Item 1: Business
(a) General Development of Business:
ML Winton FuturesAccess LLC (the “Fund”) was organized under the Delaware Limited Liability Company Act on May 17, 2004 and commenced trading activities on February 1, 2005. The Fund issues new units of limited liability company interest (“Units”) at Net Asset Value per Unit (see Item 6 for discussion of net asset value and net asset value per unit for subscriptions and redemptions purposes hereinafter referred to as Net Asset Value and Net Asset Value per Unit) as of the beginning of each calendar month. The Fund engages in the speculative trading of futures, options on futures and forward contracts on a wide range of commodities. Winton Capital Management Limited (“Winton” or the “Trading Advisor”), 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 (or the “Company”) entered into an Agreement and Plan of Merger (as amended by Amendment No. 1 dated as of October 21, 2008, the “Merger Agreement”) with Bank of America Corporation (“Bank of America”). Pursuant to the Merger Agreement, on January 1, 2009, a wholly-owned subsidiary of Bank of America (“Merger Sub”) merged with and into Merrill Lynch, with Merrill Lynch continuing as the surviving corporation and a subsidiary of Bank of America (the “Merger”).
The Fund calculates the Net Asset Value per Unit of each Class of Units as of the close of business on the last business day of each calendar month and such other dates as MLAI may determine in its discretion. The Fund’s Net Asset Value as of any calculation date will generally equal the value of the Fund’s account under the management of its trading advisor as of such date, plus any other assets held by the Fund, minus accrued brokerage commissions, sponsor’s, management and performance fees, organizational expense amortization and any operating costs and other liabilities of the Fund. MLAI is authorized to make all Net Asset Value determinations.
As of December 31, 2009, the Net Asset Value of the Fund was $750,036,467 and the Net Asset Value per Unit was, $1.5088 for Class A, $1.4380 for Class C, $1.4964 for Class D, $1.5267 for Class I, $1.4946 for Class DS and $1.5377 for Class DT.
The highest month-end Net Asset Value per Unit for Class A since Winton began trading the Fund was $1.6553 (January 31, 2009) and the lowest was $1.0223 (February 28, 2005). The highest month-end Net Asset Value per Unit for Class C since Winton began trading the Fund was $1.5921 (January 31, 2009) and the lowest was $1.0214 (February 28, 2005). The highest month-end Net Asset Value per Unit for Class I since Winton began trading the Fund was $1.6687 (January 31, 2009) and the lowest was $1.0226 (February 28, 2005). The highest month-end Net Asset Value per Unit for Class D since Winton began trading the Fund was $1.6193 (January 31, 2009) and the lowest was $0.9601 (April 30, 2005). The highest month-end Net Asset Value per Unit for Class DS since Winton began trading the Fund was $1.6173 (January 31, 2009) and the lowest was $1.0733 (March 31, 2007). The highest month-end Net Asset Value per Unit for Class DT since Winton began trading the Fund was $1.6568 (January 31, 2009) and the lowest was $1.1914 (May 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:
Trading Advisor’s Trading Model
The Fund trades in the futures and forward markets with the objective of achieving substantial capital appreciation.
The Fund and MLAI have entered into an advisory agreement with Winton whereby Winton trades in the U.S. and international futures and forwards markets pursuant to the Winton Diversified Program (the “Trading Model”). Winton’s investment technique consists of trading a portfolio of over 100 contracts on major futures exchanges and forward markets worldwide, employing a computerized, technical, principally trend-following trading system. This system tracks the daily price movements and other data from these markets, and carries out certain computations to determine how long or short the portfolio should be to maximize profit within a certain range of risk. If rising prices are anticipated, a long position will be established; a short position will be established if prices are expected to fall.
Technical analysis refers to analysis based on data intrinsic to a market, such as price and volume. This is to be contrasted with fundamental analysis which relies on factors external to a market, such as supply and demand. The Trading Model does not use fundamental factors.
A trend-following system, such as the Trading Model, attempts to take advantage of the observable tendency of the markets to trend, and to tend to make exaggerated movements in both upward and downward directions as a result of such trends. The Trading Model has been developed by relating the probability of the size and direction of future price movements with certain indicators derived from past price movements which characterize the degree of trending of each market at any time.
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 Winton 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
Winton trades in a variety of liquid U.S. and non-U.S. futures and forward contracts, including agricultural, currencies, energy, interest rates, metals and stock indices.
CONDENSED SCHEDULES OF INVESTMENTS
The Fund’s investments, defined as Net unrealized profit (loss) on open contracts in the Statements of Financial Condition, as of December 31, 2009 and 2008 are as follows:
No individual contract’s unrealized profit or loss comprised greater than 5% of Members’ Capital as of December 31, 2009 and 2008.
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
Substantially all of the Fund’s assets are currently held in one or more 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 which may be 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 balances 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.
Certain of each FuturesAccess Fund’s U.S. dollar “Cash Assets” (as defined below) are held by MLPF&S in customer segregated accounts and primarily invested in CFTC-eligible investments (including, without limitation, commercial paper, U.S. government and government agency securities, prime non-U.S. government securities, corporate notes and money market funds). Cash Assets may also be maintained in “offset accounts” at major U.S. banks, interest bearing savings accounts maintained with major U.S. banks unaffiliated with Merrill Lynch and/or money market investment funds that are managed by third party managers, including affiliates of Merrill Lynch.
Offset accounts are non-interest bearing demand deposit accounts maintained with banks unaffiliated with Merrill Lynch. MLPF&S may in the future elect to maintain accounts of this nature with one or more of its affiliates. Offset account deposits reduce Merrill Lynch’s borrowing costs with such banks. An integral feature of the offset arrangements is that the participating banks specifically acknowledge that the offset accounts are for the benefit of MLPF&S’ customers, not subject to any Merrill Lynch liability.
To the extent that Cash Assets are placed with affiliates of Merrill Lynch, Merrill Lynch indirectly receives certain economic benefits and therefore has a conflict of interest in selecting such third parties. For example, Merrill Lynch may invest in money market funds managed by BlackRock, Inc. or its affiliates (“BlackRock”). Merrill Lynch is a substantial stockholder in BlackRock and, therefore, potentially benefits from its economic interest in BlackRock whenever BlackRock receives compensation for managing Cash Assets invested in money market investment funds managed by BlackRock.
Interest Paid by Merrill Lynch on the Fund’s Non-U.S. Dollar Cash Assets
Each FuturesAccess Fund will generally earn interest, as described below, on its Cash Assets, which can be generally described as the cash actually held by such FuturesAccess Fund, plus its “open trade equity” (unrealized gain and loss marked to market daily on open positions). Cash Assets are held primarily in U.S. dollars, and to a lesser extent in non-U.S. currencies, and comprise the following: (a) each FuturesAccess Fund’s cash balances, plus open trade equity on U.S. futures; and (b) each FuturesAccess Fund’s cash balances held in non-U.S. currencies as a result of realized profits and losses derived from its trading in non-U.S. dollar-denominated futures and options contracts, plus open trade equity on those exchanges which settle gains and losses on open positions in such contracts prior to closing out such positions. Cash Assets do not include, and the FuturesAccess Funds do not earn interest income on, the FuturesAccess Funds’ gains or losses on their open forward, commodity option and certain non-U.S. futures positions as such gains and losses are not collected or paid until such positions are closed out.
Each FuturesAccess Fund’s Cash Assets may be greater than, less than or equal to such FuturesAccess Fund’s Net Asset Value (on which the redemption value of the Units is based) primarily because Net Asset Value reflects all gains and losses on open positions as well as accrued but unpaid expenses.
