Exhibit 13.01(a)
ML MILLBURN GLOBAL L.L.C.
(A Delaware Limited Liability Company)
Financial Statements for the years ended
December 31, 2006 and 2005 and Independent
Auditors’ Report
ML MILLBURN GLOBAL L.L.C.
(A Delaware Limited Liability Company)
TABLE OF CONTENTS
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INDEPENDENT AUDITORS’ REPORT |
| 1 |
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FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005: |
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Statements of Financial Condition |
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Statements of Income |
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Statements of Changes in Member’s Capital |
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Notes to Financial Statements |
| 5-11 |
To the Member of
ML Millburn Global L.L.C.:
We have audited the accompanying statements of financial condition of ML Millburn Global L.L.C. (the “Company”) as of December 31, 2006 and 2005, and the related statements of income and of changes in member’s capital for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ML Millburn Global L.L.C. as of December 31, 2006 and 2005, and the results of its operations and changes in its member’s capital for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP |
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New York, New York
March 27, 2007
ML MILLBURN GLOBAL L.L.C.
(A Delaware Limited Liability Company)
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 2006 AND 2005
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| December 31, |
| December 31, |
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| 2006 |
| 2005 |
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ASSETS: |
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Equity in commodity futures trading accounts: |
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Cash (includes restricted cash of $3,479,737 for 2006 and $4,412,180 for 2005) |
| $ | 10,933,109 |
| $ | 11,425,020 |
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Net unrealized profit (loss) on open contracts |
| 643,921 |
| (126,382 | ) | ||
Due from Member |
| — |
| 114,376 |
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Accrued interest |
| 46,152 |
| 35,386 |
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TOTAL ASSETS |
| $ | 11,623,182 |
| $ | 11,448,400 |
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LIABILITIES AND MEMBER’S CAPITAL |
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LIABILITIES: |
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Brokerage commissions payable |
| $ | 82,295 |
| $ | 80,264 |
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Due to Member |
| 1,362,638 |
| — |
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Profit Shares and administrative fees payable |
| 139,045 |
| 2,361 |
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Total liabilities |
| 1,583,978 |
| 82,625 |
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MEMBER’S CAPITAL: |
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Voting Member |
| 10,039,204 |
| 11,365,775 |
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Total Member’s capital |
| 10,039,204 |
| 11,365,775 |
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TOTAL LIABILITIES AND MEMBER’S CAPITAL |
| $ | 11,623,182 |
| $ | 11,448,400 |
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See notes to financial statements.
2
ML MILLBURN GLOBAL L.L.C.
(A Delaware Limited Liability Company)
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
| 2006 |
| 2005 |
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TRADING PROFIT (LOSS): |
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Realized |
| $ | 581,201 |
| $ | 1,522,114 |
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Change in unrealized |
| 770,303 |
| (404,538 | ) | ||
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Total trading profit |
| 1,351,504 |
| 1,117,576 |
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INVESTMENT INCOME: |
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Interest |
| 541,567 |
| 379,617 |
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EXPENSES: |
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Brokerage commissions |
| 964,694 |
| 1,026,563 |
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Profit Shares |
| 148,563 |
| — |
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Administrative fees |
| 28,373 |
| 30,193 |
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Total expenses |
| 1,141,630 |
| 1,056,756 |
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NET INVESTMENT LOSS |
| (600,063 | ) | (677,139 | ) | ||
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NET INCOME |
| $ | 751,441 |
| $ | 440,437 |
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See notes to financial statements.
3
ML MILLBURN GLOBAL L.L.C.
(A Delaware Limited Liability Company)
STATEMENTS OF CHANGES IN MEMBER’S CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
| Voting Member |
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MEMBER’S CAPITAL, |
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DECEMBER 31, 2004 |
| $ | 13,817,516 |
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Net Income |
| 440,437 |
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Withdrawals - net |
| (2,892,178 | ) | |
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MEMBER’S CAPITAL, |
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DECEMBER 31, 2005 |
| 11,365,775.00 |
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Net Income |
| 751,441 |
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Withdrawals - net |
| (2,078,012 | ) | |
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MEMBER’S CAPITAL, |
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DECEMBER 31, 2006 |
| $ | 10,039,204 |
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See notes to financial statements.
4
ML MILLBURN GLOBAL L.L.C.
