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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2014

 

OR

 

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from             to            

 

Commission File Number 0-51085

 

ASPECT FUTURESACCESS LLC

(Exact name of registrant as specified in its charter)

 

Delaware

 

20-1227650

(State or other jurisdiction of

 

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

incorporation or organization)

 

 

 

c/o Merrill Lynch Alternative Investments LLC

250 Vesey Street, 11th Floor

New York, New York 10080

(Address of principal executive offices)

(Zip Code)

 

609-274-5838

(Registrant’s telephone number, including area code)

 

c/o Merrill Lynch Alternative Investments LLC

Four World Financial Center

250 Vesey Street, 11th Floor

New York, New York 10080

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x  No  o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  x  No  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.:

 

Large accelerated filer o

 

Accelerated filer o

 

 

 

Non-accelerated filer x

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o  No  x

 

As of September 30, 2014, 94,358,444 units of limited liability company interest were outstanding.

 

 

 



 

ASPECT FUTURESACCESS LLC

 

QUARTERLY REPORT FOR SEPTEMBER 30, 2014 ON FORM 10-Q

 

Table of Contents

 

 

 

PAGE

 

 

 

PART I—FINANCIAL INFORMATION

 

 

 

Item 1.

Financial Statements

1

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

27

 

 

 

Item 4.

Controls and Procedures

32

 

 

 

PART II—OTHER INFORMATION

 

 

 

Item 1.

Legal Proceedings

32

 

 

 

Item 1A.

Risk Factors

32

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

32

 

 

 

Item 3.

Defaults Upon Senior Securities

34

 

 

 

Item 4.

Mine Safety Disclosures

34

 

 

 

Item 5.

Other Information

34

 

 

 

Item 6

Exhibits

34

 



 

PART I - FINANCIAL INFORMATION

 

Item 1.   Financial Statements

 

ASPECT FUTURESACCESS LLC

(a Delaware Limited Liability Company)

 

STATEMENTS OF FINANCIAL CONDITION

(unaudited)

 

 

 

September 30,

 

December 31,

 

 

 

2014

 

2013

 

ASSETS:

 

 

 

 

 

Equity in commodity trading accounts:

 

 

 

 

 

Cash (including restricted cash of $16,176,459 for 2014 and $19,838,945 for 2013)

 

$

129,024,022

 

$

170,957,522

 

Unrealized profit on open futures contracts

 

7,989,058

 

9,638,644

 

Unrealized profit on open forwards contracts

 

6,415,937

 

854,236

 

Cash

 

491,995

 

491,639

 

Other assets

 

 

317

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

143,921,012

 

$

181,942,358

 

 

 

 

 

 

 

LIABILITIES AND MEMBERS’ CAPITAL:

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

 

 

 

 

 

 

Brokerage commissions payable

 

$

23,784

 

$

17,157

 

Sponsor and Advisory fees payable

 

372,208

 

510,075

 

Redemptions payable

 

1,909,941

 

9,336,743

 

Unrealized loss on open futures contracts

 

3,577,860

 

3,289,277

 

Unrealized loss on open forwards contracts

 

7,043,955

 

 

Other liabilities

 

1,463,698

 

1,571,611

 

 

 

 

 

 

 

Total liabilities

 

14,391,446

 

14,724,863

 

 

 

 

 

 

 

MEMBERS’ CAPITAL:

 

 

 

 

 

Members’ Interest (94,358,444 Units and 125,668,741 Units)

 

129,529,566

 

167,217,495

 

Total members’ capital

 

129,529,566

 

167,217,495

 

 

 

 

 

 

 

TOTAL LIABILITIES AND MEMBERS’ CAPITAL

 

$

143,921,012

 

$

181,942,358

 

 

 

 

 

 

 

NET ASSET VALUE PER UNIT:

 

 

 

 

 

(Based on 94,358,444 and 125,668,741 Units outstanding; unlimited Units authorized)

 

 

 

 

 

 

 

 

 

 

 

Class A

 

$

1.4078

 

$

1.3517

 

Class C

 

$

1.2845

 

$

1.2426

 

Class D

 

$

1.6514

 

$

1.5681

 

Class I

 

$

1.4611

 

$

1.3987

 

Class DS

 

$

1.6439

 

$

1.5609

 

Class DT

 

$

1.7366

 

$

1.6420

 

Class M

 

$

0.8841

 

$

0.8365

 

 

See notes to financial statements.

 

1



 

ASPECT FUTURESACCESS LLC

(a Delaware Limited Liability Company)

 

STATEMENTS OF OPERATIONS

(unaudited)

 

 

 

For the three

 

For the three

 

For the nine

 

For the nine

 

 

 

months ended

 

months ended

 

months ended

 

months ended

 

 

 

September 30,

 

September 30,

 

September 30,

 

September 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

TRADING PROFIT (LOSS):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Realized, net

 

$

8,139,832

 

$

(2,122,265

)

$

12,037,864

 

$

(6,014,017

)

Change in unrealized, net

 

574,416

 

(13,043,452

)

(3,420,423

)

(7,360,384

)

Brokerage commissions

 

(130,237

)

(185,186

)

(412,821

)

(643,556

)

 

 

 

 

 

 

 

 

 

 

Total trading profit (loss), net

 

8,584,011

 

(15,350,903

)

8,204,620

 

(14,017,957

)

 

 

 

 

 

 

 

 

 

 

INVESTMENT INCOME (EXPENSE):

 

 

 

 

 

 

 

 

 

Interest, net

 

3,087

 

(622

)

2,312

 

(6,263

)

 

 

 

 

 

 

 

 

 

 

EXPENSES:

 

 

 

 

 

 

 

 

 

Management fee

 

639,754

 

1,098,943

 

2,076,260

 

3,660,263

 

Sponsor fee

 

483,663

 

846,570

 

1,579,535

 

2,771,349

 

Other

 

119,653

 

1,339,494

 

475,914

 

1,793,170

 

Total expenses

 

1,243,070

 

3,285,007

 

4,131,709

 

8,224,782

 

 

 

 

 

 

 

 

 

 

 

NET INVESTMENT INCOME (LOSS)

 

(1,239,983

)

(3,285,629

)

(4,129,397

)

(8,231,045

)

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS)

 

$

7,344,028

 

$

(18,636,532

)

$

4,075,223

 

$

(22,249,002

)

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS) PER UNIT:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of Units outstanding

 

 

 

 

 

 

 

 

 

Class A

 

13,536,957

 

22,271,123

 

15,266,514

 

21,733,403

 

Class C

 

52,041,755

 

89,591,951

 

58,140,722

 

93,977,087

 

Class D

 

2,482,366

 

4,392,750

 

2,482,366

 

4,826,261

 

Class I

 

1,245,489

 

5,695,119

 

2,633,491

 

6,363,907

 

Class DS

 

14,756,637

 

24,833,713

 

16,649,063

 

27,977,206

 

Class DT

 

6,920,809

 

10,911,178

 

7,693,947

 

12,161,716

 

Class M

 

6,465,538

 

9,120,494

 

6,254,717

 

9,623,110

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per weighted average Unit

 

 

 

 

 

 

 

 

 

Class A

 

$

0.0765

 

$

(0.1154

)

$

0.0344

 

$

(0.1447

)

Class C

 

$

0.0672

 

$

(0.1086

)

$

0.0230

 

$

(0.1310

)

Class D

 

$

0.0959

 

$

(0.1270

)

$

0.0834

 

$

(0.1123

)

Class I

 

$

0.0807

 

$

(0.1170

)

$

(0.0080

)

$

(0.1240

)

Class DS

 

$

0.0964

 

$

(0.1244

)

$

0.0641

 

$

(0.1173

)

Class DT

 

$

0.1031

 

$

(0.1301

)

$

0.0777

 

$

(0.1239

)

Class M

 

$

0.0522

 

$

(0.0660

)

$

0.0578

 

$

(0.0699

)

 

See notes to financial statements.

 

2



 

ASPECT FUTURESACCESS LLC

(a Delaware Limited Liability Company)

 

STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

(unaudited) (in Units)

 

 

 

Members’ Capital
December 31, 2012

 

Subscriptions

 

Redemptions

 

Members’ Capital
September 30, 2013

 

Members’ Capital
December 31, 2013

 

Subscriptions

 

Redemptions

 

Members’ Capital
September 30, 2014

 

Class A

 

21,463,611

 

3,547,564

 

(2,941,720

)

22,069,455

 

18,353,686

 

86,884

 

(5,262,002

)

13,178,568

 

Class C

 

99,953,893

 

5,849,734

 

(21,203,705

)

84,599,922

 

68,708,959

 

2,698,155

 

(20,867,009

)

50,540,105

 

Class D

 

5,562,428

 

92,294

 

(1,246,590

)

4,408,132

 

2,482,365

 

 

 

2,482,365

 

Class I

 

7,154,253

 

345,942

 

(1,951,423

)

5,548,772

 

4,156,462

 

 

(2,920,099

)

1,236,363

 

Class DS

 

32,959,715

 

489,623

 

(9,893,674

)

23,555,664

 

18,932,203

 

1,510,111

 

(6,231,377

)

14,210,937

 

Class DT

 

13,709,450

 

 

(3,187,920

)

10,521,530

 

8,531,693

 

 

(2,017,863

)

6,513,830

 

Class M

 

9,721,721

 

1,590,801

 

(3,245,249

)

8,067,273

 

4,503,373

 

4,430,945

 

(2,738,042

)

6,196,276

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Members’ Units

 

190,525,071

 

11,915,958

 

(43,670,281

)

158,770,748

 

125,668,741

 

8,726,095

 

(40,036,392

)

94,358,444

 

 

See notes to financial statements.

 

3



 

ASPECT FUTURESACCESS LLC

(a Delaware Limited Liability Company)

 

STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

(unaudited)

 

 

 

Members’ Capital
December 31, 2012

 

Subscriptions

 

Redemptions

 

Net Income
(Loss)

 

Members’ Capital
September 30, 2013

 

Members’ Capital
December 31, 2013

 

Subscriptions

 

Redemptions

 

Net Income (Loss)

 

Members’ Capital
September 30, 2014

 

Class A

 

$

31,117,660

 

$

5,105,788

 

$

(4,201,006

)

$

(3,144,812

)

$

28,877,630

 

$

24,808,334

 

$

113,081

 

$

(6,893,987

)

$

525,295

 

$

18,552,723

 

Class C

 

134,557,684

 

7,838,439

 

(28,063,282

)

(12,311,762

)

102,021,079

 

85,375,459

 

3,257,730

 

(25,052,283

)

1,338,224

 

64,919,130

 

Class D

 

9,214,011

 

149,775

 

(2,156,850

)

(541,847

)

6,665,089

 

3,892,586

 

 

 

206,908

 

4,099,494

 

Class I

 

10,688,469

 

533,096

 

(2,928,041

)

(788,883

)

7,504,641

 

5,813,517

 

 

(3,985,985

)

(21,109

)

1,806,423

 

Class DS

 

54,364,101

 

816,059

 

(16,434,610

)

(3,281,940

)

35,463,610

 

29,551,548

 

2,273,745

 

(9,529,835

)

1,066,442

 

23,361,900

 

Class DT

 

23,677,968

 

 

(5,521,285

)

(1,507,374

)

16,649,309

 

14,009,030

 

 

(3,294,813

)

597,646

 

11,311,863

 

Class M

 

8,621,100

 

1,402,908

 

(2,821,610

)

(672,384

)

6,530,014

 

3,767,021

 

3,587,534

 

(2,238,339

)

361,817

 

5,478,033

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Members’ Interest

 

$

272,240,993

 

$

15,846,065

 

$

(62,126,684

)

$

(22,249,002

)

$

203,711,372

 

$

167,217,495

 

$

9,232,090

 

$

(50,995,242

)

$

4,075,223

 

$

129,529,566

 

 

See notes to financial statements.