MLPF&S intends to pay interest on the FuturesAccess Funds’ Cash Assets (irrespective of how such Cash Assets are held or invested) at the most favorable rate payable by MLPF&S to accounts of Merrill Lynch affiliates, from time to time, although the actual rate paid to FuturesAccess Funds may be lower. In no event, however, will the rate so paid on such Cash Assets be less than 75% of such prevailing rate. MLPF&S retains the additional economic benefit derived from possession of the FuturesAccess Funds’ Cash Assets.
MLPF&S, in the course of acting as commodity broker for the FuturesAccess Funds, lends certain currencies to, and borrows certain currencies from, the FuturesAccess Funds. In the course of doing so, MLPF&S both retains certain amounts of interest and receives other economic benefits. In doing so, MLPF&S follows its standard procedures (as such procedures may change over time) for paying interest on the assets of the commodity pools sponsored by MLAI and other MLPF&S affiliates and traded through MLPF&S.
Charges
The following table summarizes the charges incurred by the Fund for the years ended December 31, 2009, 2008 and 2007.
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 Assets Value during 2009, 2008 and 2007 equaled $769,805,727, $725,896,624, and $487,404,368, respectively. During 2009, the Fund earned $51,172 in interest income, or approximately 0.01% of the Fund’s average month-end Net Assets Value. During 2008, the Fund earned $12,915,952 in interest income, or approximately 1.78% of the Fund’s average month-end Net Assets Value. During 2007, the Fund earned $24,566,411 in interest income, or approximately 5.04% of the Fund’s average month-end Net Assets Value.
Description of Current Charges
Regulation
The CFTC has delegated to the National Futures Association (“NFA”) responsibility for the registration of “commodity trading advisors,” “commodity pool operators,” “futures commission merchants,” “introducing brokers” and their respective associated persons, and “floor brokers” and “floor traders.” The Commodity Exchange Act requires commodity pool operators such as MLAI, commodity trading advisors such as the Trading Advisor and commodity brokers or futures commission merchants (“FCMs”) such as MLPF&S to be registered and to comply with various reporting and record keeping requirements. CFTC regulations also require FCMs to maintain a minimum level of net capital. In addition, the CFTC and certain commodities exchanges have established limits referred to as “speculative position limits” on the maximum net long or net short speculative positions that any person may hold or control in any particular futures or options contracts traded on U.S. commodities exchanges. All accounts owned or managed by the Trading Advisor will be combined for position limit purposes. The Trading Advisor could be required to liquidate positions in order to comply with such limits. Any such liquidation could result in substantial costs to the Fund. In addition, many futures exchanges impose limits beyond which the price of a futures contract may not trade during the course of a trading day, and there is a potential for a futures contract to reach its daily price limit for several days in a row, making it impossible for the Trading Advisor to liquidate a position and thereby experiencing dramatic losses. Currency forward contracts are not currently subject to regulation by any U.S. government agency.
MLAI, Winton and MLPF&S are each subject to regulation by the CFTC and the 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, 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 markets in addition to trading in the future markets. The forward markets are over-the-counter, non-exchange traded markets, and in trading in these 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 markets counterparties are under no obligation to enter into forward transactions with the Fund, including transactions through which the Fund is attempting to liquidate open positions.
Effects of Speculative Position Limits
The CFTC and the U.S. commodities exchanges have established limits referred to as “speculative position limits” on the maximum net long or net short speculative positions that any person may hold or control in any particular futures or options contracts traded on U.S. commodities exchanges. For example, the CFTC currently imposes speculative position limits on a number of agricultural commodities (e.g., corn, oats, wheat, soybeans and cotton). All commodity accounts controlled by the Trading Advisor and its principals and their affiliates are combined for speculative position limit purposes. The Trading Advisor could be required to liquidate positions held for the Fund, or may not be able to fully implement trading instructions generated by its trading models, in order to comply with such limits. Any such liquidation or limited implementation could result in substantial costs to the Fund.
Increased Assets Under Management
There appears to be a tendency for the rates of return achieved by managed futures advisors to decline as assets under management increase. The Trading 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 or seeking the approval 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 counterparty, 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 offices are the administrative offices of MLAI (Merrill Lynch Alternative Investments LLC, Four World Financial Center, 6th Floor, 250 Vesey Street, New York,, New York, 10080). MLAI performs administrative services for the Fund from MLAI’s offices.
Item 3:
Item 3: Legal Proceedings
None.
Item 4:
Item 4: [Reserved]
PART II
Item 5:
Item 5: Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 5(a)
(a) Market Information:
There is no established public trading market for the Units, and none is likely to develop. Members may redeem Units on ten days written notice to MLAI as of the last day of each month at their Net Asset Value, subject to certain early redemption charges.
(b) Holders:
As of December 31, 2009, there were 6,573 holders of Units including MLAI, none of whom owned 5% or more of the Fund’s Units.
(c) Dividends:
MLAI has not made and does not contemplate making any distributions on the Units.
(d) Securities Authorized for Issuance Under Equity Compensation Plans:
Not applicable.
(e) Performance Graph:
Not applicable.
(f) Recent Sales of Unregistered Securities:
Issuance to accredited investors pursuant to Regulation D and Section 4(6) under the Securities Act. The selling agent of the following Class of Units was MLPF&S.
CLASS A
CLASS C
CLASS D
CLASS I
CLASS DS
CLASS DT
Class A Units are subject to a sales commission paid to MLPF&S ranging from 1.0% to 2.5%. Class D and Class I Units are subject to sales commissions up to 0.5%. The rate assessed to a given subscription is based upon the subscription amount. Sales commissions are directly deducted from subscription amounts. 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 statements of the Fund.
(1) commencement of operations
As of December 31, 2009 and 2008 the Net Asset Value per Unit of the different Classes are as follows:
MLAI believes that the Net Asset Value used to calculate subscription and redemption value and report performance to investors throughout the year is useful information for the Members of the Fund.
MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS A
MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS C
MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS D
MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS I
MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS DS
MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS DT
ML WINTON FUTURESACCESS LLC
(CLASS A UNITS) (5)
December 31,
Type of Pool: Single Advisor Non-“Principal Protected”(1)
Inception of Trading: February 2005
Aggregate Subscriptions: $103,121,309
Current Capitalization: $ 71,241,932
Worst Monthly Drawdown(2): (6.23)% (February 2007)
Worst Peak-to-Valley Drawdown(3): (10.94)% (February-July 2009)
Net Asset Value per Unit Class A, December 31, 2009: $1.5088
Monthly Rates of Return (4)
(1) Certain funds are structured so as to guarantee to investors that their investment will be worth no less than a specified amount (typically, the initial purchase price) as of a date certain after the date of investment. The CFTC refers to such funds as “principal protected”.
(2) Worst Monthly Drawdown represents the largest negative Monthly Rate of Return experienced since February 1, 2005 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 February 1, 2005 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. The inception to date total return is 50.85%.
ML WINTON FUTURESACCESS LLC
(CLASS C UNITS) (5)
December 31,
Type of Pool: Single Advisor Non-“Principal Protected”(1)
Inception of Trading: February 2005
Aggregate Subscriptions: $450,182,327
Current Capitalization: $285,943,589
Worst Monthly Drawdown(2): (6.29)% (February 2007)
Worst Peak-to-Valley Drawdown(3): (11.40)% (February-August 2009)
Net Asset Value per Unit Class C, December 31, 2009: $1.4380
Monthly Rates of Return (4)
(1) Certain funds are structured so as to guarantee to investors that their investment will be worth no less than a specified amount (typically, the initial purchase price) as of a date certain after the date of investment. The CFTC refers to such funds as “principal protected”.
(2) Worst Monthly Drawdown represents the largest negative Monthly Rate of Return experienced since February 1, 2005 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 February 1, 2005 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. The inception to date total return is 43.78%.
