fees were billed by Deloitte & Touche LLP, Deloitte Tax LLP, or any member firms of Deloitte Touche Tohmatsu and their respective affiliates during the year ended December 31, 2008 for any other professional services in relation to the Fund.
Neither the Fund nor MLAI has an audit committee to pre-approve principal accountant fees and services. In lieu of an audit committee, the managers and the principal financial officer pre-approve all billings prior to the commencement of services.
PART IV
Item 15:
Item 15: Exhibits and Financial Statement Schedules
Page:
1.
Financial Statements (found in Exhibit 13.01):
Report of Independent Registered Public Accounting Firm
Statements of Financial Condition as of December 31, 2008 and 2007
Statements of Operations for the year ended December 31, 2008 and for the period April 2, 2007 (commencement of operations) to December 31, 2007
Statements of Changes in Member’s Capital for the year ended December 31, 2008 and for the period April 2, 2007 (commencement of operations) to December 31,
Financial Data Highlights for the year ended December 31, 2008 and for the period April 2, 2007 (commencement of operations) to December 31, 2007
Notes to Financial Statements
2.
Financial Statement Schedules:
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
Certificate of Formation of ML Transtrend DTP Enhanced FuturesAccess LLC.
Exhibit 3.01:
Is incorporated herein by reference from Exhibit 3.01 contained in the Registration Statement (File No. 000-52701) filed on December 20, 2004, on Form 10 under the Securities Exchange Act of 1934 (the “Registrant’s Registration Statement”).
3.02 3.02
Limited Liability Company Operating Agreement of ML Transtrend DTP Enhanced Global Commodity FuturesAccess LLC.
Exhibit 3.02
Is incorporated by reference from Exhibit 3.02 contained in the Registrant’s Registration Statement
3.03 10.01
Institutional Futures Client Account between ML Transtrend DTP Enhanced FuturesAccess LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated.
Exhibit 10.01:
Is incorporated by reference from Exhibit 10.01 contained in the Registration Statement filed on November 13, 2007, on Form 10 under the Securities Exchange Act of 1934.
3.04 10.02
Advisory Agreement by and among ML Transtrend DTP Enhanced FuturesAccess LLC, Merrill Lynch Alternative Investments LLC and Transtrend B.V.
Exhibit 10.02:
Is filed herewith.
13.01
2008 Annual Report and Report of Independent Registered Public Accounting Firm.
Exhibit 13.01:
Is filed herewith.
31.01 and 31.02
Rule 13a-14(a)/15d-14(a) Certifications
Exhibit 31.01 and 31.02:
Are filed herewith.
32.01 and 32.02
Section 1350 Certifications
Exhibit 32.01 and 32.02:
Are filed herewith.
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 TRANSTREND DTP ENHANCED FUTURESACCESS LLC
By: MERRILL LYNCH ALTERNATIVE INVESTMENTS LLC, Manager
By:
/s/Paul Morton
Paul Morton
Chief Executive Officer, President and Manager
(Principal Executive Officer)
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed on March 31, 2009 by the following persons on behalf of the Registrant and in the capacities indicated.
Signature
Title
Date
/s/ Paul Morton
Chief Executive Officer, President and Manager
March 31,
Paul Morton
/s/ Barbra E. Kocsis
Chief Financial Officer
March 31,
Barbra E. Kocsis
(Principal Financial and Accounting Officer)
s/ Thomas W. Lee
Vice President and Manager
March 31,
Thomas W. Lee
/s/ Justin C. Ferri
Vice President and Manager
March 31,
Justin C. Ferri
(Being the principal executive officer, the principal financial and accounting officer and a majority of the managers of Merrill Lynch Alternative Investments LLC)
ML TRANSTREND DTP ENHANCED FUTURESACCESS LLC
2008 FORM 10-K
INDEX TO EXHIBITS
Exhibit
Exhibit 10.02
Advisory Agreement by and among ML Transtrend DTP Enhanced FuturesAccess LLC, Merrill Lynch Alternative Investments LLC and Transtrend B.V.
Exhibit 13.01
2008 Annual Report and Report of Independent Registered Public Accounting Firm
Exhibit 31.01 and 31.02
Rule 13a - 14(a) / 15d - 14(a) Certifications
Exhibit 32.01 and 32.02
Sections 1350 Certifications