 

4



 

ASPECT FUTURESACCESS LLC

(A Delaware Limited Liability Company)

 

FINANCIAL DATA HIGHLIGHTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2014 (unaudited)

 

The following per Unit data and ratios have been derived from information provided in the financial statements.

 

Per Unit Operating Performance:

 

Class A

 

Class C

 

Class D

 

Class I

 

Class DS

 

Class DT

 

Class M

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, beginning of period

 

$

1.3311

 

$

1.2175

 

$

1.5556

 

$

1.3800

 

$

1.5486

 

$

1.6335

 

$

0.8327

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

0.0921

 

0.0841

 

0.1078

 

0.0955

 

0.1074

 

0.1133

 

0.0577

 

Brokerage commissions

 

(0.0014

)

(0.0013

)

(0.0016

)

(0.0014

)

(0.0016

)

(0.0017

)

(0.0009

)

Interest income, net (c)

 

0.0000

 

0.0000

 

0.0000

 

0.0000

 

0.0000

 

0.0000

 

0.0000

 

Expenses

 

(0.0140

)

(0.0158

)

(0.0104

)

(0.0130

)

(0.0105

)

(0.0085

)

(0.0054

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, end of period

 

$

1.4078

 

$

1.2845

 

$

1.6514

 

$

1.4611

 

$

1.6439

 

$

1.7366

 

$

0.8841

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return: (a) (d)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total return before Performance fees

 

5.76

%

5.50

%

6.16

%

5.87

%

6.15

%

6.31

%

6.17

%

Performance fees

 

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

Total return after Performance fees

 

5.76

%

5.50

%

6.16

%

5.87

%

6.15

%

6.31

%

6.17

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios to Average Member’s Capital: (d)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses (excluding Performance fees) (b)

 

0.97

%

1.22

%

0.60

%

0.87

%

0.60

%

0.47

%

0.60

%

Performance fees

 

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

Expenses (including Performance fees)

 

0.97

%

1.22

%

0.60

%

0.87

%

0.60

%

0.47

%

0.60

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income (loss) (e)

 

-0.97

%

-1.22

%

-0.59

%

-0.87

%

-0.59

%

-0.47

%

-0.59

%

 


(a) The total return is calculated for each class taken as a whole based on the change in net asset value.  An individual member’s return may vary from these returns based on timing of capital transactions.

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

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

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

(e) The Net investment income (loss) ratio is net of performance fees.

 

See notes to financial statements.

 

5



 

ASPECT FUTURESACCESS LLC

(A Delaware Limited Liability Company)

 

FINANCIAL DATA HIGHLIGHTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 (unaudited)

 

The following per Unit data and ratios have been derived from information provided in the financial statements.

 

Per Unit Operating Performance:

 

Class A

 

Class C

 

Class D

 

Class I

 

Class DS

 

Class DT

 

Class M

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, beginning of period

 

$

1.3517

 

$

1.2426

 

$

1.5681

 

$

1.3987

 

$

1.5609

 

$

1.6420

 

$

0.8365

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

0.1026

 

0.0936

 

0.1205

 

0.1065

 

0.1200

 

0.1268

 

0.0645

 

Brokerage commissions

 

(0.0039

)

(0.0036

)

(0.0045

)

(0.0040

)

(0.0045

)

(0.0048

)

(0.0024

)

Interest income, net (c)

 

0.0000

 

0.0000

 

0.0000

 

0.0000

 

0.0000

 

0.0000

 

0.0000

 

Expenses

 

(0.0426

)

(0.0481

)

(0.0327

)

(0.0401

)

(0.0325

)

(0.0274

)

(0.0145

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, end of period

 

$

1.4078

 

$

1.2845

 

$

1.6514

 

$

1.4611

 

$

1.6439

 

$

1.7366

 

$

0.8841

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return: (a) (d)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total return before Performance fees

 

4.15

%

3.37

%

5.31

%

4.46

%

5.31

%

5.76

%

5.69

%

Performance fees

 

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

Total return after Performance fees

 

4.15

%

3.37

%

5.31

%

4.46

%

5.31

%

5.76

%

5.69

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios to Average Member’s Capital: (d)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses (excluding Performance fees) (b)

 

2.97

%

3.72

%

1.84

%

2.67

%

1.84

%

1.47

%

1.84

%

Performance fees

 

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

Expenses (including Performance fees)

 

2.97

%

3.72

%

1.84

%

2.67

%

1.84

%

1.47

%

1.84

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income (loss) (e)

 

-2.96

%

-3.72

%

-1.84

%

-2.66

%

-1.84

%

-1.46

%

-1.84

%

 


(a) The total return is calculated for each class taken as a whole based on the change in net asset value.  An individual member’s return may vary from these returns based on timing of capital transactions.

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

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

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

(e) The Net investment income (loss) ratio is net of performance fees.

 

See notes to financial statements.

 

6



 

ASPECT FUTURESACCESS LLC

(A Delaware Limited Liability Company)

 

FINANCIAL DATA HIGHLIGHTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2013 (unaudited)

 

The following per Unit data and ratios have been derived from information provided in the financial statements.

 

Per Unit Operating Performance:

 

Class A

 

Class C

 

Class D

 

Class I

 

Class DS

 

Class DT

 

Class M

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, beginning of period

 

$

1.4237

 

$

1.3154

 

$

1.6389

 

$

1.4700

 

$

1.6319

 

$

1.7131

 

$

0.8774

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

(0.0935

)

(0.0862

)

(0.1078

)

(0.0966

)

(0.1073

)

(0.1128

)

(0.0577

)

Brokerage commissions

 

(0.0011

)

(0.0011

)

(0.0013

)

(0.0012

)

(0.0013

)

(0.0014

)

(0.0007

)

Interest income, net (c)

 

(0.0000

)

(0.0000

)

(0.0000

)

(0.0000

)

(0.0000

)

(0.0000

)

(0.0000

)

Expenses

 

(0.0206

)

(0.0222

)

(0.0178

)

(0.0197

)

(0.0178

)

(0.0165

)

(0.0096

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, end of period

 

$

1.3085

 

$

1.2059

 

$

1.5120

 

$

1.3525

 

$

1.5055

 

$

1.5824

 

$

0.8094

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return: (a) (d)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total return before Performance fees

 

-8.08

%

-8.30

%

-7.74

%

-7.99

%

-7.74

%

-7.62

%

-7.73

%

Performance fees

 

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

Total return after Performance fees

 

-8.08

%

-8.30

%

-7.74

%

-7.99

%

-7.74

%

-7.62

%

-7.73

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios to Average Member’s Capital: (d)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses (excluding Performance fees) (b)

 

1.49

%

1.74

%

1.13

%

1.40

%

1.13

%

1.00

%

1.12

%

Performance fees

 

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

Expenses (including Performance fees)

 

1.49

%

1.74

%

1.13

%

1.40

%

1.13

%

1.00

%

1.12

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income (loss) (e)

 

-1.49

%

-1.74

%

-1.13

%

-1.40

%

-1.13

%

-1.00

%

-1.12

%

 


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

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

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

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

(e) The Net investment income (loss) ratio is net of performance fees.

 

See notes to financial statements.

 

7



 

ASPECT FUTURESACCESS LLC

(A Delaware Limited Liability Company)

 

FINANCIAL DATA HIGHLIGHTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013 (unaudited)

 

The following per Unit data and ratios have been derived from information provided in the financial statements.

 

Per Unit Operating Performance:

 

Class A

 

Class C

 

Class D

 

Class I

 

Class DS

 

Class DT

 

Class M

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, beginning of period

 

$

1.4498

 

$

1.3462

 

$

1.6565

 

$

1.4940

 

$

1.6494

 

$

1.7271

 

$

0.8868

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

(0.0888

)

(0.0817

)

(0.1027

)

(0.0918

)

(0.1022

)

(0.1075

)

(0.0550

)

Brokerage commissions

 

(0.0037

)

(0.0034

)

(0.0043

)

(0.0038

)

(0.0043

)

(0.0045

)

(0.0023

)

Interest income, net (c)

 

(0.0000

)

(0.0000

)

(0.0000

)

(0.0000

)

(0.0000

)

(0.0000

)

(0.0000

)

Expenses

 

(0.0488

)

(0.0552

)

(0.0375

)

(0.0459

)

(0.0374

)

(0.0327

)

(0.0201

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value, end of period

 

$

1.3085

 

$

1.2059

 

$

1.5120

 

$

1.3525

 

$

1.5055

 

$

1.5824

 

$

0.8094

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return: (a) (d)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total return before Performance fees

 

-9.73

%

-10.40

%

-8.72

%

-9.47

%

-8.72

%

-8.37

%

-8.71

%

Performance fees

 

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

Total return after Performance fees

 

-9.73

%

-10.40

%

-8.72

%

-9.47

%

-8.72

%

-8.37

%

-8.71

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios to Average Member’s Capital: (d)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses (excluding Performance fees) (b)

 

3.42

%

4.16

%

2.31

%

3.13

%

2.31

%

1.93

%

2.30

%

Performance fees

 

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

0.00

%

Expenses (including Performance fees)

 

3.42

%

4.16

%

2.31

%

3.13

%

2.31

%

1.93

%

2.30

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income (loss) (e)

 

-3.42

%

-4.16

%

-2.31

%

-3.13

%

-2.31

%

-1.93

%

-2.30

%

 


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

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

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

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

(e) The Net investment income (loss) ratio is net of performance fees.

 

See notes to financial statements.

 

8



 

ASPECT FUTURESACCESS LLC

(a Delaware Limited Liability Company)

 

NOTES TO FINANCIAL STATEMENTS

(unaudited)

 

1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Aspect FuturesAccess LLC (the “Fund”), a FuturesAccessSM Program (“FuturesAccess”) fund, which is an investment company as defined by Accounting Standards Codification (“ASC”) guidance, was organized under the Delaware Limited Liability Company Act on May 17, 2004 and commenced trading activities on April 1, 2005.  The Fund engages in the speculative trading of futures and forward contracts on a wide range of commodities.  Aspect Capital Limited (the “Trading Advisor”) is the trading advisor of the Fund. The Trading Advisor trades the Aspect Diversified Program (the “Trading Program”) for the Fund.

 

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

 

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

 

Interests in the Fund are not insured or otherwise protected by the Federal Deposit Insurance Corporation or any other government authority.  Interests are not deposits or other obligations of, and are not guaranteed by, BAC or by any bank.  Interests are subject to investment risks, including the possible loss of the full amount invested.

 

In the opinion of management, these interim financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the financial position of the Fund as of September 30, 2014 and December 31, 2013 and the results of its operations for the three and nine month periods ended September 30, 2014 and 2013.  However, the operating results for the interim periods may not be indicative of the results for the full year.

 

9



 

Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been omitted.  These financial statements should be read in conjunction with the financial statements and notes thereto included in the Fund’s report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2013.

 

Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates and such differences could be material. Certain prior year items have been reclassified to conform to the current year presentation.