(A Delaware Limited Liability Company)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
ML Millburn Global L.L.C. (the “Company”) was organized under the Delaware Limited Liability Company Act on November 22, 1996 and commenced trading activities on December 2, 1996. The Company engages in the speculative trading of futures, options on futures and forward contracts on a wide range of commodities. Millburn Ridgefield Corporation (“Millburn”) is the trading advisor to the Company. Merrill Lynch Alternative Investments LLC (“MLAI”), an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. (“Merrill Lynch”), has been delegated administrative authority of the Company. Merrill Lynch, Pierce Fenner & Smith Incorporated (“MLPF&S”), a wholly-owned subsidiary of Merrill Lynch, is the Company’s commodity broker.
The Company has authorized two classes of Membership Interests: Non-Voting Interests and Voting Interests (collectively, “Interests”). These two classes of Interests have common economic interests in the Company. The Non-Voting Interests, which may only be held by non-United States investment funds sponsored by MLAI, would not participate in the management of the Company, or engage, directly or indirectly in, participate in or control any portion of the business activities or affairs of the Company. Currently, there are no Non-Voting Members. Management of the Company is vested solely in the Voting Interests, which may only be held by United States limited partnerships. Currently, there is only one Voting Member of the Company (the “Member”). The Member controls all business activities and affairs of the Company, subject to the trading authority vested in and delegated to Millburn and the administrative authority vested in and delegated to MLAI. The Member is a “commodity pool” sponsored and managed by MLAI.
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
Commodity futures, options on futures and forward contract transactions are recorded on the trade date, and open contracts are reflected in Net unrealized profit (loss) on open contracts in the Statements of Financial Condition as the difference between the original contract value and the market value (for those commodity interests for which market quotations are readily available) or at fair value. The change in net unrealized profit (loss) on open contracts from one period to the next is reflected in Change in unrealized in the Statements of Income.
5
Foreign Currency Transactions
The Company’s functional currency is the U.S. dollar; however, it transacts business in currencies other than the U.S. dollar. Assets and liabilities denominated in currencies other than the U.S. dollar are translated into U.S. dollars at the rates in effect at the dates of the Statements of Financial Condition. Income and expense items denominated in currencies other than the U.S. dollar are translated into U.S. dollars at the rates in effect during the period. Gains and losses resulting from the translation to U.S. dollars are reported in Realized in the Statements of Income.
Cash at Broker
A portion of the assets maintained at MLPF&S is restricted cash required to meet maintenance margin requirements. Included in cash deposits with the broker at December 31, 2006 and 2005 is restricted cash for margin requirements of $3,479,737 and $4,412,180, respectively.
Due to / Due from Member
The Member reallocates its assets for trading between the Company and another similar company. This reallocation generally occurs on a quarterly basis and is recorded as Due to/Due from member until the cash is paid/received. The contribution/withdrawal to or from the member is also included in these accounts. The Member may contribute or withdraw all or some of its cash.
Operating Expenses
MLAI pays for all operating costs (including all legal, accounting, printing, postage and similar administrative expenses) of the Company.
Income Taxes
No provision for income taxes has been made in the accompanying financial statements as the Member is individually responsible for reporting income or loss based on such Member’s respective share of the Company’s income and expenses as reported for income tax purposes.
Distributions
The Company has made no distributions for the years ended December 31, 2006 or 2005.
Contribution/Withdrawals
The Member may contribute or withdraw some or all of its capital at Net Asset Value as of the close of business on any business day. There are no withdrawal fees or charges.
Dissolution
The Company will terminate on December 31, 2046 or at an earlier date if certain conditions occur, as well as under certain other circumstances as set forth in the Organization Agreement.
6
Indemnifications
In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and which provide general indemnifications. The Company’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Company that have not yet occurred. The Company expects the risk of any future obligation under these indemnifications to be remote.