ML WINTON FUTURESACCESS LLC
(CLASS D UNITS) (5)
December 31,
Type of Pool: Single Advisor Non-“Principal Protected”(1)
Inception of Trading: April 2005
Aggregate Subscriptions: $146,118,259
Current Capitalization: $114,447,350
Worst Monthly Drawdown(2): (7.06)% (September 2005)
Worst Peak-to-Valley Drawdown(3): (10.25)% (February-July 2009)
Net Asset Value per Unit Class D, December 31, 2009: $1.4964
Monthly Rates of Return (4)
(1) Certain funds are structured so as to guarantee to investors that their investment will be worth no less than a specified amount (typically, the initial purchase price) as of a date certain after the date of investment. The CFTC refers to such funds as “principal protected”.
(2) Worst Monthly Drawdown represents the largest negative Monthly Rate of Return experienced since February 1, 2005 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 1, 2005 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. The inception to date total return is 49.65%.
ML WINTON FUTURESACCESS LLC
(CLASS I UNITS) (5)
December 31,
Type of Pool: Single Advisor Non-“Principal Protected”(1)
Inception of Trading: February 2005
Aggregate Subscriptions: $87,283,482
Current Capitalization: $56,724,215
Worst Monthly Drawdown(2): (6.19)% (February 2007)
Worst Peak-to-Valley Drawdown(3): (10.74)% (February-July 2009)
Net Asset Value per Unit Class I, December 31, 2009: $1.5267
Monthly Rates of Return (4)
(1) Certain funds are structured so as to guarantee to investors that their investment will be worth no less than a specified amount (typically, the initial purchase price) as of a date certain after the date of investment. The CFTC refers to such funds as “principal protected”.
(2) Worst Monthly Drawdown represents the largest negative Monthly Rate of Return experienced since February 1, 2005 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 February 1, 2005 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. The inception to date total return is 52.61%.
ML WINTON FUTURESACCESS LLC
(CLASS DS UNITS) (5) (6)
December 31,
Type of Pool: Single Advisor Non-“Principal Protected”(1)
Inception of Trading: April 2007
Aggregate Subscriptions: $159,140,150
Current Capitalization: $158,630,744
Worst Monthly Drawdown(2): (3.93)% (July 2008)
Worst Peak-to-Valley Drawdown(3): (10.26)% (February-July 2009)
Net Asset Value per Unit Class DS, December 31, 2009: $1.4946
Monthly Rates of Return (4)
(1) Certain funds are structured so as to guarantee to investors that their investment will be worth no less than a specified amount (typically, the initial purchase price) as of a date certain after the date of investment. The CFTC refers to such funds as “principal protected”.
(2) Worst Monthly Drawdown represents the largest negative Monthly Rate of Return experienced since February 1, 2005 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 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. The inception to date total return is 49.46%.
(6) Class DS was previously known as Class D-SM.
ML WINTON FUTURESACCESS LLC
(CLASS DT UNITS) (5) (6)
December 31,
Type of Pool: Single Advisor Non-“Principal Protected”(1)
Inception of Trading: June 2007
Aggregate Subscriptions: $117,627,489
Current Capitalization: $63,048,637
Worst Monthly Drawdown(2): (4.18)% (July 2008)
Worst Peak-to-Valley Drawdown(3): (10.06)% (February-July 2009)
Net Asset Value per Unit Class DT, December 31, 2009: $1.5377
Monthly Rates of Return (4)
(1) Certain funds are structured so as to guarantee to investors that their investment will be worth no less than a specified amount (typically, the initial purchase price) as of a date certain after the date of investment. The CFTC refers to such funds as “principal protected”.
(2) Worst Monthly Drawdown represents the largest negative Monthly Rate of Return experienced since July 1, 2007 by the Fund; a drawdown is measured on the basis of month-end Net Asset Value only, and does not reflect intra-month figures.
(3) Worst Peak-to-Valley Drawdown represents the greatest percentage decline since July 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. The inception to date total return is 53.78%.
(6) Class DT was previously known as Class D-TF.
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 not 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 the 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/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 have caused such movements, but simply occurred at or about the same time.
The Fund experienced a net trading loss after brokerage commissions and related fees for the year ended December 31, 2009 of $39,021,779. The Fund’s metals and agriculture sectors posting gains while the interest rates, stock indices, currencies and energy sectors posted losses.
Losses were posted to the Fund at the beginning of the first quarter in metals as gold went lower against their recent trend. Losses were also posted to the Fund in the middle through the end of the first quarter as base metals retreated. Profits were posted to the Fund at the beginning of the second quarter to be offset with losses posted for the Fund from the middle to the end of the second quarter due to the commodity sector mixed with the main features being the vacillations in the gold price making it hard to gain headway. Losses were posted to the Fund at the beginning of the third quarter only which was offset with profits posted to the Fund throughout the remainder of the quarter. Gold was close to reaching an all time high at the end of the third quarter as the level of debt by governments created a fear of future inflation in debtor economies. Profits were posted to the Fund at the beginning through the middle of the fourth quarter as gold reached an all time high. Losses were posted to the Fund at the end of the fourth quarter due to a sharp reversal in gold giving up the gains that was made in the beginning through the middle of the fourth quarter.
Profits were posted to the Fund at the beginning through the middle of the first quarter in the agriculture sector. The continuing plunge in demand and concomitant build up in stock levels kept a lid on prices in February. Grain markets came under renewed price pressure as the Fund’s profits resulted from short positions in grains. Losses were posted to the Fund at the end of the first quarter due to volatility in the markets. Profits were posted to the Fund at the beginning of the second quarter as general trading conditions returned to something approaching normality with daily ranges more constrained and volatility declining. Losses were posted to the Fund in the middle of the second quarter due to the Fund having a mixture of long and shorts within the same sector i.e. long soybeans/short bean oil. Profits were posted to the Fund at the end of the second quarter due to crops doing well. Overall, losses were posted to the Fund at the beginning and end of the third quarter due to volatility in the global markets. Losses were posted to the Fund at the beginning and the middle of the fourth quarter. However, the fourth quarter ended with profits being posted to the Fund. In addition, meats trading registered overall gains for the year.
Losses were posted to the Fund in the interest rate sector at the beginning of the first quarter due to losses in bonds as yields rose in the United States. It is the Fund’s plan to gradually loosen up “Government Paper” only approach for the cash held by the Fund. The Fund intends to make a tactical shift to allocate small percentages to agency paper, corporate bonds and in due course commodity cash and carries. Yields in the 10 year bond markets firmed up fractionally but not enough to offset losses posted to the Fund in the middle of the first quarter. The macro economic background continued to weigh heavily on sentiment, and the discussion or implementation of aggressive “quantitative easing” by governments created sharp moves during the month of March. The short term rates continued to decline at the end of the first quarter resulting in profits being posted to the Fund. Losses were posted to the Fund at the beginning of the second quarter due to bond yields rising on the ten year U.S. Treasury note. Profits were posted to the Fund in the middle of the quarter due to short positions in the German Government bund and long positions in the Australian ten year bond. Losses were posted to the Fund at the end of the second quarter with the Fund losing in the bond sector and also in short term interest rates. Losses were posted to the Fund at the beginning of the third quarter. Uncertainty continued in the fixed income markets, with U.S. Federal Reserve Chairman Bernanke tempering the optimism by saying that interest rates will need to remain low for “an extended period”. Against this background the Fund’s returns were dominated by losses in equity and bond sectors. Profits were posted to the Fund in the middle of the third quarter due to continued economic recovery, with a further stream of positive data being released. At the annual Jackson Hole meeting of Central Bankers, they chose not to declare an end to the global economic crisis, with U.S. Federal Reserve Chairman Bernanke stating that “critical challenges remain”. The U.S. Federal Reserve again committed to leaving interest rates near zero for an “extended period” while the Bank of England moved to continue its program of quantitative easing. Profits were posted to the Fund at the end of the third quarter due to short term interest rates which registered further gains and became the Fund’s best performing sector for the year. Losses were posted to the Fund at the beginning of the fourth quarter. The rallying of asset prices and the U.S. dollar falling resulted in profits being posted to the Fund in the middle of the fourth quarter. Equity markets made new 2009 highs, bonds rallied and gold put in a stellar performance to reach a lifetime high. The surprise announcement that Dubai World was asking its bond holders to delay repayment led to a swift reversal in asset prices, giving back only a portion of the November’s profits. A number of longer term trends reversed in December which gave back some of November’s gains with sharp reversals in bonds resulting in losses posted to the Fund.