 

10



 

2.              CONDENSED SCHEDULES OF INVESTMENTS

 

The Fund’s investments, defined as unrealized profit (loss) on open contracts on the Statements of Financial Condition, as of September 30, 2014 and December 31, 2013 are as follows:

 

September 30, 2014

 

 

 

Long Positions

 

Short Positions

 

Net Unrealized

 

 

 

 

 

Commodity Industry

 

Number of

 

Unrealized

 

Percent of

 

Number of

 

Unrealized

 

Percent of

 

Profit (Loss)

 

Percent of

 

 

 

Sector

 

Contracts/Notional*

 

Profit (Loss)

 

Members’ Capital

 

Contracts/Notional*

 

Profit (Loss)

 

Members’ Capital

 

on Open Positions

 

Members’ Capital

 

Maturity Dates

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agriculture

 

389

 

$

453,855

 

0.35

%

(1,660

)

$

3,501,188

 

2.70

%

$

3,955,043

 

3.05

%

October 2014 - March 2015

 

Currencies - Futures

 

 

 

0.00

%

(49

)

137,341

 

0.11

%

137,341

 

0.11

%

December 2014

 

Currencies - Forwards*

 

264,450,506

 

(6,871,785

)

-5.31

%

(319,362,624

)

6,243,767

 

4.82

%

(628,018

)

-0.49

%

December 2014

 

Energy

 

 

 

0.00

%

(625

)

1,280,438

 

0.99

%

1,280,438

 

0.99

%

October 2014 - December 2014

 

Interest rates

 

5,314

 

(45,841

)

-0.04

%

(499

)

7,993

 

0.01

%

(37,848

)

-0.03

%

December 2014 - March 2017

 

Metals

 

273

 

(1,416,366

)

-1.09

%

(447

)

1,136,884

 

0.88

%

(279,482

)

-0.21

%

December 2014 - January 2015

 

Stock indices

 

1,255

 

(644,182

)

-0.50

%

(65

)

(112

)

0.00

%

(644,294

)

-0.50

%

October 2014 - December 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

$

(8,524,319

)

-6.59

%

 

 

$

12,307,499

 

9.51

%

$

3,783,180

 

2.92

%

 

 

 

December 31, 2013

 

 

 

Long Positions

 

Short Positions

 

Net Unrealized

 

 

 

 

 

Commodity Industry

 

Number of

 

Unrealized

 

Percent of

 

Number of

 

Unrealized

 

Percent of

 

Profit (Loss)

 

Percent of

 

 

 

Sector

 

Contracts/Notional*

 

Profit (Loss)

 

Members’ Capital

 

Contracts/Notional*

 

Profit (Loss)

 

Members’ Capital

 

on Open Positions

 

Members’ Capital

 

Maturity Dates

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agriculture

 

614

 

$

(278,619

)

-0.17

%

(1,599

)

$

1,463,093

 

0.87

%

$

1,184,474

 

0.70

%

January 2014 - April 2014

 

Currencies - Futures

 

46

 

17,340

 

0.01

%

(41

)

30,336

 

0.02

%

47,676

 

0.03

%

March 2014

 

Currencies - Forwards*

 

247,962,905

 

349,522

 

0.21

%

(231,632,248

)

504,714

 

0.30

%

854,236

 

0.51

%

January 2014 - March 2014

 

Energy

 

621

 

(242,123

)

-0.14

%

(3

)

14,452

 

0.01

%

(227,671

)

-0.13

%

January 2014 - December 2014

 

Interest rates

 

3,432

 

(704,833

)

-0.42

%

(3,172

)

2,147,690

 

1.28

%

1,442,857

 

0.86

%

March 2014 - June 2016

 

Metals

 

528

 

326,364

 

0.20

%

(603

)

(304,309

)

-0.18

%

22,055

 

0.02

%

February 2014 - April 2014

 

Stock indices

 

1,589

 

3,903,721

 

2.33

%

(224

)

(23,745

)

-0.01

%

3,879,976

 

2.32

%

January 2014 - March 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

$

3,371,372

 

2.02

%

 

 

$

3,832,231

 

2.29

%

$

7,203,603

 

4.31

%

 

 

 


*Currencies — Forwards present notional amounts as converted to USD.

 

No individual contract’s unrealized profit or loss comprised greater than 5% of Members’ Capital as of September 30, 2014 and December 31, 2013. With respect to each commodity industry sector listed in the above chart, the net unrealized profit (loss) on open positions is the sum of the unrealized profits (loss) of long positions and short positions of the open contracts, netting unrealized losses against unrealized profits as applicable.  Net unrealized profit and loss provides a rough measure of the exposure of the Fund to the various sectors as of the date listed, although such exposure can change at any time.

 

11



 

3.              FAIR VALUE OF INVESTMENTS

 

Fair value of an investment is the amount that would be received to sell the investment in an orderly transaction between market participants at the measurement date (i.e. the exit price). All investments (including derivative financial instruments and derivative commodity instruments) are held for trading purposes.  The investments are recorded on trade date and open contracts are recorded at fair value (described below) at the measurement date. Investments denominated in foreign currencies are translated into U.S. dollars at the exchange rates prevailing at the measurement date.  Profits or losses are realized when contracts are liquidated.  Unrealized profits or losses on open contracts are included in Equity in commodity trading accounts on the Statements of Financial Condition.  Any change in net unrealized profit or loss from the preceding period/year is reported in the respective Statements of Operations.

 

The fair value measurement guidance established by U.S. GAAP is a hierarchical disclosure framework which prioritizes and ranks the level of market price observability used in measuring investments at fair value. Market price observability is impacted by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

 

Investments measured and reported at fair value are classified and disclosed in one of the following categories:

 

Level I — Quoted prices are available in active markets for identical investments as of the reporting date. The type of investments included in Level I are publicly traded investments. As required by the fair market value measurement guidance in U.S. GAAP, the Fund does not adjust the quoted price for these investments even in situations where the Fund holds a large position and a sale could reasonably impact the quoted price.

 

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

 

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

 

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

 

The following is a description of the valuation methodologies used for investments, as well as the general classification of such investments pursuant to the valuation hierarchy.

 

12



 

Exchange traded investments are fair valued by the Fund by using the reported closing price on the primary exchange where such investments are traded.  These closing prices are observed through the clearing broker and third party pricing services. For non-exchange traded investments, quoted values and other data provided by nationally recognized independent pricing sources are used as inputs into the process for determining fair values.

 

The Fund has determined that Level I investments would include its futures and options contracts where it believes that quoted prices are available in an active market.

 

Where the Fund believes that quoted market prices are not available or that the market is not active, fair values are estimated by using observable prices of investments with similar characteristics and these are generally classified as Level II investments. The Fund determined that Level II investments would include its forwards and certain futures contracts.

 

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

 

The Fund’s unrealized profit (loss) on open forwards and futures contracts, by the above fair value hierarchy levels, as of September 30, 2014 and December 31, 2013 are as follows:

 

Net unrealized profit (loss) 

 

 

 

 

 

 

 

 

 

on open contracts

 

Total

 

Level I

 

Level II

 

Level III

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

Futures

 

$

7,989,058

 

$

7,627,429

 

$

361,629

 

$

 

Forwards

 

6,415,937

 

 

6,415,937

 

 

 

 

$

14,404,995

 

$

7,627,429

 

$

6,777,566

 

$

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

Futures

 

$

3,577,860

 

$

2,480,699

 

$

1,097,161

 

$

 

Forwards

 

7,043,955

 

 

7,043,955

 

 

 

 

$

10,621,815

 

$

2,480,699

 

$

8,141,116

 

$

 

 

 

 

 

 

 

 

 

 

 

September 30, 2014

 

$

3,783,180

 

$

5,146,730

 

$

(1,363,550

)

$

 

 

Net unrealized profit (loss) 

 

 

 

 

 

 

 

 

 

on open contracts

 

Total

 

Level I

 

Level II

 

Level III

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

Futures

 

$

9,638,644

 

$

9,064,284

 

$

574,360

 

$

 

Forwards

 

854,236

 

 

854,236

 

 

 

 

$

10,492,880

 

$

9,064,284

 

$

1,428,596

 

$

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

Futures

 

$

3,289,277

 

$

2,443,039

 

$

846,238

 

$

 

Forwards

 

 

 

 

 

 

 

$

3,289,277

 

$

2,443,039

 

$

846,238

 

$

 

 

 

 

 

 

 

 

 

 

 

December 31, 2013

 

$

7,203,603

 

$

6,621,245

 

$

582,358

 

$

 

 

13



 

The Fund’s volume of trading forwards and futures as of the nine month period ended September 30, 2014 and year ended December 31, 2013 are representative of the activity throughout these periods presented. There were no transfers to or from any level during the three or nine month periods ended September 30, 2014 or the year ended December 31, 2013.

 

The Fund engages in the speculative trading of futures, options on futures and forward contracts on a wide range of commodities. Such contracts meet the definition of a derivative as noted in the ASC guidance for accounting for derivative and hedging activities. The fair value amounts of, and the net profits and losses on, derivative instruments is disclosed in the Statements of Financial Condition and Statements of Operations, respectively. There are no credit related contingent features embedded in these derivative contracts. The total notional, number of contracts and fair values of derivative instruments by contract type/commodity sector are disclosed in Note 2.

 

The Fund maintains margin deposits and cash collateral with its futures and forwards brokers, respectively, based on the greater of exchange margin or amounts determined by the respective broker. At September 30, 2014 and December 31, 2013, the initial margin deposits (cash) are used to satisfy the margin requirements to establish the futures or forward contracts and are presented on the Statements of Financial Condition in Cash in the Equity in commodity trading accounts. The variation margin on open contracts is presented on the Statements of Financial Condition in Unrealized profit or loss on futures or forwards contracts, respectively.

 

The following table indicates the trading profits and losses, before brokerage commissions, by type/commodity industry sector, on derivative instruments for each of the three and nine month periods ended September 30, 2014 and 2013:

 

 

 

For the three months ended

 

For the nine months ended

 

 

 

September 30, 2014

 

September 30, 2014

 

Commodity Industry

 

profit (loss)

 

profit (loss)

 

Sector

 

from trading, net

 

from trading, net

 

 

 

 

 

 

 

Agriculture

 

$

5,449,473

 

$

6,713,372

 

Currencies

 

(105,413

)

863,687

 

Energy

 

1,658,364

 

483,040

 

Interest rates

 

2,865,687

 

4,798,243

 

Metals

 

(11,860

)

(3,186,340

)

Stock indices

 

(1,142,003

)

(1,054,561

)

 

 

 

 

 

 

Total, net

 

$

8,714,248

 

$

8,617,441

 

 

14



 

 

 

For the three months ended

 

For the nine months ended

 

 

 

September 30, 2013

 

September 30, 2013

 

Commodity Industry

 

profit (loss)

 

profit (loss)

 

Sector

 

from trading, net

 

from trading, net

 

 

 

 

 

 

 

Agriculture

 

$

(874,143

)

$

1,730,875

 

Currencies

 

(1,818,317

)

(7,950,692

)

Energy

 

(3,271,917

)

(13,648,154

)

Interest rates

 

(3,725,513

)

(17,494,714

)

Metals

 

(7,107,757

)

10,651,417

 

Stock indices

 

1,631,930

 

13,336,867

 

 

 

 

 

 

 

Total, net

 

$

(15,165,717

)

$

(13,374,401

)

 

The Fund is subject to the risk of insolvency of a counterparty, an exchange, a clearinghouse, MLPF&S or other BAC entities.  Fund assets could be lost or impounded during lengthy bankruptcy proceedings.  Were a substantial portion of the Fund’s capital tied up in a bankruptcy or other similar types of proceedings, MLAI might suspend or limit trading, perhaps causing the Fund to miss significant profit opportunities.  There are increased risks in dealing with unregulated trading counterparties including the risk that assets may not benefit from the protection afforded to “customer funds” deposited with regulated dealers and brokers.

 

4.              MARKET AND CREDIT RISKS

 

The nature of this Fund has certain risks, which cannot all be presented in the financial statements.  The following summarizes some of those risks.

 

Market Risk

 

Derivative instruments involve varying degrees of market risk.  Changes in the level or volatility of interest rates, foreign currency exchange rates or the market values of the financial instruments or commodities underlying such derivative instruments frequently result in changes in the Fund’s unrealized profit (loss) on open contracts on such derivative instruments as reflected in the Statements of Financial Condition.  The Fund’s exposure to market risk is influenced by a number of factors, including the relationships among the derivative instruments held by the Fund as well as the volatility and liquidity of the markets in which the derivative instruments are traded.  Investments in foreign markets may also entail legal and political risks.