7
2. CONDENSED SCHEDULES OF INVESTMENTS
The Company’s investments, defined as Net unrealized profit (loss) on open contracts on the Statements of Financial Condition, as of December 31, 2006 and 2005 are as follows:
2006 |
| Long Positions |
| Short Positions |
| Net Unrealized |
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Commodity |
| Number of |
| Unrealized |
| Percent of |
| Number of |
| Unrealized |
| Percent of |
| Profit (Loss) |
| Percent of |
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Industry Sector |
| Contracts |
| Profit (Loss) |
| Partners' Capital |
| Contracts |
| Profit (Loss) |
| Partners' Capital |
| on Open Positions |
| Partners' Capital |
| Maturity Dates |
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Currencies |
| 1,391,232 |
| $ | 186,190 |
| 1.85 | % | (658,815 | ) | $ | 218,780 |
| 2.18 | % | $ | 404,970 |
| 4.03 | % | March 07 |
|
Interest rates |
| 91 |
| (84,629 | ) | -0.84 | % | (384 | ) | 175,690 |
| 1.75 | % | 91,061 |
| 0.91 | % | March 07 - September 07 |
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Metals |
| 30 |
| (10,510 | ) | -0.11 | % | (2 | ) | (300 | ) | 0.00 | % | (10,810 | ) | -0.11 | % | March 07 - December 07 |
| |||
Stock indices |
| 175 |
| 158,700 |
| 1.58 | % | — |
| — |
| 0.00 | % | 158,700 |
| 1.58 | % | January 07 - March 07 |
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Total |
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| $ | 249,751 |
| 2.48 | % |
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| $ | 394,170 |
| 3.93 | % | $ | 643,921 |
| 6.41 | % |
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2005 |
| Long Positions |
| Short Positions |
| Net Unrealized |
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Commodity |
| Number of |
| Unrealized |
| Percent of |
| Number of |
| Unrealized |
| Percent of |
| Profit (Loss) |
| Percent of |
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Industry Sector |
| Contracts |
| Profit (Loss) |
| Partners' Capital |
| Contracts |
| Profit (Loss) |
| Partners' Capital |
| on Open Positions |
| Partners' Capital |
| Maturity Dates |
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Currencies |
| 1,237,592 |
| $ | (154,261 | ) | -1.36 | % | (2,425,468 | ) | $ | (232,518 | ) | -2.05 | % | $ | (386,779 | ) | -3.41 | % | March 06 |
|
Interest rates |
| 73 |
| 25,459 |
| 0.22 | % | (277 | ) | 43,861 |
| 0.39 | % | 69,320 |
| 0.61 | % | March 06 - September 06 |
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Metals |
| 71 |
| 124,302 |
| 1.09 | % | (5 | ) | 3,820 |
| 0.03 | % | 128,122 |
| 1.12 | % | February 06 - October 06 |
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Stock indices |
| 189 |
| 62,955 |
| 0.55 | % | — |
| — |
| 0.00 | % | 62,955 |
| 0.55 | % | January 06 - March 06 |
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Total |
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| $ | 58,455 |
| 0.50 | % |
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| $ | (184,837 | ) | -1.63 | % | $ | (126,382 | ) | -1.13 | % |
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No individual contract’s unrealized gain or loss comprised greater than 5% of the Member’s Capital as of December 31, 2006 or 2005.
8
3. FINANCIAL DATA HIGHLIGHTS
The following ratios have been derived from information provided in the financial statements for the year ended December 31, 2006.
Total Return: |
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Total return before Profit Shares |
| 7.63 | % |
Profit Shares |
| 1.35 | % |
Total return After Profit Shares |
| 6.48 | % |
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Ratios to Average Member’s Capital: |
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Expenses (excluding Profit Shares) |
| 8.99 | % |
Profit Shares |
| 1.35 | % |
Expenses (including Profit Shares) |
| 10.34 | % |
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Net investment loss |
| -5.43 | % |
4. RELATED PARTY TRANSACTIONS
The Company’s U.S. dollar assets are maintained at MLPF&S. On assets held in U.S. dollars, Merrill Lynch credits the Company with interest at the prevailing 91-day U.S. Treasury bill rate. The Company is credited with interest on any of its assets and net gains actually held by MLPF&S in non-U.S. dollar currencies at a prevailing local interest rate received by Merrill Lynch. Merrill Lynch may derive certain economic benefit, in excess of the interest that Merrill Lynch pays to the Company, from possession of such assets.
Merrill Lynch charges the Company Merrill Lynch’s cost of financing realized and unrealized losses on the Company’s non-U.S. dollar-denominated positions. Such amounts are netted against interest income due to the insignificance of such amounts.
Following the allocation of the Company’s trading profit (loss) and interest income to the Member’s capital account, MLAI calculates the brokerage commissions, administrative fees, Profit Shares and other expenses due from the Company to third parties. Such commissions, fees and expenses are specifically calculated for the Member as of the end of each accounting period and deducted from the Member’s capital account and paid out by the Company. The Company currently pays brokerage commissions to MLPF&S at flat monthly rate of .708 of 1% (a 8.50% annual rate) of the Member’s month-end trading assets, reflecting the fee arrangement between the Member and MLPF&S.
The Company pays MLAI a monthly administrative fee of .021 of 1% (a .25% annual rate) of the Member’s month-end trading assets. Month-end trading assets are not reduced for purposes of calculating brokerage commissions and administrative fees by any accrued brokerage commissions, administrative fees, Profit Shares or other fees or charges.
MLPF&S pays Millburn an annual consulting fee of 2% of the Company’s average month-end trading assets, after reduction for a portion of brokerage commissions.