Profits were posted to the Fund in stock indices at the beginning through the middle of the first quarter as the global financial and commodity markets worsened. No regions, countries, sectors or companies appeared to be immune from the recessionary conditions. Against this recessionary background and with volatility levels still elevated, the Fund kept a low margin exposure as profits were made in short positions in equities with most stock indices falling more than 10% in February. March proved a difficult month to navigate as markets either reversed previous direction or simply became range bound resulting in losses being posted to the Fund at the end of the first quarter. The stock indices sector posted losses for the Fund. The flurry of “green shoots” of recovery, which started mid March, began to wane (at least temporarily), and there was renewed talk of “yellow weeds” appearing. As such, equities came off their recent highs as the S&P ended flat and markets such as Russia fell from their highs resulting in losses posted to the Fund at the beginning of the second quarter. The underlying structure of markets exposure for the Fund during May was somewhat out of sync such that the recent market action with the new sense of relative confidence has engendered losses posted to the Fund. Against this recessionary background and with volatility in global markets, the Fund posted profits at the end of the second quarter. Losses were posted to the Fund at the beginning of the third quarter due to economic sentiment continuing to hang on the metaphor of “green shoots”. In August, the Dow Jones was up 46% from its March low. The last time that the Dow managed this level of return in the
space of six months was in 1975 when it staged a recovery from the 1973-74 stock market crash. During this move the Fund’s stock index systems were slow to reverse their short positions resulting in losses being posted to the Fund in the middle of the third quarter. Global stock indices continued their seemed rally into September causing much comment as to weather the moves were sustainable as it appeared they were the direct result of Government and Central Bank stimulus. Therefore, the third quarter ended with profits being posted to the Fund. Equity markets opened the month of October with a selloff, rallying to make new 2009 highs and then promptly fell back to where they started at the beginning of the month resulting in losses being posted to the Fund. Profits were posted to the Fund in the middle of the fourth quarter with the continuation of a number of longer term trends. The general theme was the rallying of asset prices and the U.S. dollar falling as equity markets made new 2009 highs. Global stock markets moved higher in the month of December resulting in profits being posted to the Fund at the end of the fourth quarter.
Profits were posted to the Fund in currencies at the beginning of the first quarter as the U.S. dollar and the Japanese yen remain strong while the British sterling remained under pressure. Losses were posted to the Fund in the middle of the quarter from the fluctuating currency markets where losses occurred from the weakening of the U.S. dollar. The long exposure in the U.S. dollar was damaged by both the increasing indebtedness of the United States following President Obama’s latest fiscal stimulus package and rumors of it being sidelined as the reserve currency and the Japanese yen position also suffered posting losses to the Fund as the first quarter ended. Losses were posted to the Fund at the beginning of the second quarter due to the currency markets being in flux with the Japanese yen remaining steady and the U.S. dollar marginally low. Losses were posted to the Fund in the middle of the quarter from the fluctuating currency markets where losses occurred from the weakening of the U.S. dollar. The second quarter ended with profits being posted to the Fund as the month of June was a “game of two halves” with a subtle and possibly significant change in recent investor appetite for risky assets being reversed. Profits were posted to the Fund at the beginning and end of the third quarter as currency positions continued to bring some diversification to the Fund with margin to equity rising. At the end of the third quarter, the currencies sector was the strongest sector due to the benefits from the falling U.S. dollar. The U.S. dollar continued its fall with the euro going up and the Norwegian central bank became the first European Central Bank to raise its benchmark rate resulting in profits being posted to the Fund at the beginning of the fourth quarter. The U.S. dollar continued to fall in November. The Japanese yen moved to a fourteen year high against the U.S. dollar, leading to the Bank of Japan making noises of intervention as profits were posted to the Fund in November. The U.S. dollar reversed its near year long decline, making currencies the worst performing sector in December. The fourth quarter ended with losses posted to the Fund.
The energy sector posted profits for the Fund throughout the first quarter as a rally in energy derived from crude oil prices. Losses were posted to the Fund at the beginning of the second quarter. Losses continued to be posted to the Fund in the middle of the second quarter as crude oil was up in May, despite inventories at nineteen year highs, demand falling and offshore floating storage estimated at over 100 million barrels. Losses were posted to the Fund at the end of the second quarter as commodities retreated in June. The energy sector posted losses to the Fund throughout the third quarter with crude oil starting the quarter by falling $10 a barrel to $60 a barrel. At the end of the third quarter, system changes were focused on the energies sector, where a new forecasting variable was added, albeit at a very low weight. Crude oil briefly went above $80 a barrel only to fall back in October resulting in losses being posted to the Fund. Profits were posted to the Fund in the middle of the fourth quarter with the continuation of a number of longer term trends. The general theme was the rallying of asset prices and the U.S. dollar falling. A number of longer term trends reversed in December resulting in losses being posted to the Fund at the end of the fourth quarter.
The Fund posted gains for the year in all sectors which are interest rates, stock indices, energy, currencies, metals and agriculture. Despite the disastrous market conditions in the financial markets during the fourth quarter, the Fund posted profits as it continued to operate a below normal level of risk out of respect for the market’s extreme behaviors.
The interest rates sector posted profits for the Fund. The Fund profited at the beginning of the year by rises in bonds and interest rate futures, led by the aggressive U.S. Federal Reserve cutting interest rates by a total of 125 basis points. Profits continued to be posted for the Fund through mid-quarter. The first quarter ended with profits being posted to the Fund due to the U.S. Federal Reserve lowering overnight rates by 75 basis points to 2.25% which was the sixth reduction since September 2007. Losses were posted to the Fund at the beginning of the second quarter due to the Fund’s position in long term bonds. Small profits in short term interest rates were offset by equivalent losses in other bond positions in the middle of the quarter. Profits were posted to the Fund at the end of the second quarter. Losses were posted to the Fund at the beginning of the third quarter only to be reversed in the middle of the quarter due to the Fund’s position in long term bonds. The Fund profited from a long bias in bond futures as the 10 year bond yields declined. Profits continued to be posted to the Fund at the end of the third quarter as there was a renewed strength in Government bonds worldwide. The year ended with profits being posted to the Fund throughout the fourth quarter. In December, the 10 year note yields in the United States fell which helped the bond sector post profits to the Fund.
The stock indices posted profits for the Fund. The stock sector suffered the largest losses among the financial sectors as global equities experienced sharp losses to begin the New Year. Despite the overall volatility in global equities, the stock sector posted gains for the Fund mid-quarter through the end of the quarter. Losses were posted to the Fund at the beginning of the second quarter through mid-quarter as financial markets continued to be range bound. June saw a further crystallization of market ranges which had been threatening to break out of their ranges for some time. There was a sharp decline in global equity markets, as the cumulative weight of poor financial figures, inflationary fears and an increase in negative sentiment combined to depress both G7 (seven industrialized nations of the world: Canada, France, Germany, Italy, Japan, United Kingdom, and the United States of America) and the global markets. Most markets fell between 5-10% in June and a technical bear market looks to be in place in the United States where a 20% peak to trough decline has occurred. The Fund was well positioned to benefit from these conditions, with equity indices accounting for nearly half the monthly return as the quarter ended with profits being posted to the Fund. Profits were posted to the Fund at the beginning of the third quarter due to intervention from the Securities and Exchange Commission to restrict short selling and to prop up beleaguered institutions caused some short term effects, however, equity indices stabilized against the recent bear trend. Due to market volatility, losses were posted to the Fund in the middle of the third quarter. High volatility continued to cause the Fund to reduce positions so that the Fund’s margin exposure was at a record low which produced profits being posted to the Fund at the end of the quarter. The Fund’s short positions in the equity indices posted profits to the Fund in October and November. The year ended with the stock indices sector posting profits to the Fund in spite of the market volatility.