 

MLAI has procedures in place intended to control market risk exposure, although there can be no assurance that it will, in fact, succeed in doing so.  These procedures focus primarily on monitoring the trading of the Trading Advisor, calculating the Net Asset Value of the Fund as of the close of business on each day and reviewing outstanding positions for over-concentrations.  While MLAI does not intervene in the markets to hedge or diversify the Fund’s market exposure, MLAI may urge the Trading Advisor to reallocate positions in an attempt to avoid over-concentrations.  However, such interventions are expected to be unusual.  It is expected that MLAI’s basic risk control procedures will consist of the ongoing process of the Trading Advisor’s monitoring, with the market risk controls being applied by the Trading Advisor.

 

15



 

Credit Risk

 

The risks associated with exchange-traded contracts are typically perceived to be less than those associated with over-the-counter (non-exchange-traded) transactions, because exchanges typically (but not universally) provide clearinghouse arrangements in which the collective credit (in some cases limited in amount, in some cases not) of the members of the exchange/clearinghouse is pledged to support the financial integrity of the exchange/clearinghouse.  In over-the-counter transactions, on the other hand, traders must rely solely on the credit of their respective individual counterparties.  Margins, which may be subject to loss in the event of a default, are generally required in exchange traded contracts, and in the over-the-counter markets counterparties may also require margin.

 

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

 

The Fund, in its normal course of business, enters into various contracts, with MLPF&S acting as its futures clearing broker.

 

Indemnifications

 

In the normal course of business, the Fund has entered, or may in the future enter into agreements that obligate the Fund to indemnify certain parties, including BAC affiliates. No claims have actually been made with respect to such indemnities and any quantification would involve hypothetical claims that have not been made. Based on the Fund’s experience, MLAI expects the risk of loss to be remote and, therefore, no provision has been recorded.

 

5.              RELATED PARTY TRANSACTIONS

 

MLAI and the Fund entered into a transfer agency and investor services agreement with Financial Data Services, Inc. (the “Transfer Agent”), a wholly-owned subsidiary of BAC and affiliate of MLAI. The Transfer Agent provides registrar, distribution disbursing agent, transfer agent and certain other services related to the issuance, redemption, exchange and transfer of Units. The fees charged by the Transfer Agent for its services are based on the aggregate net assets of funds managed or sponsored by MLAI. The fee rate ranges from 0.016% to 0.02% per year of the aggregate net assets managed or sponsored by MLAI. During the quarter ended September 30, 2014, the rate ranged from 0.018% to 0.02%. The fee is payable monthly in arrears. MLAI allocates the Transfer Agent fees to each of the managed or sponsored funds, including the Fund, on a monthly basis based on each fund’s net assets. The Transfer Agent fee allocated to the Fund for the three month periods ended September 30, 2014 and 2013 amounted to $6,474 and $10,351, respectively. The Transfer Agent fee allocated to the Fund for the nine month periods ended September 30, 2014 and 2013 amounted to $21,649 and $36,512, respectively, of which $4,062 and $6,106 was payable to the Transfer Agent as of September 30, 2014 and December 31, 2013, respectively.

 

Brokerage Commissions, Interest and Sponsor fees, as presented on the Statements of Operations, are all received from or paid to related parties. Equity in commodity trading accounts, including cash and Unrealized profit/loss, as presented on the Statements of Financial Condition are held with a related party.

 

16



 

6.              SUBSEQUENT EVENTS

 

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

 

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

 

MONTH-END NET ASSET VALUE PER UNIT

 

MLAI believes that the Net Asset Value used to calculate subscription and redemption values and to report performance to investors is a useful performance measure for the investors of the Fund.  Therefore, the charts below referencing Net Asset Value and performance measurements are based on the Net Asset Value for financial reporting purposes.

 

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

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jan. 15th

 

Jan.

 

Feb. 15th

 

Feb.

 

Mar. 15th

 

Mar.

 

Apr. 15th

 

Apr.

 

May 15th

 

May

 

Jun. 15th

 

Jun.

 

Jul. 15th

 

Jul.

 

Aug. 15th

 

Aug.

 

Sept. 15th

 

Sept.

 

2013

 

$

1.4555

 

$

1.4991

 

$

1.5191

 

$

1.4457

 

$

1.4752

 

$

1.4696

 

$

1.5077

 

$

1.5189

 

$

1.4797

 

$

1.4193

 

$

1.3646

 

$

1.4237

 

$

1.4088

 

$

1.3965

 

$

1.3775

 

$

1.3552

 

$

1.3775

 

$

1.3085

 

2014

 

$

1.3211

 

$

1.2721

 

$

1.2714

 

$

1.2908

 

$

1.2608

 

$

1.2686

 

$

1.2736

 

$

1.2883

 

$

1.2917

 

$

1.3128

 

$

1.3193

 

$

1.3311

 

$

1.3378

 

$

1.3252

 

$

1.3665

 

$

1.3934

 

$

1.3470

 

$

1.4078

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS C

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jan. 15th

 

Jan.

 

Feb. 15th

 

Feb.

 

Mar. 15th

 

Mar.

 

Apr. 15th

 

Apr.

 

May 15th

 

May

 

Jun. 15th

 

Jun.

 

Jul. 15th

 

Jul.

 

Aug. 15th

 

Aug.

 

Sept. 15th

 

Sept.

 

2013

 

$

1.3510

 

$

1.3908

 

$

1.4088

 

$

1.3402

 

$

1.3669

 

$

1.3612

 

$

1.3959

 

$

1.4057

 

$

1.3688

 

$

1.3124

 

$

1.2613

 

$

1.3154

 

$

1.3011

 

$

1.2892

 

$

1.2711

 

$

1.2500

 

$

1.2700

 

$

1.2059

 

2014

 

$

1.2140

 

$

1.1684

 

$

1.1673

 

$

1.1849

 

$

1.1568

 

$

1.1633

 

$

1.1673

 

$

1.1804

 

$

1.1827

 

$

1.2015

 

$

1.2071

 

$

1.2175

 

$

1.2232

 

$

1.2113

 

$

1.2486

 

$

1.2725

 

$

1.2296

 

$

1.2845

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS D

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jan. 15th

 

Jan.

 

Feb. 15th

 

Feb.

 

Mar. 15th

 

Mar.

 

Apr. 15th

 

Apr.

 

May 15th

 

May

 

Jun. 15th

 

Jun.

 

Jul. 15th

 

Jul.

 

Aug. 15th

 

Aug.

 

Sept. 15th

 

Sept.

 

2013

 

$

1.6641

 

$

1.7149

 

$

1.7389

 

$

1.6560

 

$

1.6908

 

$

1.6855

 

$

1.7302

 

$

1.7442

 

$

1.7002

 

$

1.6318

 

$

1.5699

 

$

1.6389

 

$

1.6228

 

$

1.6097

 

$

1.5888

 

$

1.5640

 

$

1.5907

 

$

1.5120

 

2014

 

$

1.5338

 

$

1.4779

 

$

1.4783

 

$

1.5027

 

$

1.4689

 

$

1.4773

 

$

1.4842

 

$

1.5025

 

$

1.5075

 

$

1.5335

 

$

1.5426

 

$

1.5556

 

$

1.5646

 

$

1.5511

 

$

1.6005

 

$

1.6331

 

$

1.5798

 

$

1.6514

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS I

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jan. 15th

 

Jan.

 

Feb. 15th

 

Feb.

 

Mar. 15th

 

Mar.

 

Apr. 15th

 

Apr.

 

May 15th

 

May

 

Jun. 15th

 

Jun.

 

Jul. 15th

 

Jul.

 

Aug. 15th

 

Aug.

 

Sept. 15th

 

Sept.

 

2013

 

$

1.5002

 

$

1.5453

 

$

1.5662

 

$

1.4908

 

$

1.5214

 

$

1.5160

 

$

1.5555

 

$

1.5673

 

$

1.5271

 

$

1.4650

 

$

1.4088

 

$

1.4700

 

$

1.4549

 

$

1.4425

 

$

1.4231

 

$

1.4003

 

$

1.4235

 

$

1.3525

 

2014

 

$

1.3672

 

$

1.3167

 

$

1.3163

 

$

1.3360

 

$

1.3053

 

$

1.3134

 

$

1.3189

 

$

1.3346

 

$

1.3377

 

$

1.3591

 

$

1.3508

 

$

1.3800

 

$

1.3873

 

$

1.3745

 

$

1.4176

 

$

1.4458

 

$

1.3980

 

$

1.4611

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS DS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jan. 15th

 

Jan.

 

Feb. 15th

 

Feb.

 

Mar. 15th

 

Mar.

 

Apr. 15th

 

Apr.

 

May 15th

 

May

 

Jun. 15th

 

Jun.

 

Jul. 15th

 

Jul.

 

Aug. 15th

 

Aug.

 

Sept. 15th

 

Sept.

 

2013

 

$

1.6570

 

$

1.7076

 

$

1.7315

 

$

1.6489

 

$

1.6836

 

$

1.6783

 

$

1.7229

 

$

1.7367

 

$

1.6929

 

$

1.6249

 

$

1.5632

 

$

1.6319

 

$

1.6159

 

$

1.6028

 

$

1.5820

 

$

1.5573

 

$

1.5839

 

$

1.5055

 

2014

 

$

1.5266

 

$

1.4709

 

$

1.4710

 

$

1.4952

 

$

1.4613

 

$

1.4710

 

$

1.4777

 

$

1.4957

 

$

1.4998

 

$

1.5258

 

$

1.5345

 

$

1.5486

 

$

1.5573

 

$

1.5435

 

$

1.5924

 

$

1.6248

 

$

1.5718

 

$

1.6439

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS DT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jan. 15th

 

Jan.

 

Feb. 15th

 

Feb.

 

Mar. 15th

 

Mar.

 

Apr. 15th

 

Apr.

 

May 15th

 

May

 

Jun. 15th

 

Jun.

 

Jul. 15th

 

Jul.

 

Aug. 15th

 

Aug.

 

Sept. 15th

 

Sept.

 

2013

 

$

1.7354

 

$

1.7888

 

$

1.8142

 

$

1.7281

 

$

1.7647

 

$

1.7596

 

$

1.8067

 

$

1.8216

 

$

1.7760

 

$

1.7050

 

$

1.6406

 

$

1.7131

 

$

1.6966

 

$

1.6832

 

$

1.6617

 

$

1.6361

 

$

1.6644

 

$

1.5824

 

2014

 

$

1.6064

 

$

1.5481

 

$

1.5488

 

$

1.5744

 

$

1.5393

 

$

1.5495

 

$

1.5570

 

$

1.5762

 

$

1.5817

 

$

1.6091

 

$

1.6189

 

$

1.6335

 

$

1.6433

 

$

1.6287

 

$

1.6810

 

$

1.7152

 

$

1.6596

 

$

1.7366

 

 

MONTH-END NET ASSET VALUE PER INITIAL UNIT CLASS M

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jan. 15th

 

Jan.

 

Feb. 15th

 

Feb.

 

Mar. 15th

 

Mar.

 

Apr. 15th

 

Apr.

 

May 15th

 

May

 

Jun. 15th

 

Jun.

 

Jul. 15th

 

Jul.

 

Aug. 15th

 

Aug.

 

Sept. 15th

 

Sept.