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5. ADVISORY AGREEMENT
The Advisory Agreement between the Company and Millburn has remained essentially unchanged since the inception of the Company. This Agreement is in effect for successive one-year terms, but, in fact, given the single advisor structure of the Company, the Company would terminate were Millburn to withdraw. Millburn determines the commodity futures, options on futures and forward contract trades to be made on behalf of the Company, subject to certain rights reserved by MLAI.
The Company pays to Millburn an annual Profit Share equal to 20% of any New Trading Profit, as defined, attributable to the Member’s respective capital accounts. Profit Shares are calculated separately in respect of the Member’s respective capital accounts. Profit Shares are also paid to Millburn upon the withdrawal of capital from the Company by the Member.
6. RECENT ACCOUNTING PRONOUNCEMENTS
In July 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109. FIN 48 prescribes the minimum recognition threshold a tax position must meet in connection with accounting for uncertainties in income tax positions taken or expected to be taken by an entity before being measured and recognized in the financial statements. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006. The impact on the Company’s financial statements, if any, is currently being assessed.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“FAS 157”). FAS 157 establishes a common definition for fair value under accounting principles generally accepted in the United States of America, establishes a framework for measuring fair value and expands disclosure requirements about such fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of adopting FAS 157 on its financial statements.
7. MARKET AND CREDIT RISK
The nature of this Company has certain risks, which cannot all be presented on the financial statements. The following summarizes some of those risks.
Market Risk
Derivative instruments involve varying degrees of market risk, and changes in the level or volatility of interest rates, foreign currency exchange rates or the market values of the underlying financial instruments or commodities underlying such derivative instruments frequently result in changes in the Company’s net unrealized profit on such derivative instruments as reflected in the Statements of Financial Condition. The Company’s exposure to market risk is influenced by a number of factors, including the relationships among the derivative instruments held by the Company as well as the volatility and liquidity in the markets in which such derivative instruments are traded. Investments in foreign markets may also entail legal and political risks.
MLAI has procedures in place intended to control market risk exposure, although there can be no assurance that they will, in fact, succeed in doing so. These procedures focus primarily on monitoring the trading of Millburn, calculating the Member’s capital account as of the close of business each day and reviewing outstanding positions for over-concentrations. While MLAI does not itself intervene in the markets to hedge or diversify the Company’s market exposure, MLAI may consult with Millburn
10
concerning the possibility of Millburn reducing trading leverage or market concentrations. However, such interventions are unusual. Except in cases in which it appears that Millburn has begun to deviate from past practice and trading policies or to be trading erratically, MLAI’s basic risk control procedures consist simply of the ongoing process of advisor monitoring with the market risk controls being applied by Millburn.
Credit Risk
The risks associated with exchange-traded contracts are typically perceived to be less than those associated with over-the-counter (non-exchange-traded) transactions, because exchanges typically (but not universally) provide clearinghouse arrangements in which the collective credit (in some cases limited in amount, in some cases not) of the members of the exchange is pledged to support the financial integrity of the exchange. In over-the-counter transactions, on the other hand, traders must rely solely on the credit of their respective individual counterparties. Margins, which may be subject to loss in the event of a default, are generally required in exchange trading, and counterparties may require margin in the over-the-counter markets.
The credit risk associated with these instruments from counterparty nonperformance is the net unrealized profit, if any, included in the Statements of Financial Condition. The Company attempts to mitigate this risk by dealing exclusively with Merrill Lynch entities as clearing brokers.
The Company, in its normal course of business, enters into various contracts, with MLPF&S acting as its commodity broker. Pursuant to the brokerage agreement with MLPF&S (which includes a netting arrangement), to the extent that such trading results in receivables from and payables to MLPF&S, these receivables and payables are offset and reported as a net receivable or payable and included in Net unrealized profit (loss) on open contracts on the Statements of Financial Condition.
11
* * * * * * * * * *
To the best of the knowledge and belief of the
undersigned, the information contained in this
report is accurate and complete.
/s/ Barbra E. Kocsis |
|
Barbra E. Kocsis
Chief Financial Officer
Merrill Lynch Alternative Investments LLC
Commodity Pool Operator of
ML Millburn Global L.L.C.
12
ML JWH FINANCIAL AND
METALS PORTFOLIO L.L.C.
(A Delaware Limited Liability Company)
Financial Statements for the years ended
December 31, 2006 and 2005 and Independent
Auditors’ Report
ML JWH FINANCIAL AND METALS PORTFOLIO L.L.C.