The energy sector posted profits for the Fund. Losses were posted for the Fund at the beginning of the first quarter from the falling back of energy prices from recent highs. The Fund experienced renewed strength in the commodity markets with long positions in the energy sectors posting profits for the Fund at the middle of the quarter
which continued through the end of the quarter. The energy sector was the stand out performer for the Fund at the beginning of the second quarter with crude oil, unleaded gasoline and natural gas markets all contributing to the profit. The continued boom in crude oil prices dominated the mid-quarter as the price has increased over 50% from the first week of February. Profits continued to be posted to the Fund at the end of the second quarter ended in particular with the renewed surge in crude oil. Losses were posted to the Fund at the beginning of the third quarter due to the fluctuation of crude oil moving from $140 per barrel up to $147 per barrel and then down to $125 per barrel . Losses continued to be posted to the Fund in the middle of the third quarter to the end as crude oil continued to fall in price. Losses were posted to the Fund at the beginning of the fourth quarter as crude oil continues to fluctuate in price. Profits were posted to the Fund mid-quarter through the end of the quarter in spite of the crude oil continuing its sharp decline. Profits were posted to the Fund as the year ended due to the Fund’s short positions in the energy sector.
The currency sector posted profits for the Fund. Profits were posted for the Fund throughout the first quarter. The U.S. dollar renewed its overall decline mid-quarter with the Fund’s long positions in the Euro benefiting resulting in profits being posted for the Fund. The dominant theme at the end of the first quarter was the continued weakness of the U.S. dollar which the Fund exploited primarily with the U.S. dollar versus the Euro and the U.S. dollar versus the Japanese yen posting profits for the Fund. Losses were posted to the Fund at the beginning of the second quarter due to the United States dollar becoming range bound, albeit near its recent lows. Profits were posted to the Fund mid-quarter through the end of the quarter due to the Fund’s long positions in currencies. Losses were posted to the Fund at the beginning of the third quarter as currencies were in a state of flux, as the Euro, the Japanese yen and the British pound all softened with the U.S. dollar rising. Losses continued to be posted to the Fund in the middle of the third quarter as the long standing negative trend in the U.S. dollar reversed and the U.S. dollar posted a significant recovery with the U.S. dollar index being up. The U.S. dollar continued to rally as the quarter ended posting losses for the Fund. Profits were posted to the Fund at the beginning of the fourth quarter due to the Fund’s long positions in the U.S. dollar versus the British pound and the Canadian dollar. Profits continued to be posted to the Fund mid-quarter in lieu of a volatile market. Currency markets were more erratic in December, with certain pairs reversing recent trends such as the British pound versus the Euro which caused a reduction in profits and losses in this sector.
The metals sector posted profits for the Fund. Profits were posted to the Fund at the beginning of the year. The Fund’s long positions in precious metals accounted for much of the gains posted for the Fund in the middle of the quarter. The Fund struggled in the final weeks of the first quarter with losses posted for the Fund from precious metals by the subsequent largest one day drop in gold since 1981. Losses were posted to the Fund at the beginning of the second quarter as trends in the markets ebbed and flowed. Gold resumed its uptrend mid-quarter as did a number of base metals posting profits to the Fund through the end of the second quarter. Losses were posted to the Fund at the beginning through the middle of the third quarter as precious metals slipped under downward pressure. Profits were posted to the Fund at the end of the quarter in lieu of the global market volatility. Profits continued to be posted to the Fund at the beginning through the middle of the fourth quarter as gold prices were up in November. A small loss was posted to the Fund at the end of the year due to the volatility in the global markets.
The agriculture sector posted profits for the Fund. Profits were posted for the Fund at the beginning of the first quarter through the middle of the quarter due to the Fund’s long positions in the sector. The reversal of the recent up trends in grains caused losses being posted for the Fund at the end of the first quarter. Profits were posted for the Fund at the beginning of the second quarter as grains were the top performer for the sector. Losses were posted to the Fund mid-quarter as grains were mixed, tending to net off against each other. Due to the escalation of grain prices profits were posted to the Fund at the end of the quarter. Losses were posted to the Fund at the beginning through the middle of the third quarter as grains sectors experienced dramatic price fluctuations. In the grain sector both corn and the soy complex fell significantly. Losses were posted to the Fund at the end of the third quarter due to the extreme volatility in the market. The year ended with profits being posted to the Fund in November only due to extreme global market volatility.
The Fund posted gains for the year with the interest rates, agricultural, currencies, energy, and metals sectors posting gains while the stock indices posted losses.
The interest rates sector posted profits for the Fund. The year began with gains being posted to the Fund in connection with an increase in the United Kingdom interest rates by the Monetary Policy Committee which led to a strong performance in the short term interest rate positions. However, mid-quarter through the end of the first quarter the sector posted losses for the Fund due to high levels of market volatility. A growing appetite for risk mid-year led to an increase demand not only for stocks across the globe, but also fed through into the fixed income markets, as bonds sold off and short term interest rate expectations increased in both the United States and Europe. Strong returns were also posted to the Fund in the fixed income markets as both short and long term interest rate expectations rose. Profits continued through the middle of the third quarter due to the net long positions in the short term interest rate. However, at the end of the third quarter losses were posted for the Fund due to a number of small losses in short rates which contributed to an overall modest loss. Further credit market problems, a continued housing slow down and increased expectation of further rate cuts from the United States Federal Reserve resulted in U.S. treasuries rallying with the Fund posting strong gains in bonds and short term interest rates in November. This was reversed at year’s end as losses were posted to the Fund due to global bond markets selling off strongly in part to the strong U.S. economic data and also as a result of the Federal Reserve decision to cut rates by twenty five basis points and not by fifty, which some in the market had expected.
The agricultural sector posted profits for the Fund. The agriculture market was soft which attributed to the difficult trading environment resulting in the Fund posting overall losses at the beginning of the year. However, losses were offset with gains being posted for the Fund mid-quarter through the end of the second quarter. Gains continued to be posted for the Fund mid-quarter through the end of the third quarter as the grain markets outperformed due to global supply constraints supported rising commodity prices. Due to the strong grain markets, the year ended with gains being posted to the Fund.
The currency sector posted profits for the Fund. The year began with gains being posted to the Fund which were offset with losses mid-quarter through the end of the first quarter.
The strength in both the Euro and British Pounds currencies were the main drivers behind profits being posted to the Fund which continued through the second quarter. Also, market volatility increased at the end of the second quarter leading to strong returns in the currencies markets. In the third quarter the currencies sector posted losses to the Fund due to significant volatility in the market. The New Zealand dollar and the Australian dollar in particular were under severe pressure which produced losses being posted for the Fund at the beginning of the third through the middle of the third quarter. However, the quarter ended with profits being posted to the Fund due to the continued weakness in the U.S. dollar which led to strong gains in the currencies sector. The continuing weakening of the U.S. dollar was the dominating theme in the currency markets for October. This led to strong gains in both the Euro and British Pounds positions. The fourth quarter ended with losses being posted for the Fund due to market volatility.