 

2013

 

$

0.8909

 

$

0.9181

 

$

0.9309

 

$

0.8865

 

$

0.9051

 

$

0.9023

 

$

0.9263

 

$

0.9337

 

$

0.9102

 

$

0.8736

 

$

0.8405

 

$

0.8774

 

$

0.8688

 

$

0.8617

 

$

0.8505

 

$

0.8373

 

$

0.8516

 

$

0.8094

 

2014

 

$

0.8180

 

$

0.7870

 

$

0.7871

 

$

0.7998

 

$

0.7867

 

$

0.7906

 

$

0.7943

 

$

0.8040

 

$

0.8066

 

$

0.8204

 

$

0.8252

 

$

0.8327

 

$

0.8375

 

$

0.8302

 

$

0.8565

 

$

0.8737

 

$

0.8452

 

$

0.8841

 

 

17



 

Liquidity and Capital Resources

 

The Fund borrows only to a limited extent and only on a strictly short-term basis in order to finance losses on non-U.S. dollar denominated trading positions pending the conversion of the Fund’s U.S. dollar deposits.  These borrowings are at a prevailing short-term rate in the relevant currency.

 

Substantially all of the Fund’s assets are held in cash.  The Net Asset Value of the Fund’s cash is not affected by inflation.  However, changes in interest rates could cause periods of strong up or down price trends, during which the Fund’s profit potential might increase.  Inflation in commodity prices could also generate price movements, which the strategies might successfully follow. The Fund should be able to close out its open trading positions and liquidate its holdings relatively quickly and at market prices, except in unusual circumstances.  This typically permits the Fund to limit losses as well as reduce market exposure on short notice should its strategies indicate doing so.

 

Investors in the Fund generally may redeem any or all of their Units at Net Asset Value, in whole or fractional Units, effective as of (i) the 15th calendar day of each month and/or (ii) the last calendar day of each month (each a “Redemption Date”), upon providing eight business days notice prior to the 1st and 16th of the month.  MLAI, at any time in its discretion, may discontinue allowing redemptions as of the 15th calendar day of each month on a going forward basis. The Net Asset Value of redeemed Units is determined as of the Redemption Date. Investors will remain exposed to fluctuations in Net Asset Value during the period between submission of their redemption requests and the applicable Redemption Date.

 

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

 

For the nine month period ended September 30, 2014, Fund capital decreased 22.54% from $167,217,495 to $129,529,566. This decrease was attributable to the net profit from operations of $4,075,223 coupled with the redemption of 40,036,392 Redeemable Units resulting in an outflow of $50,995,242.  The cash outflow was offset with cash inflow of $9,232,090 due to subscriptions of 8,726,095 Units. Future redemptions could impact the amount of funds available for investment in commodity contract positions in subsequent months.

 

Critical Accounting Policies

 

Statement of Cash Flows

 

The Fund is not required to provide a Statement of Cash Flows.

 

Investments

 

All investments (including derivatives) are held for trading purposes.  Investments are recorded on trade date and open contracts are recorded at fair value (as described below) at the measurement date.  Investments denominated in foreign currencies are translated into U.S. dollars at the exchange rates prevailing at the measurement date.  Profits or losses are realized when contracts are liquidated.  Unrealized profits or losses on open contracts are included as a component of equity in commodity trading accounts on the Statements of Financial Condition.  Realized profits or losses and any change in net unrealized profits or losses from the preceding period are reported in the Statements of Operations.

 

18



 

Fair Value Measurements

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  For more information on the Fund’s treatment of fair value, see Financial Statements Note 3, Fair Value of Investments.

 

Futures Contracts

 

The Fund trades exchange listed futures contracts. A listed futures contract is a firm commitment to buy or sell a standardized quantity of an underlying asset over a specified duration. The Fund buys and sells contracts based on indices of financial assets such as stocks, domestic and global stock indices, as well as contracts on various physical commodities. Prices paid or received on these contracts are determined by the ask or bid provided by the exchanges on which they are traded. Contracts may be settled in physical form or cash settled depending upon the contract. Upon the execution of a trade, margin requirements determine the amount of cash that must be on deposit to secure the transaction. These amounts are considered restricted cash on the Fund’s Statements of Financial Condition. Contracts are priced daily by the Fund and the profit or loss is based on the daily mark to market and is recorded as unrealized profit (loss). When the contract is closed, the Fund records a realized profit or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Because transactions in futures contracts require participants to make both initial margin deposits of cash or other assets and variation margin deposits, through the futures broker, directly with the exchange on which the contracts are traded, credit exposure is limited. Realized profits (losses), net and changes in unrealized profits (losses), net on futures contracts are included in the Statements of Operations. The Fund also trades futures contracts on the London Metals Exchange (LME). The valuation pricing for LME contracts is based on action of a committee that incorporates prices from the most liquid trading sessions of the day and can also rely on other inputs such as supply and demand factors and bids and asks from open outcry sessions.

 

Forward Foreign Currency Contracts

 

Foreign currency contracts are those contracts where the Fund agrees to receive or deliver a fixed quantity of foreign currency for an agreed-upon price on an agreed future date.  Foreign currency contracts are valued daily, and the Fund’s net equity therein, representing unrealized profit or loss on the contracts as measured by the difference between the forward foreign exchange rates at the dates of entry into the contracts and the forward rates at the reporting date, is included in the Statements of Financial Condition.  Realized profits (losses) and changes in unrealized profits (losses) on foreign currency contracts are recognized in the period in which the contract is closed or the changes occur, respectively and are included in the Statements of Operations.

 

Interest Rates and Income

 

The Fund currently earns interest based on the prevailing federal funds rate plus a spread for short cash positions and minus a spread for long cash positions. The current short term interest rates have remained extremely low when compared with historical rates and thus has contributed negligible amounts to overall Fund performance.

 

Income Taxes

 

No provision for income taxes has been made in the accompanying financial statements as each member is individually responsible for reporting income or loss based on such member’s share of the Fund’s income and expenses as reported for income tax purposes.

 

19



 

The Fund follows the ASC guidance on accounting for uncertainty in income taxes.  This guidance provides how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements.  This guidance also requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Fund’s financial statements to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority.  Tax positions with respect to tax at the Fund level not deemed to meet the “more-likely-than-not” threshold would be recorded as a tax benefit or expense in the current year. A prospective investor should be aware that, among other things, income taxes could have a material adverse effect on the periodic calculations of the net asset value of the Fund, including reducing the net asset value of the Fund to reflect reserves for income taxes, such as foreign withholding taxes, that may be payable by the Fund. This could cause benefits or detriments to certain investors, depending upon the timing of their entry and exit from the Fund. MLAI has analyzed the Fund’s tax positions and has concluded that a provision for income tax of $1,164,420, generated by trading in Spain, is required in the Fund’s financial statements. The following is the major tax jurisdiction for the Fund and the earliest tax year subject to examination: United States — 2011.

 

Reform Act

 

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

 

Results of Operations

 

January 1, 2014 to September 30, 2014

 

January 1, 2014 to March 31, 2014

 

The Fund experienced a net trading loss of $8,318,573 before brokerage commissions and related fees in the first quarter of 2014. The Fund’s profits were primarily attributable to the currency and the agriculture sectors posting profits. The energy, stock indices, metals and interest rates sectors posted losses.

 

The currency sector posted profits to the Fund. Losses were posted to the Fund at the beginning of the first quarter. Emerging market currencies experienced sharp moves, and the Fund profited from some of its short positions.  However, the currencies sector was dragged into negative territory as the Japanese yen reversed its trend, buoyed by safe-haven buying. Profits were posted to the Fund in the middle of the quarter. The U.S. dollar weakened and this led to gains from the Fund’s net short dollar exposures particularly against the New Zealand dollar, British pound and Swiss franc. Profits were posted to the Fund at the end of the quarter as the interest rate hike by the Reserve Bank of New Zealand and a large increase in the country’s trade surplus boosted the New Zealand dollar.

 

The agriculture sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the first quarter as agricultural markets performed well as bearish trends continued in wheat and sugar. Losses were posted to the Fund in the middle of the quarter. Coffee, sugar and the soy complex rallied as drought affected Brazil, the world’s biggest exporter of these crops. The Fund made gains from long exposures to the soy

 

20



 

contracts but incurred losses from short exposures to wheat.  Losses were posted to the Fund at the end of the quarter. In agricultural markets, the best performers were lean hogs, where a virus outbreak drove prices higher, and soy markets which also rose on concerns about tighter supplies in the U.S. However, losses came from short positions in wheat amid concerns that the Ukrainian situation will threaten supplies.

 

The energy sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the first quarter. Oil prices fell early in January on speculation that supplies from Libya would recover, but the Trading Program’s long natural gas exposure profited from cold weather and the resulting draws on stockpiles. Profits were posted to the Fund in the middle of the quarter due to the Fund’s long exposures to energies. Losses were posted to the Fund at the end of the quarter as long positions in oil markets suffered as prices fell on expectations that supply from Iraq will more than offset any potential disruptions from Libya and Ukraine. Natural gas prices also declined following milder weather forecasts in the U.S.

 

The stock indices sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the first quarter. The Fund’s losses were from predominantly long equities exposure which overwhelmed the small profits from the sector’s few short positions.  In January, poor payrolls data in the United States exacerbated concerns about the economic recovery. Also, weak Chinese PMI data and Argentina’s rapid Peso devaluation triggered an emerging markets sell-off which became a global equity market retracement. Profits were posted to the Fund in the middle of the quarter due to the Fund’s net long exposure to stock indices. Losses were posted to the Fund at the end of the quarter. The tension in Ukraine also drove risk aversion in financial markets, and this initially combined with weak economic data from China to depress stock markets. However, as concerns about Ukraine later eased and rumors emerged of a Chinese stimulus package, stock markets partially recovered and the sector finished March close to flat.

 

The metals sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the first quarter. The emerging markets concerns weighed on industrial metals prices, hurting the Fund’s long positions in all markets except aluminum. Losses were posted to the Fund in the middle of the quarter due to the Trading Program’s short exposures to precious metals. Losses were posted to the Fund at the end of the quarter as the Fund’s long zinc positions struggled amid concerns about industrial activity in China.

 

The interest rate sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the first quarter. Performance in fixed income markets was a function of the Fund’s mixed positioning.  Generally falling yields meant profits from long positions in Japanese and Euro zone bonds, but losses from the predominantly short positions elsewhere, most notably in UK Gilts following low inflation figures and in Canada following dovish comments from the Bank of Canada. Profits were posted to the Fund in the middle of the quarter. The Fund also made gains in fixed income as investors generally sought the safety of bonds towards the end of February. Slowing inflation numbers in the Euro zone further provided support to bond prices, particularly in Italy. Profits were posted to the Fund at the end of the quarter as the Ukrainian uncertainty drove increased demand for European bonds, benefiting the Fund’s long positions.

 

April 1, 2014 to June 30, 2014

 

The Fund experienced a net trading profit of $8,221,766 before brokerage commissions and related fees in the second quarter of 2014. The Fund’s profits were primarily attributable to the interest rates, stock indices, agriculture, currency and energy sectors posting profits. The metals sector posted losses.

 

The interest rate sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the second quarter due to long exposures in European, North American and Japanese bonds, which dominated the gains. Profits were posted to the Fund in the middle of the quarter due to long positions in European bonds and other regions. Profits were posted to the Fund at the end of the quarter in connection with the European Central Bank’s decision to set deposit rates to negative, in an effort to boost lending in the region. This allowed the European bonds and global equities to rally.

 

21



 

The stock indices sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the second quarter. Profits were posted to the Fund in the middle of the quarter. Towards the end of May, stock indices rallied as positive economic data in the United States helped improve investor sentiment and market uncertainty declined, helping the Fund’s predominantly long positions. Profits were posted to the Fund at the end of the quarter due to the Fund’s exposure in equity markets which were further boosted by favorable U.S. labor, housing and inflation data.