(A Delaware Limited Liability Company)
TABLE OF CONTENTS
| Page | |
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INDEPENDENT AUDITORS’ REPORT |
| 1 |
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FINANCIAL STATEMENTS FOR THE YEARS ENDED |
|
|
DECEMBER 31, 2006 AND 2005: |
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|
Statements of Financial Condition |
| 2 |
|
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Statements of Operations |
| 3 |
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Statements of Changes in Member’s Capital |
| 4 |
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Notes to Financial Statements |
| 5-11 |
INDEPENDENT AUDITORS’ REPORT
To the Member of
ML JWH Financial and Metals Portfolio L.L.C.:
We have audited the accompanying statements of financial condition of ML JWH Financial and Metals Portfolio L.L.C. (the “Company”) as of December 31, 2006 and 2005, and the related statements of operations and of changes in member’s capital for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ML JWH Financial and Metals Portfolio L.L.C. as of December 31, 2006 and 2005, and the results of its operations and changes in its member’s capital for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP |
|
New York, New York
March 27, 2007
ML JWH FINANCIAL AND METALS PORTFOLIO L.L.C.
(A Delaware Limited Liability Company)
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 2006 AND 2005
|
| 2006 |
| 2005 |
| ||
ASSETS: |
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|
| ||
Equity in commodity futures trading accounts: |
|
|
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|
| ||
Cash (includes restricted cash of $3,764,452 for 2006 and $2,610,545 for 2005) |
| $ | 9,102,271 |
| $ | 11,284,244 |
|
Net unrealized profit on open contracts |
| 8,462 |
| 551,157 |
| ||
Due from Member |
| 977,718 |
| — |
| ||
Accrued interest |
| 39,963 |
| 36,347 |
| ||
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TOTAL ASSETS |
| $ | 10,128,414 |
| $ | 11,871,748 |
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LIABILITIES AND MEMBER’S CAPITAL |
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LIABILITIES: |
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Brokerage commissions payable |
| $ | 87,307 |
| $ | 106,554 |
|
Administrative fees payable |
| 1,902 |
| 2,469 |
| ||
Due to Member |
| — |
| 396,949 |
| ||
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Total liabilities |
| 89,209 |
| 505,972 |
| ||
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MEMBER’S CAPITAL: |
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Voting Member |
| 10,039,205 |
| 11,365,776 |
| ||
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|
|
|
| ||
Total Member’s capital |
| 10,039,205 |
| 11,365,776 |
| ||
|
|
|
|
|
| ||
TOTAL LIABILITIES AND MEMBER’S CAPITAL |
| $ | 10,128,414 |
| $ | 11,871,748 |
|
See notes to financial statements.
2
ML JWH FINANCIAL AND METALS PORTFOLIO L.L.C.
(A Delaware Limited Liability Company)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
| 2006 |
| 2005 |
| |||
TRADING PROFIT (LOSS): |
|
|
|
|
| ||
Realized |
| $ | 5,399 |
| $ | (1,025,511 | ) |
Change in unrealized |
| (542,695 | ) | (706,491 | ) | ||
|
|
|
|
|
| ||
Total trading loss |
| (537,296 | ) | (1,732,002 | ) | ||
|
|
|
|
|
| ||
INVESTMENT INCOME: |
|
|
|
|
| ||
Interest income |
| 525,018 |
| 359,324 |
| ||
|
|
|
|
|
| ||
|
|
|
|
|
| ||
EXPENSES: |
|
|
|
|
| ||
Brokerage commissions |
| 940,928 |
| 993,394 |
| ||
Administrative fees |
| 27,674 |
| 29,217 |
| ||
|
|
|
|
|
| ||
Total expenses |
| 968,602 |
| 1,022,611 |
| ||
|
|
|
|
|
| ||
NET INVESTMENT LOSS |
| (443,584 | ) | (663,287 | ) | ||
|
|
|
|
|
| ||
NET LOSS |
| $ | (980,880 | ) | $ | (2,395,289 | ) |
See notes to financial statements.
3
ML JWH FINANCIAL AND METALS PORTFOLIO L.L.C.
(A Delaware Limited Liability Company)
STATEMENTS OF CHANGES IN MEMBER’S CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
| Voting Member |
| ||
|
|
|
| |
MEMBER’S CAPITAL, DECEMBER 31, 2004 |
| $ | 13,817,517 |
|
|
|
|
| |
Net loss |
| (2,395,289 | ) | |
|
|
|
| |
Withdrawals - net |
| (56,452 | ) | |
|
|
|
| |
MEMBER’S CAPITAL, DECEMBER 31, 2005 |
| 11,365,776 |
| |
|
|
|
| |
Net loss |
| (980,880 | ) | |
|
|
|
| |
Withdrawals - net |
| (345,691 | ) | |
|
|
|
| |
MEMBER’S CAPITAL, DECEMBER 31, 2006 |
| $ | 10,039,205 |
|
See notes to financial statements.