The energy sector posted profits for the Fund. In a continuation of the priced action occurring at the end of 2006, the rise in the U.S. equity markets and the decline in crude oil prices led to significant gains at the beginning of the year. However, losses were posted mid-quarter through the end of the first quarter due to volatility in
the market. Profits were posted at the beginning through the middle of the second quarter only to be offset at quarter’s end due to the difficulty in trading because of weather conditions and geopolitical pressure. Profits were posted for the Fund at the beginning of the third quarter and at the end due to purchases of crude oil and derived fuels. Strong gains were posted for the Fund in October due to a 17% rally in crude oil. Profits continued to be posted for the Fund through the end of the year.
The metals sector posted profits for the Fund. Profits were generated the middle part of the first quarter which offset losses posted for the Fund at the beginning of the year. Profits continued to be posted for the Fund at the beginning of the second quarter as metals benefited from the re-emergence of stable trends as prices driven by tightening fundamentals and demand growth rallied. Mid-quarter prices were driven down due to profit taking and concerns over the strength of future Chinese demand. The quarter ended with losses due to supply tightness and bouts of increased risk aversion. Gold rallied 6% in October which ensured strong performances in precious metals posting profits for the Fund. Profits continued to be posted for the Fund as the year ended.
The stock indices posted losses for the Fund. Profits were posted for the Fund at the beginning of the year due to the rise in the U.S. equity markets The steady gains made through the middle part of the first quarter were erased in several volatile trading sessions as a sharp drop in the Chinese stock market sparked a sell off in global equities which fed through into the fixed income markets. The first quarter ended as high levels of market volatility together with increased correlation across asset classes posted losses for the Fund. A recovery in global equity markets at the beginning of the second quarter was one of the main drivers in strong gains being posted for the Fund. Equity markets continued to rally posting profits for the Fund mid-quarter through the end of the second quarter due to a combination of merger and acquisition activity and a growing appetite for risk led to an increased demand for stocks across the globe. However, losses were posted to the Fund at the beginning of the third quarter as investors began scaling back risk tolerance which led to a 3.6% drop in the Standard and Poors 500 Index. The stock market was distinguished by increasing risk awareness and aversion as financial stocks had an especially difficult time due to uncertainties of potential sub-prime related losses. The fourth quarter ended with losses being posted for the Fund.
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.
The Fund currently earns interest based on the prevailing Fed Funds rate plus a spread for short cash positions and minus a spread for long cash positions. The current short term interest rates have remained extremely low when compared with historical rates and thus has contributed negligible amounts to overall Fund performance.
During all periods set forth above in “Selected Financial Data”, the interest rates in many countries were at unusually low levels. In addition, low interest rates are frequently associated with reduced fixed income market volatility, and in static markets the 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 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. Performance fees payable to Winton and MLAI 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. 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.
As a commodity pool, the Fund maintains an extremely large percentage of its assets in cash, which it must have available to post initial and variation margin on futures contracts. This cash is also used to fund redemptions. While the Fund has the ability to fund redemption proceeds from liquidating positions, as a practical matter positions are not liquidated to fund redemptions. In the event that positions were liquidated to fund redemptions, MLAI, as the Manager of the Fund, has the ability to override decisions of the Trading Advisor to fund redemptions if necessary, but in practice the Trading Advisor would determine in its discretion which investments should be liquidated.
(The Fund has no applicable off-balance sheet arrangements or tabular disclosure of contractual obligations of the type described in Items 3.03(a)(4) and 3.03(a)(5) of Regulation S-K.)
Recent Accounting Developments
Recent accounting developments are discusses in Exhibit 13.01.
Item 7A:
Item 7A: Quantitative and Qualitative Disclosures About Market Risk
Introduction
The Fund is a speculative commodity pool. The market sensitive instruments held by it are acquired for speculative trading purposes and all or substantially all of the Fund’s assets are subject to the risk of trading loss. Unlike an operating company, the risk of market sensitive instruments is integral, not incidental, to the Fund’s main line of business.
Market movements result in frequent changes in the fair market value of the Fund’s open positions and, consequently, in its earnings and cash flow. The Fund’s market risk is influenced by a wide variety of factors, including the level and volatility of interest rates, exchange rates, equity price levels, the market value of financial instruments and contracts, the diversification effects among the Fund’s open positions and the liquidity of the markets in which it trades.
The Fund, under the direction of Winton, rapidly acquires and liquidates both long and short positions in a wide range of different markets. Consequently, it is not possible to predict how a particular future market scenario will affect performance, and the Fund’s past performance is not necessarily indicative of its future results.
Value at Risk is a measure of the maximum amount which the Fund could reasonably be expected to lose in a given market sector. However, the inherent uncertainty of the Fund’s speculative trading and the recurrence in the markets traded by the Fund of market movements far exceeding expectations could result in actual trading or non-trading losses far beyond the indicated Value at Risk or the Fund’s experience to date (i.e. “risk of ruin”). In light of the foregoing, as well as the risks and uncertainties intrinsic to all future projections, the quantifications included in this section should not be considered to constitute any assurance or representation that the Fund’s losses in any market sector will be limited to Value at Risk or by the Fund’s attempts to manage its market risk.
Quantifying The Fund’s Trading Value At Risk
Quantitative Forward-Looking Statements
The following quantitative disclosures regarding the Fund’s market risk exposures contain “forward-looking statement” within the meaning of the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). All quantitative disclosures in this section are deemed to be forward-looking statements for purposes of the safe harbor, except for statements of historical fact.
The Fund’s risk exposure in the various market sectors traded by Winton is quantified below in terms of Value at Risk. Due to the Fund’s fair value accounting, any loss in the fair value of the Fund’s open positions is directly reflected in the Fund’s earnings (realized or unrealized) and cash flow (at least in the case of exchange-traded contracts in which profits and losses on open positions are settled daily through variation margin).
Exchange maintenance margin requirements have been used by the Fund as the measure of its Value at Risk. Maintenance margin requirements are set by exchanges to equal or exceed the maximum loss in the fair value of any given contract incurred in 95%-99% of the one-day time periods included in the historical sample (generally approximately one year) researched for purposes of establishing margin levels. The maintenance margin levels are established by dealers and exchanges using historical price studies as well as an assessment of current market volatility (including the implied volatility of the options on a given futures contract) and economic fundamentals to provide a probabilistic estimate of the maximum expected near-term one-day price fluctuation.
In the case of market sensitive instruments which are not exchange-traded (almost exclusively currencies in the case of the Fund), the margin requirements for the equivalent futures positions have been used as Value at Risk. In those rare cases in which a futures-equivalent margin is not available, dealers’ margins have been used.
100% positive correlation in the different positions held in each market risk category has been assumed. Consequently, the margin requirements applicable to the open contracts have been aggregated to determine each trading category’s aggregate Value at Risk. The diversification effects resulting from the fact that the Fund’s positions are rarely, if ever, 100% positively correlated have not been reflected
The Fund’s Trading Value at Risk in Different Market Sectors
The following table indicates the average, highest and lowest trading Value at Risk associated with the Fund’s open positions by market category for the fiscal periods. During the years ended December 31, 2009 and December 31, 2008, the Fund’s average month-end Net Asset Value was $769,805,727 and $725,896,624, respectively.
December 31,
December 31,
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 or BlackRock. The value of this cash is not interest rate sensitive, but there is cash flow risk in that if interest rates decline so will the cash flow generated on these monies.