 

The agriculture sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the second quarter. In April, the soy complex continued to make gains as the effects of poor North American and South American harvests drove prices higher. Profits were posted to the Fund in the middle of the quarter. In May, performance in agricultural markets was mixed as shorts in wheat and soybean oil profited, but cotton and lean hogs prices saw pullbacks. Profits were posted to the Fund at the end of the quarter due to gains from the Fund’s shorts in wheat amid easing concerns over global supplies. The Fund’s long exposure to live cattle also made gains as tight supplies in that market drove prices higher.

 

The currency sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the second quarter due to the long Sterling position. Despite the Fund also making gains from capturing strengthening emerging market currencies such as the Korean won and Brazilian real, reversals in the Japanese yen, Canadian and New Zealand dollars reduced the sector’s profits. Losses were posted to the Fund in the middle of the quarter. In May, currencies delivered mixed results: rallies in Sterling and the New Zealand dollar lost momentum, but there were profits from longs in the Norwegian krone and also in the Indian rupee following the election of a new government. Profits were posted to the Fund at the end of the quarter as the New Zealand dollar resumed its rally following a hawkish Reserve Bank of New Zealand statement.

 

The energy sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the second quarter. In April, bullish U.S. natural gas inventory data rewarded the long positioning. Losses were posted to the Fund in the middle of the quarter. In May, natural gas was the source of losses in energies as stock levels in North America and the weather outlook started to improve. Profits were posted to the Fund at the end of the quarter in connection with the escalating violence in Iraq which boosted the price of crude oil.

 

The metals sector posted losses to the Fund. Profits were posted to the Fund at the beginning of the second quarter as long exposures to nickel made gains as the combination of an Indonesian ore export ban and sanctions on large Russian ore producers drove the price higher. Losses were posted to the Fund in the middle of the quarter due to the Fund’s short copper positions as Chinese economic reforms improved demand forecasts. Losses were posted to the Fund at the end of the quarter due to the Fund’s short positions in gold and silver resulting in metals being the worst performing sector in June.

 

July 1, 2014 to September 30, 2014

 

The Fund experienced a net trading profit of $8,714,248 before brokerage commissions and related fees in the third quarter of 2014. The Fund’s profits were primarily attributable to the agriculture, interest rates and energy sectors posting profits. The metals, currency and stock indices sectors posted losses.

 

The agriculture sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the third quarter. Agricultural markets proved profitable in July as bearish price action in grains, sugar and cotton rewarded the Trading Program’s short positions. Profits were posted to the Fund in the middle of the quarter. Profits were posted to the Fund at the end of the quarter because of the Trading Program’s short positions in wheat and sugar. Wheat prices declined over September, driven by signs of increasing supply in particular from the Black Sea region as tensions eased between Ukraine and Russia. Sugar prices also continued their bearish trend to the benefit of the Trading Program.

 

22



 

The interest rate sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the third quarter due to long exposures to fixed income markets. Profits were posted to the Fund in the middle of the quarter. Long fixed income exposures were strong performers in August. Early in August, an escalation of geopolitical tensions saw equity markets turn fragile and nervous investors sought the safety of fixed income markets. Losses were posted to the Fund at the end of the quarter due to the fall in bond prices reducing the Trading Program’s positive performance.

 

The energy sector posted profits to the Fund.  Losses were posted to the Fund at the beginning of the third quarter. The energy sector proved difficult to trade in July. Both crude oil and distillates turned bearish against the Trading Program’s reducing longs as the world’s biggest consumer of oil, the United States, reported both rising inventories and signs of weaker fuel demand. Losses were posted to the Fund in the middle of the quarter due to the short exposure in natural gas. Natural gas futures advanced as a burst of late-summer heat slowed stockpiling of the power-plant fuel. Profits were posted to the Fund at the end of the quarter due to the Trading Program’s short position in the energy market, which provided the bulk of the profits due to the downward trend of the energy market.

 

The metals sector posted losses to the Fund. Profits were posted to the Fund at the beginning of the third quarter. In metals, dwindling warehouse supplies of zinc saw the Trading Program make gains from an established long exposure. Profits were posted to the Fund in the middle of the quarter and losses were posted to the Fund at the end of the quarter.

 

The currency sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the third quarter. The Trading Program’s net short U.S. dollar exposure dominated the losses, in particular against the New Zealand dollar where the Reserve Bank of New Zealand used rhetoric to talk down the strength of the local currency. Profits were posted to the Fund in the middle of the quarter. The weaker Euro was a profitable theme for the Fund. The two best performing currency pairs in August were the Trading Program’s short Euro exposures against the Norwegian krone and the U.S. dollar.  Profits were posted to the Fund at the end of the quarter due to the Trading Program’s long U.S. dollar and short Euro positions.

 

The stock indices sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the third quarter due to reversal in equity markets. Despite a background of escalating geopolitical tensions, global equity markets traded higher for most of July. However, during the last few days of July, robust economic data from the United States was interpreted as an indication that the Fed may have to raise interest rates sooner than otherwise expected. As a result, equity markets sold off.  European and U.S. stock indices made the majority of the losses.  Profits were posted to the Fund in the middle of the quarter. The top performing markets were the long exposures to U.S. indices. Some of the core European and Asian indices were small detractors, but did not prevent the sector registering a profit. Losses were posted to the Fund at the end of the quarter due to weak European economic data and Chinese slowdown concerns which negatively affected the stock index prices.

 

January 1, 2013 to September 30, 2013

 

January 1, 2013 to March 31, 2013

 

The Fund experienced a net trading profit of $6,783,336 before brokerage commissions and related fees in the first quarter of 2013. The Fund’s profits were primarily attributable to stock indices, agriculture and the currencies sectors posting profits. The metals, energy and interest rate sectors posted losses.

 

The stock indices sector posted profits to the Fund.  Profits were posted to the Fund at the beginning of the quarter due to the Trading Program’s long exposures in stock indices. Losses were posted to the Fund in the middle of the quarter. The Trading Program’s uniformly long exposures to stock indices made gains on North American and Japanese indices, but these were not enough to offset losses from Southern European and

 

23



 

Chinese indices. Profits were posted to the Fund at the end of the quarter as the dominant news item during the second half of March was the banking crisis in Cyprus, causing the Fund to give back some of its earlier gains from stock indices. By the end March, the reopening of banks in Cyprus reassured markets and stock indices ended the month as the top sector. Following the Japanese government’s upgrade to its economic assessment, and the confirmation of Haruhiko Kuroda as the new governor of the Bank of Japan, Japanese stock indices in particular made strong gains.

 

The agriculture sector posted profits to the Fund.  Losses were posted to the Fund at the beginning of the quarter only to be reversed in the middle of the quarter. Snowstorms provided relief to drought stricken U.S. wheat and bumper crops caused coffee and sugar to also trade lower, making the predominantly short agriculturals sector the top performer in February. Profits continued to be posted to the Fund at the end of the quarter due to the Trading Programs short positions in agriculture.

 

The currency sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the quarter. The Trading Program made gains from its short exposure to the Japanese yen and long exposure to the Euro. Losses were posted to the Fund in the middle of the quarter. The Trading Program’s net short exposure to the U.S. dollar, in particular against the euro, dominated the losses in the currencies sector. Profits were posted to the Fund at the end of the quarter due to the Trading Program’s long exposure to the Mexican peso which made profits amid a strong outlook for the Mexican economy.

 

The metals sector posted losses to the Fund. Profits were posted to the Fund at the beginning of the quarter due to the Trading Program’s long exposures in certain base metals. Losses were posted to the Fund in the middle of the quarter. The Trading Program’s net long exposures to industrial metals dominated the losses in the metals sector. Profits were posted to the Fund at the end of the quarter attributable to the Trading Program’s short positions in industrial metals.

 

The energy sector posted losses to the Fund. Profits were posted to the Fund at the beginning of the quarter as reformulated gasoline rallied strongly as the risk appetite was partnered with reducing inventories. Losses were posted to the Fund in the middle of the quarter. The increased production of crude oil in the United States resulted in the Trading Program’s long exposures to the energy sector incurring the worst losses in February. Profits were posted to the Fund at the end of the quarter. The energies sector performed negatively as prices of oil products fell following a combination of weak Chinese industrial production data and strong inventories in March.

 

The interest rate sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the quarter. The Trading Program incurred losses from its net long bond exposures. German bonds dominated the losses as European sentiment continued to strengthen. Profits were posted to the Fund in the middle of the quarter due to the Trading Program’s long exposures in Japanese and German bonds. Profits were posted to the Fund at the end of the quarter. The Trading Program’s long positions in bonds were profitable as Eurozone uncertainty boosted safe haven demand.

 

April 1, 2013 to June 30, 2013

 

The Fund experienced a net trading loss of $4,992,020 before brokerage commissions and related fees in the second quarter of 2013. The Fund’s profits were primarily attributable to the metals and agriculture sectors posting profits. The stock indices, currency, energy and interest rate sectors posted losses.

 

The metals sector posted profits to the Fund. Profits were posted to the Fund at the beginning of the quarter. The Trading Program’s established short positions in precious metals dominated performance when prices collapsed in the middle of the April as the price of gold saw a large drop as fears emerged that Cyprus and other crisis-hit countries may be forced to sell their gold reserves. Profits were posted to the Fund in the middle of the quarter. Short positions in gold and silver were profitable in May, as prices fell largely in

 

24



 

response to the U.S. dollar’s strength. Profits continued to be posted the Fund at the end of the quarter. The Trading Program’s established short positions across both precious and industrial metals contributed strongly in June as prices continued to fall, with gold at one point trading below U.S. dollar.

 

The agriculture sector posted profits to the Fund. Losses were posted to the Fund at the beginning of the quarter due to the Trading Program’s short positions in wheat and other grains markets. Profits were posted to the Fund in the middle of the quarter due to the Trading Program’s short sugar position as forecasts of large crop yields pushed prices lower. Profits were posted to the Fund at the end of the quarter. Agricultural markets were profitable in June capturing continued trends on the short side in grains such as wheat and corn and in coffee.

 

The stock indices posted losses to the Fund. Profits were posted to the Fund at the beginning of the quarter. A reduction in inflation concerns following April’s Federal Open Market Committee minutes which showed a possible early end to QE helped foster a generally positive economic outlook which, combined with some strong corporate earnings results, propelled stock markets higher. This benefited the Trading Program’s long positions where Japanese indices led performance. Profits were posted to the Fund in the middle of the quarter due to the Trading Program’s long positions in stock indices, which rose at the beginning of May following central bank actions and announcements. Losses were posted to the Fund at the end of the quarter as gains from newly opened short exposures to some emerging markets were not enough to offset the losses incurred from reducing longs in the rest of the sector.

 

The currency sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the quarter as the short Japanese yen and long New Zealand dollar positions continued to generate profits which was not enough to offset losses in the Swedish krona. The high unemployment and dovish interest rate forecasts in Sweden led to a reversal in the Swedish krona’s recent strength. Losses were posted to the Fund in the middle of the quarter as the New Zealand and Australian dollars fell against the U.S. dollar, causing losses for the Trading Program after it was revealed that the Reserve Bank of New Zealand had taken steps to curb currency strength, and the Reserve Bank of Australia cut interest rates. Losses were posted to the Fund at the end of the quarter due to a reversal in the recent U.S. dollar weakness which led to losses against the Japanese yen and British sterling.

 

The energy sector posted losses to the Fund.  Loses were posted to the Fund at the beginning of the quarter. Profits from the Trading Program’s long natural gas positions were not enough to offset losses from declining oil prices. Losses were posted to the Fund in the middle of the quarter from the long natural gas position as higher than expected inventories in the U.S. which triggered a sell-off. Losses were posted to the Fund at the end of the quarter as oil markets stayed range-bound.