4
ML JWH FINANCIAL AND METALS PORTFOLIO L.L.C.
(A Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
ML JWH Financial and Metals Portfolio L.L.C. (the “Company”) was organized under the Delaware Limited Liability Company Act on September 19, 1996 and commenced trading activities on October 1, 1996. The Company engages in the speculative trading of futures, options on futures and forward contracts on a wide range of commodities. John W. Henry & Company, Inc. (“JWH®”) is the trading advisor to the Company. Merrill Lynch Alternative Investments LLC (“MLAI”), an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. (“Merrill Lynch”), has been delegated administrative authority of the Company. Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S”), a wholly-owned subsidiary of Merrill Lynch, is the Company’s commodity broker.
The Company has authorized two classes of Membership Interests: Non-Voting Interests and Voting Interests (collectively, “Interests”). These two classes of Interests have common economic interests in the Company, but the Non-Voting Interests, which may only be held by non-United States investment funds sponsored by MLAI, would not participate in the management of the Company, or engage in, directly or indirectly, participate in or control any portion of the business activities or affairs of the Company. Currently, there are no Non-Voting Members. Management of the Company is vested solely in the Voting Interests, which may only be held by United States limited partnerships. Currently, there is only one Voting Member of the Company (the “Member”). The Member controls all business activities and affairs of the Company subject to the trading authority vested in and delegated to JWH® and the administrative authority vested in and delegated to MLAI. The Member is a “commodity pool” sponsored and managed by MLAI.
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
Commodity futures, options on futures and forward contract transactions are recorded on the trade date and open contracts are reflected in Net unrealized profit (loss) on open contracts in the Statements of Financial Condition as the difference between the original contract value and the market value (for those commodity interests for which market quotations are readily available) or at fair value. The change in unrealized profit on open contracts from one period to the next is reflected in Change in unrealized in the Statements of Operations.
5
Foreign Currency Transactions
The Company’s functional currency is the U.S. dollar; however, it transacts business in currencies other than the U.S. dollar. Assets and liabilities denominated in currencies other than the U.S. dollar are translated into U.S. dollars at the rates in effect at the dates of the Statements of Financial Condition. Income and expense items denominated in currencies other than the U.S. dollar are translated into U.S. dollars at the rates in effect during the period. Gains and losses resulting from the translation to U.S. dollars are reported in Realized in the Statements of Operations.
Cash at Broker
A portion of the assets maintained at MLPF&S is restricted cash required to meet maintenance margin requirements. Included in cash deposits with the broker at December 31, 2006 and 2005 is restricted cash for margin requirements of $3,764,452 and $2,610,545, respectively.
Due to / Due from Member
The Member reallocates its assets for trading between the Company and another similar company. This reallocation generally occurs on a quarterly basis and is recorded as Due to/Due from Member until the cash is paid/received. The contribution/withdrawal to or from the Member is also included in these accounts. The Member may contribute or withdraw all or some of its cash.
Operating Expenses
MLAI pays for all operating costs (including all legal, accounting, printing, postage and similar administrative expenses) of the Company.
Income Taxes
No provision for income taxes has been made in the accompanying financial statements as the Member is individually responsible for reporting income or loss based on such Member’s respective share of the Company’s income and expenses as reported for income tax purposes.
Distributions
The Company has made no distributions for the years ended December 31, 2006 or 2005.
Contribution/Withdrawals
The Member may contribute or withdraw some or all of its capital at the Net Asset Value as of the close of business on any business day. There are no withdrawal fees or charges.
Dissolution
The Company will terminate on September 30, 2046 or at an earlier date if certain conditions occur, as well as under certain other circumstances as set forth in the Organization Agreement.
6
Indemnifications
In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and which provide general indemnifications. The Company’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Company that have not yet occurred. The Company expects the risk of any future obligation under these indemnifications to be remote.