Qualitative Disclosures Regarding Primary Trading Risk Exposures
The following qualitative disclosures regarding the Fund’s market risk exposures - except for (i) those disclosures that are statements of historical fact and (ii) the descriptions of how the Fund manages its primary market risk exposures - constitute forward-looking statements within the meaning of Section 27A of the Securities Act
and Section 21E of the Securities Exchange Act. The Fund’s primary market risk exposures as well as the strategies used and to be used by MLAI and Winton for managing such exposures are subject to numerous uncertainties, contingencies and risks, any one of which could cause the actual results of the Fund’s risk controls to differ materially from the objectives of such strategies. Government interventions, defaults and expropriations, illiquid markets, the emergence of dominant fundamental factors, political upheavals, changes in historical price relationships, and an influx of new market participants, increased regulation and many other factors could result in material losses as well as in material changes to the risk exposures and the risk management strategies of the Fund. There can be no assurance that the Fund’s current market exposure and/or risk management strategies will not change materially or that any such strategies will be effective in either the short- or long-term. Investors must be prepared to lose all or substantially all of the time value of their investment in the Fund.
The following were the primary trading risk exposures of the Fund as of December 31, 2009, by market sector.
Interest Rates.
Interest rate movements directly affect the price of derivative sovereign bond positions held by the Fund and indirectly the value of its stock index and currency positions. Interest rate movements in one country as well as relative interest rate movements between countries materially impact the Fund’s profitability. The Fund’s primary interest rate exposure is to interest rate fluctuations in the United States and the other G-7 countries. However, the Fund also takes positions in the government debt of smaller nations e.g., Australia. MLAI anticipates that G-7 interest rates will remain the primary market exposure of the Fund for the foreseeable future.
Currencies.
The Fund trades in a number of currencies. The Fund does not anticipate that the risk profile of the Fund’s currency sector will change significantly in the future. The currency trading Value at Risk figure includes foreign margin amounts converted into U.S. dollars with an incremental adjustment to reflect the exchange rate risk of maintaining Value at Risk in a functional currency other than U.S. dollars.
Stock Indices.
The Fund’s primary equity exposure is due to various equity index price movements. The Fund is primarily exposed to the risk of adverse price trends or static markets in the major U.S., European and Asian indices.
Metals.
The Fund’s metals market exposure is to fluctuations in both 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, livestock, cotton, corn and coffee accounted for the substantial bulk of the Fund’s agricultural commodities exposure as of December 31, 2009.
Energy.
The Fund’s primary energy market exposure is to natural gas and crude oil price movements, often resulting from political developments in the Middle East. Oil prices can be volatile and substantial profits and losses have been and are expected to continue to be experienced in this market.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following were the primary non-trading risk exposures of the Fund as of December 31, 2009.
Foreign Currency Balances.
The Fund’s primary foreign currency balances are in Australian dollars, British pounds and Euros.
U.S. Dollar Cash Balance.
The Fund holds U.S. dollars only in cash at MLPF&S or BlackRock. 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 Winton to reallocate positions in an attempt to avoid over-concentrations. However, such interventions are unusual, except in cases in which it appears that Winton has begun to deviate from past practice and trading policies or to be trading erratically, MLAI’s basic control procedures consist simply of ongoing process of monitoring Winton with the market risk controls being applied by Winton.
Risk Management
Winton attempts to control risk in all aspects of Winton’s 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. Winton double checks the accuracy of market data, and will not trade a market without multiple price sources for analytical input. In constructing a portfolio, Winton seeks to control overall risk as well as the risk of any one position, and Winton 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. Winton factors the point of exit into the decision to enter (stop loss). The size of Winton’s positions in a particular market is not a matter of how large a return can be generated but of how much risk it is willing to take relative to that expected return.
To attempt to reduce the risk of volatility while maintaining the potential for excellent performance, proprietary research is conducted on an ongoing basis to refine the Winton 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 Winton may vary the weighting at its discretion as market conditions, liquidity, position limit considerations and other factors warrant.
Winton 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, Winton 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 Winton’s investment strategy. At its discretion, Winton 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 and in the BlackRock sponsored money market mutual fund in that declining interest rates would cause the income from such cash to decline. However, a certain amount of cash or cash equivalents must be held by the Fund in order to facilitate margin payments and pay expenses and redemptions. MLAI does not take any steps to limit the cash flow risk on its cash held on deposit at MLPF&S and in the BlackRock sponsored money market mutual fund.
Item 8:
Item 8: Financial Statements and Supplementary Data
Net Income (Loss) per quarter
Eight quarters through December 31, 2009
(a) The Net Income (Loss) per weighted average Unit is based on the weighted average of the total Units for each quarter.
The financial statements required by this Item are included in Exhibit 13.01.
The supplementary financial information (“information about oil and gas producing activities”) specified by Item 302 of Regulation S-K is not applicable.
Item 9:
Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
The Board of Managers of MLAI, the Manager of the Fund, dismissed Deloitte & Touche as the independent registered public accounting firm for the Fund, effective April 20, 2009. The Board of Managers of the Manager, on behalf of the Fund, approved the engagement of PricewaterhouseCoopers LLP as the independent registered public accounting firm of the Fund effective April 20, 2009.
There were no disagreements with the respective independent registered public accounting firms on accounting and financial disclosure.
Item 9A(T):
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, 2009, and, based on its evaluation, has concluded that these disclosure controls and procedures are effective.
Changes in Internal Control over Financial Reporting
No change in internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) occurred during the quarter ended December 31, 2009 that has materially affected, or is reasonable likely to materially affect, the Fund’s internal control, over financial reporting.
Management’s Report on Internal Control over Financial Reporting:
The Fund’s management is responsible for establishing and maintaining adequate internal control over financial reporting. The Fund’s internal control over financial reporting is a process designed under the supervision of MLAI’s Chief Executive Officer and the Chief Financial Officer, on behalf of the Fund and is effected by management, other personnel and service providers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and included those policy and procedures that:
· Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Fund.
· Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Fund are being made only in accordance with authorizations of management 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 Fund’s internal control over financial reporting as of December 31, 2009. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “Internal Control-Integrated Framework”.
Based on its assessment the Fund’s management concluded that at December 31, 2009, the Fund’s internal control over financial reporting was effective.
This annual report does not include an attestation report of the Fund’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Fund’s independent registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Fund to provide only management’s report for this annual report.
Item 9B:
Item 9B: Other Information
Not applicable.
PART III
Item 10:
Item 10: Directors, Executive Officers and Corporate Governance
10(a) and 10(b) Identification of Directors and Executive Officers:
As a limited liability company, the Fund has no officers or directors and is managed by MLAI. Trading decisions are made by Winton on behalf of the Fund.
The managers and executive officers of MLAI and their respective business backgrounds are as follows:
Justin C. Ferri
Chief Executive Officer, President and Manager
Barbra E. Kocsis
Chief Financial Officer
Deann Morgan
Vice President and Manager
Justin C. Ferri is the Chief Executive Officer, President and Manager of MLAI. Mr. Ferri, 34 years old, has been the Chief Executive Officer and President of MLAI since August 2009. Mr. Ferri has been a Manager of MLAI and has been listed as a principal of MLAI since July 29, 2008. He has been registered with NFA as an associated person of MLAI since September 11, 2009. He also serves as Managing Director within the Merrill Lynch Global Wealth & Investment Management group and the Global Investments Solutions group (“GWIM” and “GIS,” respectively), responsible for heading GWIM’s Alternative Investments business. In addition, Mr. Ferri serves as Vice President of IQ Investment Advisors LLC (“IQ”), an indirect, wholly-owned investment adviser subsidiary of Merrill Lynch & Co., and serves as President of each of IQ’s publicly traded closed-end mutual fund companies. Prior to his role in GIS, Mr. Ferri was a Director in the MLPF&S Global Private Client Market Investments & Origination group, and before that, he served as a Vice President and head of the MLPF&S Global Private Client Rampart Equity Derivatives team. Prior to joining Merrill Lynch in 2002, Mr. Ferri was a Vice President within the Quantitative Development group of mPower Advisors LLC from 1999 to 2002, and prior to that, he worked in the Private Client division of J.P. Morgan & Co. He holds a B.A. degree from Loyola College in Maryland.