 

The interest rate posted losses to the Fund. Profits were posted to the Fund at the beginning of the quarter from the Trading Program’s long positions where Japanese indices led performance.  Government bond positions in Japan suffered, as a sharp single-day correction caused some of the recent profits to be given back.  However, the long positions in the remainder of the bonds sector were more successful, led by European markets - where speculation of an European Central Bank rate cut pushed German yields down. Profits were posted to the Fund in the middle of the quarter. Stronger global economic data also helped bolster risk appetite, causing bond markets to sell off against the Trading Program’s long positions. The second half of May was dominated by uncertainty over the future of the U.S. Federal Reserve’s asset purchase program, causing the Trading Program to give back some of its gains from stock indices and accelerating the sell-off in government bonds. Losses were posted to the Fund at the end of the quarter due to the Trading Program’s long bond and rates exposures, particularly in Australia.

 

25



 

July 1, 2013 to September 30, 2013

 

The Fund experienced a net trading loss of $ 15,165,717 before brokerage commissions and related fees in the third quarter of 2013. The Fund’s profits were primarily attributable to the stock indices sector posting profits. The agriculture, currency, energy, interest rates and metals sectors posted losses.

 

The stock indices posted profits to the Fund. Profits were posted to the Fund at the beginning of the quarter. The early market driver in July was the release of stronger non-farm payrolls figures in the United States. This boosted stocks as the Trading Program was well positioned to take advantage of these moves. Losses were posted to the Fund in the middle of the quarter. The general market mood reversed sharply towards the end of August as the U.S. considered military action against Syria. Against this backdrop, stock markets sold off. Profits were posted to the Fund at the end of the quarter. Initially, the Trading Program made gains from its long positions in stock indices. The end of September was marked by a deadlock in U.S. Congress surrounding the fiscal budget, while uncertainty surrounding the German and Italian governments added to nervousness. The Trading Program gave back some of its earlier gains from stock indices but not enough to offset profits posted to the Fund.

 

The agriculture sector posted losses to the Fund. Losses were posted to the Fund at the beginning through the middle of the quarter. Losses were posted to the Fund at the end of the quarter as the Trading Program’s short positions suffered in September as prices of sugar and wheat rose on signs of stronger demand.

 

The currency sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the quarter. The early market driver in July was the release of stronger non-farm payrolls figures in the United States. This boosted the U.S. dollar and the Trading Program was well positioned to take advantage of these moves. However, the market mood changed course mid July as Chairman of the U.S. Federal Reserve, Ben Bernanke sought to clarify his June comments on the end of Quantitative Easing.  Pointing to low inflation and below-target employment. Chairman Ben Bernanke’s dovish reassurances in July pushed back market expectations on tapering resulting in the U.S. dollar retreat. Losses were posted to the Fund in the middle of the quarter. In the United Kingdom, growth data mid August helped drive the prices of UK Gilts lower, to the benefit of the Trading Program’s short exposure. However, the Trading Program’s net short exposure to Sterling suffered and dominated losses in currencies. Losses were posted to the Fund at the end of the quarter. Returns from currencies were muted overall, although the Trading Program’s long exposure to the New Zealand dollar profited after the central bank signaled that rates may rise.

 

The energy sector posted losses to the Fund.  Loses were posted to the Fund at the beginning of the quarter. Profits from the Trading Program’s long natural gas positions were not enough to offset losses from declining oil prices. Profits were posted to the Fund in the middle of the quarter as the potential for U.S. military action in Syria pushed oil prices higher, benefiting the Trading Program’s long positions, as fears of supply disruptions mounted. Losses were posted to the Fund at the end of the quarter as the Trading Program’s long oil positions were adversely impacted by the easing of geopolitical concerns over Syria.

 

The interest rate posted losses to the Fund. Losses were posted to the Fund at the beginning of the quarter due to the Trading Program’s short fixed income positions, with UK positions further affected by lower than expected inflation data. Profits were posted to Fund in the middle of the quarter as the Trading Program’s long positions in Japanese government bonds generated gains. In the UK, better than expected growth data mid August helped drive the prices of UK Gilts lower, to the benefit of the Trading Program’s short exposure. Losses were posted to the Fund at the end of the quarter as speculation around impending policy announcements in the U.S. and elsewhere, with market participants focused on the timing of the U.S. Federal Reserve’s “tapering” and other interest rate moves, drove fixed income markets. Initially, the Trading Program made gains from its long positions in short exposures to fixed income as yields rose. However, the gains from fixed income were later eroded as bonds reversed course following the U.S. Federal Reserve’s decision not to begin withdrawing stimulus.

 

26



 

The metals sector posted losses to the Fund. Losses were posted to the Fund at the beginning of the quarter. Metals continued to rise in July as gold was particularly strong in response to the weakening U.S. dollar, making the Trading Program’s short position the worst performer for July. Losses were posted to the Fund in the middle of the quarter. The metals sector was the worst performer in August, with losses incurred from the Trading Program’s short positions in both industrial and precious metals. Losses were posted to the Fund at the end of the quarter. The Trading Program’s short positions suffered as prices of industrial metals rose on signs of stronger demand.

 

(The Fund has no applicable off-balance sheet arrangements or tabular disclosure of contractual obligations of the type described in Items 303(a)(4) and 303(a)(5) of Regulation S-K.)

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

 

Introduction

 

The Fund is a speculative commodity pool. The market sensitive instruments held by it are acquired for speculative trading purposes and all or substantially all of the Fund’s assets are subject to the risk of trading loss.  Unlike an operating company, the risk of market sensitive instruments is integral, not incidental, to the Fund’s main line of business.

 

Market movements result in frequent changes in the fair market value of the Fund’s open positions and, consequently, in its earnings and cash flow. The Fund’s market risk is influenced by a wide variety of factors, including the level and volatility of interest rates, exchange rates, equity price levels, the market value of financial instruments and contracts, the diversification effects among the Fund’s open positions and the liquidity of the markets in which it trades.

 

The Fund, under the direction of the Trading Advisor, rapidly acquires and liquidates both long and short positions in a wide range of different markets.  Consequently, it is not possible to predict how a particular future market scenario will affect performance, and the Fund’s past performance is not necessarily indicative of its future results.

 

Value at Risk 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 statements” within the meaning of the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933 (“Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (“Securities Exchange Act”)).  All quantitative disclosures in this section are deemed to be forward-looking statements for purposes of the safe harbor, except for statements of historical fact.

 

27



 

The Fund’s risk exposure in the various market sectors traded by the Fund is quantified below in terms of Value at Risk.  Due to the Fund’s fair value accounting, any loss in the fair value of the Fund’s open positions is directly reflected in the Fund’s earnings (realized or unrealized) and cash flow (in the case of exchange-traded contracts in which profits and losses on open positions are settled daily through variation margin).

 

Exchange maintenance margin requirements have been used by the Fund as the measure of its 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 nine month periods ended September 30, 2014 and 2013, the Fund’s average Month-end Net Asset Value was approximately $138,909,572 and $246,807,600, respectively.

 

September 30, 2014

 

 

 

Average Value

 

% of Average

 

Highest Value

 

Lowest Value

 

Market Sector

 

at Risk

 

Capitalization

 

at Risk

 

at Risk

 

 

 

 

 

 

 

 

 

 

 

Agriculture

 

$

3,192,678

 

2.30

%

$

5,655,373

 

$

425,869

 

Currencies

 

1,227,167

 

0.88

%

2,114,425

 

247,234

 

Energy

 

1,457,254

 

1.05

%

2,581,622

 

363,030

 

Interest Rates

 

4,087,570

 

2.94

%

7,053,579

 

1,872,335

 

Metals

 

1,202,025

 

0.87

%

1,796,120

 

434,738

 

Stock Indices

 

2,955,839

 

2.13

%

5,118,661

 

1,361,755

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

14,122,533

 

10.17

%

$

24,319,780

 

$

4,704,961

 

 

28



 

September 30, 2013

 

 

 

Average Value

 

% of Average

 

Highest Value

 

Lowest Value

 

Market Sector

 

at Risk

 

Capitalization

 

at Risk

 

at Risk

 

 

 

 

 

 

 

 

 

 

 

Agriculture

 

$

2,291,813

 

0.93

%

$

5,938,317

 

$

459,322

 

Currencies

 

4,404,273

 

1.78

%

7,975,498

 

667,733

 

Energy

 

1,853,272

 

0.75

%

3,228,528

 

1,043,898

 

Interest Rates

 

5,212,903

 

2.11

%

9,034,889

 

1,642,078

 

Metals

 

7,819,096

 

3.17

%

11,382,356

 

4,308,491

 

Stock Indices

 

1,544,636

 

0.63

%

3,432,477

 

28,451

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

23,125,993

 

9.37

%

$

40,992,065

 

$

8,149,973

 

 

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 and MLI.

 

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

 

The Fund also has non-trading market risk on approximately 90% of its assets which are held in cash at MLPF&S. The value of this cash is not interest rate sensitive, but there is cash flow risk in that if interest rates decline so will the cash flow generated on these monies.

 

Qualitative Disclosures Regarding Primary Trading Risk Exposures

 

The following qualitative disclosures regarding the Fund’s market risk exposures — except for (i) those disclosures that are statements of historical fact and (ii) the descriptions of how the Fund manages its primary market risk exposures — constitute forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. The Fund’s primary market risk exposures as well as the strategies used and to be used by MLAI and the Trading Advisor for managing such exposures are subject to numerous uncertainties, contingencies and risks, any one of which could cause the actual results of the Fund’s risk controls to differ materially from the objectives of such strategies. Government interventions, defaults and expropriations, illiquid markets, the emergence of dominant fundamental factors, political upheavals, changes in historical price relationships, an influx of new market participants, increased regulation and many other factors could result in material losses as well as in material changes to the risk exposures and the risk management strategies of the Fund. There can be no assurance that the Fund’s current market exposure and/or risk management strategies will not change materially or that any such strategies will be effective in either the short- or long-term. Investors must be prepared to lose all or substantially all of the value of their investment in the Fund.

 

29



 

The following are the primary trading risk exposures of the Fund by market sector.

 

Interest Rates

 

Interest rate movements directly affect the price of derivative sovereign bond futures 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 can materially impact the Fund’s profitability. The Fund’s primary interest rate exposure is to interest rate fluctuations in the United States and the other G-7 countries.  However, the Fund may also take futures positions in the government debt of smaller nations e.g., Australia. MLAI anticipates that G-7 interest rates will remain the primary market exposure of the Fund for the foreseeable future.

 

Currencies

 

The Fund trades in a number of currencies. However, the Fund’s major exposures have typically been in the U.S. dollar/Japanese yen, U.S. dollar/Euro and U.S. dollar/Swiss franc positions.  The Fund does not anticipate that the risk profile of the Fund’s currency sector will change significantly in the future. The currency trading 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 to S&P 500, Nikkei and German DAX equity index price movements. The Fund is primarily exposed to the risk of adverse price trends or static markets in the major U.S., European and Asian indices.

 

Metals

 

The Fund’s metals market exposure is to fluctuations in the price of precious and non-precious metals.

 

Agricultural Commodities

 

The Fund’s primary agricultural commodities exposure is to agricultural price movements which are often directly affected by severe or unexpected weather conditions. Grains, cocoa and livestock accounted for the majority of the Fund’s agricultural commodities exposure.

 

Energy

 

The Fund’s primary energy market exposure is to natural gas and crude oil price movements, which are 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 are the primary non-trading risk exposures of the Fund.

 

Foreign Currency Balances

 

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

 

30



 

U.S. Dollar Cash Balance

 

The Fund holds the vast majority of its U.S. dollars in cash at MLPF&S and MLI. The Fund has immaterial cash flow interest rate risk on its cash on deposit with MLPF&S in that declining interest rates would cause the income from such cash to decline.