7
2. CONDENSED SCHEDULES OF INVESTMENTS
The Company’s investments, defined as Net unrealized profit (loss) on open contracts on the Statements of Financial Condition, as of December 31, 2006 and 2005 are as follows:
2006 |
| Long Positions |
| Short Positions |
| Net Unrealized |
|
|
|
|
| |||||||||||
Commodity Industry |
| Number of |
| Unrealized |
| Percent of Net |
| Number of |
| Unrealized |
| Percent of |
| Profit (Loss) |
| Percent of Net |
|
|
| |||
Sector |
| Contracts |
| Profit (Loss) |
| Assets |
| Contracts |
| Profit (Loss) |
| Net Assets |
| on Open Positions |
| Assets |
| Maturity Dates |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Currencies |
| 29,135 |
| $ | 132,542 |
| 1.32 | % | (1,152,700 | ) | $ | 88,109 |
| 0.88 | % | $ | 220,650 |
| 2.20 | % | March 07 |
|
Interest rates |
| 184 |
| (306,054 | ) | -3.05 | % | (309 | ) | 83,019 |
| 0.82 | % | (223,036 | ) | -2.22 | % | March 07 - December 07 |
| |||
Metals |
| 26 |
| 37,588 |
| 0.37 | % | (15 | ) | 966 |
| 0.01 | % | 38,556 |
| 0.38 | % | January 07 - March 07 |
| |||
Stock indices |
| 137 |
| (27,708 | ) | -0.27 | % | — |
| — |
| 0.00 | % | (27,708 | ) | -0.28 | % | March 07 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Total |
|
|
| $ | (163,632 | ) | -1.63 | % |
|
| $ | 172,094 |
| 1.71 | % | $ | 8,462 |
| 0.08 | % |
|
|
2005 |
| Long Positions |
| Short Positions |
| Net Unrealized |
|
|
|
|
| |||||||||||
Commodity Industry |
| Number of |
| Unrealized |
| Percent of Net |
| Number of |
| Unrealized |
| Percent of |
| Profit (Loss) |
| Percent of Net |
|
|
| |||
Sector |
| Contracts |
| Profit (Loss) |
| Assets |
| Contracts |
| Profit (Loss) |
| Net Assets |
| on Open Positions |
| Assets |
| Maturity Dates |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Currencies |
| 8,816 |
| $ | (159,227 | ) | -1.40 | % | 1,134,542 |
| $ | 246,128 |
| 2.17 | % | $ | 86,901 |
| 0.77 | % | March 06 |
|
Interest rates |
| — |
| — |
| — |
| (348 | ) | (53,720 | ) | -0.47 | % | (53,720 | ) | -0.47 | % | March 06 - December 06 |
| |||
Metals |
| 91 |
| 455,466 |
| 4.01 | % | (34 | ) | (60,844 | ) | -0.54 | % | 394,622 |
| 3.47 | % | January 06 - February 06 |
| |||
Stock indices |
| 181 |
| 123,354 |
| 1.09 | % | — |
| — |
| — |
| 123,354 |
| 1.09 | % | March 06 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Total |
|
|
| $ | 419,593 |
| 3.70 | % |
|
| $ | 131,564 |
| 1.16 | % | $ | 551,157 |
| 4.86 | % |
|
|
No individual contract’s unrealized gain or loss comprised greater than 5% of the Members’ Capital as of December 31, 2006 or 2005.
8
3. FINANCIAL DATA HIGHLIGHTS
The following ratios have been derived from information provided in the financial statements for the year ended December 31, 2006.
Total return: |
|
|
|
|
|
|
|
Total return |
| -9.99 | % |
|
|
|
|
Ratios to Average Member’s Capital: |
|
|
|
|
|
|
|
Expenses |
| 8.81 | % |
|
|
|
|
Net investment loss |
| -4.04 | % |
|
|
|
|
4. RELATED PARTY TRANSACTIONS
The Company’s U.S. dollar assets are maintained at MLPF&S. On assets held in U.S. dollars, Merrill Lynch credits the Company with interest at the prevailing 91-day U.S. Treasury bill rate. The Company is credited with interest on any of its assets and net gains actually held by MLPF&S in non-U.S. dollar currencies at a prevailing local interest rate received by Merrill Lynch. Merrill Lynch may derive certain economic benefit, in excess of the interest that Merrill Lynch pays to the Company, from possession of such assets.
Merrill Lynch charges the Company Merrill Lynch’s cost of financing realized and unrealized losses on the Company’s non-U.S. dollar-denominated positions. Such amounts are netted against interest income due to the insignificance of such amounts.
Following the allocation of the Company’s trading profit (loss) and interest income among the Member’s respective capital accounts, MLAI calculates the brokerage commissions, Profit Shares, administrative fees and other expenses due from the Company to third parties. Such commissions, fees, Profit Shares and expenses are specifically calculated for the Member as of the end of each accounting period and deducted from a Member’s capital account and paid out by the Company. The Company currently pays brokerage commissions to MLPF&S at a flat monthly rate of .708 of 1% (an 8.5% annual rate) of the Member’s month-end trading assets reflecting the fee arrangement between the Member and MLPF&S.