Barbra E. Kocsis is the Chief Financial Officer for MLAI. Ms. Kocsis, 43 years old, has been the Chief Financial Officer of MLAI since October 2006. Ms. Kocsis has been listed with the NFA as a principal of MLAI since May 21, 2007 and is a Director within the Merrill Lynch Global Wealth Management Investment Services group, positions she has held since October 2006. Prior to serving in her current roles, she was the Fund Controller of MLAI from May 1999 to September 2006. Before joining MLAI, Ms. Kocsis held various accounting and tax positions at Derivatives Portfolio Management LLC from May 1992 until May 1999, at which time she held the position of accounting director. Prior to that, she was an associate at Coopers & Lybrand in both the audit and tax practices from September 1988 to February 1992. She graduated cum laude from Monmouth College with a Bachelor of Science in Business Administration - Accounting.
Deann Morgan is a Vice President and Manager of MLAI. Ms. Morgan, 40 years old, has been a Vice President of MLAI and Managing Director of GIS since March 2008. As Managing Director of GIS, Ms. Morgan heads Alternative Investments Origination. From April 2006 until March 2008, Ms. Morgan was a Director for Merrill Lynch’s Investments, Wealth Management & Insurance group, where she was responsible for origination of private equity and listed alternative investments. Between August 2004 and April 2006, Ms. Morgan worked for Merrill Lynch’s Investment Banking Group covering Asian corporate clients. She received her M.B.A. from University of Chicago and her B.B.A. from University of Michigan. Ms. Morgan has been registered with NFA as an associated person and listed as a principal of MLAI since August 21, 2009. Ms. Morgan has also been registered with NFA as an associated person of MLPF&S since April 13, 2009.
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 Apect Futures Access LLC, ML Bluetrend FuturesAccess LLC, ML Select Futures I L.P., ML Systematic Momentum FuturesAccess LLC, ML Transtrend DTP Enhanced FuturesAccess LLC, ML Trend-Following Futures Fund L.P, and ML Winton FuturesAccess LLC. Because MLAI serves as the sole sponsor, general partner or manager of each of these funds, the officers and managers of MLAI effectively manage them as officers and directors of such funds.
(c) Identification of Certain Significant Employees:
None.
(d) Family Relationships:
None.
(e) Business Experience:
See Item 10(a) and (b) above.
(f) Involvement in Certain Legal Proceedings:
None.
(g) Promoters and Control Persons:
Not applicable.
(h) Section 16(a) Beneficial Ownership Reporting Compliance:
Not 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 a 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 itself 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 represent limited liability company interests. The Fund is managed by its Manager, MLAI.)
(b) Security Ownership of Management:
As of December 31, 2009, MLAI owned 19,470 Unit-equivalent member interests, which constituted .0038% of the total Units outstanding, and Winton did not own any Units.
c) Changes in Control:
None.
(d) Securities Authorized for Issuance Under Equity Compensation Plans:
Not applicable.
Item 13:
Item 13: Certain Relationships and Related Transactions and Director Independence
(a) Transactions between Merrill Lynch and the 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 MLAI and MLPF&S and its affiliates Brokerage Commissions, Sponsor Fees, and Management 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 2009, the Fund expensed: (i) Brokerage Commissions of $772,176 to MLPF&S, $15,244,224 in Management Fees earned by Winton and MLAI; and (ii) Sponsor Fees of $9,536,904. 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.
(e) Director Independence:
No person who served as a manager of MLAI during 2009 would be considered independent (based on the definition of an independent director under the NASDAQ rules).
Item 14:
Item 14: Principal Accountant Fees and Services
(a) Audit Fees
Aggregate fees billed for professional services rendered by PricewaterhouseCoopers LLP in connection with the audit of the Fund’s financial statements as of and for the year ended December 31, 2009 were $55,500.
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 were $55,500, respectively.
(b) Audit-Related Fees
There were no other audit-related fees billed for the years ended December 31, 2009 and 2008 related to the Fund.
(c) Tax Fees
No fees were billed by PricewaterhouseCoopers LLP or any member firms of PricewaterhouseCoopers and their respective affiliates for the year ended December 31, 2009 for professional services rendered to the Fund in connection with tax compliance, tax advice and tax planning.
Aggregate fees billed for professional services rendered by Deloitte Tax LLP in connection with the tax compliance, advice and preparation of the Fund’s tax returns for the year ended December 31, 2009 were $61,200.
Aggregate fees billed for professional services rendered by Deloitte Tax LLP, or any member firms of Deloitte Touche Tohmatsu and their respective affiliates in connection with the tax compliance, advice and preparation of the Fund’s tax returns for the years ended December 31, 2008 was $72,000, respectively.
(d) All Other Fees
No fees were billed by PricewaterhouseCoopers LLP or any member firms of PricewaterhouseCoopers and their respective affiliates for the year ended December 31, 2009 for any other professional services in relation to the Fund.
No fees were billed by Deloitte & Touche LLP, Deloitte Tax LLP, or any member firms of Deloitte Touche Tohmatsu and their respective affiliates during the year ended December 31, 2008 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
1.
Page:
REPORTS OF REGISTERED PUBLIC ACCOUNTING FIRMS
Statements of Financial Condition as of December 31, 2009 and 2008
Statements of Operations for the years ended December 31, 2009, 2008 and 2007
Statements of Changes in Members’ Capital for the years ended December 31, 2009, 2008 and 2007
Financial Data Highlights for the years ended December 31, 2009, 2008 and 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 Winton FuturesAccess LLC.
Exhibit 3.01:
Is incorporated by reference from Exhibit 3.01 contained in the Registration Statement on Form 10 (File No. 000-51084) under the Securities Exchange Act of 1934, filed on December 20, 2004 (the “Registrant’s Initial Registration Statement”).
3.02
Amended and Restated Limited Liability Company Operating Agreement of ML Winton Futures Access LLC.
Exhibit 3.02:
Is filed herewith.
10.01
Futures Customer Agreement between ML Winton FuturesAccess LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated.
Exhibit 10.01:
Is incorporated by reference from Exhibit 10.01 contained in Amendment No. 1 to the Registrant’s Registration Statement on Form 10 (File No. 000-51084) under the Securities Exchange Act, filed on February 12, 2008.
10.02
ML FuturesAccess Advisory Agreement by and among ML Winton FuturesAccess LLC, ML Winton FuturesAccess Ltd., Winton Capital Management Ltd., and Merrill Lynch Alternative Investments LLC.
Exhibit 10.02:
Is incorporated by reference from Exhibit 10.02 contained in the Registrant’s Initial Registration Statement.
13.01
2009 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 WINTON FUTURESACCESS LLC
By: MERRILL LYNCH ALTERNATIVE INVESTMENTS LLC MANAGER
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed on March 31, 2010 by the following persons on behalf of the Registrant and in the capacities indicated.
Signature
Title
Date
/s/ Justin C. Ferri
Chief Executive Officer, President and Manager
March 31,
Justin C. Ferri
/s/ Barbra E. Kocsis
Chief Financial Officer
March 31,
Barbra E. Kocsis
(Principal Financial and Accounting Officer)
/s/ Deann Morgan
Vice President and Manager
March 31,
Deann Morgan
(Being the principal executive officer, the principal financial and accounting officer and a majority of the managers of Merrill Lynch Alternative Investments LLC)
ML WINTON FUTURESACCESS LLC
2009 FORM 10-K
INDEX TO EXHIBITS
Exhibit
Exhibit 3.02
Amended and Restated Limited Liability Company Operating Agreement of ML Winton Futures Access LLC.
Exhibit 13.01
2009 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