 

Qualitative Disclosures Regarding Means of Managing Risk Exposure

 

Trading Risk

 

MLAI has procedures in place intended to control market risk, although there can be no assurance that they will, in fact, succeed in doing so. While MLAI does not intervene in the markets to hedge or diversify the Fund’s market exposure, MLAI may urge the Trading Advisor to reallocate positions in an attempt to avoid over-concentrations.  However, such interventions are unusual except in cases in which it appears that the Trading Advisor has begun to deviate from past practice and trading policies or to be trading erratically. MLAI’s basic control procedures consist of the ongoing process of monitoring the Trading Advisor with the market risk controls being applied by the Trading Advisor itself.

 

Risk Management

 

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

 

Non-Trading Risk

 

The Fund controls the non-trading exchange rate risk by regularly converting foreign balances back into U.S. dollars at least once per week, and more frequently if a particular foreign currency balance becomes unusually high.

 

The Fund has cash flow interest rate risk on its cash on deposit with MLPF&S in that declining interest rates would cause the income from such cash to decline. However, a certain amount of cash or cash equivalents must be held by the Fund in order to facilitate margin payments and pay expenses and redemptions. MLAI does not take any steps to limit the cash flow risk on its cash held on deposit at MLPF&S.

 

31



 

Item 4. Controls and Procedures

 

Disclosure Controls and Procedures

 

MLAI’s Chief Executive Officer and Chief Financial Officer, on behalf of the Fund, have evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Securities Exchange Act) with respect to the Fund as of and for the quarter which ended September 30, 2014, and, based on their evaluation, have concluded that these disclosure controls and procedures are effective.

 

Changes in Internal Control over Financial Reporting

 

No change in internal control over financial reporting (as defined in Rule 13a-15(f) or Rule 15d-15(f) under the Securities Exchange Act) occurred during the quarter ended September 30, 2014 that has materially affected, or is reasonably likely to materially affect, the Fund’s internal control over financial reporting.

 

PART II - OTHER INFORMATION

 

Item 1.                               Legal Proceedings

 

None.

 

Item 1A.   Risk Factors

 

There are no material changes from risk factors as previously disclosed in the Fund’s report on Form 10-K for the year ended December 31, 2013, filed with the Securities and Exchange Commission on March 25, 2014.

 

 Item 2.      Unregistered Sales of Equity Securities and Use of Proceeds

 

(a)  Units are privately offered and sold to “accredited investors” (as defined in Rule 501(a) under the Securities Act) in reliance on the exemption from registration provided by Section 4(2) of the Securities Act and Rule 506 thereunder.  The selling agent of the Units was MLPF&S.

 

CLASS A

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

1/01/2014

 

$

 

 

$

1.3517

 

1/16/2014

 

 

 

1.3211

 

2/01/2014

 

24,600

 

19,195

 

1.2721

 

2/16/2014

 

14,850

 

11,593

 

1.2714

 

3/01/2014

 

 

 

1.2908

 

3/16/2014

 

9,850

 

7,747

 

1.2608

 

4/01/2014

 

11,760

 

9,194

 

1.2686

 

4/16/2014

 

9,800

 

7,631

 

1.2736

 

5/01/2014

 

 

 

1.2883

 

5/16/2014

 

 

 

1.2917

 

6/01/2014

 

 

 

1.3128

 

6/16/2014

 

34,650

 

26,033

 

1.3193

 

7/01/2014

 

 

 

1.3311

 

7/16/2014

 

 

 

1.3378

 

8/01/2014

 

 

 

1.3252

 

8/16/2014

 

7,571

 

5,491

 

1.3665

 

9/01/2014

 

 

 

1.3934

 

9/16/2014

 

 

 

1.3470

 

10/01/2014

 

 

 

1.4078

 

 

CLASS C

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

1/01/2014

 

$

335,198

 

267,923

 

$

1.2426

 

1/16/2014

 

85,000

 

69,524

 

1.2140

 

2/01/2014

 

328,000

 

278,627

 

1.1684

 

2/16/2014

 

94,000

 

79,918

 

1.1673

 

3/01/2014

 

129,000

 

108,022

 

1.1849

 

3/16/2014

 

438,000

 

375,547

 

1.1568

 

4/01/2014

 

74,000

 

63,086

 

1.1633

 

4/16/2014

 

378,000

 

321,128

 

1.1673

 

5/01/2014

 

40,644

 

34,146

 

1.1804

 

5/16/2014

 

29,000

 

24,308

 

1.1827

 

6/01/2014

 

9,485

 

7,824

 

1.2015

 

6/16/2014

 

65,000

 

53,367

 

1.2071

 

7/01/2014

 

262,768

 

213,911

 

1.2175

 

7/16/2014

 

134,000

 

108,572

 

1.2232

 

8/01/2014

 

480,000

 

392,670

 

1.2113

 

8/16/2014

 

89,000

 

70,652

 

1.2486

 

9/01/2014

 

76,635

 

59,698

 

1.2725

 

9/16/2014

 

210,000

 

169,232

 

1.2296

 

10/01/2014

 

140,554

 

108,452

 

1.2845

 

 

 

32



 

CLASS D

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

1/01/2014

 

$

 

 

$

1.5681

 

1/16/2014

 

 

 

1.5338

 

2/01/2014

 

 

 

1.4779

 

2/16/2014

 

 

 

1.4783

 

3/01/2014

 

 

 

1.5027

 

3/16/2014

 

 

 

1.4689

 

4/01/2014

 

 

 

1.4773

 

4/16/2014

 

 

 

1.4842

 

5/01/2014

 

 

 

1.5025

 

5/16/2014

 

 

 

1.5075

 

6/01/2014

 

 

 

1.5335

 

6/16/2014

 

 

 

1.5426

 

7/01/2014

 

 

 

1.5556

 

7/16/2014

 

 

 

1.5646

 

8/01/2014

 

 

 

1.5511

 

8/16/2014

 

 

 

1.6005

 

9/01/2014

 

 

 

1.6331

 

9/16/2014

 

 

 

1.5798

 

10/01/2014

 

 

 

1.6514

 

 

CLASS I

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

1/01/2014

 

$

 

 

$

1.3987

 

1/16/2014

 

 

 

1.3672

 

2/01/2014

 

 

 

1.3167

 

2/16/2014

 

 

 

1.3163

 

3/01/2014

 

 

 

1.3360

 

3/16/2014

 

 

 

1.3053

 

4/01/2014

 

 

 

1.3134

 

4/16/2014

 

 

 

1.3189

 

5/01/2014

 

 

 

1.3346

 

5/16/2014

 

 

 

1.3377

 

6/01/2014

 

 

 

1.3591

 

6/16/2014

 

 

 

1.3508

 

7/01/2014

 

 

 

1.3800

 

7/16/2014

 

 

 

1.3873

 

8/01/2014

 

 

 

1.3745

 

8/16/2014

 

 

 

1.4176

 

9/01/2014

 

 

 

1.4458

 

9/16/2014

 

 

 

1.3980

 

10/01/2014

 

 

 

1.4611

 

 

CLASS DS

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

1/01/2014

 

$

 

 

$

1.5609

 

1/16/2014

 

 

 

1.5266

 

2/01/2014

 

 

 

1.4709

 

2/16/2014

 

 

 

1.4710

 

3/01/2014

 

 

 

1.4952

 

3/16/2014

 

 

 

1.4613

 

4/01/2014

 

1,717,495

 

1,158,278

 

1.4710

 

4/16/2014

 

 

 

1.4777

 

5/01/2014

 

 

 

1.4957

 

5/16/2014

 

 

 

1.4998

 

6/01/2014

 

89,767

 

58,336

 

1.5258

 

6/16/2014

 

 

 

1.5345

 

7/01/2014

 

 

 

1.5486

 

7/16/2014

 

 

 

1.5573

 

8/01/2014

 

 

 

1.5435

 

8/16/2014

 

 

 

1.5924

 

9/01/2014

 

23,580

 

14,380

 

1.6248

 

9/16/2014

 

442,903

 

279,117

 

1.5718

 

10/01/2014

 

 

 

1.6439

 

 

CLASS DT

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

1/01/2014

 

$

 

 

$

1.6420

 

1/16/2014

 

 

 

1.6064

 

2/01/2014

 

 

 

1.5481

 

2/16/2014

 

 

 

1.5488

 

3/01/2014

 

 

 

1.5744

 

3/16/2014

 

 

 

1.5393

 

4/01/2014

 

 

 

1.5495

 

4/16/2014

 

 

 

1.5570

 

5/01/2014

 

 

 

1.5762

 

5/16/2014

 

 

 

1.5817

 

6/01/2014

 

 

 

1.6091

 

6/16/2014

 

 

 

1.6189

 

7/01/2014

 

 

 

1.6335

 

7/16/2014

 

 

 

1.6433

 

8/01/2014

 

 

 

1.6287

 

8/16/2014

 

 

 

1.6810

 

9/01/2014

 

 

 

1.7152

 

9/16/2014

 

 

 

1.6596

 

10/01/2014

 

 

 

1.7366

 

 

 

33



 

CLASS M

 

 

 

Subscription

 

 

 

 

 

Amount

 

Units

 

NAV (1)

 

1/01/2014

 

$

33,000

 

39,053

 

$

0.8365

 

1/16/2014

 

 

 

0.8180

 

2/01/2014

 

 

 

0.7870

 

2/16/2014

 

 

 

0.7871

 

3/01/2014

 

3,118,868

 

3,850,455

 

0.7998

 

3/16/2014

 

 

 

0.7867

 

4/01/2014

 

329,000

 

412,695

 

0.7906

 

4/16/2014

 

 

 

0.7943

 

5/01/2014

 

57,666

 

71,131

 

0.8040

 

5/16/2014

 

 

 

0.8066

 

6/01/2014

 

 

 

0.8204

 

6/16/2014

 

 

 

0.8252

 

7/01/2014

 

 

 

0.8327

 

7/16/2014

 

 

 

0.8375

 

8/01/2014

 

25,000

 

29,840

 

0.8302

 

8/16/2014

 

24,000

 

27,771

 

0.8565

 

9/01/2014

 

 

 

0.8737

 

9/16/2014

 

 

 

0.8452

 

10/01/2014

 

 

 

0.8841

 

 


(1) Beginning of the period Net Asset Value

 

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

 

(b)       Not applicable.

(c)        Not applicable.

 

Item 3.                               Defaults Upon Senior Securities

 

None.

 

Item 4.                               Mine Safety Disclosures

 

Not applicable.

 

Item 5.                               Other Information

 

None.

 

Item 6.                               Exhibits

 

The following exhibits are filed herewith to this Quarterly Report on Form 10-Q:

 

31.01 and

31.02                                         Rule 13a-14(a)/15d-14(a) Certifications

 

Exhibit 31.01

and 31.02:   Are filed herewith.

 

32.01 and

 

34



 

32.02                                         Section 1350 Certifications

 

Exhibit 32.01

and 32.02   Are filed herewith.

 

Exhibit 101 Are filed herewith.

 

The following materials from the Fund’s quarterly Report on Form 10-Q for the three and nine month periods ended September 30, 2014 formatted in XBRL (Extensible Business Reporting Language): (i) Statements of Financial Condition (ii) Statements of Operations (iii) Statements of Changes in Members’ Capital (iv) Financial Data Highlights and (v) Notes to Financial Statements, tagged as blocks of text.

 

35



 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

 

ASPECT FUTURESACCESS LLC

 

 

 

 

 

 

 

By:

MERRILL LYNCH ALTERNATIVE

 

 

INVESTMENTS LLC

 

 

(Manager)

 

 

 

 

 

 

Date: November 14, 2014

By:

/s/ KEITH GLENFIELD

 

 

Keith Glenfield

 

 

Chief Executive Officer and President

 

 

(Principal Executive Officer)

 

 

 

 

 

 

Date: November 14, 2014

By:

/s/ BARBRA E. KOCSIS

 

 

Barbra E. Kocsis

 

 

Chief Financial Officer

 

 

(Principal Financial Officer)

 

36