The Company pays MLAI a monthly administrative fee of .021 of 1% (a .25% annual rate) of the Member’s month-end trading assets. Month-end trading assets are not reduced for purposes of calculating brokerage commissions and administrative fees by any accrued brokerage commissions, administrative fees, Profit Shares or other fees or charges.
MLPF&S pays JWH® an annual consulting fee of 2% of the Company’s average month-end trading assets, after reduction for a portion of the brokerage commissions.
9
5. ADVISORY AGREEMENT
The Advisory Agreement between the Company and JWH® is in effect for successive one-year terms, but, in fact, given the single advisor structure of the Company, the Company would terminate were JWH® to withdraw. JWH® determines the commodity futures, options on futures and forward contract trades to be made on behalf of the Company, subject to certain Company trading policies and to certain rights reserved by MLAI.
The Company pays to JWH® a quarterly Profit Share equal to 20% of any New Trading Profit, as defined, attributable to the Member’s respective capital accounts. Profit Shares are calculated separately in respect of the Member’s respective capital accounts. Profit Shares are determined as of the end of each calendar quarter and are also paid to JWH® upon the withdrawal of capital from the Company by the Member for whatever purpose, other than to pay expenses.
6. RECENT ACCOUNTING PRONOUNCEMENTS
In July 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109. FIN 48 prescribes the minimum recognition threshold a tax position must meet in connection with accounting for uncertainties in income tax positions taken or expected to be taken by an entity before being measured and recognized in the financial statements. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006. The impact on the Company’s financial statements, if any, is currently being assessed.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“FAS 157”). FAS 157 establishes a common definition for fair value under accounting principles generally accepted in the United States of America, establishes a framework for measuring fair value and expands disclosure requirements about such fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of adopting FAS 157 on its financial statements.
7. MARKET AND CREDIT RISKS
The nature of this Company has certain risks, which cannot all be presented on the financial statements. The following summarizes some of those risks.
Market Risk
Derivative instruments involve varying degrees of market risk, and changes in the level or volatility of interest rates, foreign currency exchange rates or the market values of the underlying financial instruments or commodities underlying such derivative instruments frequently result in changes in the Company’s net unrealized profit on such derivative instruments as reflected in the Statements of Financial Condition. The Company’s exposure to market risk is influenced by a number of factors, including the relationships among the derivative instruments held by the Company as well as the volatility and liquidity in the markets in which such derivative instruments are traded. Investments in foreign markets may also entail legal and political risks.
MLAI has procedures in place intended to control market risk exposure, although there can be no assurance that they will, in fact, succeed in doing so. These procedures focus primarily on monitoring
10
the trading of JWH®, calculating the Member’s capital account as of the close of business each day and reviewing outstanding positions for over-concentrations. While MLAI does not itself intervene in the markets to hedge or diversify the Company’s market exposure, MLAI may consult with JWH® concerning the possibility of JWH® reducing trading leverage or market concentrations. However, such interventions are unusual. Except in cases in which it appears that JWH® has begun to deviate from past practice and trading policies or to be trading erratically, MLAI’s basic risk control procedures consist simply of the ongoing process of advisor monitoring with the market risk controls being applied by JWH®.
Credit Risk
The risks associated with exchange-traded contracts are typically perceived to be less than those associated with over-the-counter (non-exchange-traded) transactions, because exchanges typically (but not universally) provide clearinghouse arrangements in which the collective credit (in some cases limited in amount, in some cases not) of the members of the exchange is pledged to support the financial integrity of the exchange. In over-the-counter transactions, on the other hand, traders must rely solely on the credit of their respective individual counterparties. Margins, which may be subject to loss in the event of a default, are generally required in exchange trading, and counterparties may require margin in the over-the-counter markets.
The credit risk associated with these instruments from counterparty nonperformance is the net unrealized profit, if any, included in the Statements of Financial Condition. The Company attempts to mitigate this risk by dealing exclusively with Merrill Lynch entities as clearing brokers.
The Company, in its normal course of business, enters into various contracts, with MLPF&S acting as its commodity broker. Pursuant to the brokerage agreement with MLPF&S (which includes a netting arrangement), to the extent that such trading results in receivables from and payables to MLPF&S, these receivables and payables are offset and reported as a net receivable or payable and included in the Net unrealized profit on open contracts on the Statements of Financial Condition.
11
* * * * * * * * *
To the best of the knowledge and belief of the
undersigned, the information contained in this
report is accurate and complete.
/s/ Barbra E. Kocsis |
|
Barbra E. Kocsis
Chief Financial Officer
Merrill Lynch Alternative Investments LLC
Commodity Pool Operator
ML JWH Financial and Metals Portfolio L.L.C.
12